Earnings Call: Q4 2015

Oct 1, 2015

Good afternoon. My name is Abigail and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Micon Technologies 4th Quarter 20 15 Financial Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker questions. Thank you. Thanks. Thank you very much. Abigail. I'd like to welcome you to Micron Technologies 4th quarter 20 financial release. On the call today is Mark Durkin, CEO and Director Mark Adams, President and Ernie Madock, Chief Financial Officer. This conference call, including audio and slides, is also available on our website at micron.com. In addition to our website, in addition, our website a slide deck containing the quarterly operational and financial information and guidance, non GAAP information with reconciliation slides used during the conference call 15 financial press release, it is also available on our website at micron.com. Our call will be approximately 60 minutes in length, There will be an audio replay of 6 with a confirmation code of 431, 49721. This replay will run through Friday, October at 11:30 pm Mountain Time. A webcast replay will be available on the company's website until October 2016. We encourage you to monitor our website at micron.com throughout the quarter for both current information on the company, including information on the various financial conferences that we will be attending. You can also follow us on Twitter on Twitter at MicronTech. Please note the following safe harbor statement. During the course of this meeting, we may make projections or other forward looking statements regarding future events or the future financial performance of the company and the industry. We wish to caution you that statements are predictions and that actual events or results may differ materially. We refer you to the documents the company files on a consolidated basis from time to time, with the Securities And Exchange Commission, specifically the company's most recent Form 10 K and Form 10 Q. These documents contain and identify important factors could cause the actual results for the company on a consolidated basis to differ materially from those contained in our projections or forward looking statements. These certain factors can be found in the statements are reasonable. After the date of the presentation before I turn the call over to Mark Durgin, we want to make a quick update. There was some information posted on our website under the earnings call, earnings slides, which were posted to micron.com, on page 21 or excuse me, Page 20. The summary key data slide does include some errors on the Q1 2016 guidance. That is being updated and will be replaced shortly. Please note Page 17 is accurate, which shows our fiscal Q1 'sixteen non GAAP guidance on that page. So with that, I will turn it over to Mark Durkin. Thank you, Ivan. For fiscal Q4 2015, Micron posted total revenue of $3,600,000,000 within our revenue guidance of $3,450,000,000 to $3,700,000,000. Revenue was sequentially lower as expected in fiscal Q4 due to near term market headwinds, driven primarily by weakness in the PC sector. Micron posted overall gross margins of 27 percent while generating operating cash flow of over $1,000,000,000. Non GAAP net income was $399,000,000 and non GAAP earnings per share were $0.37. We're pleased with the execution that delivered these results. We continue to invest in our business with capital expenditures of $1,850,000,000 in Q4 as well as ongoing investments in technology and product development. For fiscal year 2015, we achieved revenue of 16.2000000000,2.72 dollars per share in non GAAP earnings $5,200,000,000 in cash from operations $2,300,000,000 in dilution management activities including convert retirements and over $800,000,000 in share repurchases. While 4th quarter results were impacted by continued weakness in the PC sector, we believe that memory industry fundamentals remain favorable over the long term and we're focused on improving our competitive position through deployment of advanced technologies and system level solutions. Reflecting on market conditions, despite the recent softness in the PC market, we continue to see healthy end market demand in other segments. Within the context of that variability, we will continue to manage product mix and allocate our capacity to maximize our opportunities over time. Demand for NAND is relatively stable. We're encouraged by customer response to early samples of our 16 nanometer TLC products, as well as a significant customer interest in our early 3 d NAND product. We expect the majority of our NAND production on 3 d by late calendar 2016, which should put us in stronger competitive position. We expect the demand environment to stabilize and improve as we move through calendar 2016 In general, we expect the industry supply and demand for both DRAM and NAND to be relatively balanced in 2016. Stepping back for a minute, Micron produces technologically advanced subsystems and systems for global marketplace, today's customers are looking for value added memory solutions to drive innovation and efficiency in system design. This creates a tremendous opportunity for Micron moving forward, we'll continue to invest to enhance our competitive position. Relative to those investments, Micron's capital investments are primarily focused towards deployment of advanced technology to drive manufacturing efficiency and to enable innovative new products to support technology advancement in our NAND business. Also investing in an expansion of our clean room facility to enable cost effective 3 d NAND and are continuing to support R and D facilities in Boise. These investments in aggregate will accelerate Micron's bit 16 based on market growth assumption of lowtomid20s. A majority of this growth will occur in the latter half of Micron's fiscal 2016 and then continue into fiscal 2017. 16 based on a market growth assumption of mid to high 30s and has 3 d conversion reduces wafer output in the near term. For our fab 10x expansion and 3 d conversions, we expect we will position us to significantly outgrow the market for NAND in fiscal 2017. On the call today, Mark Adams will summarize our operational and BU results. Ernie Matick will cover Q4 financial results and I will conclude with a couple of thoughts prior to Q And A. Mark? Thank you, Mark. I will begin will include our NAND and 3d Crosspoint product. I will follow an update on each of our 4 business units before closing with commentary on our operational performance and focus. Let's begin with DRAM, which represented 60% of our total revenue in fiscal Q4. PC DRAM ASPs remained under pressure in Q4. As a result, gross margins were down sequentially in line with our expectations. While we did see some mild spillover effect to overall gross margin in these other segments and demand remained relatively healthy. As a percentage of DRAM revenue in fiscal Q4, Mobile was in the low 30%, up from the high 20% in Q3. The PC segment was in the low 20 percentile, down from about 30% in the prior quarter. The server business in graphics, automotive and other embedded markets was in the low 20 percentile in aggregate. Moving on to our non volatile memory business. Trade revenue represented 32% of total revenue in fiscal Q4. Performance was consistent with our guidance, highlighted by stable gross margins. As a percent of trade non volatile memory revenues in fiscal Q4, consumer represented about 40% that includes our cards USB and components. Mobile included in multi chip packages was in the low 20 percentile. SSDs were in the mid teens and automotive and industrial mid markets and other embedded segments were mid teens as well. While 3 d Crosspoint technology was immaterial. These percentages were generally consistent with the prior quarter. Positive mix effects, including growth in enterprise SSDs and a reduction of our spot market more transactional type business led to stable ASPs and gross margins for Our Compute And Networking Business Unit posted revenue of $1,300,000,000 in fiscal Q4. Down 14% versus the prior quarter with operating income of $99,000,000 or 7.6%. When looking at the 4th fiscal quarter, CMBU was impacted by lower ASPs, driven by continued softness in demand We anticipate additional reduction in PC DRAM production in the fiscal Q1 of 2016. CNBU had a very strong quarter in the enterprise segment. We were able to drive additional qualifications of our 8 gigabit DDR4 solutions, resulting in shipments of DDR4 increasing by more than double of Q3's volume. Performance driven workloads and compute intensive applications in the enterprise space should drive additional demand growth in the future. We are confident that the migration of our support this growth in the future. The networking segment continues to be stable and over time we expect to see demand in this space increase as build out of LTE deployment in emerging markets continues. Revenues in My Braun Storage Business Unit were $848,000,000 in fiscal Q4 down 6% sequentially. SBU's gross margins were flatquarteroverquarter Operating margins were negative, reflecting our continued investment in development of next generation Flash Storage Technologies. FPU continues to focus on optimizing the mix of our products to mitigate transactional market exposure, while serving higher value segments. One good example is in the enterprise segment. We continue to gain traction in the deployment of Micron branded SSDs in the Hyperscale segment with our M500 SSD family based products focused on high reliable, high performance 20 nanometer MLC product. While an entry level client segments TLC NAND flash has been deployed due to cost benefits, We have had many customers come in with upside requests for our MLC based technology to truly meet the demands of the end market needs. We continue to make progress in TLC Our 16 nanometer plenary TLC NAND was qualified with several customers. We began shipping components in the quarter we'll begin shipping consumer SSDs based on TLC in the current quarter. Revenue in mobile was 958 Q4, up slightly sequentially. Operating income was 262,000,000 Micron's mobile business unit continues to benefit from the evolving mobile system architectures that steadily increased memory density requirements at all product levels. Our broad and diverse product portfolio including EMCPs, POP DRAM and KDD, which is commonly known for known good die allows us to maximize our operating results by rapidly adjusting to changing customer requirements and market conditions. Despite slower growth in China, revenue in the overall AMCB product category was flat when compared to Q3. As the MTP densities continue to increase our combined DRAM and NAND portfolio only strengthens our competitive position. Micron has ramped production in low power for DDR4 was shipment increasing from 4% to 20% 24% of total mobile DRAM volume and expects LP4 volumes to surpass LP3 by the end of our first half of the fiscal 2016. The embedded business unit posted revenue of $474,000,000, down approximately 2% from prior quarter. Gross margins for EBU were 35%, up two percentage points when compared to Q3. Operating margins were 22%, also up two percentage points when compared to the prior quarter. It is worthy to note Ebu's revenue reached $2,000,000,000 in fiscal year 2015, which is a big milestone for our business unit that has historically been our most stable, profitable business. Fiscal Q4 results were driven by record revenue in our Automotive segment and continued strength in our industrial multi market business. Growth in automotive supporting applications, including infotainment, instrument cluster and ADAS, which stands for Advanced Driver Assistance Systems. Drove record sales of DDR3 and EMMC. Japanese regulatory changes has been a catalyst for strong demand in our amusement business, driving shipments of NOR and NAND based multi chip products that support tools. I wanted to close with some updates on technology development and deployment activities. At our summer analyst conference, we described our fiscal year 2015 2016 strategic investment priority focus. We continue to be pleased with our progress us our focus areas of DRAM, nonvolatile and emerging memory. We are ahead of our previously communicated schedule on both the 20 nanometer DRAM and 3 d NAND conversions. We expect 20 nanometer to represent more than half of our DRAM output in fiscal year 2016. And our 3 d NAND is on track to be a majority of our NAND output by the end of the calendar year 2016. An important milestone for our 3 d NAND progress is beginning tool installation in the Singapore fab by spring in 2016, and we are on track to meet that timeline. In the quarter, we announced 3 d Crosspoint technology and are on track for commercial shipments calendar year 2016. This is an exciting new memory technology, which has the potential to drive innovative new memory intensive applications. We also continue to expand our strategic 3 d Crosspoint technology and 3 d NAND supply agreements with Intel. As we continue to execute our technology conversion and fab expansion plans, these pipes strategic relationships can offer another path to enable our technology in the market as well as they can provide additional capital to support technology transitions. With this successful execution and technology development, we are confident that our relative competitiveness We believe that the ongoing growth in customer demand for memory products will provide healthier market conditions going forward. Now to continue our commentary on Thanks, Mark. Our GAAP net income for the fourth quarter was $471,000,000 or $0.42 per diluted share, a net sales of 3,600,000,000 Compared to the third quarter, margins declined primarily as a result of pricing in the DRAM space. Non GAAP income for the 4th quarter reflects adjustment for the following. Recurring adjustments for the amortization of debt discounts, primarily relating to the imputed interest on the convertible notes and the MMJ creditor debt and nominal amounts for the loss of our debt restructuring activities and the effects of changes in currency exchange rates for the quarter resulted in a $21,000,000 gain from the remeasurement from a previous equity method investment held in the acquired entity as well as $21,000,000 in tax benefits recognized in the purchase accounting. Non cash taxes relating to the MMJ and MMT operations reflected a benefit in the quarter, primarily as the result of increased estimated utilization of operating loss carry forward in Japan. As a result, our non GAAP income was $399,000,000 Micron includes both amortization of acquisition intangibles and stock based compensation expense in our non GAAP reporting. Taken together, these two items represent approximately $0.04 per share for the recently completed quarter. Now let's look at our results by product line. Historically, we'll refer to our product classifications as DRAM and NAND. As Mark Adams just noted, rather than NAND, we will refer to nonvolatile, which includes NAND and 3 d XPoint, but we'll continue to exclude NOR. DRAM revenue decreased approximately 8 DRAM gross margin was in the 30% range lower than the previous quarter. On the trade nonvolatile side, revenue to increased approximately 7% compared to the prior quarter In the quarter, the company generated operating in cash and marketable investments. Expenditures for property, plant and equipment during the quarter were approximately 1,850,000,000 During the fourth quarter, we repurchased $63,000,000 in face value of convertible notes for $112,000,000 and approximately 36,000,000 shares of common stock for 638,000,000 for a total of 750,000,000. Operating expense was less than anticipated in the fourth quarter, primarily as a result of lower variable compensation expense and lower vol of wafers used for development of new products and technologies. For the full year fiscal 2015 ended September 3, net sales were $16,200,000,000 with GAAP net income of $2,900,000,000 or $2.47 per diluted share while non GAAP net income tangibles and stock based compensation on our full year non GAAP results was approximately $0.13 per share. As Mark Durkin noted, during FY 2015, we used approximately 2.3 Of this total, $832,000,000 was spent on share repurchase and the remainder on convert retire. Cash expenditures for property, plant and equipment during fiscal 2015 were $4,100,000,000, we continue to expect fiscal 2016 capital expenditures to be in the $5,300,000,000 to $5,800,000,000 range. We also continue to expect third party investments of between $700,000,000 $900,000,000 as well as a 6 to $800,000,000 expense for As mentioned in our summer analyst conference, we are simplifying the guidance that we provide. For Micron's 1st fiscal quarter 2006 our non GAAP guidance is as follows: consolidated revenue in the range of $3,350,000,000 to $3,600,000,000 gross margin in the range of 24.5 percent to 27 percent, operating expenses between $580,000,000 $620,000,000 and operating income between $260,000,000 $320,000,000 with EPS between 20 and $0.26 per diluted share based on an estimate of 1,100,000,000 diluted shares and a tax rate in the mid teens. This EPS range includes expenses related to acquisition intangibles and stock based compensation which together represent approximately $0.05 per share. Although we continue to expect some challenges in the pricing environment during the current fiscal quarter, Our guidance, particularly at the gross margin line, also reflects the early capture of operational improvements that we've been sharing with you for some time. In the materials posted on our website, we have included a dilution table that reflects the anti dilutive effects of our CAF calls at various stock prices. Now, I'll turn it back over to Mark Durkin. Thank you, Ernie. Let me just prepare conclude our prepared remarks. By summarizing our major focus areas for the coming year. There are 3 fresh focus areas. First is technology deployment and manufacturing efficiency second is delivering value added solutions for a growing set of customers and market segments and third, investing in our long term customer and partner relationships. As we embark on our new fiscal year, I'd like to take a moment to thank our customers, partners shareholders and team members for the continued support. Let me stop here and operator, I think we're ready for Q And A. We'll now take questions. Thank you. Our first question comes from the line of Kevin Cassidy with Stifel. Your line is open. Thank you for taking my question. Just on the guidance for gross margin, can you give us some of the moving parts on that, where it's coming down? As always, it's a combination of mix and pricing and both of those move around within ranges that are quite similar to one another. So part of the reason why we wanted to talk to you about an aggregate gross margin was in fact that those both of those factors are things in some cases that we don't control and in other cases that we do in response to the changing price environment. So, we can't really provide too much color on that or else it would sort of negate why we chose to go to this more broad based guidance across the company's revenue stream. Okay. Maybe if I could just ask one detail around that then with the TLC NAND products ramping or becoming a larger percentage of revenue Should we expect that gross margins can move up with that ramp? I think the ramp through fiscal year 2016 will generally lead to that trend, certainly from a cost basis, not trying to forecast where the ASPs go from here from competitive cost position, yes. Thank you. Our next question comes from the line of Vijay Rakesh with Mizuho. Your line is open. Yeah, hi, thanks. Just a question here. As you look at first half 'sixteen. What do you think your mix will be on 16 nanometer, TLC NAND? And I have a follow-up. So, yeah, we're early in the, in the ramp of the TLC NAND. We're shipping products this quarter. To customers. But as we move through, the first half of the year, it'll be, end of the 20% range we'll see where it goes from there. If I could just add one more comment that what we're hearing and seeing from the market is that by segment, TLC is interesting in some segments, but not all segments. As a matter of fact, the last part of Q4 and early into Q1, we've seen a significant interest for our higher performing and more reliable MLC both 20 and 25 nanometer products where they're designed in and even new customers in the hyperscale environment And so while 20% might not sound as high as one would have forecasted 6 months ago, We're getting significant interest again in enterprise type applications for better margins. And so we're going to dial that in around market opportunity and customer needs. Got it. And if I may, on the DRAM side, as you look at, I mean, you mentioned things should improve through calendar 2016. Any thoughts on how you see inventory and yields playing out here, to the end of the year? Thanks. Did you say, were you saying yields? Yes, yields and just in channel inventory on the DRAM side? Thanks. Let me handle the channel inventory in the market. Instantly enough, in terms of DRAM market, except for one large channel player, the channel itself is pretty low inventory in the 2 to 3 weeks. And one larger channel player who, in fact, services a lot of the OEMs has more than that from a fulfillment standpoint. That's the role that they play with these customers. So it's not a significant inventory problem in the channel today. I think to extend the question a little bit, the PC demand The PC ecosystem is also not as much of an inventory problem as more of a demand problem. And I think with, new chipsets and new operating assistance and what happened. I think the buying side of the market has been a little conservative in terms of how they procured PC parts over the last 3 to 6 months. And I think it's, at this point, it's going to be interesting to watch how the next 3 or 4 months plays out in terms of the consumer and corporate behavior because at some point, they're going to start to replenish Let me handle the yield question. I think the thing we can say about yields is we're clearly ahead of our plan and running at least as good as or probably slightly better than we have on previous similar conversions. So we're very happy with the way that that's going. And we look for, significant bit generation and bit crossover in our 3rd fiscal Thank you very much. Thank you. Our next question comes from the line of Timothy Acuri with Cowen and Company. Your line is open. Thanks a lot. I had 2. Ernie, I know you don't want to talk too much about costs going forward, but that's obviously been an issue. DRAM costs were up this quarter. And guide seems to imply that DRAM cost per bit is going to go down just a touch in fiscal Q1. Is that right? If you go back to the chart that we showed in our Analyst Day, it sort of shows you what we're expecting in general relative to output. And cost move in an inverse way with output. So as output moves up, cost decline a little bit. In addition to that, as we move down the technology curve. We also get the benefit of that. So, without being overly specific, I think the best thing I can do is refer you back to that curve and and the gross margin guidance was provided and you can sort of draw the picture from there. And then I guess, Ernie, also, there's a lot of debate about when gross margins will bottom and where they'll bottom. So can you, you're beginning to see some benefit of the, investments in the operational things you're doing. So can you give us some sense that maybe you think that November might be the bottom in, in gross margin? I can't really comment on that. And again, I'd refer you to some of the major levers that we have, which is output that we can control and whatnot. But the biggest lever of all is pricing, which is something that we can't fully anticipate. So I can't really give you any indication that November would be the bottom because just don't know at this point, although we continue to make progress on our operational improvements. Okay, Ernie. Thanks so much. Thank you. Our next question comes from the line of Rajvindra Gill with Needham And Company. Your line is open. Thanks for taking my question. Just, I guess, a follow-up on the gross margin. I am trying to get a sense of why gross margins are coming down. If if some of these things that you talked about are starting are stabilizing for instance, in a more rational environment ramping more on 20 nanometer, some stabilization in the price? So I think it's really important to sort of parse cost and pricing. If you look at what's happening in the market, there's still a significant amount of data that suggests DRAM pricing continues to come down a execution. So we're really focused on driving the operational execution and getting costs where as well as we can effectively manage costs get those to that level. And then the pricing environment, we have to deal with. Yes. I'm just trying to square with what you're saying in your outlook in your slide deck, I mean, you're basically saying despite recent softness in the PCD red market, continue to see healthy end market demand. And the demand environment to stabilize. And as we move into calendar 'sixteen, So it just seems like while that while there's some hint that demand is stabilizing or some stabilization across the board, the margins continue to drift just fairly, fairly lower. So I'm not very clear on why that's happening. Let's just step back a little bit and think about the marketplace, has been weakened in PCs. We've seen pricing erosion there. It doesn't take much of a shift in the supply and demand balance where you where you're moving big numbers up and down and subtracting them to get a difference for the supply demand balance to swing slightly over to slightly undersupplied. And at the end of the day, that's the tough question that we've all got to try and figure out what the answer is. But as we think about what our end markets look like in 2016, the products we have and the customer interest we have, we think that the market's generally gonna relatively balanced. And we think we have significant operational improvements coming down the pipeline. So that sort of underlines the commentary we're giving you. And we're trying to give you a view as to how we think that's going to balance out in the quarter ahead. And it's close to flattish gross margins quarter over quarter based on our guidance. And we'll just have to go from there and see we're all trying to figure this out together. Okay, great. And just last question on the cost side. Some of the cost headwinds that you experienced this year in theory should become tailwinds in 2016. And I was wondering if you could talk about some of those potential tailwinds and any thoughts on the shift to TDR4 and server the shift to mobile overall and within mobile, the shift to LPDDR4, these are all things that could potentially be detail when once costs are normalized. So if you can maybe talk about some of those specific things that would That'd be helpful. Thank you. Sure. This is Mark Adam. I'm just responding to the last part of your question. I think that if you break all of that down, certainly, DDR4 and LP4 in their early ramp don't lend themselves to the cost benefits right away like any of the semiconductor ramps that you deal with in terms of the market. And so we will see that shift from early ramp headwind to advance process tailwind in the mid part of our fiscal year. That's also true with our 20 nanometer product, coming out in the, by the time I said second half of my script 2nd half at the end of the first half going to 2nd half, we'll be at bid crossover more than 50% of our production will be on the 20 nanometer and will be an improvement in there as well. So all in all, I think what you're asking about, we can confirm is direction, we see our cost position in the marketplace. Thank you. Our next question comes from the line of Doug Freeman with Cern AG. Your line is open. Great. Thanks for taking my question guys. Mark, in the past, you've offered commentary in terms of the impact of can you offer us some insights into how much impact that will have on gross margins when it kicks in in the February quarter? Yes. Doug, it's, we commented on this last quarter. It's still, mid to high single digits impact. In fiscal Q3 as we realize the sort of the transition to the updated 20 nanometer technology coming out in Oterra. Okay. And that's just on just sure I understand that correctly. That's just on the DRAM side of the business. So if we aggregate that into corporate? That's right. It's just DRAM and it's just that's just on the Innovara output. And the fiscal Q3 is the relevant time because the contract kicks in at the beginning of the year, but there's a lag effect in terms of when it flow through our financials. And that's just the best time to look at it because that also happens to be when the 20 nanometer outputs come in. So we'll see that impact in the May quarter than not in the February quarter. Great. That's very helpful. If I could move on one is really in looking at the NAND market and your NAND output. I know you mentioned, not moving as quickly to TLC because in market demands. There really are 2 different products that you're ramping right now. If I'm correct, you've got the TLC at 15 nanometer, but you also have your 3 d product. I know you gave us an endpoint that you'll be at a majority of 3 d by the end of 15, can we get any interim points for the November and maybe February quarter? What percentage of your output will be 3d NAND and how much of that will be MLC versus TLC? Well, let me take that one, Doug. The so So you're right. We're going to play this by ear, right, in terms of a planar TLC. As Mark mentioned, there's a sort of resurgence in interest in our high quality MLC offerings for enterprise and high end client applications. And so we just have to see in how we dial that piece. You're also right that we've said our plan is to have the majority of our TLC of our 3 d NAND on TLC in short order. It's still a new technology. It's still ramping. And I think it's probably a little premature to try and predict what that looks like in the 3 d TLC, what that mix like in the first half of the year. How about total output for the November or February quarters? Of TLC? Yes. Of 3 d NAND in any quarter. Oh, of 3 d NAND. No, it's going to be relatively small in we get to that crossover point. All right. Thanks for taking my questions. Thank you. Our next question comes from the line of Monica Garg with Pacific Crest Securities. Your line is open. Hi, thanks for taking my question. The first question I have is on SBU business unit, we have seen negative op margins for two, three quarters now. And you've talked about 3 d NAND is more end of calendar 16 weighted. So is it fair to think that your NAND in So when do you expect your NAND margins to improve when three d picks up or sometime even before that? I think it's important, Monica. Again, this is Mark Adam, but it is important to make a distinction here. Directionally, your categorization of our SBU margins are correct, but I would also suggest on a relative basis to our competitors, our SBU business is held up quite nicely relative to the to where we were 12 months ago. And I mean that because there's a number of different market segments that the team has developed and cultivated that we feel will continue to benefit us as we get some of the tailwinds in place that we described in the back half of 'sixteen. It's a long winded way of saying, I expect that on a relative basis, we get more competitive in 2016 and that our overall performance in SBU will improve based on a number of the elements we've talked about, whether it be TLC or vertical on some of the higher end enterprise type products we've described. Keep in mind, looking at the keep in when you look at SBU numbers, you're also looking at a blended trade and 0 gross margin business to our partner. Got it. Okay. This is last one on the DRAM side. Mark, you talked about you expect a relatively balance supply demand in DRAM in 2016. The Micron's DRAM margins have come down quite a bit this year. So if it's a balanced environment next year, should we expect the margins to improve next year then? Again, we can't predict the ASPs of the margins for you. We're just telling you what we generally see and then you got to layer in that obviously we're pretty bullish on what we're doing internally in our operational it'll play out through the year. Our question comes from the line of Chris Hamilton with Barclays. Your line is open. Thanks very much for taking the question. I guess take a little different tact. Could you talk a bit about the factors that would get you to the high end, the low end of your gross margin guidance? Well, you know, ASPs are a big one, right? We always reserve the right to dial a mix and we'll take advantage of any opportunities we see there. I think we have a pretty good beat on what our output is going to be absent mix changes. So I don't think, that's as big a lever this particular quarter. Okay. Thanks very much. I guess different direction. Talk a bit about 3Dx, but I mean Intel is clearly going to be pushing the technology, but in terms of monetizing it from the Micron end, where specifically are you seeing strong customer interest? Well, let me, let me, I'll see your different tact with my different tact. How's that? More broadly, the technology, we see in a number of different end market segments, both in current application environment, and some kind of innovative new areas that might drive some neat development on just solutions and technologies to address markets. The type of markets that we see 3 d Crosspoint benefit from are either super high end gaming applications, which could be for just more real environment 8 K type applications. And provide the exact gaming performance that doesn't have to flush out to a different type of storage media. It's all could be done in three d cross point. Another good one would be super high end and reliable system storage, enterprise storage applications. We think as far as merging application development, we think the technology to really well to medical diagnostics, for example, where the instantaneous response time of symptoms going in and research data analysis coming out with what that might be is a real world application that could benefit from Crosspoint. So These are the type of markets that the technology fits. And I think that it's just a quick summary of a few that are of interest to where the market drive this technology? Yes, think in terms of anywhere where you want a large in memory database or anywhere where you want ultra high performance storage systems. Thank you. Our next question comes from the line of Steven Fox with Cross Research. Just one question from me. You mentioned that there was some spillover effect in the DRAM market into some of your better mix markets in the last quarter. I guess, I was curious, do you expect to see that in this quarter, how much could compute seasonality lead to some more spillover effect later on in the fiscal year? And what are you guys doing to sort of firewall against that? Well, I think the big you said something there is how much can compute seasonality effect and it depends on how you see the compute market. What I mentioned earlier was some of the environments that consume similar capacity like the very low end part of the server business had some pricing pressure. Notwithstanding all that margins, held up pretty well. So my interpretation to your question is that PCs rebound somewhat and we're not talking about a wild rebound, but the rebound somewhat going into the holiday season, that could be a positive that could have a positive impact on overall pricing in the market. But we think that the diversification of the end markets lends well to relatively stable pricing and margin as Ernie highlighted. Is there just a quick follow-up on what you just said? Is there any kind of tactics you're willing to share in terms what you're most focused on and sort of shaping demand to your benefit when you see some of these excesses the next couple of quarters? Well, I mean, not more than what we've talked about in the past. Which is we have these end markets that we have developed product strategies in. And, by shifting some of the capacity away, it relieves some of the pressure in area. And, the interesting thing overall about DRAM, which we haven't really talked a lot about is some of these newer categories LP4 DDR4, some of these categories actually take or have a limiting effect of reducing effect on overall wafer production in the industry. And so, as these categories take off and grow, we are, of the opinion that could have a stabilizing comes from the line of Steven Chen with UBS. Your line is open. Hi, thanks for taking my questions. First one, Mark, if I could on demand side, both on PC and smartphones. Could you provide a little color on what you're hearing from your customers in those 2 end markets in terms of their sentiment and sort of how the seasonality for the back half, how that's shaping up so far relative to expectations? Well, I think the PC is about where it's been. I wouldn't I can't advertise that there's been a major uptick in PC demand The only data point that I would say that, that is new for us is that as we sit today, relative channel inventory and PCs is not a huge burden to a recovery. I think that it's too early to tell what consumers and even in the corporate environment are going to be doing in the through the holidays and through the rest of the year. So I can't give you a great sense of what's going to play out, other than the inventory validation of what we see in the channel And that's true not only for end units and PCs, it's also overall true for, PC memory relative to where the pricing pressure has been. So I don't think it's going to take a wild shift in behavior for PE environment to stabilize. It's just, it's probably too early for the holidays to see that. On the mobile side, despite what, we've read in the media about a slowdown in China, which in fact is somewhat true. There seems to be an offset in two areas. One of which is that memory content in phones continues to move upwards, which is more broadly positive as well as, despite the high end and mid range smartphones in China, the entry level smartphone which are really configured to be pretty good density configurations are still in pretty good shape coupled with other emerging markets. So we continue to be bullish on the mobile market and the team's performance has been pretty good. When you think about some of the areas that we've do mobile networking and automotive. But net of it all has been that we've been able to keep our margin in a relatively healthy place and continue to monitor that. Thanks for that color, Mark. And as a follow-up for Ernie, Ernie, in terms of repurchases, if I have my math, correct. I think you have about $170,000,000 left in share repurchase capacity for this quarter. Just given how much you bought back in this last quarter with the stock under $20. Any thoughts on potential expansion in the repurchase program? So the amount is actually probably a little closer to $130,000,000 versus $170,000,000. And we're certainly going to continue to be opportunistic. And as we think about the market during the fourth quarter, we'll be making decisions as we think is appropriate. Okay, great. Thank you. Thank you. Our next question comes from the line of Daniel Amer with Ladenburg. Your line is open. Thanks a lot. So another way, just following up with your previous question, how should we look at fiscal year seen in kind of the mix, the mix that you're aiming to in terms of the DRAM business. Mobile DC server? I mean, should we expect in general terms, DC to decline a little bit more mobile to a little bit increase in server and networking to stay about the same? It's difficult to necessarily forecast because we'll keep adopting our overall approach as market conditions warrant. If I were to kind of categorize how we see it today, we think mobile and generally will concern more than where we sit today. We see PC on the consumption side of memory flat to down somewhat just based on the overall market demand and trends that we see. In general, we think other embedded markets will only increase given automotive, gaming, and the launch and growth of IoT and segments. Networking and server are very stream because you can what we've seen in the trends in those two markets are as much memory as they can get in, they'll put in. And as technology durations allow us DDR4 will drive a pretty high growth in terms of memory consumption. So when you hear us bullish on the overall demand of end markets. It's with good reason. Memory consumption is really driving either reliability performance or really new market applications. And in the DRAM segment, continued notwithstanding of the PC business, continue to see growth across the board. Okay. Just a follow-up question on kind of the non vault memory side. On your SSD business is around mid teens. I guess if we stood here a year ago, I think some of us would have thought that that would be a higher number of your overall sales. What do you need to do in order to make that a bigger focus, given the opportunity SSD, is it really related to the progress of TLC and 3 d NAND or is there something else that you can drive that business forward? Well, I think that's true. I think, a year ago, we might have said that, as things have played out, The low end of the SSD market where a lot of value units go turned into be a bit of a bloodbath and in the NAND environment. In the TLC pricing, it was just not something we're going to fight with our MLC product when we can go ship that to other market segments. Secondly, as we think about the mobile bin the mobile business that Micron had a great year in NAND, tremendous growth, 15 over 14. So we're going to continue to optimize around returns and market attractiveness. And between some of the competitive pricing as well as the growth in mobile, we altered our strategy mildly And I think with TLC and with our engines in the vertical, I think you'll see SSD become more prominent because we think we're going to be in a better position to compete with the rest of the market. Okay. Thanks. Thank you. Our next question comes from the line of CJ Muse with Evercore. Your line is open. Yes, good afternoon. Thank you for taking my question. I guess first question, you sounded a little bit more upbeat on your ramp of 20 nanometer and talked about more than half, I guess, your output, in the latter half of fiscal half twenty sixteen. But I guess curious, if we could talk a little bit about not production, but revenues, and what that number would look like, and what kind of contribution, if at all, we could see in the February quarter? Punt on the revenue qualification, I would think I would just validate what you started with, which is we're generally very pleased with the ramp and the yield terms that we're at today. And we see, as we communicate it very consistently, we see a crossover by the end of our first half fiscal year. So we're very excited about that. Not just from a raw cost perspective, that's great, but also from a product enablement on 8 gigabit configurations in open some doors for us. So without qualifying the revenue numbers, it's a real positive tailwind for us. That's helpful. And I guess Ernie, a broader question looking out to the February quarter. And I know you don't want to talk about bits and mix and all that, but curious, What should we be thinking of as the most material drivers of up or down kind of impact to gross margins? And there I guess thinking about startup cost 20, mix shift, given seasonal demand trends for DRAM, any other kind of investments that you're thinking about? How should we think about those moving parts and headwind tailwind looking out into the February quarter? Yes. So obviously, the biggest one we can't tell you whether it's a headwind or a tailwind, which is market pricing. As we think about our the cost side, we should continue to see some improvement as we go further down the curve with tiny nanometer and the 16 nanometer TLC NAND. And then obviously, it's going to be the mix between end markets. And as we've talked about before, We do have the ability certainly in the February quarter at this point to think about where we want to direct that mix. So those are the 3 big levers and they're going to move in ways that we can't fully predict right now on the market pricing side. The other two things were we're actually thinking about quite carefully right now. Our last question comes from the line of Mark Newman with Bernstein. Your line is open. Hi, thanks for squeezing me in. Just a question on DRAM pricing, PC DRAM, as well as extremely weak during PC DRAM pricing was extremely weak during July August. But since then, there have been some significant mix changes, in including Micron, but also including Samsung as well away from PCD and And I think some of the statements recently, from Samsung, have indicated that they are not not lowering their PDGM price anymore. So I'm wondering if you're starting to see a stabilization in PC DRAM prices already. And also on following up to that, on the other parts of DRAM, server and mobile with all this mix change, is there going to be more weakness in these other parts that markets as we go forward to the rest of the year and into next year? And then I have one follow-up as well. Well, that was a pretty good question of itself. But there's a lot there. I think that, yes, we follow the media. We saw the quotes in the press and all that stuff. We did see some very short term improvement on pricing at the endofmidendofAugust and even early to September, but it kind of has, since we've seen some softness again, some mild softness off to the high. And so we're just tracking that as we look at it and see where it goes from demand standpoint, there's any improvement to holidays. But when you talk about the other markets and you're I think the question you're asking is what happens when you to shift? Is there a danger of oversupplying the other market segments? And, while it's hard to predict what the data says, it hasn't happened today, and we don't sense we don't see it in the market at this point. Mobile has been pretty stable despite the mix move. And I think a lot of that is because The market probably didn't have an appreciation 6 to 9 months ago on what mobile densities would be doing. And in fact, you seen tremendous growth, not just in the low end, but across the smartphone segment, on DRAM content. So, we don't think it's dramatic. We have heard positive signs on industry supply actually slowing over the next year or so, but we got to wait and see and see how that comes out and shakes out in terms of market. But far as demand, we are very upbeat as you've heard on the call today about some of the end market trends we're seeing and our ability to drive drive our technology there. It's really a byproduct of this PC environment and getting that rebound and and create more balance the overall end markets. Thanks. And then on the cost side for DRAM, you obviously brought in, you pulled in your 20 nanometer RAM guidance during your Analyst Day there wasn't very much further comments in today's call about it. So I'm just wondering if there's any latest and greatest comments about how that's going? And if there's when we're going to actually start seeing cost declines from 29 nanometer shrink? Yes. Mark, still tracking pretty well with what we indicated at the Analyst Day ahead of original plan and Yes, we like the way it's going. We think you may start to see small impact in fiscal Q2, but really it's a fiscal Q3 story. All right. Thanks very much. All right. We'd like to thank everyone for participating on the call today. If you please bear with me, I just need to the Safe Harbor protection language. During the course of this call, we may have made forward looking statements regarding the company and the industry. These particular forward looking statements all other statements that may have been made on the call that are not historical facts are subject to a number of risks and uncertainties actual results may differ materially. For information on the important factors that may cause actual results to differ materially, please refer to our filings with the SEC including the company's most recent 10 Q 10 K. Thank you. This concludes today's Micron Technology 4th Quarter 20 15 5