Earnings Call: Q4 2014

Sep 25, 2014

Good afternoon. My name is Kate and I'll be your conference facilitator today. At this time, I would like to welcome everyone to Micron Technologies Fourth Quarter 2014 Financial Release Conference Call. Thank you. It's now my pleasure to turn the floor Contechnology's fourth quarter 2014 financial release conference call. On the call today is Mark Durkin, CEO and Director Mark Adams' President and Ron Foster, Chief Financial Officer And Vice President of Finance. This conference call, including audios and slides, is also available on our website aticron.com. In addition, our website has a file containing the quarterly operational and financial information and guidance non GAAP information with reconciliation slides used during the conference call to review the fourth quarter 2014 financial press release, again, 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 the call. You may access that by dialing 4 045373406 with a confirmation code of 2237-916. This replay will run through Thursday, October 2nd, at 11:30 pm Mountain Time. A webcast replay will our website at micron.com throughout the quarter for the most current information on the company, including information on various financial conferences that we will be attending You can also follow us on Twitter at Micron Tech. Now please note the following Safe Harbor statement. During the course of this meet, 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 to the documents the company files on a consolidated basis for 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 presentation to conform these statements to actual results. I'll now turn the call over to Mark Durkin. Mark? Thanks, Kim. We had another strong quarter benefiting from robust market demand as well as solid operational execution. We set a new record for revenue of over $4,200,000,000 for the quarter. Net income was $1,150,000,000 or $0.96 per diluted share. For the fiscal year 2014, we generated record revenue of $16,400,000,000, record net income over $3,000,000,000 and record free cash flow of $2,600,000,000 based on record operating cash few key areas of focus as well as provide a brief industry update. Ron Foster will follow with a financial summary and before turning to Q And A, we'll close our prepared comments with Mark Adams covering additional details of our operational performance and market conditions. Beyond ongoing advanced component technology development, we have 3 main operational focus areas for fiscal 2015. The first is technology deployment and includes continued 25 nanometer DRAM conversion and 20 nanometer DRAM RAM completion of 16 nanometer planar NAND conversion and introduction of 3 d NAND TLC NAND deployment for cost sensitive applications and building out our capability to deliver advanced packaging solutions and controllers. The second is optimizing manufacturing capacity, includes improving our manufacturing efficiency through line balancing, cycle time, yield and metrology initiatives and managing our product mix in order to generate the best possible long term margins and returns for our business. And finally, in 2015, we'll focus on growing our memory systems and subsystem solutions, including expanding the market penetration and our offering breadth, of our advanced bid addressable memory solutions, building additional storage solutions such as enterprise SSDs and designing new and innovative mobile memory system solutions. As we outlined at our Analyst Day last month, fiscal 2015 CapEx is expected to be in the range of $3,600,000,000 to $4,000,000,000. Roughly 30% of this CapEx will go towards non supply expanding investments, including manufacturing efficiency improvements emerging memories, backend capability and additional system manufacturing and engineering tooling to support system and subsystem level products. This compares to about 25 percent of our $3,100,000,000 CapEx bill in fiscal 2014, and highlights our belief that these investments which are designed among other things to enhance our value added product portfolio will generate some of the high returns going forward. In terms of the more traditional investments in memory process technology, DRAM will represent about 50% and NAND will represent about 20% of our total CapEx in 2015. This compares to roughly 45% and 30% to 35% respectively in 2014. We expect the bit growth we generate from technology in calendar 2015 to be in line or below the market for both DRAM and NAND. Our big growth profile is reflective of our strategy to grow the mix of premium and value added products while maintaining and improving operational efficiency and costs. While this will lead to less pure supply growth, we expect we will generate more attractive and sustainable margins over with this approach. Our long term outlook for memory for the memory industry remains favorable. For DRAM, we're forecasting 2014 industry supply growth of around 30%. In 2015, we expect DRAM industry bit growth in the low to mid-twenty percent range And beyond 2015, we expect industry supply growth to slow somewhat ranging from the high teens to mid-20s. Part of this encouraging supply trend is due to the fact that 20 nanometer and sub-twenty nanometer process technology ramps significantly reduce the wafer production for existing cleanroom space. We believe the DRAM industry supply demand balance will continue to be favorable for the foreseeable future. Demand elasticity has declined from historical levels and cost per bit is no longer the major factor driving demand growth. For NAND, we're projecting industry supply growth in the high 30 to low 40% range for 2014. This includes an increase in industry wafer production of just over 10% with the remaining supply growth coming from technology. We expect 2015 industry supply growth to be in the high 30% to 40% to mid-forty percent range beyond 2015 when three d becomes more prevalent in the market, supply growth will depend on new capacity investment. Although three d technology drives a significant increase in bits for wafer, without capacity investment, this is offset by substantial decreases and wafer output per square foot of cleanroom space. The demand profile matches up well with the existing supply growth that due to elasticity of demand for NAND and client and enterprise storage applications, the demand growth could be significantly higher over time. At Micron, we'll continue to manage our NAND business focused on long term returns. I want to congratulate the whole Micron team for a tremendous year. The memory industry continues to look very attractive and we've never been better positioned to deliver differentiated value for our customers and shareholders. I'll stop here and turn it over to Ron and Mark before returning fourth quarter 2014 fiscal year ended on August 28th. We posted to our website a file containing the financial information I will cover, including GAAP and non GAAP results certain key metrics for fiscal 2014, the 4th quarter as well as guidance for the first quarter of fiscal 2015. For fiscal 2014, we posted record revenue and net income, as Mark mentioned, with a net income of $3,000,000,000 or $2.54 per diluted share on net sales of $16,400,000,000. This compares to the fiscal 2013 results of net income of $1,200,000,000 on net sales of $9,100,000,000. Recall that the 2013 results include the $1,500,000,000 non cash gain in the 4th quarter from the purchase accounting for LPDA and Rex Chip, which we now refer to as Micron Memory Japan or MMJ and Micron Memory Taiwan or MMT. The results for fiscal 2014 reflect continued healthy market conditions, particularly for DRAM products and and our only comparing 2014 to 2013. Now focusing on the 4th quarter results we posted net income of $1,150,000,000 or $0.96 per diluted share on net sales of 4,200,000,000 The 4th quarter gross margin of 33 percent includes a $66,000,000 charge associated with a patent license with Tesira. The go forward license will have cost of goods sold charges that are not anticipated to have a material impact to any future quarterly period. In addition, gross margin time sale of legacy architecture, mobile PCM or face change memory products, which was mentioned last quarter as part of our guidance. Without these two items, gross margin for the 4th quarter would have been higher by approximately 2.5 percentage points. On a non GAAP basis, net income for the fourth quarter was $961,000,000 or $0.82 per share. Non GAAP adjustments net to a reduction of income of $189,000,000 or $0.14 per share in the 4th quarter and included the following. The charge related dollars, which were primarily related to employee termination benefits from a workforce reduction in Italy. Amortization of debt discount and other costs of $37,000,000 in the fourth quarter include computed interest on our convertible notes and the discount on the MMJ installment debt. The loss on restructure of debt of $17,000,000 related to primarily to the repurchase and conversion of convertible notes to be settled in operations were $118,000,000 benefit in the 4th quarter, which includes a benefit from a change in the estimated utilization of net operating loss carry for for quarter also adjusted out of the non GAAP results as follows. A $93,000,000 gain was recognized as a result of in Oterra's equity GDR off offering in May that was executed at a price above the carrying value of our investment. This gain was recognized in the fourth quarter since we account for our equity method results from Innoterra with a 2 month lag. And $119,000,000 gain was recognized from the sale of our remaining interest in Tina to ON Semiconductor. The transaction closed just shortly before the end of the fiscal year. And finally, there's a $27,000,000 share anti dilutive effect of capped calls based on the average stock price during the fourth quarter of $31.91. In the first quarter of fiscal 2015, we expect $40,000,000 $45,000,000 for amortization of debt discounts on the convertible notes and the LPDA installment debt. We are anticipating a of the 20.31 $20,000,000 $30,000,000 in the first quarter. Also, the anti dilutive effect of our CAF calls will be based on the average share price Let's turn now to our On a consolidated basis, we are guiding total revenue for to $4,700,000,000. Recall that our first quarter of fiscal 2015 will include an extra week due to However, revenue may vary differently. Turning now to DRAM. DRAM revenue increased nearly 5% compared to the 3rd quarter, primarily due to an increase in bit sales volume and stable ASPs. DRAM gross margin remained in the high 30% range with flat cost per bit. Cost per bit would have been down 2%, absent the effect of the Tesira license. Our reported income from equity method investments for the fourth quarter was $119,000,000, substantially all of which is attributable to Innoterra. DRAM gross margins for the first quarter using quarter to date ASP and projected mix for the quarter should be up a couple points compared to Q4 based on bit production up mid to high single digits, ASPs up low single digits and cost per bit down low single digits, which includes the effect from the Atestra license in Q4. Key items affecting our DRAM guidance for the first quarter are continued favorable market conditions, like for like pricing generally and trending up for mobile DRAM, which Mark will comment on in a few minutes. On the trade NAND side, revenue increased 6% in the 4th quarter with a 13% increase in bit sales volume, partially offset by a 6% decrease in the average selling price. Trade NAND gross margin was in the mid-twenty percent range, down approximately 3 percentage points with ASP declines outpacing cost per bit reductions of 2%. However, absent the effect of the Tesro license agreement, cost per bit would have been down approximately 5%. Trade NAND gross margins for the first quarter using quarter to date ASP and projected mix for the quarter are expected to be down 1 to 2 percentage points compared to Q4 based on bit production is expected to be up high teens ASPs down low to mid single digits and cost per bit down low single digits compared to Q4 which includes the effect of the Tesla license. Key trends for Q1 affecting this guidance are generally stable NAND market conditions, and also strong growth in client and enterprise SSD volumes with more pronounced price competition and initially higher BOM costs that impact margins. Looking at other P and L and cash flow results and guidance. SG And A expense in Q1 is expected to be up slightly from the normalized weekly run rate from the 4th quarter. R and D expense in the first quarter fiscal 2015 is expected to increase compared to the fourth quarter, even when normalized for the 14th week in Q1 due to higher volumes of development wafers processed for new technologies new solutions development. The company generated $1,350,000,000 in operating cash flow 4th quarter and ended the quarter with $5,400,000,000 in cash and marketable investments, approximately $1,800,000,000 increase over the fiscal year. Expenditures for property, plant and equipment in the fourth quarter of fiscal year were $1,300,000,000 $3,100,000,000 respectively. Our cash tax rate continues to be are expected to run-in mid revamping the capital structure of the company with a focus on reducing dilution associated with our convertible notes. Been repurchasing or converting convertible notes with cash and replacing them with high yield notes, including the 4th quarter repurchase of the 20.32 notes, an issuance of 1.150000000005.5percent notes. Approximately 90% of the free cash flow generated during the year used for these dilution management activities. In addition, in fourth quarter, we used $339,000,000 of cash to prepay certain foreign loans and leases. We have indicated that the pending conversion of the remaining 2031 B notes will be for cash, resulting in an outflow in Q1 of approximately $390,000,000 of cash. Now I'll turn it over to Mark Adams for his comments. Thanks, Ron. I will begin as usual with a review of our Q4 operating performance by business Our computing and networking business unit referred to as CNbu had another strong quarter achieving $1,900,000,000 in revenues in Q4. DRAM pricing in CMBU was up quarter on quarter, highlighting a continued healthy demand supply balance in computing, server, networking and enterprise market segments. On the client side, we continue to receive strong demand signals from our PC customer base. And with our 3 largest OEM customers and have received interest in locking prices again for Q4. We achieved record revenue and bit shipments in our server segment. Server DRAM growth is being driven by customers adding more memory per system. In fiscal year 2014, we saw 40% year on year growth in DRAM per server, while ASPs in this segment has strengthened over the same period. This growth in server based memory is based on increasing server workloads continuing to require DRAM performance and density and is a great example of a high growth segment with a demand profile that is not sensitive to price. Networking revenues in DRAM were up 19% quarter over mix. Next year, we expect to see significantly more 4G handsets sold utilizing this capacity, which continues to drive higher memory content per phone. The U. S. Will fully be engaged in a 4G LTE build out throughout calendar 2015. And as a result, we anticipate seeing continued strong demand in this area. Lastly, our graphics business continues to flourish and increasingly contributes to an uplift in ASPs and margin. We are starting to see strong gaming consoles demand ahead of holidays and remain optimistic for a good quarter in graphics. We are pleased with the progress on the technology innovation front in DRAM. We commenced early DDR4 shipments in Q4 as Intel officially launched DDR4 enabled platforms in early September and Micron is valid with their entire 4 gigabit based portfolio. I want to recognize our R and D organization, our engineering teams, and BU Product Development organization for positioning Micron as first to market and what we feel can be a strong value added business. We are in qualification at major OEMs for both server and client opportunities for DDR4. For those customers looking to differentiate their solutions. We have also launched into the non volatile dim category providing for DRAM content backup, which dramatically improves reliability. Our NVDIM product launch initially based on DDR3 is going well as we have received production orders from Tier 1 customers. We have also signed a lead major OEM customer for the launch of our DDR4 based NV dim targeting shipments in calendar Q2. Micron's hybrid memory cube continues to gain significant traction at leading network and server customers. In addition, Similar technology from Micron will be used in Intel's nights landing platform for high performance and low latency benefits and high performance computing. And finally, our GDR5 product continues to gain wide adoption in gaming cold fill consoles and is also being sampled in high performance networking applications. Our storage business unit or SBU we recorded $907,000,000 in revenue in the 4th quarter, up 4% quarter over quarter. We continue to make progress in both the client and enterprise SSD market. We set records for total SSD revenue gigabytes shipped and overall units in our fourth quarter, while also achieving record revenue for both client and enterprise SSDs individually. We increased client SSD shipments to Tier 1 OEMs by 23% quarter on quarter. For our fiscal year 2014, SBU revenue was up 23% when compared to 2013 coming in at 3,500,000,000. Gross margin dollars were up 17% year on year, reflecting the overall health of the NAND market. We remain focused on improving the fundamentals of our NAND business as we believe there is upside to our performance relative to our competition in the coming quarter. I would like to discuss some of We executed the fastest ramp Tech Insights recognized Micron with a semiconductor product of the year award and most innovative memory device award for this technology. We are making progress in for the end of this calendar year. We are targeting late spring shipments of TLC components to consumer applications and expect to be shipping a TLC client as D drive into the market during our fiscal fourth quarter. Micron will continue to increase our leadership and overall NAND scaling with our 256 gigabit 3 d NAND device, which we believe will have the highest density per square inch of silicon in the industry. We remain on track for calendar Q4 sample and currently forecasting volume production by 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, enhance the quality of our PCIe SaaS and SATA based SSD products. Led by the launch of our M500 DC Enterprise product, which targets data center applications Our enterprise SSD revenue was up 79 percent quarteronquarter. This investment in system level solutions has led new customer wins in server, network security, cloud and video streaming segments in Q4. In addition to chip and system level investments, we continue to recruit strong level sales and marketing personnel to position our go to market engine for future success. We are investing in expanding our customer engagement support is increasingly becoming more of a design and custom solution type relationship with key accounts. Finally, we are continuing to diversify our NAND business and do more attractive end market applications. As an example, revenue for NAND sold in the mobile segment was up 18% quarter over quarter. Coupling demand with DRAM in the form of EMCPs is a high growth opportunity. EMCPs are essentially low power DRAM packaged with a managed NAND product all behind the controller. We believe this solution is a great example of the value of Micron's portfolio. We continue to grow share our consumer product segments with Lexar branded memory cards and USB products gaining share in the U. S. And international markets. We remain bullish on the long term market opportunity in NAND both in terms of the market outlook and our ability to improve our operating performance. Upside potential in our NAND business will be driven by the chip level innovation including TLC and 3 d NAND, investment in system level capabilities, additional organization capabilities and focused of our mobile business unit. MBU revenue came in at $909,000,000 with a 22% operating margin. We continue to consumer appetite for improving smartphone application features and performance. On the high end, the Samsung Note 4 is now shipping with 3 gigabytes higher end configurations have shifted from 32 gigabytes 64 gigabytes now to 64 gigabytes and 128 gigabytes. We are currently forecasting NAND growth in the mobile segment of greater than 3x year over year for fiscal year 2015. The low to mid range price smartphone market has driven additional memory content as well. And even the entry level segment is evolving from phones with virtually no DRAM to new products such as the Android 1, which is 1 gigabyte of low power DRAM. This is $100 smartphone targeting 5,000,000,000 users in emerging markets. We are focused on our diversified set of mobile customers and continue to balance our PCT RAM and mobile end capacity to optimize for long term profitability. On the product front, we are growing our managed NAND business with increased shipments of EMCPs, as I mentioned earlier. The rapid adoption of the EMCPs for the low to mid end smartphone which is the fastest growing segment today represents a unique opportunity for Micron. Our known good die flow from our MMJ fab, formerly Alpida, coupled with Micron's industry leading 16 nanometer NAND technology enables us to capture share due to the accelerating market shift from EMCP so to new MCB from E and MCP. Over the next year, we are forecasting net roughly 25% of our overall mobile revenue will come from memory combined with the controller. We believe that companies like Micron who have the portfolio of Nano DRAM will have a distinct advantage chip partners to enable low power DDR4 for future qualification and high performance applications for mobile. I want to congratulate the mobile team for their successful turnaround of a business that within the last 2 years was losing money on the bottom line. We feel that combination of increasing and segments will lead to a healthy overall supply and demand outlook for mobile. We look forward to the team's continued strong execution. Our embedded business unit, or EBU, set a record of $1,774,000,000 in fiscal year 2014. Which represented a 39% year over year growth. Our 4th quarter revenue of $476,000,000 reflected a 7th straight quarter of record shipments for embedded. Automotive revenues content growth fueled by both infotainment and advanced driver assistance systems. Our commitment to the unique needs of this market in areas such as quality, reliability, longevity and service have enabled us to strengthen our market leadership in Q4. The broad category of industrial and multi market, otherwise referred to as IMM achieve record revenue for both the quarter and the year. Year on year revenue growth was 10.20 percent driven by continued growth in factory automation, machine to machine systems and aerospace and defense. As we see strong demand growth in areas such as automotive, entertainment, consumer electronics, connected smart home devices and machine to machine systems, We remain bullish on our EBU performance for fiscal year 2015. Operationally, we had a tremendous year. In a year where we shipped a more diversified set of products with more complex packaging and custom configurations to a broader set of end customers We were able to reduce overall inventory This is all the more impressive given the significantly larger revenue scale of our business than which we left 2013. Our DRAM and NAND front end cycle times improved 25% 18% respectively year over year. And our back end test and assembly facilities reduced their cycle times 33% 34% for NAND and DRAM. We see additional room for improvement in operations during fiscal year 2015. Percent of our computing capacity tied to OEM contract pricing, most of which with quarterly pricing agreements in place. This has been a positive effect on mobile pricing as well having balanced our production to take advantage of PC DRAM ASPs in margins, which are currently above the mobile business. On the NAND front, pricing dynamics are relatively stable heading into the holiday build season. We remain bullish on the long term outlook for NAND with increasing tax rates in both client and enterprise styles takes drives with a strong content move from 128 gigabyte systems trending upwards to 512 gigabytes systems as well seeing a big increase in phones. As the industry converts 3 d NAND, we think performance and costs will continue to improve driving accelerated adoption of NAND and client, mobile and enterprise market segments. We see a bright future in NAND and other emerging nonvocal memory technologies. In closing, I also want to congratulate our team for a great quarter an outstanding fiscal year 2014. We look forward to a strong Q1 and we feel there's opportunity for improved performance in fiscal year 2015 as we continue to drive our memory solutions to higher value added customers and segments. With that, I will hand it back over to Chip. Thanks, Mark. We will now take questions from callers. Just a reminder, if you are using a speaker phone, please do pick up the handset when asking a question so that we can hear you clearly. Please open up Our first question comes from the line of CJ Muse with ISI Group. Your line is open. Yeah, good afternoon. Thank you for taking the question. I guess first question is around DRAM pricing. Talked about greater share in terms of contract and increased duration. We'd love to get an update on what percentage is out months and what kind of visibility you have into the, the new calendar year from where we are today? Well, I'm going to be careful about speculating too far out into the calendar year. My commentary earlier tried to address that we have our top 3 PC OEM customers on a 3 month pricing agreement that ends at the end of September. And the current indication is that we're going to have another discussion around and probably end on a 3 month pricing agreement for that the calendar Q4 period. And, as Curtis suggests, we think those conversations will be in line with stable or slightly improving pricing. Very helpful. And then on the cost side, can provide an update on where you are on the DRAM 25 nanometer ramp in terms of a percentage output as you move into the November quarter how we should think about that ramp beyond and the cost savings achieved? Just for review purposes, we currently have 25 nanometer product coming out of both Hiroshima, which is targeted primarily at mobile. And then we also have our Rexchip facility in production with mobile a 25 nanometer as well aimed at mobile. Today, as we sit going into the quarter, 25% sorry 25 nanometer product of DDR3 will be roughly about 25% in the quarter out of Hiroshima. And the mobile sorry, 50% in Hiroshima and out of rec ship will be roughly 25%. Great. Thank you. Our next question comes from the line of Betsy Van Hiese with Wedbush. Your line is open. Good afternoon and congratulations on an another great quarter in guidance. I was wondering if we could talk a little bit more about the DRAM business and what percentage is PC the DRAM, server DRAM and mobile DRAM. And then maybe within that, we could talk about, what's 25 nanometer and and how that's shaping up? Sure. When you look at our DRAM business today, the best way to think about it is mobile is roughly about 25% of overall DRAM and computes relatively around 30% of DRAM. And then if you look at the specialty business, you asked about server, servers roughly about just below 20%. Those are kind of the three areas you asked Okay, great. And thanks so much. That's very helpful. And as we look at the percentage of your DRAM today. How does that compare to, last year at this time? And as you guys are looking forward, you've been talking a lot about Optimize your mix, are we going to see a shift more to PCD round, which seems to be the better cost, lower cost for you and better pricing advantage? Well, I don't think we're going to Betsy, I can tell you where we were last year. So I said that compute was in the kind of mid to high 30% it was slightly higher last year, but still under 40%. Mobile was lower last year coming out of fiscal year 2013. But increasing as we left the year. And the server business, it was slightly higher. By the way, the mode the question on PC capacity and how we're optimizing, it's not just the mobile to PC dynamic. It's also some of the low end of the server business that we've shifted capacity back to meet the demand of the PC business. Thanks, Mark. That's really helpful. And then my last question and I'll jump out is on DD4, you talked about a very nice pricing premium. And I was wondering if you could give us kind of a range of what type of percentage pricing premium we're going to see. And then as we're looking at DDR3, the conversion of DDR4, how are you guys thinking that's going to play out over the next couple of years? We're not going to it's okay. We're not going to comment on the actual premium. But suffice to say our production decisions will be driven around ROA and margin, not any market share goals necessarily Okay, great. Thanks again and congratulations on a great quarter and guidance. Our question comes from the line of Ramesh Shah with Nomura Securities. Your line is open. Thanks and great quarter. I just wanted to get your perspective on DRAM content in mobile, we're seeing, you know, the iPhone 6 use, your 1 gigabyte of DRAM some people were expecting DRAM content to be higher. And just your perspective on that, is that just sort of specific to the Apple ecosystem because we're seeing an Android DRAM content go up? Or, you know, is it because DRAM pricing has gone up so much that key OEMs are now trying to minimize the amount of memory in the phone? I think it's a little bit both to tell you too, but if you look at the overall so for the category for the mobile segment DRAM content per unit is up pretty dramatically. Yes, the Apple ecosystem is more efficient, but I also would suggest that given how tight the memory business is, there probably wasn't a lot of room for them to be able to address higher end configurations. Okay. That's helpful. And then, I guess just back to your, you know, your outlook for, you know, 20 to call 25% bit growth. What is your assumption for mobile within that? We, as we mentioned on prior calls, we think that mobile will be about mid-40s next year in terms of percent bit growth. But you also just remember that we've stated and we'll say it again today, we're going to manage this from a balanced portfolio perspective. And really look at the returns piece of the business. And mobile, as we said, we don't necessarily need to be the biggest supplier of memory. We want to be the most profitable supplier of memory and they're helping our customers innovate. And so it's going to be roughly in that area, but we'll see over time how it plays out. And then just last question. Is there any revenue impact from the extra week? This is Ron. There should be, and we contemplated that in our revenue guidance of 4.45000000000to4.7000000000 Theoretically, you get about 17th additional cost on OpEx and 17th additional and the COGS moves with the revenue. All I just all I'd just add is, at 114, excuse me, 7%. The all I'd add is that when it's on the revenue side, don't necessarily get linear effect from adding 1 week to the quarter where you have some customers who are pulling in from stock, etcetera, on a monthly basis, for example, But in general, you can think of it that way about a 7% lift. Our next question comes from the line of Mark Delaney with Goldman Sachs. Your line is open. Thanks very much for taking the question. I was hoping you can help us think a little bit about the free cash flow mix in your business. You talked about some of the CapEx increases that you're contemplating into fiscal 2015. Maybe you can just help us think about your ability to also grow your operating cash flows. And if you could talk to where the free cash flow margins are between your DRAM and businesses? Sure. Mark, we don't specifically go through a detail in terms of what our view in projecting operating cash flow and free cash flow, we're giving you a view out 1 quarter. But if you look at our current trajectories and the stability we're seeing right now in the marketplace. I you can extrapolate that going forward and potentially see trend lines in the similar range, but we don't give guidance beyond 1 quarter out. We've also given you the the CapEx guidance. And so you have a view of that. It is up some from last year, $3,600,000,000 to $4,000,000,000 But given current trajectories, we certainly have that well would have that well covered with operating cash flow. If you look at the DRAM versus NAND breakdown, we don't break out operating cash flow and free cash flow by technology. So I don't have a view for you on that. Let me, let me, Mark, let me add just from a business perspective, clearly, we've got a lot of opportunity still in our business. Mark talked about some of the pricing trends. I talked about kind of where we see supply going. Internally relative to execution, we we've talked about what we can do on the NAND side relative to, adjusting our mix on TLC and EMMC you know, EMMC, the mobile space, SSDs, etcetera. So we think we got a lot of leverage in our business here. And, we're just very focused on on executing what's a pretty good market environment. I appreciate that perspective. And then for a follow-up, if you want me to talk on the NAND specifically. I know at the Analyst Day you got in some recent conferences, you guys have talked about some improvements that you're expecting in over the next 2 to 6 quarters. And I understand TLC, for example, as part of that. Can you just talk in a little bit more depth about how progressing with that. And maybe you could tie into some of the comments you made in your prepared remarks on SSDs and how SSDs are impacting seen both pricing and cost and then the overall profitability levels of your NAND business as we think out over the next few quarters? Well, let me I'll turn it over to Mark Adams here in a second. Let me just on NAND, we'll have 16 nanometer samples out in calendar Q4 for TLC We'll have a PLC SSD in the marketplace in the summer, maybe slightly before that. And We continue to have pretty good growth in our penetration of the client SSD market as well as the mobile segment generally. Mark, do you want to add any color beyond that? Well, I think that it's important to know that, in the cost curves our NAND business as SSDs continue to grow as a percentage of our overall NAND business, that'll add cost of goods impact because we get things like controllers and PCBs and rest of the bill of materials of an SSD that go into our COGS calculation. Secondly, I'd like to emphasize that, as you can see by the growth quarter over quarter to the last two quarters, Market Access is not a problem. Micron people are leaning on Micron to drive their client SSD and enterprise opportunities. And we continue to invest in These businesses are high value businesses. They're not ones that you necessarily can develop overnight. We're very happy about the progress in the quarter, especially as I mentioned, enterprise sales 79% quarter over quarter, well ahead of market growth. Our next question comes from the line of John Pitzer with Credit Suisse. Your line is open. Good afternoon guys. Thanks for letting me ask the question. Guys, the first question I want to talk to about is the relationship with in Oterra. They're clearly providing a lot of CapEx in this move to 20 nanometer, but you're providing a lot of VIP to help get there. And I'm just kind of curious as I think about the pricing arrangement of market minus, they're going to get pretty good cost savings with the move to 'twenty over the next year or and probably grow bits at a much faster rate than the overall Micron DRAM business. How do I think about kind of your benefit on the gross margin line as they bring down cost curve? So it's obviously, it's a complicated relationship. By way of background, you're right. We provide a lot of advanced process technology products customer access, customer service, a lot of things to the relationship. What we get back is the full output of Innotero to market minus transfer price. We also get back equity gains on the bottom line. Without going into too much detail, John, the supply agreement is a 3 year it's a 3 year agreement. Calls for annual renegotiation. And any changes to the agreement will be negotiated, with with the company between Micron and Innovara and its other major and its major shareholders. We, we greatly value the strategic relationship with, Innovara and Formosa. And we intend to work closely with them to make sure that it's a long term sustainable relationship where each party gets a more return given what they're bringing to the relationship. And not much to add to that. Got it. And then guys as my follow-up maybe for Ron Ron, can you remind me again on the current front, the yen dollar relationship, I think you've historically said every one point move is about a $5,000,000 to $7,000,000 hit to operating or benefit to operating profit, sorry. Is that still the correct way to think about it? Yes, John. The in terms of the yen, which is moving a lot just very recently, as we all know, and the comment was on operating spending or general spending, yen based spending. Today, our calculus is that operating spend is these 2 are impacted about $3,000,000 to $4,000,000 per 1 yen per quarter. Most of the yen base spending is in COGS, actually. So the impact is delayed about a quarter based on our inventory flow through. So you need to keep that in mind. We have a lower level of we have a lower level of yen denominated costs today, especially now that we have converted MJ to U. S. Functional currency. And we also have a yen neutral balance sheet. So the metric to use now is $3,000,000 to $4,000,000 per one yen change per quarter in our overall cost structure. And we contemplated current levels of the yen in our guidance. And then, Ron, if I could sneak a the 30% of CapEx that's non capacity related, how do we think about the depreciation schedule on that CapEx? Is it similar to the capacity related CapEx or is it different? The CapEx that's not you mean the infrastructure in our front and back end, yes, it's the same structure. Our next question comes from the line of Rajvindra Gill with Needham And Company. Your line is open. Yes, thanks and just echoing the congrats on good results and guidance. With respect to your outlook for DRAM supply growth next year, fairly favorable Could you perhaps elaborate on what you're seeing with your competitors or if you have a view on what your competitors are doing with their respective capacity and, and kind of what your thoughts on, on, on their overall projection of supply and how they're managing DRAM supply as well? We don't have any better insight into what the competitors are doing than you do. We read what they say in their earnings announcements and in the press, etcetera, etcetera. But what what we understand is that Samsung had a relatively effective 20 nanometer ramp and pull forward some of the gains that they otherwise were going to have a little bit later in terms of bit production. And we have a sense as to what they're doing to replace wafers lost through nanometer conversion based on what we've read in analysts and market reports. And so we continue to believe that the the supply growth that's in that range, given those reported incremental wafers coming from all the various parties in the market place. And in terms of your overall gross margins, the DRAM margins continue to kind of drift higher in the the pricing commentary in DRAM is very positive. When do you think we're going to start to hit an inflection point on the NAND gross margins? I know you talked about TLC. Kind of moving forward. What percentage do you think of the output exiting next year will be on TLC given the fact that there's a big cost delta between MLC and TLC. So more specifically on the NAND gross margins, what's your longer term view? Yes. We're still very early in the ramp and deployment. I just mentioned we'll have a component in the marketplace next calendar quarter. Or in calendar Q4. So it kind of depends on how successful we are with market adoption and what goes on in relative pricing in all the various markets we serve. We're still going to be looking at margin and long term sustainability of that margin. But at least we'll be in a position to address those market as we move through the year. And, we, you know, we think we'll see some, some continued deployment Thank you. Our next question comes from the line of Ajay Rakesh with Jernogy. Your line is open. Hi, guys. Congratulations on a solid guide. It looks like you're earnings are approaching a dollar a quarter here, pretty soon. Two questions on the DRAM side, how do you see the 20 nanometer mix ramp through 2015? And I'll have the next question after the answer to that? Thanks. So, our DRAM ramp in 2015 won't be significant volume until the second half calendar year. So, you should see some volume show up in Q4 of our fiscal year. Got it. Okay. And on the NAND side, obviously, you are, going to TLC and 60 nanometer. When you look at the mix between client and enterprise, rise on the SSD side, especially, how do you see that mix playing out? What's the mix today? And how do you see that playing out next year, exiting next year? Today, our mix is roughly and another 1 thirds 25% of the 3rd enterprise. And we we think proportionally that's in the ballpark. A lot of it depends on market conditions and it'd be tougher to forecast out that far with how much that would change from where it is today. Our next question comes from the line of Alex Lana with JMP Securities. Nice quarter. I was wondering if you could give us an idea of about how much of your DRAM capacity is moving through the spot market right now. And in considering these contracts for the next quarter in the PC market, how you feel about leaving some flex capacity price changes? Thanks. Well, I mentioned in my script earlier, less than 10% of our capacity goes to the spot market in DRAM. And so, the other way to think about it is greater than 90% go to OEM customers That being said, as it relates to kind of how we see pricing and our willingness to hold tight, we feel pretty confident where pricing is going in the quarter. We see stable to up pricing and holding inventory and all that stuff. We've commented before. We're in this business to make money and it's a return decision. We're not looking to liquidate anything. We're in good shape and that's what we're going to act. Okay. I'm wondering you made some comments around the strength you're seeing in the server market, and I'm wondering your thoughts on how enduring that is, how much might be just the near term benefit from the wrongly upgrade cycle? Are there legs to this going forward that you can see? Thanks. Yeah, I think we think it's not the argument that you just posed is that there's more server units being sold And our proposition is that there's more density, more memory bits going into every server. So if in fact You're right. We'll see even faster memory growth in the service segment, but we're not we're talking about people wanting to put more capacity in a relatively modest single digit growth service business today. All right. One more if I could. I'm wondering when we get into the back part of year and you've got your 16 nanometer TLC. Where do you expect the competition to be and how do you expect your products to stack up versus that? It's hard for us to speculate because we're not inside those companies in their product discussions. But remember something we made significant investments and we're very excited about our 3d offering. We've talked about seeing some 3d production out towards the end of our fiscal year, calendar Q3 next year. And so we think there's a good combination our product portfolio in the second half of the calendar year next year for consumer and mobile applications requiring 16 nanometer TLC as well as entry level client devices. And we also are pretty bullish about our 3 d development and efforts. And we think we have a differentiated solution there on the high end for high performance NAND solutions. Okay, great. Congratulations again. Thank you. Our next question comes from the line of Mark Newman with Bernstein. Your line is open. Hi, thanks for taking the question. So actually I had a question on little bit related to mix and and and how that impacts gross margins. So, clearly, it looks like enterprise NAND is seems to be the biggest area enterprise SSD seems to be the biggest area of growth right now. You said 79% quarter on quarter growth. Can you talk about how the gross how much different the gross margin is, for enterprise SSD versus the rest of the business? And and so and and how that might be impacting the gross margin going forwards. And then I have a follow-up question on your overall SSD business, both client side and enterprise side, What percentage of that uses your own controller versus some kind of external controller solution? So let me talk to the first question around enterprise and the effect on the overall business. Without giving too much away for competitive reasons, just suffice to say that the enterprise SSD business is a above average gross margin business for Mike Ryan and we're continuing to develop products and try to maximize our opportunity there. So as we grow that business, it should have a positive impact. All things being equal. As it relates to your second question about internal controllers, We continue to invest internally in resources for both the client and enterprise market. Today, we have a hybrid development approach, which is primarily around in house development for value add controller systems. And for the more commodity type products, we look and work with third parties. Now remember, that doesn't mean we don't add value because we've got firmware development tests and all that that goes on in the background with these partners. If you're looking for a rough proxy, Anna, I'll ask Ivan and Kipp to follow-up, but my suspicion is we're somewhere in the 70% to 75% of internal external controllers, maybe closer to 80% and about 20% internal controller development. And we'll follow-up, Mark, with you, the exact numbers. That's great. Thanks a lot for that, Mark. And then on DRAM, any, so considering, the strong pricing guidance you gave for this current quarter we're going into right now, Where is pricing strongest? And how do you think mix might be changing? I'm just wondering if the PC DRAM pricing seems to be pretty strong and it seems to have higher margin, than average. I understand DRAM. I wonder if that a percentage of mix might change going forward. And so how do you think about that Well, there's 2 components to that. There's the supply element, right, market. And there's the overall end market, behave in terms of demand. As it sits today and we've talked about this in prior calls, we have a certain amount of flex capacity to move between PC and mobile. And we probably haven't emphasized enough. We also have discretion to move some of that PC capacity and server capacity back and forth. Given the strength of the PC market, we've optimized around the PC business on a relative basis. Remember, we want to be in all three business for the long term. As it relates to going forward, it's a tougher call in terms of trying to predict that. But PC strength clearly today is helping lift mobile pricing and server pricing and which led to pre favorable results in the quarter. And so then just follow-up. So where do you think pricing is strongest now. Do you think we haven't really seen a huge increase in mobile DRAM prices yet like we have for PC DRAM prices. And I just wonder if we might see, some further strength, in mobile DRM prices going forward? Well, I think that given, how we've looked at our our when I say variable capacity, I think that's a distinct possibility, assuming demand plays out the way we think it will. We think I think that mobile pricing is likely to trend stable to upwards in the quarter given some of the new launches and some of the configuration and density improvements. All right. Thanks very much and great quarter. Thanks, Mark. Thanks, Mark. Appreciate it. We'd like to thank everyone for participating in the call today our apologies go out to those that are still on the line. We didn't get a chance to chat with. But if you'd 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 uncertainties, 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 and 10 K. Thank you. Thank you. This concludes today's Micron Technology 4th Quarter 20 14 Financial Release Conference Call. You may now disconnect.