Earnings Call: Q3 2016

Jun 30, 2016

Good afternoon. My name is Karen, and I'll be your conference facilitator today. At this time, I would like to welcome everyone to the Micron Technologies Third Quarter 2016 Financial Lease Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. It is now my pleasure to turn the floor over to your host, Ivan Donaldson. Sir, you may begin your conference. Thank you, Karen, and welcome to Micron Technologies' third quarter 2016 financial release conference call. On the call with me today are Mark Turkin, CEO and Director and Ernie Maddock, Chief Financial Officer. This conference call, including audio and slides, is also being webcast from our Investor Relations website at investors dotmicron.com. In addition, our website contains an earnings press release filed a short while ago and supplemental information including quarterly operational and financial metrics and guidance, GAAP to non GAAP reconciliations, slides used during today's conference call, and a convertible debt and CAPCall dilution table. Today's call will be approximately 60 minutes in length, a webcast A webcast replay will be available on our website for 1 year. We encourage you to monitor our website at micron.com throughout the quarter for the most current information on the company. Including information on the various financial conferences that we will be attending. You can also follow us on Twitter MicronTech. As a reminder, the matters we will be discussing today include forward looking statements based on the environment as we currently see it. These forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made today. We refer you to the documents the company files with the SEC, specifically our most recent Form 10 K and Form 10 Q for a complete discussion of these important risk factors and other risks that may affect our future results. Though we believe that the expectations reflected in the forward looking statements are reasonable, we cannot guarantee future results, low levels of activity, performance or achievements. We are under no duty update any of the forward looking statements after today's date to conform these statements to actual results. I'll now turn the call over to Mark. Thanks, Ivan. For fiscal Q3 2016, Micron posted total revenue of $2,900,000,000 with gross margin of 17% a non GAAP net loss of $79,000,000 and a non GAAP loss of $0.08 per share, all within our guided range. Operating cash flow was $389,000,000, Top line results were primarily impacted by continued weakness in the PC segment and the mobile qualifications we discussed last quarter. With recent data points indicating some improvement in channel pricing and expectation of finalizing our mobile qualifications, and continued progress on our technology and operational milestones, we remain confident about our opportunities. Today, I'd like to provide a brief overview of our progress in each of the businesses and Ernie will cover other business unit performance details. In our compute and networking business unit, we returned to revenue growth, despite pricing pressure in the client segment, This was driven by the ongoing ramp of our 20 nanometer products, which exceeded 25 nanometer shipments on a bit basis for the first time. We enjoyed continued 20 nanometer qualifications across all CMU market segments, led by our 8 gigabit CDR4 product and enterprise cloud and client. In May, NVIDIA launched the world's fastest consumer graphics card designed with Micron's GDPR5X We're excited about the prospects for this high performance memory product. In Enterprise and cloud, we saw initial customer announcements based on our NVDIM product offering, with high performance persistent memory. Turning to our mobile business unit. Our results continue to be impacted by the timing of product qualifications as we transition customers to 20 nanometer versions of LPDDR4. We have successfully concluded some of the delayed qualifications that we discussed last quarter we anticipate finalizing the remainder during fiscal Q4. We are ramping the output of these products throughout the quarter and into fiscal Q1 2017. We anticipate continued demand growth in mobile market in the fourth quarter in terms of both NAND and LPD RAM. In our embedded business unit, the Automotive segment delivered record revenue, driven by volume increases in DDR3 and increasing density mix in the eMMC. Density activity remains strong with recent qualifications of Automotive Consumer And Connected Home Applications. In the Consumer MCP business, we saw some recovery that we expect to continue into fiscal Q4 aligning with seasonal demand. And finally, our storage business unit is in the midst of refreshing its SSD portfolio with higher capacity 3 d NAND memory technology. We also introduced Micron Accelerated Solutions, which are enabled by our enterprise SSDs and advanced DRAM, integrating compute and storage to improve efficiency and performance in a variety of storage applications. And we announced our new 110 SATA client SSDs, leveraging triple level cell 3 d NAND for class leading performance and power efficiency. To summarize, our leading edge technology deployment continues to progress throughout manufacturing for both DRAM and NAND, and we are on track with our big growth and cost reduction targets. We believe the combination of new products with more efficient manufacturing on advanced nodes will drive improvement in our competitive position in the rest of 2016 and beyond. Turning to the memory industry more generally. We believe that the DRAM industry supply growth will be in the low to mid-twenty percent range in 2016, which is consistent with our prior commentary. If wafer output declines in the latter half of the year, as some parties forecast, we would expect to exit the year on a slower run rate, and 2017 bit supply growth could be in the mid to high teens. This compares to our long term bit demand forecast in the low to mid-twenty percent range. The significant improvements we're seeing in channel pricing are not currently impacting other segments. And as a result, we continue to take a conservative view of the market environment. For NAND, we estimated 2016 industry bid supply growth in the mid-thirty to low-forty percent range, with a similar range in 2017 as early three d conversions create some temporary supply constraints. Over the last several quarters, we've experienced strong demand coupled with aggressive pricing as suppliers have been driving to increase penetration rates and densities. Similar to similar to DRAM, The current channel pricing environment appears to be improving percent range as lower costs and high performance 3 d NAND solutions end of the market. From an operations perspective, Micron remains focused on acute on a few key priorities. For DRAM, we successfully achieved our targeted 20 nanometer crossover during fiscal Q3 and also enabled our 1x node in manufacturing. We expect to ramp 1x nanometer DRAM and volume starting in 2017. We are forecasting we are still forecasting Micron's fiscal year 2016 2017 DRAM bit growth in the 28% to 30% range, which is likely above the market. We achieved 22 percent bit growth in fiscal Q3 and expect even stronger bit growth in Q4. In light of current market conditions, we have no plans to add DRAM wafer capacity. As noted above, we are migrating to advanced technology nodes in order to achieve cost reductions and adjust higher density designs for mobile, the cloud and enterprise segments. For NAND, we continue to make great progress on our Gen 1, 3 d NAND and are reaching mature yields ahead of expectations. We still expect to achieve 3 d bit crossover by this fall which will allow us to take advantage of the cost benefits that this technology provides. Our 2nd generation three d product is also on track with initial production this quarter. Equally exciting is that we expect TLC to be the majority 3 d bit output within the next few quarters. In aggregate, we are forecasting Micron's fiscal year 2016 2017 NAND bit growth in the 30% to 40% range. We expect to be somewhat below the market in 2016 and somewhat above the market in 2017. TLC enabled NAND technology is a big step forward and a significant driver relative to the progress we expect to make in our NAND business. This technology progress must be complemented by enabling product solutions for key storage and mobile segments. We've outlined a storage product roadmap, which includes our recently announced client SSDs, followed by cloud drives later this year and enterprise solutions early next year. We're also evaluating a number of mobile product out opportunities for 3 d NAND in 2017. Relative to 3 d Crosspoint, we're working with market enablers, across a number of market segments and continue to believe this innovative technology will be a strong contributor to Micron's future success with revenue in 2017 and beyond. Micron has a committed focus on the deployment of advanced technology to drive manufacturing efficiency and enable innovative new products for our customers. While we haven't finalized our fiscal year 2017 business plan, we are approaching that plan with prudence and conservatism and carefully reviewing our capital investments and projected operating cash flows to ensure the appropriate balance. Now I'd like to turn it over to Ernie. Thanks, Mark. I'll start off by sharing technology and business unit details and circle back to the overall company results for the quarter followed by the guidance for the fiscal fourth quarter. DRAM represented 60% of our total revenue with the following segmentation. Mobile was in the mid-twenty percent range, The PC segment represented about 25%. The server business was in the low 20% range, and specialty DRAM, which includes networking, graphics, auto and other embedded technologies, was in the high 20% range. In our nonvolatile memory business, trade revenue represented 31% of total revenue with the following segmentation. Consumer, which includes memory cards, USB, and components, represented about 55%. Mobile and SSDs each rent represented approximately 13%. And as a reminder, EMCPs are accounted for in the mobile segment. The automotive, industrial, multi market and other embedded applications were in the high teens percent range. Moving on, I'll share unit posted fiscal Q3 revenue of $1,090,000,000, up 4% from the previous quarter primarily driven by our 20 nanometer shipment growth across all segments and partially offset by lower average selling prices. Our non GAAP operating loss was $63,000,000 or 6 percent of revenue. In the Enterprise segment, demand for our 20 nanometer, 32 gigabit DDR4 RDEM was driven by the launch of Intel's latest server platform. We also saw solid DR5 and GDDR5x products and are approaching a seasonally strong period for graphics applications, including virtual reality and expect good performance from this segment for the next quarter. In networking, our business was somewhat flat However, we made significant progress enabling our 20 nanometer products and also announced our E USB 3.0 solution. Finally, within the client segment, we continued enablement and volume ramp of our 20 nanometer 4 gigabit DDR3 and 8 gigabit DDR4 solution to all major OEMs. In Micron's mobile business unit, we post fiscal Q3 revenue of $561,000,000, up 12% from the prior quarter as we continue to ramp 20 nanometer LP DDR3 and LPDDR4. While the low density EMCP market is still under pressure, a move to higher density designs FQ4 and early FY 2017 should help stabilize and improve this segment. Our non GAAP operating loss was $17,000,000 or 3 percent of revenue. We have successfully concluded some of the delayed qualifications that we discussed last quarter and we anticipate finalizing the remainder during fiscal Q4. And into next year. Both LP DRAM and NAND content continue to increase in mobile devices, which when combined with even modest unit growth will result in very solid bid consumption. In our embedded business, we posted fiscal revenue of $487,000,000, up 6% from the previous quarter with a non GAAP operating income of $107,000,000 22% of revenue. The results were primarily driven by continued strength in the automotive and consumer segments, offset by softness in percent quarter over quarter and 10% year on year. We continue to see increasing demand in both DRAM and E MMC applications, that include infotainment, instrument cluster and advanced driver assist systems and continue to see strong demand from our EMEA customers which is more recently complemented by growth in Korea and demand recovery in North America. Our portfolio leading edge solution is enabling major 2018 platform automotive design wins. Our industrial multi market business declined 9% quarter over quarter, primarily due to global market softness in the Manufacturing Infrastructure segment. However, we continue to see healthy demand for our NORNAND based MCPs used in machine to machine wireless communication modules. Our consumer and connected home revenue was up 3 percent quarter over quarter with some softness in the set top box business offset by strong demand for NAND and LPDRAM MCPs to support action camera and home automation applications. As we enter into a seasonally strong period, we expect demand to continue to grow. Customers are also beginning design in and ramp our 20 nanometer DDR4 products into set TokBox Applications. Micron storage business unit posted fiscal Q3 revenue of $719,000,000, down 20% from the previous quarter with a non GAAP operating loss of $62,000,000 or 9% of revenue. As we transition to lower cost 3 d NAND products, we continue to optimize our product mix. In clients and consumer SSD, consecutive quarter bits sold were down 20% as we reduced production of planar NAND based SSDs, while ramping volume production of 3 d NAND based SATA and PCI clients and consumer SSDs. These new products will enable the company to enhance its competitive position. In the enterprise and data center SSD segments, consecutive quarter bits sold were down 10%. As we've previously noted, our 3 d NAND solutions will improve our product portfolio in this segment enabling us to participate more As Mark noted earlier, revenue for the 3rd quarter was $2,900,000,000, which was near the midpoint of our guided range, and roughly flat compared to the prior quarter. Fairly significant increases in volume shipments for DRAM were offset by decreases in selling prices while trade NAND shipments declined as we are in the middle of a significant conversion from Planer to 3 d NAND. Gross margin for the quarter was 17 percent or $0.08 per share, slightly better than the midpoint of our guided range. As a reminder, Micron includes both amortize of acquisition intangibles and represent $0.05 per share for the recently completed quarter. Now let's look at results by product line. DRAM revenue increased 9% compared to the 2nd quarter as a result of a 22% increase in bit shipments partially offset by lower selling prices. As the result of our 20 nanometer ramp and ongoing mobile qualification timeline, DRAM finished goods inventory increased during percent as decreases in ASPs outpaced significant cost reductions. Our nonvolatile trade revenue decreased 15% compared to the second quarter, reflecting a 10% decrease in bit shipments, combined with a 6% decrease in ASPs. Gross margin decreased a couple of percentage points to 17% as ASP reductions outpaced cost per bit reductions. Non GAAP operating expenses for due to the reversal of accrued costs for variable compensation plans, which were suspended in the third quarter. The company generated operating cash flow of $389,000,000 and we ended the quarter with cash and marketable investment of approximately $5,700,000,000. Expenditures for PP and E during the quarter were $1,700,000,000 and we continue to expect $5,500,000,000 net of partner contributions. During the quarter, we received approximately $2,000,000,000 from the issuance of secured notes and an additional $114,000,000 in equipment financing. Also, we resulted in a $52,000,000 benefit to the tax line. This benefit was offset by the write off that was reflected as non operating expense. In the third quarter, we also acquired Photronics interest in our captive mask operation for $93,000,000, resulting in 100 percent ownership of the mask operations. Moving on to our guidance for the fourth quarter, on a non GAAP basis, we expect the following: consolidated revenue in the range of $2,900,000,000 gross margin in the range of 15.5 percent to 18 percent, operating expenses between 580 $630,000,000 and operating loss ranging between $135,000,000 $55,000,000 and an EPS loss ranging between $0.24 $0.16 per share based on 1,036,000,000 diluted shares. Operationally, we are on track to achieve the bit growth and cost per bit reduction that we'd previously shared as we continue to ramp our 20 nanometer DRAM and 3 d NAND production. In recognition of the current business environment and the need to accelerate focus on the company's key priorities, We plan to implement a cost saving program, which we expect will save the company approximately $80,000,000 per quarter in fiscal 2017. The savings will result from a combination of our more focused set of projects and programs, the permanent closure of material number of open headcount requisition and a workforce reduction in certain areas of the business as well as other non headcount related spending reductions. About half of these savings will appear in the gross margin line of the company while the remainder will be reflected in operating expenses. These savings were baseline against our previously planned 2017 fiscal spends levels. We expect to take reserves approximating $70,000,000 for the cost of this program, the majority of which will occur in fiscal Q4 with the remainder in the early part of fiscal 2017. As we complete our fiscal 2017 planning process, We are mindful of the need to effectively balance period spending, CapEx and free cash flow and we continue to explore other opportunities improve the company's financial performance. Finally, at this time, we don't have any new information to share relative to Inotera. As we stated in our press release, the transaction will not be closing in mid July, and we expect to provide an update during the latter part of the calendar year. With that, I'll turn it back to Mark. Thank you Ernie. To summarize, we continue to navigate challenging market conditions but remain confident in the long term health of the industry and the company's strategy to improve our reduction initiatives is always difficult and has never made on our most important company priorities. We believe the steps Ernie outlined are prudent and will help deliver the best long term results for the company. I'd like to take a moment to thank our customers, partners, shareholders and team members for their continued support. Operator, we're now ready for Q and Thank Our first question comes from the line of Vijay Rakesh from Mizuho. Yes, hi guys. Just a couple of questions here on the DRAM side. Obviously, a good bit growth there. But how do you what's the mix of 20 nanometer that you're shipping now and how do you see that as you progress through the August quarter? Do you see further cost reductions there? Thanks. One follow-up. Yes. 20 nanometer is a majority of the bits that we are shipping now. And, when we talked in our prepared remarks about the strong, strong bit growth above Q3 levels. You saw what the relative growth was in Q3 and you consume assume that it'll be a little bit north of that as we look at fiscal Q4. Got it. And on the 3 d NAND side, on the NAND side, obviously, looks like a bit growth was a little light. Obviously, it looks like the transition. What's your mix of 3 NAND that you're shipping now? And when do you see the transition and the bit growth start to open up for you on the NAND side? Yes, it's a low double digits today. As we commented, as we get into the the back half of the calendar year, we expect to crossover. So that's coming, pretty soon. So it's a pretty significant ramp from here over the next couple of quarters. Got it. And obviously, you guys are giving a point estimate on the gross margin now, which is great. As you look at your mix with 20 nanometer costs coming down and 3 NAND P and C standard ship, any thoughts on where you see those a margin start to bottom out? Thanks. We typically don't comment on margins because of the function of a pricing environment that's moving around on us every day. And so really, what we have said is that the costs curves that we articulated in our Analyst Day are still legitimate. As you can imagine, when we do 3 d crossover in the end in the fall, That's when you'd expect to see the accelerated cost reductions begin to occur there. And on the DRAM side, with the kind of bit growth that we delivered in fiscal Q3 as well as what we're forecasting for fiscal Q4, you can get some idea of what the cost reductions would be there. Great. Thanks a lot. Thank you. And our next question comes from the line of John Pitzer from Credit Suisse. Yes, good afternoon guys. Thanks for letting me ask the question. Ernie, maybe just to follow on to that margin question. And I appreciate that margins are a function of pricing, which is hard to predict, but you've got a lot of elements moving in the right direction. Revenue is growing sequentially. Into the fiscal fourth quarter. You've got 20 nanometer mix. You've got more mobile NAND is starting to turn your way. And yet, you've got gross margins that are likely going to be down sequentially. Can you help me understand just kind of some of the factors around mix that are in play? And kind of a narrative that we were hoping for is that this quarter, the May quarter and the August quarter would start to show some tangible evidence of you kind of closing the relative cost gap to some of your peers. And just given the gross margin guidance, it looks like that's not happening. And I'm trying to figure out why. Maybe, John, maybe I can take that one instead of Ernie. Again, on the pricing environment, as you noted, We're seeing there's obviously encouraging things going on in the channel. Before we start baking that into any sort of guidance we would give, we wanna want to actually see that as it moves through other end market segments and out in the contract pricing, etcetera, etcetera. So So really this is a question about the tailwinds we have. And I think you did a nice job articulating for us. We've got, I think we've done a good job on 20 nanometer ramp and we'll continue to see some improvement for that as we move through the next quarter. We articulated pretty strong bit growth moving forward in both DRAM And in particular, maybe a couple of quarters out in NAND as we really see that transition kick in and the 3 d TLC part of that transition kick in. So we've got a lot of good tailwinds where we also articulated. We're making lot of good progress on qualifying and resegmenting those more advanced technology nodes in the right market segments. And, we do believe that you'll see, progress relative to our competition in terms of how our margins moved. We never know exactly what they're going to do and it's tough for us to predict what their results are going to look like given the pricing environment. That's helpful, Mark. I appreciate it. And then Ernie, maybe as my follow on, just on the OpEx guidance for the fiscal fourth quarter, a little bit higher than we thought. Help us understand there some period expenses that are coming in? And then as you talk about the restructuring and the cost savings, given that you kind of have that cost gap and you had a lot of initiatives on your plate for investing. How do we get comfortable that you're kind of taking costs out of the right areas and yet still investing in areas you need to invest? Sure. So, to the first part of your question, there are some very significant prequal expenses that we expect to incur in Q4 that are influencing the guidance that we provided for the quarter's OpEx. And then relative to the cost reduction, the only comfort, perhaps I would offer you, which I hope is very strong comfort, is that we actually think very carefully about what we're doing here. And, the decisions that we made with respect to the cost savings program were deliberated very thoughtfully debated And at the end, we believe we're the right balance to both, help improve the financial performance company, while at the same time, not jeopardizing any of the company's potential in terms of revenue opportunities. John, maybe I can add, one point there on the just so everyone on the call is clear. I know you are. The preproduction R and D costs, earnings referencing are really associated with a lot of new products in qual, with these technology nodes that are now ramped. And some of those are sort of costs that flow through the R and D now as opposed to directly onto the cost pool and inventory Perfect. Thanks guys. Appreciate it. Thank you. And our next question comes from the line of Ramesh Shah from Nomura Securities. Yes, thanks, Mark. You mentioned that channel pricings improved. At the point, would you start to see that show up in contract? And income into other businesses? Because it looks like just based on the guidance for August that you're not expecting, the overall pricing environment better relative to May? Well, it's a very dynamic environment. So, again, we want to make sure, we're giving you what we believe is realistic guidance and guidance that, is is, achievable. And, we're going to have to see what plays out in the markets over time. When contract when spot pricing starts starts moving. That's a great indicator of where the markets might go. But what has to happen obviously is there has to be enough liquidity in the market that it can carry through into larger volume orders associated with contract market. Inventory has to burn off. And we're seeing good indications of those types of things, but we need to just make sure the the putting fully baked before we serve it. All right. Okay. That's helpful. And then just on the pre call expenses, that are boosting OpEx this quarter. Is that sort of more one time in nature, or do you expect expenses to sort of remain elevated through the course of the year as you ramp these new products? Well, certainly, they will occur as there is a concentration of new products. So they you shouldn't expect that they're going to occur each quarter. And I would tell you that in Q4, they are particularly high. Relative to what we've seen over the recent history as a reflection of what Mark said. But it is likely that sometimes during the course of twenty 17, you're also going to see these occur as we release new products. But again, we see a particularly high concentration in FQ4 'sixteen. Thank you. And our next question comes from the line of Timna Currie from Cowen and Company. Thanks a lot. I guess I had two questions First of all, NAND bids are really moving around a lot, obviously given the planar to the 3 d, move. So maybe you can hold our hand a little bit, A, on the, 3 d transition because it does sort of look like there's been some issues in the 3 d transition looking at the bits. And maybe also talk about what the bid outlook is for August in NAND to just sort of give us some comfort that that you're sort of getting through this transition? So, Tim, relative to, I'll take the second part of your question first and then we'll circle back around to the first. The stakes in the ground we've said a few things, which were actually we reiterated today that would kind of be in the opposite direction of thinking there were problems with our treating NAND transition, right? We're seeing mature yields occurring at rates are slightly faster than we anticipated. We had originally, probably 6 months ago, talked about bid crossover for 3 d in the end of the year. Today, we reiterated again that that was going to occur in the fall, so a pull forward of a couple of months. And so we're not going to give you a bit guidance for the, for the August quarter, but we do think that these data points will hopefully give you comfort that in fact the transition really is occurring, slightly more rapidly than we have expected it to occur. The only thing I would add to that, Tim, is, is keeping in mind, we've also talked about the fact that we want to deliver more of our NFS in in actual solutions to the customer. And as we do that, there's a natural tendency to, stretch out the supply chain in aggregate and some lengthening of the total cycle time as we move through that transition. So part of this, I think, is also reflective of the fact that we're making some fairly significant progress relative to getting these bits into the types of and products that we want to deliver to the customers. Yes. I think one final point that maybe Also contributing to the overall impression is we do see planar bids coming down, fairly significantly as move away from the Planer SSD markets that we have sold into in the past. So there are many dynamics sort of at play here relative to what comes out as an aggregate bid number. Got it. Got it. And then just as the follow-up to that. Ernie, you talked at the Analyst Day. I think you said that $800,000,000 of the CapEx this year would be for fab shell spending. So that sort of net of the partner contribution, you'd be sort of in the 4 to 4.5 range. And so, and sorry, net of the partner contribution and also net of the fab shell spend, you'd be in the sort of 4 to 4, 5 range And so I'm just kind of wondering as you look to next year and I don't and I'm not asking for guidance, but I'm just wondering how you think about the maintenance CapEx level of the company given some of these initiatives you have in DRAM and also in 3 d NAND. How do you sort of think about how to balance that? Thanks. Well, you really asked kind of 2 different questions, right? How do we balance? And obviously, the balance has come in as we think about the aggregate business for the company and the cash flow that we plan to generate, and a number of other factors, as we look at maintenance CapEx, we sort of said that we were normalized in that low $4,000,000,000 range ex in Enercare, And we wouldn't move away from that in a very substantial way as we're thinking about things thinking about things today, bearing in mind that we're still in the midst of a ramp of 3 d in the Singapore fab. So it isn't exactly a normalized environment for us. Even taking out the shell, we're still outfitting that shell with productive capacity. Got it. Okay. Thank you so much. Thank you. And our next question comes from the line of David Wong from Wells Fargo. Thank you very much. For the 2nd generation 3 d NAND. When you hit crossover in the fall for 3 d NAND, will this all be on 2nd generation technology or will it be 1st generation? And what's the difference lay account between 1st and second generation, please? So, David, it will be primarily a significant majority of that In fact, almost all of it will still be Gen 1. Gen 2, we start to see significant output in the second calendar quarter into the summer of of 2017. And we haven't said what the, what the, what the layer count does, but we've indicated that it's roughly a 30% cost reduction moving from Gen 1 to Gen 2 and that is roughly double the Thank you. And our next question comes from the line of Chris Hemmelbourne from Barclays. Thanks very much for taking the question. I guess first of all, Building on David's question, as you're seeing 3 d ramp across the industry, how do you view your competitive positioning you at your Analyst Day, you laid out some beliefs that you were going to have cost leadership. Is that holding as you're seeing the competition ramp? Yes, this is Mark. Yes, absolutely. We are, we're very happy with the way the ramp is going. We're very happy with the the technology was delivering and its ability to scale doing going forward. Well, we think it's the best solution in the industry for for almost every end market application. Okay. And I guess to the harder question, what needs to happen for you guys to get back to sustained profitability? I mean, I applaud the restructuring efforts, but I look at the savings you've announced and that falls short of the losses you put up the last two quarters and what you guided to the next quarter. Are you confident these changes are going to be enough to get you back to profitability next year? Well, we think we're doing all the right things. And think we're making a lot of good progress on our relative competitive position on technology. The products are all, coming along nicely now and the qualifications are progressing well. So there's always a wildcard around ASPs, but we think we are making very significant progress, and we think we'll see that. Every quarter as we move forward, you'll be able to measure us versus our competition and and hopefully confirm that we're doing all the right things and exactly when, when that results in profitability, we can't tell you, but we think it's, it's coming. Thanks so much. Thank you. And our next question comes from the line of Kevin Cassidy from Stifel. Thanks for taking my question. On the mobile side, as you start getting more qualification on the LP DDR3 and DDR4, Are you expecting that I guess what percentage of your revenue will be those products versus EMCT And what is it today? Let me see if I can find those numbers. I don't have them right in front of me. For the mobile DRAM portfolio generally, EMCP probably represents Well, I'll jump in real quick, Mark. So the way we break it out, Kevin, is mobile DRAM discrete is reported in our DRAM business. And that's about mid-twenty percent of our total units. Our EMCPs are reported in our NAND reporting segment. And we said mobile was in the mid teens percent of the NAND business mid to low to mid teens. Okay. And maybe as we as you shift more of the LP DDR 34s, are you expecting that your average selling price would increase? Again, it's really challenging to give you a forecast of what's going to happen pricing environment. But in terms of aggregate, aggregate revenues, we would expect that as we move through these qualifications that you're going to see the mobile business maintain or slightly improve in terms of a percentage of its overall revenue to the business. And as we noted in our comments, right? As we see EMCP market moving to higher density, we think that that will be a sort of a starting point for an improvement in that aggregate market, off as we roll into calendar 2017. Thank you. And our next question comes from the line of CJ Muse from Evercore ISI. Good afternoon. Thank you for taking my question. I guess first question on the mobility qualification side, how much, I guess, is the uncertainty around timing there, whether it's the month of August or September, October impacting your gross margin guide. And then as part of that, how should we think about the incremental gross margins as you start selling down your inventory, going forward once we do get the qualified So C. J, this is Ernie. We're pretty clear on the qualification timeline there is more uncertainty around the timing of shipments because at the end of the day, that is going to be a function of each of those customers sort of current inventory dynamics with respect to the inventories they have on hand, their success in the marketplace and how they want to position their inventory. And in addition to that, we are going to have, as we already talked about, significant quarter on quarter growth in production some of which is directed toward that mobile market because we believe that it's, it's fairly strong. So, mobile in general has a better gross margin profile than the aggregate business. So as that product flows through, Although there will be some, some early pressure as a result of that inventory having been built at a time when costs weren't fully fully baked as the results of the volume ramp. Eventually, it will flow through into the margin profile of the company. Okay. That's helpful. And I guess as a follow-up, when you think about your 3 d NAND cost structure, curious how you would compare that today, at high volume or is that more Gen 2 in the summertime next year? Yes, I think as probably most closely time to, to increase in our 3 in our TLC mix, which is probably a couple of quarters out. And then we'll get a when we'll get a second surge sort of in calendar Q2 and Q3 of next year as the Gen 2 kicks in in a significant way. Yes, again, we think we'll be, we'll be, we think we'll be the leader as we fully implement Gen 2 and TLC. Great. Thanks, Mark. Thank you. And our next question comes from the line of Joe Moore from Morgan Stanley. Hi, thank you. I wonder, I just want to clarify when you talk about Q4 DRAM bit growth being better than Q3, that sequential bit growth north of 20%. And I guess that then implies when you look at revenue not growing very much that ASPs are down similarly. I know you don't want to give a pricing forecast, but I just want to make sure I understand I'm finding it hard to get to your revenue number with my pricing assumptions. So the first part of your assumption process, Joe, is correct. And again, we're not going to comment on ASPs. Okay. And then, separately, can you talk about how the Inoterra, the new pricing agreement, it factors into this? Is that a positive or a negative at this point relative to the old pricing agreement? And maybe if you could compare that versus a wholly owned situation, if if that deal in fact moves through. Does there's any context you can give us around that dynamic? Sure. So in the current pricing environment, what we've contemplated as we look forward to Q4, it's pretty much a wash to be honest with you. Either way, the results to Micron would be roughly the same. Got it. Okay. Question comes from the line of Harlan Sur from JP Morgan. Hi guys, thanks for taking my question. I'm still a little bit unclear as to the gross margin decline or the slight gross margin decline in the August quarter, given that we've seen some stabilization in DRAM and NAND prices starting kind of in the month of June, your 20 nanometer mix and your 3 d NAND mix is moving higher. So it would assume that your blended costs are coming down nicely. You mentioned other parts of the market that may not be participating on the pricing stabilization that we're seeing in the PC market. But if I look at the end market demand parameters, data center, networking fundamentals seem to be improving into the 2nd half, embedded fundamentals seem to be seasonally up. Can you guys just articulate like what segments are still showing aggressive pricing declines? Yes. So let me try to characterize, that a little bit for you. So it is important to write knives that these data points are really happening in real time. And as we look at how we actually entered this quarter, we were actually starting the quarter below the average of the prior quarter, and we're now seeing some upward trends that are causing everyone to have the enthusiasm that we're talking about. But it is important to understand that what we've been reading about in the last 2 weeks has, A, not impacted the entirety of the quarter. And B, hasn't reflected itself yet as we look at forward pricing. And as Mark mentioned a couple times, we really are wanting to provide prudent guidance in the context of an environment that's moving around. Very, very significantly. The other point I would make is, it is absolutely true that we are seeing strong bit growth cost reductions on the DRAM side. Remember that we said the majority of the NAND cost reductions occur as we achieve that big crossover which is later in the fall of this year. So we are getting quarter on quarter cost reductions in NAND, but I think you might be perhaps pulling forth that bid crossover comment into the full quarter that we're coming up on, and that's just not going to be the case. Okay. Appreciate the insights there. Maybe more of a product question for me next. If we include 2 in 1, think SSD and embedded NAND attached rates and notebook PCs are at or slightly above 50% now and continuing to climb. I think you guys had a target of having your 3 d NAND based client SSD in the marketing calendar Q3. Maybe if you can just give us an update there. And I think you guys also had a target to have your 3 d NAND based data solution, your high capacity drives for hyperscale guys starting in calendar Q4, if you could give us an update there as well? Thanks. Well, they're both in the market and we're going to have to see what the demand looks like. But so far, we like the reaction we're seeing. Great. Thank you. Thank you. And our next question comes from the line of Rajvindra Gill from Needham And Company. Yes, thanks for taking my question. On the whole, 3 d NAND conversion, I just wanted to get a better understanding of in your estimation, what will be more cost effective, the 3 d on 32 layer versus the 20 nanometer that's currently on 2 d NAND. Oh, definitely the three d, 32 layers is cost advantage relative to 20 nanometer, even 16 nanometer plane or NAND. And we believe that as we move through time, the market is going to appreciate incremental value in three d NAND bits as well. But, can you give us an idea in terms of if your 3 d NAND is actually fitted for some of the applications? Is that will be available for applications such as mobile or embedded or card? No, we have a full product portfolio coming for 3 d NAND that will address. And I think I mentioned this in my commentary. We have 3 d NAND products for Consumer client data center and enterprise, as well as, evaluating global applications go forward basis. Okay. And just last question on the mobile DRAM qualification issues. What specifically, can you talk about it? Has there been quality issues with respect to your mobile DRAM, which is preventing you from getting qualified at certain customers. And as a result, losing market share to Samsung and No, I think we've gone through a very significant transition here. In some cases, from 30 nanometer to 20 nanometer, in some cases, from 20 nanometer to 20 nanometer. And from a timing perspective, in some cases, we were later with the particular, either density or IO that the or interface that the customers were wanting. And so it's just a matter of working through that process and qualifying those products in the various fabs that we're ramping. So I don't think there's anything, untoward or unusual in that process. It's, it's just a matter of a fairly significant ramp across, 2 high volume fabs and taking the time to qualify a full suite of products across all those technology. Got it. If I could just squeeze 1 more in terms of kind of competitively as it relates to your other major competitor moving to a smaller process node. And you guys perhaps petually playing catch up in terms of the process node transition. Kind of what are the what are some of the lessons you think you guys have kind of understood from the 20 nanometer transition and, and trying to rectify that, when you go to the other no transition. Just in general, any comments there would be helpful. Thank you very much. Yes. So certainly, we think 3 d NAND has gone very, very well for that that for us, that has been, really a model where we take technology we've developed in Fab 4 and move it into a consistent equipment set in a historically Micron environment where the equipment all matches and things go very, very well. What we've experienced in 20 nanometers, we're matching a disparate set of equipment, given the LP to acquisition. So we've got one toolset in Hiroshima, one toolset in the MMT fab in Taichung and a separate toolset in the inotero fab. And that's just more complicated. And every time we make this transition, we get more and more of those tools aligned and we feel like, actually, we're in pretty good shape now. And as we move to the 1X node beyond that, it's going to be a lot more seamless and a lot easier to execute on a go forward basis. So we are the, I think we're the leader in 3 d and we think we're closer in DRAM and, 1X is coming along now running at sort of preproduction levels in both hiroshima and taichun. Thank you very much. I appreciate it. Thank you. And our next question comes from the line of Mehdi Hosseini from SIG. Yes, thanks for taking my question. Mark, I'm just looking at your NAND gross margin. It's been below corporate average. Since the mid 2013. And you have all of these new product qualification coming up. I'm just wondering, is there a strategic alternative here to make it more dramatic, or to take a more dramatic action, because it's been more than 2 years that NAND has been underperforming compared to the corporate average. And in case these product qualifications don't go well, is there alternative strategy here? And I have a follow-up. We're always open to look at lots of different ways to optimize the business for the shareholders. Having said that, we like our NAND position. We like the technology. The early feedback from the customers is they like what we're doing. They like the not only the 3 d technology, but the product portfolio And we think we're making progress. So, we are, kind of encouraged with the progress we've been making, yes, we completely we've admitted for 18 months now that we completely missed the vote on planar TLC. We think we've taken a significant steps to remedy that on a go forward basis. And We intend to do so. So we're going to play it out. And as we do that, we'll look at lots of different strategic options for DRAM business, just like we do for the D for the sorry, for the NAND business, just like we do for the DRAM business and 3 d cost point and all the other interesting new technologies we're developing. Anyway, if you share with us qualitatively or big picture, what those options are? Well, I think we'll probably just keep those to ourselves, Manny, but the I think the main point I would want to make to you is, we think it's important to have a diversified set of products or technologies to support memory system solutions for our customers. We think we're in a strong position there. We like the, we like the growth profile associated with the nonvolatile memory business generally, and that includes not only NAND, not only the 3 d Crosspoint business that we're currently developing, but also other advanced storage class memories we're working in. And we'll look at lots of different ways of optimizing the value, in all those different technologies. And we may find different solutions in different segments. But we're always looking for those opportunities to create value added partnerships or new relationships. Got it. And then quickly for Ernie, how should we think about, working capital, inventory and accounts receivable? It seems like at least on the inventory side, it may not come down significantly until February quarter. Is it a fair assumption or not? I think it's reasonable to think about Tory is being within a pretty narrow band for a couple of quarters. So I think that's a reasonable thing to think about and obviously, we pay a lot of attention to working capital and, tend to do so on a going forward basis. And my statement about inventories was on a dollar basis. So obviously, bits are going to move around as costs move around. Okay. Thank you. And operator, I think we have time for one more question. Certainly. Our final question for today comes from the line of Tricia Garra from Baird. You've mentioned on the code today that the 3 d NAND cost structure is linked to the TLC mix and you've mentioned a 2 quarter out timeframe for that mix ramp. Is that in line with the Q4, fiscal Q4 target in terms of cost improvement in your NAND that you provided last quarter or is there a little bit of a change in terms of where you expect an inflection point in your cost structure in NAND flash? No, there's no change. We're, and I think we're pretty consistent. The fiscal Q1 is our crossover is aligned with our crossover in the fall that we talked about today, which is a little earlier than we had originally talked about. The 3 d crossover comes a little bit later and that drives a surge in the cost improvement but not necessary to drive the improvements that we've kind of outlined relative to our guidance. Okay. And then just as a quick follow-up, any steps that you can talk about that you're taking to accelerate the most migration notably at AMPDA? The migration of DRAM from 20 nanometer to 1X? That's right. We're not completely done with 20 nanometer there yet, but as I mentioned a minute ago, we have 1x running there. It's kind of where we've been doing our pilot line activity and we've transitioned or we've transferred in that technology into the Taichung fab and they are progressing with that. We wouldn't expect to see volume, starts in either El Pito or Taichung until later this year. Great. Thank you. Thank you. And our next question comes from the line of Mark I'm sorry, That does conclude our conference for today. And we thank you for your participation. You may now disconnect.