Earnings Call: Q1 2015

Jan 6, 2015

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 First Quarter 2015 Financial Results Conference Call. All lines been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. Thank you. It is now my pleasure to turn the floor over to your host, Kip Bedard. Sir, you may begin your conference. Thank you, Karen, and welcome to Micron Technologies first quarter 2015 financial release conference call On the call today is Mr. Mark Durkin, CEO and Director Mark Adams, President and Ron Foster, Chief Financial Officer and vice president of Finance This conference call, including audio and slides, is also available on our website at micron.com. In addition, our website has a file containing the quarterly operational and financial information and guidance, non GAAP information and with reconciliation, slides used during the conference call and a convertible debt and capped call dilution table. If you have not had an opportunity to review the first quarter 2014 financial press release, again, it is available on our website at micron.com. Our call will be approximately 60 minutes in length. There will be an audio replay of the call at accessed by dialing 404537340 6 with a confirmation code of 482954 15. This replay will run through Tuesday, January 13th, at 11:30 pm, mountain time. A webcast replay will be available on the company's website until January 2016. We encourage you to monitor our website at micron.com throughout the quarter for the most current information on the company in information on the various financial conferences that we will be attending. 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 such statements are predictions and that actual events or results may differ materially. We refer you 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 that 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 Investor Relations section of Micron's website. Although we believe that the expectations reflected in the forward looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We are under no duty to update any of the forward looking statements after the date of the presentation to conform these statements to actual results. I'll now turn the call over to Mr. Mark Durkin, CEO. Mark? Thanks, Kipp. We had another strong quarter benefiting from continued favorable market conditions and solid execution from the team. We set a new record for quarterly revenue of $4,600,000,000. GAAP net income was $1,000,000,000. Free cash flow was $923,000,000 based on record operating cash the investments we're making in the business are putting us in position to continue generating strong cash flow. We expect continued favorable market conditions for 2015 led by constrained supply in DRAM and solid demand for both DRAM and NAND. Demand growth in our business continues to be driven by our customers rapidly increasing memory content to enable them to enhance the performance of their products as opposed to strictly unit growth of end systems. The resulting demand outlook remains very encouraging. A few good examples of this growth include mobile DRAM, server DRAM and solid state drives, all of which are expected to increase the range type. We continue to expect industry bit growth in the low to mid-twenty percent range in 2015 with the development of advanced process technology proven to be disruptive to wafer production. Our belief is that even with steps taken to address the otherwise declining gross wafer production in DRAM, The net wafer output in the industry will stay relatively steady or decline slightly going forward leading to a relative stability of bit supply growth even beyond over the long term. We are projecting industry supply growth in the high 30 to mid 40% range for 2015 with a significant portion of the range in based on deployment of TLC or triple level cell memory. TLC has a compelling cost and price point although there is still some variability in terms of the adoption rate for systems requiring higher performance including certain mobile and SSD applications. We are often asked about the impact of 3d NAND on the industry supply. We don't believe 3d NAND will significantly change the current supply growth rate in the industry given the trade of more bits for a wafer, offset by fewer wafers produced per fab and the capital costs associated with either planar conversion or greenfield additions. Key supply variable over to add incremental 3 d capacity. Micron's approach remains steadfast to focus on returns as opposed to growth or scale when we evaluate this market. We're entering an interesting while also moving more revolutionary technology closer to commercialization. We're very pleased with our recent progress on DRAM. 25 nanometer deployment has been relatively smooth and 20 nanometer enablement is well underway with many milestones being hit early. The extra R and D resources we have brought to bear and the alignment of manufacturing and R and D resources at Hiroshima are clearly bearing fruit. I'll come back to how this deployment is impacting our short term NAND Technology Development, which of course is occurring in collaboration with our JV partner Intel. 3 d NAND enables cost and performance optimization beyond the abilities of Planner NAND with enhanced product performance across a broad portfolio of applications and significant cost per bit reductions over time. We commenced early 3 d samples in calendar Q4 of 2014 and expect volume commercial production in the second half of calendar 2015. Given the confidence in our technology, we recently announced plans to add additional cleaning space in Singapore to enable a ramp with 3 d NAND as well as other emerging memory technologies. This addition effectively doubles the existing Fab 10 cleanroom space once completed, we'll create additional economies of scale for our nonvolatile memory operations in Singapore. The CapEx for this project is estimated to be about $4,000,000,000 spent over a number of years with tool installs and production expected to begin in calendar 'sixteen and calendar 'seventeen, respectively. We expect to reserve a portion of this capacity for Intel under a supply agreement. Note, our fiscal year 2015 CapEx guidance of $3,600,000,000 to $4,000,000,000 is unchanged year on new clean room is primarily for design and early construction work. Keep in mind, we will be moving back to a normal 13 week quarter in Q2 from the 14 week quarter we just completed. In addition to the 13 deployment, including 20 nanometer and subsequent 1X and 1Y nodes, which we have on our roadmap. These nodes are increasingly challenging, which is a good thing in terms of industry supply outlook, can be a short term headwind in terms of bit shipments. This production law was occurring in a normally seasonally slower demand period. We continue to focus on product excellence customer service, margins and returns rather than simply shifting additional bits into the market. To give you an update on our longer term bit we now expect our DRAM production to come in below the market for calendar year 2015. There are several factors leading to below market growth this year. These include product disruption for technology upgrades just mentioned 20 nanometer technology, which is being deployed in calendar year 15 reduces wafer out to about 15% to 20% for a given square foot of clean room space compared to 30 nanometer. Although we are taking steps to minimize the impact, our wafer produced will decline year over year. By the way, I should note, we do have clean room space available to replace or potentially add net DRAM capacity if and when it makes from which continues to grow in importance relative to pure bit metrics. As we diversify and optimize our business, ASP per bit cost per bit and bit growth are all increasingly a function of beef decisions. Of course, the goal is to provide the most value added products to our customers in the constrained supply. By way of example, this year, we are shifting production from DDR3 to DDR4 and continue to grow other value added specialty DRAM products in the mix. Turning to Vit Supply in our NAND business, Q2 is marked by a significant shift in the mix towards the mobile segment. Mobile NAND is characterized by higher ASPs, higher cost per bit and lower bit output per wafer compared to our portfolio average. These mix effects are included in the more detailed guidance Ron and Mark will provide in a minute. This shift in mobile T Mobile is a part of the reason our NAND bit growth will also be below the market for calendar year 2015. Of course, were somewhat above the NAND market growth rate in 2014 following the conversion of our Singapore DRAM fab demand. Additionally, as I mentioned, we will begin manufacturing a 3 d NAND in the second half of the year and expect what we believe is industry lead 3 d technology to have a significant and positive impact over time. Before I wrap up, I'd like to take a minute to discuss our partnership and supply agreement within Oterra. The supply agreement has a 3 year term renewable on an annual basis. As with any agreement, dynamics can evolve over time and changes are sometimes required to ensure fair economics between all parties. At this point, we're in discussion with our partners regarding the terms for renewing the agreement and we will provide an update I want to congratulate the team at Micron for a very strong quarter. We have a tremendous opportunity to continue delivering for our customers and shareholders and we're looking forward to an exciting and productive year in 2015. I'll stop here and turn it over to Ron and Mark before turning for Q And A. Thanks, Mark. The first quarter of fiscal 2015 ended on December 4th. We posted to our website a file containing the financial information I cover, including GAAP and non GAAP results, certain key metrics for the first quarter of fiscal 2015 as well as guidance for the second quarter. Fiscal 2015 contains an extra week, as Mark mentioned, to synchronize our 52 or 53 week fiscal calendar with the August year end, by policy, the extra week falls in our 1st fiscal quarter. So first quarter of fiscal 2015 contains 14 weeks while the rest of the quarters will contain to marry 13 weeks. The results for the first quarter include net income of $1,300,000,000 or $0.84 per share on net sales $4,573,000,000. Gross margin came in at 36%, up about 3 points compared to the previous quarter. Part of this improvement is coming from higher costs in the fourth quarter related to the Tesaro license and last time sale of legacy phase change memory products. That we mentioned on our last call. Our reported income from equity method investments for the first quarter was $124,000,000, substantially all of which is attributable to in Oterra. On a non GAAP basis, net income for the first quarter was approximately $1,100,000,000 or $0.97 per share, Non GAAP adjustments resulted in a net increased income of $135,000,000 or $0.13 per share and included the following The amortization of debt discount and other costs of $38,000,000 includes imputed interest on our convertible notes and the discount on the MMJ installment debt. The loss on restructure of debt of $30,000,000 related primarily to the repurchase and conversion of convertible notes in the first quarter. The $21,000,000 loss from changes in balances of non USD assets and liabilities that resulted in an over hedged position in the quarter. Non cash tax expense from the MMJ and MMT operations was $38,000,000. Finally, there's a $27,000,000 in share anti dilutive effect of capped calls based on the average stock price during the first quarter of $32.35. In the second fiscal 2015, we expect the following significant non GAAP adjustments and approximately $35,000,000 for amortization of debt discounts and convertible notes, and MMG installment debt. Non cash taxes related to the LPDA acquisition are expected to be approximately $30,000,000 in the second quarter. Also the anti dilutive effect to the convertible debt dilution table included in the earnings call data file posted on our website. Let's turn now to our results by technology and guidance for the second quarter. DRAM revenue increased 9% compared to the 4th quarter, primarily due to an increase in bit sales volume and stable average selling prices. DRAM gross margin improved a couple percentage points into the low 40% range. DRAM gross margins for the 2nd quarter using quarter to date ASP and projected mix for the quarter should be down slightly compared to Q1 based and cost per favorable DRAM market conditions with like for like pricing generally stable to down slightly in most DRAM market segments, Mark Adams will expand on this in his comments. Lower levels of production primarily due to the normal 13 week period in Q2 equipment upgrades in preparation for the next generation process technology On the trade NAND side, revenue increased 14% in the first quarter with a 20% increase in bit sales volume, partially offset by a 6% decrease in average selling price. Trade NAND gross margin was down slightly to the mid 20% range cost reductions per bit date ASP and projected mix for the quarter are expected to be down low to mid single digits compared to Q1 based on bit production flat to down low single digits with the normal 13 week period in Q2, as I mentioned. ASPs flat to down low single digits and cost per bit up mid single digits, primarily relating to mix. Key trends for the second quarter affecting this guidance are like for like pricing is down mid single digits. Pricing pressure in the spot market and with client SSDs early in the quarter, although these markets have begun to stabilize of late, and a shift in mix to a higher concentration in mobile and managed NAND products, which has a slightly improving effect on margin within increases in both ASP and cost per bit. On a consolidated basis, we're guiding total revenue for the 2nd quarter in the range of four point $3,000,000,000, which reflects the normal 13 week period. Looking at other P and L and cash flow results and guidance, SG and A expense in the second quarter is expected to be relatively stable when compared to Q1, which came in just below our guidance. R and D expense in the first quarter was below our guided range, primarily due to improved execution of product qualifications. We expect a higher level of qualification activities in the second quarter, which is contemplated in our guidance. Depreciation and amortization expense for the year is estimated at $2,900,000,000, but will vary based on the changes in the timing of equipment receipts. As Mark mentioned, the company generated record operating with 5,300,000,000 in cash and marketable investments. During the first quarter, we spent $532,000,000 on dilution management relating to our convertible notes. We also replaced our $175,000,000 AR backed credit line with a $600,000,000 AR and inventory backed credit line. No amounts have been drawn under either of these facilities. During the first quarter, we announced board authorization to repurchase up to $1,000,000,000 of our common stock. Any repurchases under the authorization would be performed opportunistically in open trading windows. There were no share repurchases during expect binding substantially all payments for property, plant and equipment into a single line in the Investing section of the Statement of Cash Flows. Historical periods are being reclassified as well to facilitate capital expenditures was the sum of expenditures for property, plant and equipment and payments on equipment contracts. So there is no change in the disclosure of total capital expenditures, just a landscape change on the cash flow statement. We estimate in Japan change approximately $2,500,000. Our Q2 guidance contemplates the U. S. Dollar to yen exchange rate at the end of Q1 which was approximately 120 yen to the dollar. As a reference, the average exchange rate during the first quarter was approximately 110. I'll turn it over to Mark Adams for his comments. Thanks Ron. I will cover a review of our Q1 operating performance. As well as share commentary on market insights, key segment trends and memory industry dynamics as we enter calendar 2015. Our computing and networking business unit referred to as CMbu had an outstanding quarter recording $2,100,000,000 in revenues. Our operating margins came in at CNBU benefited from a slightly higher DRAM prices and lower costs, which led to the overall improved operating performance in the quarter. The growing diversification of server, networking, enterprise and graphics segments. Demand in the PC client segment remained strong in our first quarter. That shipments in client grew heading into the holidays and pricing held firm in Q1. Commenced volume shipments of our 25 nanometer technology into the client PC Tier 1 OEM customer base. Which resulted in improved costs. Driven by continued growth in cloud Computing And Data analytics, we achieved both record revenue and bit shipments in our server business. Server DRAM bitgrowth is forecasted to grow 40 that require higher DRAM performance and density. Our server business remains a very attractive segment, with a demand profile that is less sensitive to price fluctuations segment delivered revenue growth of out in China and other emerging markets. Audio video and gaming content projected to grow roughly 20% in calendar year 2015 will drive higher demand from Micron's memory products, in a business that yields attractive gross margins. Our graphics business, which is another market segment that delivers favorable ASP and margin uplift, grew Q1 revenues 18% when compared to fiscal year Q1 2014. Last year consoles doubled their memory content per box and we feel that there will be additional content growth this year as the use of these devices continues to expand beyond gaming into more compute and home entertainment functions. We had a strong as major OEMs are in qualification for their value added configurations. While coming off of a relatively low base Shipments of DDR4 increased four times quarter over quarter. We are seeing very strong demand signals for DDR4 in the coming quarters in particular from the enterprise server customer base. DDR4 ASPs remained at a significant premium to DDR3 given the enhanced performance. As the market for DDR4 begins to take shape over the next 12 months beyond, the rate of growth should positively impact our average ASP. We're seeing good progress of our 8 gigabit GDDR5 technology as we're shipping engineering samples to 2 of our larger enabling partners. Our 20 nanometer technology DRAM process. We are evaluating ways to accelerate this transition ahead of our current plan. Our storage business unit or SBU achieved $987,000,000 in revenue in Q1, up 9% quarter on quarter. Our SBU operating margins were stable this quarter despite some challenging capacity, both the channel components and client SSD segments, which applied downward pressure on pricing towards the end of our first quarter and into our current quarter. As we produce primarily MLC Technology, we are focused on finding higher opportunities that require best in class performance and are trying to minimize our exposure to aggressive market pricing. We are making good progress in driving our SSD roadmap to our award winning 16 nanometer technology. Successfully qualified the M600 drive at a Tier 1 PC OEM customer and anticipate additional commitments over the next 90 days. In addition, today, we are announcing 2 crucial branded client SSDs, enabled by Micron 16 nanometer process for shipment in this quarter. We expect to have 50% of our client SSD shipments on 16 nanometer by the end of our first quarter. On our last call, I outlined these steps we were taking to improve our overall man competitiveness. I wanted to give you an update on our progress. Our focus is in three areas: process advancement system level enablement and higher value end market applications. We successfully hit the forecasted milestone to deliver engineering samples of our 16 nanometer TLC device by the end of calendar 2014. We are targeting late spring shipments of TLC components to the channel and consumer segments and expect to commence shipping TLC client SSD drive into the market during the second half of twenty fifteen. Micron will continue to increase our leadership in over all NAND scaling, demonstrated by our vertical cell, 256 gigabit MLC and 384 gigabit TLC 3 d NAND devices, which we believe will have the highest density per square inch of silicon in the industry. We are now sampling 3 d NAND component and remain on track for initial commercial production during the second half of calendar twenty fifteen. Beyond innovation at the technology level, we continue to add controller and firmware resources that are helping to accelerate product development and enhance the quality of our enterprise data center and client based SSD products. In addition, are investing in packaging capabilities that allows us to integrate technologies to offer performance, power and or reliability benefits. Such capabilities are the foundation for driving into more solution oriented products designed to meet specific customer needs. Finally, we are continuing to diversify our NAND business into more attractive end market applications. As an example, revenue for NAND sold into the mobile segment was up over 45% quarter over quarter Coupling NAND with DRAM in the form of EMCPs is a high growth opportunity, which I will discuss in the mobile segment shortly. Our enterprise SSD business set a revenue record in Q1 and margins were up quarter over quarter as the team drove qualifications of our M500 DC product into cloud and data center customers. We are evaluating options accelerate growth into this expanding segment of the market that includes data center, cloud, networking, security search and e commerce customer The fundamental for long NAND consumptions continues to be positive. We are meeting the milestones we set in our plan to improve the long term operating competitiveness feel optimistic about our position going forward. MBU revenue came in at $940,000,000. Operating margins were 33% in Q1, compared with 22% The iPhone 6 launch was a catalyst for strong holiday demand. Memory content per device is driving customer forecast in 2015. On the high end, the Samsung node is shipping with 3 gigabytes of low power DRAM and Chinese competitors such xiaomi are differentiating with larger memory configurations. Below to mid range price smartphone market is content as well. Products such as the Android 1, which has 1 gigabyte of low power DRAM. We are also seeing higher memory content in Flash where mid and high end smartphone have shifted configurations from 32 gigabytes 64 gigabytes to 64 gigabytes 128 gigabytes. On the product front, we are growing our managed NAND business with increased shipments of the MCPs. The rapid adoption of the MCPs by the mid range market where there is strong growth has created a significant opportunity for Micron. With our capability of supplying known good die flow for the formal LP to operations and our 16 nanometer NAND technology, Micron is uniquely positioned to capture this growth opportunity as EMC moved to replace EMMC in the largest mobile segments. The team is also working on low power DDR4 enablement with our chipset bar that will allow for key We are focused on a returns approach to the mobile business. We are pleased with the progress the team has made to date. We are constrained to meet our customer demand forecast and continue to evaluate how to best balance our overall capacity to support Micron's valued customers. Our embedded business, or Ebu, set a quarterly revenue record achieving $539,000,000 in sales. This is our 8th consecutive of revenue growth for Ebu. Our operating margins rose to 22%, up from 16% last quarter. This growth was driven by record shipments Automotive revenues were up 18% quarter on quarter. The Automotive segment continues to benefit from memory content fueled by both infotainment and a advanced driver assistance systems in the new offerings. Our commitment to the unique needs of this market in areas such as quality, reliability, product longevity and service have enabled us to strengthen our market leadership in Q1. The broad category of industrial and multi market was up 12% quarter over quarter, driven by continued growth in factory automation, machine to machine, and Aerospace And Defense. As we see strong demand growth in areas such as automotive, entertainment, consumer electronics, connected smart homes and machine to machine systems, we remain optimistic for a strong demand environment in our for fiscal year 2015. It is worthy of note that we have recorded our 4th consecutive quarter of growth in nor product shipments with over 70% now on our 45 nanometer process. We will continue to seek opportunities to leverage our portfolio Iran NAND and NOR to drive continued growth and profits in the embedded market. Coming off a strong fiscal year 2014, Our operations team is focused on managing through a number of transitions to ensure long term competitiveness. On the integration front, implemented Micron's manufacturing information systems in our fabs in both Hiroshima and Taiwan in Q1. We are also driving expanded 25 nanometer technology at MMJ and MMT. In conjunction with our R and D organization, MMJ is preparing for second half calendar year 15 conversion to 20 nanometer, which looks very promising, with a focus on pulling in the date for volume production. In preparation for these technology transitions, we will see lower DRAM bit production in Q2, which will result a small production down I'd already contemplated in the forecast that both Mark and Ron messaged in their comments. Was also busy preparing our plan for the recently announced fab expansion in Singapore, which we feel offers us the flexibility to efficiently expand the 3 d and emerging memory production in the future as the market conditions warrant. Finally, in the back end of our business, we signed a strategic agreement to partner with PTI to provide a local assembly services on our Xion campus, which will both lower costs and overall cycle time. I would like to now briefly discuss what we are pricing environment for our portfolio DRAM products remains favorable overall. We have seen modest pricing pressure in the PC segment which is not surprising due to seasonality. Mobile DRAM pricing remains relatively stable as we remain very tight on supply in Q2. On the NAND front, pricing saw some softness during the last month of Q1 and the 1st month of Q2. That being said, We have seen some signs of improved pricing in NAND of late, including tightening supply in certain segments such as low density consumer NAND. Our sense is that client SSD inventory at Tier 1 OEMs is still somewhat high post Christmas. We also saw increasing TLC supply from what we do believe to be one of our competitors shifting NAND production away from their own internal mobile consumption to the channel and client term margin compression, we feel these effects are temporary and remain bullish our business over the long run. As the industry converts to 3 d NAND, we feel our performance and costs will continue to improve. Driving accelerated adoption of NAND in the client, mobile and enterprise market segments. In closing, I too want congratulate our team on another great quarter. We are excited about the enablement of a number of the technology advancements I referenced in my comments and feel we are well positioned for continued success in a diversified memory business. With that, I will hand it back over to Kipp. Thanks, Mark. And we will now take questions from callers. Karen, would you please open the lines at this time? Thank you. Our first question comes from the line of Monica Gard from Pacific Crest. Hi, thanks for taking my question. First question is on the NAND market. If you look at your cost decline in ASP assumptions, you add margins are going down again in the quarter. So the question is, why not to delay the conversion to 3 d NAND so that there's a lower bit growth in the market and that the market even stronger before kind of adding more bits to the market? Monica, 1st of all, I would point out that the NAND market to us is really long term, very, very attractive. We see a lot of growth there and we think it's worth investing in. Having said that, we believe that 3 d is a key enabler to future leading edge products and frankly, to long term success in the business. And therefore, as we look at our business, we're prepared to invest in it. And we haven't said a whole lot about what the rate of our ramp would be or exact timing as to when we would bring on additional supply. But we do believe it's important to get moving down the path introducing our 3 d products in the marketplace and enabling those end applications to use our product. Having said all of that, I think we've tried to be pretty clear that there is discipline in our approach that we're going to look at the market on an ongoing basis and make sure that we don't disrupt supply and that we think 3 d is not something that is likely to be some sort of function and C change in terms of how Micron or other competitors in the marketplace, man their production. And that's because there are trade offs here. As you point out, there's capital investment required, there's clean room space and it's not while it's enabling and important, it's not, a massive disruption that we believe will create the oversupply you're alluding to. Thanks. This follow-up on the EHA. Could you provide any color on when could we expect the kind of the new, I guess, if you negotiate the agreement with Enera, when can we see the impact on financial? Thanks. Yes. I don't think that there's a lot we can what we've already said relative to, you know, Tara. It's a 3 year agreement, as we said before. It's renewable an annual basis. We value the relationship. We think the other parties value the relationship and we think that that sets foundation for a reasonable discussion that will lead to a long term, beneficial outcome for all parties. But trying to to, discuss in advance when and what that might look like. I don't think it's particularly productive. And our next question comes from the line of Excuse me, Mehdi Hosseini from SIG. I have 2 on DRAM. Can you please help me understand Demic between consumer PC server and mobile and how this mix change changing from November into the February quarter? And then date on the milestones, but I'm still a little bit confused what the strategy is. Are you trying to be everything to everyone or are you trying to be more focused on a specific segment of NAND that you're pursuing. Any color there will be appreciated. Thank you. So I'll start with the first question. As it relates to the share in the DRAM segments, best to think of our PC business, the PC DRAM business somewhere in the mid-thirty percent share wise and our mobile DRAM business somewhere in the mid 20% and servers roughly high teens. And directionally, while these things are really tough shift in 1 quarter. You see a mild uptick as we started to shift some more capacity over to server in Q1. Mobile was roughly flat and the server business PC business was maybe down a little bit, but that's roughly how it shifted in the relative size of the share in DRAM. And, Mehdi, this is Mark Durkin. Maybe I'll take the NAND piece of that question. At a high level, what we said is we want to we want to play in a lot of different application segments for NAND. And we've acknowledged that takes a lot of resources. And that getting the balance of those resources right, requires ongoing work and that we need to do a better job over the next couple of years than we've done over than we've done over the last couple of years relative to how we allocate those resources. Having said that, we talked in our commentary, we feel like it's important to be in the mobile NAND segment. We think we have a lot of synergy with our low power DRAM business there and with our customers. And we think there's a lot of value added things we can them in the mobile segment. We can't ignore what is a very large and fast growing segment of the market, which is the client SSC piece. And we clearly want to be in the enterprise because over the long haul, we're going to drive significant there. So, we will continue to deploy our resources across a number of different application segments. And then our capacity as we see progress in all those different segments. Thank you. Our next question comes from the line of When I look at your guidance, it assumes a little bit of a challenging environment for you in terms of cost decline. Can you maybe walk us through what is happening over at in Oterra with the node migration and what if any impact that'll have on pre DRAM cost per bit? Yes, Doug. Maybe I'll take that. Here as I mentioned, mix is an increasingly important piece of the answer in all these questions because as we move to more value added applications, that's going to drive different different bit growth. When I think about DDR4 to DDR3 to DDR4, there's a 10 15% die side data moving to that technology depending on exactly how you're positioned. That's going to mitigate bit growth in the year, but it's going to probably drive value. The customers certainly see a lot of value in getting their DDR4 today. Likewise, as we move to more differentiated products to service, networking performs computing and move more of our mix in that direction. We won't see the cost declines we've seen in the past, but hopefully we'll see value add recognized by the customer. Beyond that, I would say there's not There's not a lot structurally, that would change here other than you should recognize that Micron today, nanometer ramp that is a large productivity step. And anytime you deploy capital, you don't get a return instantaneously. It takes a file for that capital to become installed and productive and for the line to be loaded and move through inventory out of the marketplace. And so you have to contemplate that a little bit as 2015 is an exciting year for us in terms of technology deployment. Thank you. Our next question comes from the line of Steven Fox from Cross Research. Thanks. Good afternoon. Two questions for me. Just to dig in a little bit more on the client SSD market. How much can you just sort of go into some color as to how much of the competitiveness you're seeing is temporary? And then from a micron standpoint, how much gets fixed as you roll out your TLC product? Or is there other things that you can do to improve margins there? And then secondly, you could just sort of give us a little bit more of a color around the DDR4 timing of the ramp and how that's going to affect your mix and margins I guess I was on the impression maybe it was going to we were going to start to see it more in the quarter we're in now. Thanks. So on the SSD side, We started to see, kind of preholiday inventory build at the key customers. And we truly do believe it's a temporary piece of the market dynamics in NAND. What I what I what we have been seeing, as I said, of over the last week or so is that the NAND pricing actually stabilized a bit in some sense in some has gone up. So relative to the question on TLC competitiveness, Yes, as we bring those products to market, as I mentioned in my comments, early in the second half of calendar year 'fifteen, we do expect to be able to compete more favorably and we'll then be able to drive more of our mix to the TLC SSD client products at this point. As we look at our opportunities there, we're just being careful not to try to compete with lower cost products when we could MLC products and try to pursue better, higher value homes. On the DDR ramp, as I said earlier, we're pleased with the ramp albeit early. And we think it's reasonable to see by the end of our fiscal year, somewhere in the area of 30% plus or minus our server bits will be DDR4 and really the marble at the market dictate what that looks like as far as the ramp and the scaling out all. Thank you. That's very helpful. Thank you. Our next question comes from the line of John Pitzer from Credit Suisse. Good afternoon guys. Thanks for letting me ask the question. My first question is just kind of a follow-up on the bit production for DRAM. Can you quantify how much lower than the market you expect to grow this year. And I guess importantly, given the timing of product transitions, technology transitions, would you expect bit growth to resume sequentially from the February to the May quarter? Let me take the last bit of that, John, and maybe Mark can take the first part. Mark can take the first part. Yes, I think we will see as we move out in time, get back to sort of a more normal bit growth rate quarter over quarter. As I mentioned just a minute ago, when you deploy technology, sometimes there's disruptions in manufacturing, particular, you want to make sure you're facilitating all the equipment to have legs out in the time. And then as you deploy that technology, you don't necessarily get the bits and the output immediately. So yeah, we would of 8 being back on a more normal trajectory, further out in the year. And John, would you repeat the first half of your question for Mark, please? By how much do you think you'll under grow DRAM bit growth this year. You said you'd under grow industry? Oh, well, we never had a whole lot of position in that, but kind of depends on the mix of TDR4 we put out into the marketplace and exactly how we progress with some of these specialty products I was talking about. We've said sort of of the market, in the low to mid-20s. And we think we'll probably be 20% plus or us, but a little bit below it. And then guys, on the NAND profitability side, you guys have been working hard over the last 12 months to improve that. One of the arguments was that you were selling bits into the wrong market. And as mix improved, you start to see the margin benefit. You're starting to see that mix improve. And it sounds like in your prepared comments that the move to mobile is accretive, but not a big enough move in mix yet to actually drive gross margins higher. Can you help me understand where the mix of mobile in NAND in today? And given where you think that mix is going to go, are you confident in thinking that February might be the gross margin trough for the NAND? Yeah. Let me take the first part of that. I think the first part of your statement was right. We are happy with the progress. There's not enough of that yet to be really moving the needle in the overall scheme of things. I would comment that the NAND business generally has been a little tougher for our competitors well over the last number. The relative improvement is better than the absolute improvement so to speak when you look at it. And we continue to put the pieces together for the longer term and we think we're making progress doing that. And I can just make a comment on the front part where you talked about the product mix, John. And remind you, these things are not necessarily things that shift dramatically in a quarter, but to your point, you'll see mobile as percent of our overall NAND business just quarter over quarter almost double in terms of the share of the business. Up to close to 20 almost slightly 20%, slightly below 20% of our NAND business. And then you'll see a healthy shift away from our cars and component business as we do this and find better homes. And we'll continue to look at ways to drive enterprise storage and client SSDs. For those that make sense. Mark made an interesting comment in his prepared statement today that we are finding customers that are not totally invested in TLC for their client SSDs where they're finding higher performance requirements just simply reliability issues that they don't want to bet on in TLC. And so we're going to continue to drive our customers to evaluate our higher performing MLC based client SSD storage as we drive that forward as well. And so that should be the trend you see mobile, a shift away from channel and driving more enterprise and high performance client SSD. Thank you. Our next question comes from the line of Mark Newman from Bernstein. Hi. Thanks for taking my question. The results on DRAM continue to do very, very well, continue to be much stronger than it actually. And I think if I could summarize what you're saying, we think that the market going to be strong and tight and that's going to continue throughout 2015. But looking at NAND, obviously, continues to disappoint, I think. We've got margins down and looks like you're projecting down again next quarter. So the question really I have, for you, and some of it you've already talked about, but I want to ask more specifically do you think this is this this, some to somewhat disappointment on the NAND side? I would say or delay in the recovery seems to be, is it related to the market being worse than expected due to oversupply in the it, or is it, difficulties on execution, and And what kind of timing should we expect for some improvement on the NAND side? It seems like the NAND recovery always seems to be about two quarters off. You know, obviously TLC SSDs all both have been mentioned as a big part of that solution. Now it seems like you're moving some your mix to mobile. So I'd like to understand what the updated plan really is to improve the profitability at the end? Thanks. Good, Mark. This is Mark Adams. Thanks for the question. A couple of things. If you look back over the last couple of quarters, on a row basis, our margins have held pretty stable relative to our competition, actually closing and incrementally closing the gap a little bit. Now we're not satisfied with that by any stretch, but that's those are just some data points. This quarter, Again, gross margin was pretty flat in a relatively tough period for NAND in the market dynamic. So as a backdrop to your question, that's what we're up against. When you talked about kind of a confusing or changing strategy, I don't think that's the case. Please don't TLC with where the end application products go. You mentioned TLC and now it's shipped to mobile. Actually, mobile enterprise and client SSDs We're always part of our strategy and continue to be part of our strategy. TLC is the technology foundation for what we enable low cost solutions the market and we're investing that. Over the last year, both Mark and myself have made comments to the tune of sampling at the end of the on a year. That's in place. We've done that. We're in process and starting qualifications. We said components and then consumer applications, we'd be shipping late spring end of our end of the calendar second quarter. And we'd be launching client based SSD drives of TLC. Those are all tactics to the strategy of deploying TLC where it makes sense in the market. That's not the whole story. Using our DRAM and NAND technology, we known good guide flow from LP to in line with our technology in MLC and eventually TLC, we're going to launch and develop the mobile We're going to continue to invest in controllers and firmware and software technology to advance both enterprise and client SSDs. We don't see TLC in the enterprise just yet. We'll continue to evaluate that path, but that's an end market that has nothing to do with TLC or MLC. And on the client side, same thing, going to still make client MLC drives, but in markets that are looking for lower cost alternatives, and we'll sacrifice and performance will deploy TLC. So those areas of mobile and enterprise and client storage are 3 pillars of where we're investing to drive applications and the technology where the BMLCR TLC is the core to how we get there. Got it. That's that's very, very helpful. If which area do you think is more is high and how would you order the margins for Micron amongst the businesses, but in NAND out of client SSD enterprise SSD, mobile, and everything else. How would you order those? The best way to look at it is enterprise SSDs are likely to garner the highest margins. Mobile would probably be 2nd. And client SSDs, 3rd of those 3. And then there still is a health in terms of volume as a components channel out there for consumer applications and embedded applications and so on and so forth. So that can vary depending on the overall market dynamics I see. And then looking forward to, later on this year, it is going to become healthier in NAND flash. Do we need to expect do we need to see a healthier market in NAND for margins to get back up significantly higher than this, do you think? Well, as we as it's always tough to project, I would say, I want to caution you. The gut feel right now based on the feedback from our customers is that NAND is going to be relatively tight. Now when we talk about this changing business we're in, it doesn't mean that you will have small periods, temporary periods where there's an oversupply. And a certain segment of the market, whether it be a client SSD issue, whether it be something else. And so we think overall with the growth and demand drivers in mobile, enterprise and client that overall, we think it's going to be in pretty good shape. And the type of demand forecast we're seeing from our customers suggest that things will remain in balance and be pretty positive in the remainder of our fiscal year. Great. That's very helpful. Thanks so much. Thank you, Mark and Karen. I think we have time for one more color. Thank you. Our final question for today comes from line of Daniel Amir from Ladenburg. Thanks a lot. Thank you for taking my call. So I was wondering what has basically changed maybe from your perspective in the past 90 days? Is it more the DRAM business, more the NAND business? It certainly looked like that 90 days ago, there was more of a thought here that the NAND business might be in a demand remains pretty solid for DRAM. But now you're looking at, you know, maybe lower bit growth here. So is something surprised you on the negative side or was this kind of a thought process 90 days ago on the business? Thanks. Sure. Thanks for the question. I the way I would answer that is that we don't see any structural change in the business. On the NAND side, we do believe there was some shifting of some capacity from competitors into away from certain segments and into the kind of low volume segments that hit pricing a little bit on the spot market and the client energy level client devices and what have you. But we don't see any structure there. We think actually we're very bullish still on the NAND demand side of the business. In the DRAM piece, I think Mark spoke to the rationale behind what drove our decisions to making the DRAM capacity long term decisions and investments. And so, we still think it's a very good business, very stable. And ASPs are relatively flat. And we are we're still pretty positive. All right, great. Thanks. Thank you, Daniel. And with that, we'd like to thank everyone for participating on the call today. In will please bear with me. I need to repeat 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 and all other statements that may have been made on the call that are not historical facts are subject to a number of risks and certain needs and 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. Thank you.