Micron Technology, Inc. (MU)

Analyst Meeting 2014

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Feb 7, 2014

Okay. Thanks everybody for coming today. We are really glad to have this a great crowd for Micron's 2014 Winter Analyst Day. We are going to get things started. Right away here, and, those of you on the webcast. We'll get the webcast started in 1 minute too. We're gonna kick things off with, Mark Durkin First, so he'll come up here in one just to let you know, we we, as usual, we try to structure the presentation to address what we feel like are the key key questions, key key topics that we're getting from the investment community today. So, hopefully, we'll accomplish that. We will save plenty of time for Q and After each section, Mark Durkin, will do an intro, but he will do his Q and A at the end of the presentation just so you're aware of that that format. And with that, I'll work on market stage. During the call, 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 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 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. Okay. Great. Now I'm gonna clog this meeting, but we may make projections. During the course of this meeting, we Alright. Now I really get to talk. I guess not even the CEO gets to talk over the safe harbor language. Welcome, everyone. Thank you all for coming. I think we've got a a good presentation here today, which as Ivan mentioned, should be responsive to most of the questions that are out there. Of course, our goal is to answer all the questions. So as we go through today, you'll get an opportunity after, each of the presents, to, to talk to them. And then I'll come back up at the end, obviously, and, and try and clean up any, any residual questions or or items you guys wanna talk about. So I'm just gonna start off with a little bit of information about how I see the industry today and what Micron's focused on going forward. And then we'll have Ron talk a little bit about, how we're planning our financial strategy, Mark Adams on business and operations. Scott DeBoer on the technology position of the company and and what we're focused on, there. And then, some information from Brian Shirley and, Mike Rayfield on our our products and markets. So without further ado, let me just jump in. 2013, of course, was a was a very busy year. And in in a very productive year. We accomplished a lot, and I don't, and I don't wanna, take you back and run you through all of that other than to say, We did a lot of things that helped, set the stage for where the industry is today, and we did a lot of things internally to help rationalize our business and streamline it so that as we move forward, we can really focus on what we need to do, which is memory memory systems and our customers going forward. So, we also celebrated our 35th birthday. I've been here for about 30 years of that now. It'll be 30 So I've seen a lot of change as we've moved through time. A lot of things, are different today. And I think everyone wants to know you know, why is it different today? What is it that's that is structurally changed in the industry, that makes it so that we can all have confidence on a go forward basis We really are in a in an environment, that is much better in terms of the types of returns, shareholders in Micron can expect. So let me let me let me start with, first of all, it's different. Yeah. You can see that the structure is different. They're they're really only 4 manufacturers or 5 suppliers that that supply 95 percent of the world memory that today. And of those 5 suppliers, 4 manufacturers, only 2 have the full spectrum of memory products that customers want, and only 3 supply DRAM at all. So, certainly a a consolidated industry, that has a has a different dynamic. When when you think about what is different about the memory business, this is really just one of really three legs of a stool, I think, however, that are making a difference. One is that in an environment with a consolidated supply base, all with critical mass here, with enough scale to support the business on a go forward basis. It appears that it is is less likely that companies will, at least Micron, will be interested in adding capacity up a pure margin share gain. Micron today at 22, 23 percent of the world memory market has more scale than it's ever had in its history. We have an adequate scale to fund all our technology development on a go forward basis. And what Micron here is focused about our on is making sure that we take the the, the fruits of the business and reinvest them in a way that moving forward, we can continue to provide the solutions that the customers want. We don't need additional scale on a go forward basis. The second leg of the stool revolves around, customers and what's going on from a customer perspective. There's been a a significant diversification in end markets, and I'll come back and and talk about that, and there's been a significant change in the types of customers, that play in those end markets. And that really leads to a more balanced relationship when we think about, how memory is delivered to the market and how Micron can differentiate and diversify products on a go forward basis. And the 3rd leg of the stool is really all around what's happening with supply. And I'll talk a little bit about what's happening from a technology migration perspective and how that influences the supply and demand balance in the market moving forward. So fur first of all, the nice thing about the memory business is it's still a It it's a large business, but it's still a rapidly growing business. And it's a business where there's lots of opportunity to innovate. When you look at, at, at this slide, in the 5 sort of big trends that are driving, the the, the information of the world today. And you look at the the growth of those drive, it it's really a a a virtuous system that continues to build on itself. So starting at at the last with networking, you've got a big system today, that as it feeds machine to machine, communications, and those feed mobile network which feed the cloud, which feed big data. None of these segments go away, as we ripple to the right and drive more and more memory usage into the system. All just build on each other and and drive memory usage going forward. Note that memory then goes not just in the computing segment. It goes into a whole plethora of value added segments where where differentiation can perform specific functions to make the customers and system more valuable. So whether we're talking about computing today, and the memory we applied to our historical customers and OEMs or the ability to customize and differentiate those solutions for large data centers. Or for storage companies, or whether we're talking about the automotive segment where where car companies are building out new automotive networks to support advanced infotainment systems, navigation, crash avoidance voice recognition, all the types of things that that people wanna do in their automobiles going forward. Micron can take its memory solutions and work in close partnership with those customers as we've had a history of doing to drive, differentiated solutions. This is very different than the memory industry used to be. It's not a Wintail platform. There are multiple enablers across the whole spectrum of end applications. There are multiple operating systems across the whole spectrum of end applications. And in each customer, in each segment, Micron can go in as the largest memory manufacturer to the to the non captive memory supplier bigger, even in the Samsung, when you talk about the bits that Micron delivers to customers and doesn't consume internally, We can go in and craft those solutions, in close cooperation with with these customers. And more and more of these customers on the right are looking to micron to do exactly that. The other thing to note on here is that that one of those 3 big DRAM suppliers is also present, obviously, in the in the customer base. And in many cases, that presents unique opportunities for Micron then to go in and and be the partner of choice, and and, and capture the ability to innovate for the future that may not be open to all players. I said I'd talk a little bit about supply. This is a this is a a long term trend on what's happening, to supply a bit in both the DRAM space and the NAND space. And things to note. First of all, the light blue lines are what we think the aggregate supply to the marketplace is likely to be over the next, today and over the next few years. I should've I probably should've gone back, in time a little bit further so that you could recognize that, you know, bit supply in the DRAM business used to be, 80% per annum. And bit supply in the in the NAND business just 5 years ago used to be a 100% per annum. But but we're we're clearly seeing a long term trend in terms of the, reduction of bits supplied to the market. And in particular, what you're seeing is a stretching out in the blue piece of these of these bars, which is the bits supplied by virtue of technology moving forward. So most memory suppliers in the in the memory space whether it's man or DRAM, wanna operate at the efficient frontier. They wanna have their manufacturing capacity align so they can drive the the the the competitive manufacturing operation. And technology has been a big part of that. It means that in order to have a a a low cost per bit, you have to leverage advanced technology to get more bits per square centimeter because you're building square centimeters. And so, historically, there's been a push, in the industry to drive to that efficient operating frontier. And that has not changed. Micron today, just like, I believe, our competitors out in the marketplace will probably continue to drive to that efficient operating frontier by deploying advanced technology. In fact, for Micron, that's one of the things we want to focus on over the next couple of years. But the net result of doing that is now a smaller increase per annum in the bit supplied to the marketplace. And that's a that's a a different situation, than we've seen historically where those dip supply to the marketplace have a have a have an easy or high probability of potentially outrunning the end market demand. In an environment like this, where we have large end market growth large end market demand growth, and some of the other guys will come back later and talk to the drivers of that and what we think those numbers look like. It's it's it's very difficult for technology to keep pace with that. And so suppliers in the marketplace in order to outrun demand have to go out and add new wafer capacity And so there's a there's a calculus or a decision to make to make there that is now separated from what's required, to to be at the efficient operating frontier is a separate calculus amount. What is best for my company relative to gross margin dollars and to shareholder return return on investment. And that that balance I believe, and and I think Ron will talk a little bit more to this here in a little while. Will lead to a a, a, an environment where gross margin can be very good on a go forward basis and on a sustainable basis. The other thing that slowing trend enables is is products like those on the right. Like the the hybrid memory tube, which is a complicated memory system, high density DRAM stack with a, an ASIC that performs all sorts of functionality as well as a high speed interface for the CPU. Those types of products take longer to develop and to to interface the customer end systems, but they can deliver value in an environment where they're not competing with a commoditized product next year that's 40% cheaper. Than the previous year. And so that's why you're starting to see now an explosion in the in the applications that are adopting memory systems as opposed to pure commoditized memory owns. We think we'll see a lot more of that moving into the future. And again, you'll hear more of that from from Brian Shirley and Mike Rayfield. Enterprise SSDs is another example with those enterprise or or clients, enterprise being more complicated systems. There there is a a growing set of end applications for NAND Flash where a true value is delivered, not just through the advanced technology in the in the NAND component itself, but in the NAND system, that Micons can deliver to the customers. So in summary, relative to the to the memory industry, 3 main changes in the marketplace today. Consolidated suppliers each with sufficient scale on a go forward basis limited new wafer capacity entering the market by by virtue of, economic analysis that optimizes return for shareholders and slowing technology migrations and diversifying end markets and customers to provide the opportunity to drive true differentiated value on a sustainable basis, all leading to the situation we find ourselves in today, and and hopefully why all of you are here in in such large numbers to hear about, Micron's story going forward. So what's Micron focused on? We're really focused on 3 things. 1 is driving internal operational performance. We've done a lot of work on that, and Mark Adams is going to talk detail about some of the things we're doing in our manufacturing network as well as some of the things we're doing to close the gap, in terms of advanced technology deployment relative to some of our competitors. That's important, I think. For a stable industry, Michael needs to be, at the forefront, from a technology deployment perspective. And, that's where we intend to be. So operational excellence and deployment of advanced technology on our business continues to be a focus of the company. And we'll continue to make the investments we need, not only from a technology, a manufacturing technology deployment perspective, but also from a a product diversification perspective. We need to be very focused on the future now because the future for Micron is about differentiated solutions to all those end markets and more and more building in system level functionality to those products and delivering them in a in a truly value added way that becomes more intimately married with our end customers. And, that's what that's what Micron's doing. You've read over the last 6 months about various, incremental, improvements we've made to our, to our team about new, capabilities we're bringing in in house and we'll continue to do that both organically and inorganically, in order to make sure Micon's positioned, for future and to deliver these these more complicated differentiated products that the customers are gonna want and need. And finally, we're gonna continue to do what you've seen us do here over the last 6 to 9 months, which is which is manage our capital structure. In a way that that, management's dilution while driving down debt over time. And Ron will give you a little bit more detail about exactly how that looks and and what our plans are for the future. So a long term focus for Micron and just think about this as you hear, you know, more detail about where the company's going is is really to maximize shareholder value and shareholder return. And, we put that at the forefront of every decision we make and, growth is a piece. Differentiation is a piece. But at the end of the day, we're thinking about our shareholders and how we deliver how we deliver for shareholders by allocating our resources, both human capital and physical capital to drive that that outcome. So, I'll be back at the end of the day. To answer any any questions, that we don't cover insufficient detail. But, hopefully, these presentations as we move through here, we'll give you a sense of the detail behind story. Let me turn over to Ron. Thank you. Good morning. Great to have you all here. I'm gonna cover some questions that we got from, from you and, provide you a little perspective here to set the stage for the speakers who are coming. What metric should we use to evaluate micron's performance as we go forward. What are you focused on in terms of your business and operations and optimizing them and how do you think capital allocation. I'll address that in sort of 3 buckets here. Micron Performance talk a little bit about our our investment thinking and, priorities. Mark mentioned the priorities, but how do we think about supporting that and our capital allocation strategy and and what goes into our thinking there. So first, the micron performance. Clearly, if you look at the, semiconductor industry, over the last 13 years or so since 2000. This shows a graph of the, the semiconductor industry ROIC, excluding memory, which is the dotted line above. And the memory industry over that period average, the dotted line, the bottom black dotted line. Early, the memory industry's underperformed. It's a semiconductor peers, but you can see in the last year, that's substantially changed. As Mark mentioned, we believe it's changed, fundamentally as we go forward. And it's certainly the best performance the industry's had, since 2000. In thinking about Micron's performance specifically and how we look at it, this is the 1st quarter data for Micron. In terms of revenue, $4,000,000,000, we're 2nd only the Samsung in terms of of scale of of revenue. Key metrics that we look at, gross margin came in at about 32% and, that is below the average of our, of our peer, pure play memory players, part due to the nature of our business model, which I'll elaborate on a little bit and, part, do some performance improvements Mark mentioned and the people following me will elaborate on. In terms of our business model, not all of our, returned to our, structure shows up in the gross margin line, notably because of our joint ventures, in Oterra, a notable example, as well as the Intel joint venture. And, it does, however, those relationships generate significant return on assets. And if you look here, net income on a non GAAP basis, came in at 22% for the quarter. That non GAAP reconciliation is available on our earnings release and a I've got it following here just for your reference. You can see we only dropped 10 points from gross margin to net income. That's that's best in the industry. And although we're a little bit below average in gross margin, we are about equal to our peers on the net income line. And on ROA, a 25% non GAAP ROA that is better than average among our peers in terms of overall return and obviously well above our weighted average cost of capital. When I summarize sort of how we're doing and strengths and areas we're working on improving, property, plant and equipment turns are big strength for us. Part of that comes from our, our business model, our joint ventures, notably in Oterra, where we do not consolidate them So we pay for none of their capital. It's paid for by in Oterra, which is a separate public Taiwanese company. We we have an investment in them where we get 34 35% of their income reported below the operating line. But very good ROA on the total business because of the low asset intensity of that arrangement. And this to me, and the second piece being the acquisition of LPDA where we got very low cost assets through that acquisition and have the best in class PP and E turns in in our, in our marketplace as a result. This gives us low fixed costs and a very high operating cash flow. Also, the tax structure is, is, outstanding. We we have a Singapore principal structure and not you all the details. You're probably familiar with other companies that have a similar kind of structure, so we get a a low tax rates. We also have over $4,000,000,000 in NOLs in the United States. And we also acquired and put on our books about $900,000,000 of NOLs associated with the LP DAC was What that means in combination with our Singapore principal structure is we can operate in low single digit cash tax rates for a number of years to come. And, I'd also mentioned that our, in terms of our operating expenses, you see there at 12%. Our SG and A costs are best in class. We have very good, effective SG and A structure. In R and D, we have the scale and with also funding in our joint venture partnership, to get very significant about amount of output and capability from an R and D team and to keep driving our costs down over time. You'll hear more from Scott about that in a little In terms of improvement opportunities, we've got work we can do and are doing on gross margin, and inventory turns at the specifically, not necessarily an absolute reduction, but inventory turns to improve our asset turns there. You'd hear more from Mark Adams about both those items. And this is the non GAAP reconciliation for your reference. Mention is, if you look at how we're performing vis a vis the overall semiconductor industry, using consensus estimates in terms of scale, Market cap revenue or net income micron tends to be relatively large in terms of our semiconductor peers in scale and things such as net income using the consensus estimates for 14 there. However, on valuation, we're below the median of our peers. And we're intent on improving the performance of the company as we go forward and, improving our overall results. Turning now just to briefly investment priorities and talking a little bit about we tend to support them. Mark mentioned our investment priorities as he went through that summary there. I just want to talk about how we're going to, view that from a financial support perspective. This graph shows operating cash flow in the green bars at the top, and, it shows CapEx at the bottom in the dark blue and light blue. By a year going back about 10 years. First thing to observe is that our operating cash flow has been positive every year. Over the last 10 years, even in the very difficult, probably the worst market cycle we ever had in 2008, 2009, we still generated worse times of $1,000,000,000 of operating cash flow. Further, if you look at our quarterly results, we've had positive operating cash flow every quarter in contrast to most of our pure play memory peers who have had at least a quarter or 2 of negative results. On the CapEx The dark blue represents the CapEx we spend on tech node migrations that Mark talked about and also maintenance CapEx. And the light blue or capacity expansions that we've invested in over the last 10 years. As you can see, it was in the years we invested in capacity where free cash flow, which is the yellow line here, went negative, notably the expansion of our our expansion into the NAND business where we built the capacity up in 200720 with our partner Intel. And that took our free cash flow negative as a result of that capital capacity expansion, notably. And then we built out the additional manpower capacity in Singapore in 2011, 2012, and you can see that on the graph. Those were the periods when we had to most significant impact on on free cash flow. One thing to note is that in our partnership, we consolidate Intel. Results, from the JV Partnership. They actually fund half of JV Partnership Capital. This is the total CapEx here, our gross CapEx, if you will. So take, for example, and 11, Intel funded about $1,100,000,000 of that CapEx, which came in as a capital inflow is not netted against that number. So the actual cash effect to us was less as a result of our partnerships. Another example of the value of that relationship financially. Another thing I'll 14 annualized. 1st quarter is the this is the 1st quarter we have LPDA for the full quarter in our results. So I'm using that for indicative purposes. This is not a forecast. I'm not giving you new guidance, but rather just taking the first quarter and annualizing it to show you the scale of operation now that we have LP to fully in our results and their ability to generate a significantly higher level of operating cash flow. You look at the CapEx, at the bottom of that same bar, first of all, there's no capacity expansion planned, in our numbers going forward. And, it is somewhat larger. We got plenty of operating cash flow to cover what we're doing, but we shifted some capital out of, 2013. Into 2014, I commented on that on on earnings calls previously. We also have some incremental CapEx, a associated with the integration of our 2 companies. You can think about that in terms of being somewhat additive to the 14 guidance and then this number is the midpoint of our guidance, 26 to 32 that I show here. And that will probably continue in 14 and somewhat in fiscal year 15. As we integrate the 2 companies. And then we should move to a lower level of capital spending. Another thing about capital spending is our capital intensity is also declining. This shows a history of what's been going on, and you can again see the big bubbles in terms of capital, similar to the prior graph relate to our expansion of our joint venture into the NAND business and, does not have the netting of the Intel results in here where they help fund part of it. But the thing to note is the trend line is down, and we expect capital intensity to continue to as Mark mentioned, although our our our tech note our cost per tech note are our cost, capital cost per tech tech node is is moving up as things get more complex. That Mark referred to, and Scott will talk more about those tech node migrations, from an industry perspective, are actually moving out. The net effect of those two things is we believe that capital intensity will continue to decline over time as we go forward and and continue down that, trajectory. Finally, I'll turn to capital allocation strategy and give you a little perspective on what we've been doing, breaking it down in terms of our strategy. Important thing to understand is our our highest priority as we think about our capital management is operational flexibility. It has been strategically critical for us to have the operational flexibility to make the moves we need to make at the time we need to make them. This, for example, would include things like our, in Oterra partnership and our purchase of our 35 percent equity and interest in Oterra. In 2008, a very challenging year for Micron and the industry, but executing that. And then more recently, the end the Alpida acquisition that we did in 2013. We had the structure and and capability in place and did planning to to manage that. That's our highest priority. So what's that mean? It means that we have, no covenants or very few of any covenants. We don't want those to be a problem from our and operational execution and operational strategy. We want manageable debt maturities. And I don't have that graph in here, but I think you've all seen it. We carefully work work to have 30s that are relatively low by year, and we don't have any big discontinuities in that, and we're in good shape. On that score, and focusing on stable liquidity and balance sheet flexibility as we go forward. Once we've got the operational objectives in place we focus next on low lowest cost of capital. And that means to date, that we have gone for asset backed leases. And we we do CapEx on a continuous basis. We lease it up on a continuous basis. We amortize it every quarter. They're about 4 year cycles. And as we get new CapEx, we just roll it into the mix. So you can think of it as a of a baseline of standard financing that we have in a we needed. And assuming you can manage your equity, they have relatively low cost of capital. I think you all know we have a high class problem. That is that the equities become a little bit more challenging. And I'll talk about that in a minute. So going forward, we now as a company are in a place where we believe that we can add some straight debt to the mix. And, the So give us the offer with the operational flexibility we need. What we just announced on Friday and closed this week is an example of that. It was our first for a into the debt market as a company. And, we, we did it because, the the rates were the right range in terms of cost of capital. But more importantly, back to our strategy, it enabled us to have the operational flexibility we required and and don't have any constraints on our ability to do what we need to do. So going forward, you can imagine that we will hopefully, if things continue and the current structure have some more, some straight debt in our mix along with our for the other parts our strategy that we've had historically. And so what do we do with the surplus capital? As Mark mentioned, we believe we're we're in a better place as an industry and as a company going forward. Clearly, we wanna maintain minimum cash levels. This is part of our liquidity management to support operations as we go forward in the business. And, those minimum cash levels, we target to be comfortably north of $2,000,000,000 at any point in time. We focus on dilution management and dilution reduction. And, we've made a number of moves recently here, and I'll show you the net effect of that. We wanna reduce debt in an absolute sense as well as reduce our leverage ratios over time. So what you can expect from us is that, we will drive absolute debt down over time over the next couple of years and we wanna bring the debt capital ratio, which we targeted 20 to 25 percent long run, in back into that range in a couple of years. Then we we obviously, as part of that, intend to get to a net cash positive. And once we do, our other options to optimized shareholder value would would include, probably top of our list share buybacks as a consideration. And finally, I wanted to show you the, what we've done with a dilution reduction efforts from our, recent moves. This graph shows, sort of the baseline in the in the dotted or dash line at the top there, the pretransaction, diluted share count. And as you know, converts. It it varies with stock price. So it it it moves up over time somewhat. The transactions we did in November, the the moves we made in January, and the moves we made in this last week, all have brought us to a place where we're about a 107,000,000 fewer shares dilutive exposure in of our $950,000,000 of capped calls that we took against our converts at a $24 stock price. So a significant move, but there's still a a base of 50 plus 1,000,000 shares there. If you look at the that bottom line that we have in our dilutive exposure. We'll continue to look at that and manage that over time as part of our capital strategy. And with that, I'll I'll wrap it up and, take any questions you have. I haven't just got a mic if you have a question. Mehdi. Ron, you had the chart talking about estimates and evaluation. And I like, the comparison you had sent us, did you provide revenue and margin guidance Is there any way you can do to do so? And is that maybe that would close the valuation gap? And I have a follow-up. Oh, that's a good question. I, I I think for the challenge in our industry, and and our our company certainly has been that it's difficult to project ASPs. And, we are certainly gonna be monitoring watching as things go forward here. We believe that the industry is moving to a better place. And, with that kind of stability and improvement, we can look at different ways of approaching the way we communicate our forward looking views. Certainly under discussion, no, no, no big conclusions at this point. And the follow-up has to do with you had the free cash flow. How should we think about the remaining, payments to LP dash shareholders and to what to what extent is that gonna consume some of the extra free cash flows that you're generating. Sure. The, we got a another good question. We got a 140,000,000,000 in installment payment obligation to, to our LP to creditors as a result of the acquisition. And, that's scheduled out, and we set it up in our in our offer, such that we we would stagger those payment securities over time to meet our objective of not having, unusual bumps in our in our debt amortization. And, another thing to note is that the Alpida obligations are an obligation. Those Alpida installment obligations are an obligation of the Alpida subsidiary, which is the, in bankruptcy proceedings in, in Japan. There's no parent guarantee on those obligations. That's the obligation of the subsidiary to pay them. So you can think of it. LPTA has to pay their installment payments, as our subsidiary, and they have to pay their CapEx requirements. So, obviously, we monitor this carefully over time when we brought them in right now, actually, right now, they've got, about a $1,000,000,000 in cash. In LPDA, 1,400,000,004 in total went through q include Wrec Chip. And so they're in a relatively good, cash position right now. And, as we go forward, we have, in our transfer pricing mechanisms, we can modulate and monitor the the capital obligations and cash requirements of our various various operations through through through that arrangement. So I would mention one of the things, and that is in December, we, we converted them to the Micron legal transfer pricing structure. So starting December 1st, they're now on a cost plus basis as are all our fabs cost plus payments back to our Singapore principal operating, organization. And that's that's the structure I mentioned about that we have in place for principal structure. So, we've got a a good balance of cash in LPTA right now. And over time, that we can we'll monitor the the cash that goes in there with our cost plus transfer pricing, from LP to where they pay Singapore that that that cost plus payment. My question is for the Innoterra. I mean, you have renegotiated your agreement with Innoterra. Could you help us understand the terms and how does it impact your financial statements and how long is this new agreement for? And is there any chance that you could you could renegotiate it again, like, 12 months down to 18 So Okay. So question was about the in Oterra agreements and we renegotiated those. We we actually said place a 3 year agreement, but it has provisions to revisit some of those terms annually. This was the the 1st year. We started January 2013 with that arrangement. And so we had a a review and reassessment of of that being the 1st year of our arrangement. We we we we did is they also community adjust to it, have some adjustments that were built into that structure, and those went into effect January 1st in basically an ASP. For those of you who don't know, it's a it's a market minus or ASP minus pricing model that has some adjusters based upon their profitability. And, so that that's, has an effect as we go into, this calendar year. As I mentioned on the call, it will not have an effect in our fiscal second quarter because there's a 3 month averaging period and lag effect that go on that that we'll ship that out in time. And, of course, it always depends upon the, the prices in effect, in DRAM and how they're moving over time, how that how that calculus works. But that's, that's what's going on. Most of that was put in place at the beginning. We we tweaked it, if you will, in the in this latest cycle. And we have the opportunity or question to address it every year as part of that agreement and then renew the agreement fairly straightforward and automatically over time. So that's something that we'll we'll be looking at each year as we come to the renewal of that activity. Ron, so Marcus talked about an increased focus on system level products. What type of investments, additional investments, new type of investments do you anticipate making to support that system level focus? Well, I might I might let Mark a little bit later address that if he wants to elaborate on it, but a from a from a pure financial perspective, we're certainly, looking at it as a company in terms of our internal capabilities and having the internal resources and fitting those in our budget as we go forward. And we're doing a lot of that internally. We will, regularly look at inorganic opportunities. I'll leave it to Mark if he wants to comment more on that later. And we and we do that all the time. It would we would be remiss if we weren't evaluating all the opportunities in our space as they come as they come around and we do that on a regular basis. We are pretty regimented in how we, evaluate and consider opportunities. You you you see what we did with acquisitions like Tara or or the joint venture within Oterra and the acquisition of a minority interest in mnemonics and more recently with Alpida. We put pretty significant constraints on outside moves we make to justify them. So I I don't think you're gonna see a change in that behavior from a financial perspective, but clearly, we wanna make our strategy paramount and what we need to do to pull that off. Hey, Ron. Can you talk about the end? What's your hedging strategy there and what's the sensitivity to the gross margin and the net income line? Thanks. Yes. I do remember. 7916 was the change rate. We we we spent spent a lot of time thinking about what we're gonna do to to manage our exposures and and and and and do since. So The in terms of the sensitivity of our of our cost structure, rough order of magnitude for our Japanese operations, about half of the half of the costs are in yen. So you can you can you can if the you can think of it that way, about half of those, of the cost. But just to make sure I understand what we do with currency exposure, we we fully hedge our balance sheet. Our net balance sheet today, most of us done with natural hedges, both in Taiwan, for the chip piece and, and in Japan. So, there can be, in, you know, relatively small income loss effects that might flow through in our hedging exposure on the balance sheet, but we use natural hedges for most of it. And so we just got a natural offset and we focus on that natural offset to make that work. So for example, I mentioned about the cash we have in LPita. We're carrying a lot of it in yen. We can balance that against the, the debt exposure. And that's how we do that. So that it it's it's a pretty good a pretty good structure in terms of that. Terms of, operating expenses and some of our, the participants in our industry who have big again, exposures do, longer term operational hedging. We we have not engaged in that at this point. We might consider that over time once we get a better view of of the accuracy of our predictions about those activities. But, also, when you do, cash flow hedges like that, it doesn't it doesn't it just delays the inevitable, if you will. It doesn't give you fundamental economic value just gives you a stability over some forward period of time. So we'll be evaluating that and deciding if we want to hedge operational cost we aren't at this time. Ron, I just want to make sure I heard you correctly. You said that there would be incremental CapEx integration with LPDA. Can you quantify what that might look like over the next couple of years? And then secondly, as you think about a few years on the line, buybacks, and and I'd like to get your thoughts on dividends. Can you help us understand given the corporate structure, cash onshore versus cash offshore generation. Sure. So in in terms of our our our cash availability, the, the the cash onshore or the cash we let me let me start with where our cash is. I I mentioned we have cash in Albeda. We we think that's pretty well balanced and we can use that to manage those obligations over time. If you if you look at, our strategy and executing our strategy and our, capital requirements, we have some flexibility in our structure to move capital around. In general, we can we can be somewhat flexible. We have the same sorts of constraints that a US company has that has a has a a structure the way we have with with deferral, arrangements. One difference, we have a significant NOL We have set up a structure where we have some, greater flexibility there, and we can preserve that very valuable asset in both Japan and the United States over time and it gives us, some degree of fungibility. So we're monitoring that closely in terms of how we, need our cash and where we need it. In terms of your question about, buybacks, obviously, that needs to be US based cash. One of the ways our structure works is that our Singapore operation pays royalties to the United States because the United States owns all of our intellectual property. So all the IP value is in the United States and we and and Singapore pays royalties to the United States as they do that, NOLs offset those royalty payments if there's net income in the United and we balance it that way, and we can do that for for a number of years. So we can move we can move cash in a number of different ways. To do, we need to do, share buybacks, for example. In terms of dividends, that's found the pathway. It's a once we got the cash surplus, we'll we'll focus on buybacks as our first priority. In terms of oh, yeah. Sorry. The in the the comment I made about integration, CapEx, we we I don't have a specific number for you. It is really hard to quantify because it it's completely intertwined with the integration node of our business. For example, in DRAM, it's the 20 nanometer node. And so it's real hard to sit down and try to ask our operations. Well, what piece of that is integration related? All all I can tell you, it's it's a it's it's few 100,000,000 effect probably in fiscal 2014, and some of that will carry over into 15. But I I don't have a good way to quantify it for you. K. Thank you all, and I'll, I'll turn over to Mark. Thanks. Good morning. I'd like to Also, thank you for, making the trek to, the non snowy East Coast in a a very dangerous golf course for me yesterday. I hope those of you who play with us, we're far away from many of my drives, but, I wanted to take the chance today to talk a little bit about what we're doing, from a business and operation standpoint. And when you think that, you know, Mark talked about the context and the environment in which we're operating as a company, both in terms of the changing industry structure changing customer relationships, you know, as well as where the end products are going. And then Ron has certainly talked about the financial environment in which we're operating in leverage that we have there to to drive our business. If it's okay, I want to take a a step back as I think about what what motivates all the employees at Micron on a day in and day basis. And it's pretty staggering to think about where memory is going today and how complex the processes. Have I imagine many of you have had the opportunity to tour away for Fed? Memory technology is a complex manufacturing process and a complex technology in general. In fact, If you look at DRAM, for example, there's roughly 40 to 50 layers inside the manufacturing process of DRAM. And in terms of total process steps, it's close to 500 process steps in memory. Now if you remove a rational gov government investment. And if you remove bailouts on debt, that's all that stuff that's happened over the last 10 years. And then you think about where memory is going, what motivates us on a day to day basis is, we fundamentally believe the memory market is set up to be a profitable and good return business for the right reasons. Look at the applications today. In every one of these applications, consumer, automotive, networking, data service and storage, In all these examples, an end application for memory, if you don't have memory, you don't have the applications. Memory is an integral part what we do in a day and day basis. And as all the employees in Micron, as we think about what we're enabling with our technology, we think that it's time for the memory business to get the spoils and get the right return in our business, and we think we're positioned to do so. We are driven to be the world's best memory company and what drives us are basically 5 strategic objectives. First and foremost, we're trying to take our precious capacity and drive it to the highest value opportunities to get the most for our investment capacity. Part of enabling us to do that is being a leader in quality. And that definition and investment in quality gets to be more critical when you think about the end technology segments we're going into today. Technology leadership is expanding for us. In the past, technology leadership, you might have thought, what's the next process node that Micron is going to? Well, as you'll hear from Scott, the Boer, later in our presentation, technology leadership isn't just around assets. It's around things like packaging and advanced controller development. So our business is shifting to be more than just a silicon based business, and our leadership and technology needs to drive us there. Customer relationships. It's interesting dynamic, which is going in as we're evolving from more of a, differentiated solutions opportunity, our relationships with our customers are shifting, and I'll talk that during my content today. And finally, we have to do all of this in the context of being world class in terms of operating efficiency. And I've got a couple of slides in terms of the the types of things we're focused on in our business to drive operational efficiency against some pretty fierce competitors. A lot of you asked last night at dinner and yesterday, asked Mino, how would you articulate what's different in the memory business? Why is it different? And this is a pretty staggering slide. When you look at the nature of where memory was, just 10 years ago. And it was pretty concentrated, and it was pretty focused around DRAM, multiple memory applications, mostly compute, some networking. And even just 10 years later, you can see the diversification, not just on the technology side, where we've been we've grown into a flash memory presence and leadership on the technology side as well as NOR and emerging memory types. But more importantly, we've started the to develop a competency to explore operationally and from a go to market perspective is better returns and actually places where people get an appreciation for what memory can do to their end systems. And that's been a driving focus to get us to where we are today. And we think with the combination of Alpida and the new Micron, we have a lot more leverage to drive better margin into new application segments. A lot of questions are about capacity in the industry. What's going to happen with capacity? And as Mark stated, earlier, we're fine with capacity. In the last 18 months, we've increased our capacity 90% over slightly over 90% of capacity that was in the industry and has given us a model where today we've got plenty of capacity to drive to these new segments for us. So when we think about our business today, Whereas you might expect a few years back when we were 10% of NAND trade and 13% of DRAM, our customers were pushing us for more capacity. Not the conversation we're having with customers today. The conversation we're having today is how do we use that capacity to enable our customer relationships? And this is putting us in a position where right now, we're saying, how do we get the most out of this capacity date. And that's not just about market segments, but it's about the things we do. One of the areas that seen us focus on over the last couple of years is the manufacturing network in general. When compared to our competitors, Micron has more of a distributed footprint. And part of that openly has come from some of the inorganic activities we've taken over the last 10 years around consolidation. And over the last 2 years, team's done a phenomenal job of helping us divine define a blueprint for what that network can look like and should look like going forward. Today, this is what it looks like. We've centralized basically around 3 high volume manufacturing areas. In Hiroshima, as part of the Alpida acquisition, we now have a dedicated facility with a primary focus on mobile. Now of course, we're building our manufacturing network to have flexibility to shift with the way the market moves. But with this mobile technology on the R and D side and being able to be closely aligned with what we get out of Hiroshima. In Taiwan, with both in Oterra and Rexchip, we've got a wonderful high volume base for computing and server DRAM technology. Leading leading technology qualified in all of our customers moving forward to drive a very good focus on high volume demand manufacturing outside of mobile. And as I said, we have the ability to flex in and out of some of that capacity, but again, a centralized R and D focus to drive the most efficient operations in those fabs. In Singapore, that is our primary location for nonvolatile, high volume manufacturing. And as you know, we are converting, our FAB 7, as we've talked about in the past, 2 more, to from from DRAM demand, And that gives us a very good, focused, high volume, geographic location tied into our R and D and F efforts to drive nonvolatile technology. In the US presence, we have, basically, 2 sites. Our, Lehigh site, as part of, of course, the IMFT relationship. And that continues to be very important for us for part of the development of not only today's non volatile, but emerging technologies, for us in nonvolatile applications. In our our Manassas, Virginia location, is a great side for us for some of our legacy businesses. When, when you consider something like our embedded solutions group, led by Tom Eady. That capacity there served that business very well, and we're able to consolidate a lot of his needs in a business like embedded out of a site like NASA. What you don't see now are are 3 facilities that were not as strategic for us. In the last three years, we've got out of facilities and we, made sure that we exited these sites in a very strategic way employees, and we moved them to industries that were better for those sites and better for Micron. And so Israel and Italy and those types of sites for us no longer are in our network because they didn't serve the right financial model for us going forward from a technology base. So we continue to look at ways not us on the front end manufacturing, but also on the back end and how we assemble and test is that becomes more critical to our solutions to drive our business. Inventory management's been a big focus for us. And notice we don't say inventory reduction because we're driving in a market like today to have the best turns as Ron comment on in his section. And we've had some pretty good results over the last 2 years. Our inventories down dramatically relative to where we were. Our turns are in better shape. But the the difference right now is we're serving a much broader end market segment, and each of those segments have different behaviors. I'll go back to the embedded example. We don't have relative to commodity memory. We don't have huge turns. And embed it because part of that is they need reliability of supply for their mission critical obligations, and they pay for it. As we think going forward in our business about how we react to industry supply and demand, we don't think that the immediate answer is to lower price and clear inventory. That's not how we think about a solutions driven memory business. As we think about our business going forward, we have many options to drive our capacity to different segments. And so the nature of how we look at inventory drive us to think about, well, maybe we could move some of that capacity to better opportunities in the coming, you know, month and a quarter. As opposed to what it historically has been a business that has been driven by end of quarter deals from our competitors and from customer knowing our fiscal year better than we do. The change is we don't feel compelled that we have to drive inventory down just to succeed the memory business. As a matter of fact strategically, we may hold mark inventory for better margin opportunities. So we will continue to drive optimal performance, but also not feel the pressure necessarily to react by cutting prices and selling inventory because we believe we have good homes for this capacity, and that is a big shift in how the memory can can operate going forward. A lot of what we're doing, you know, in the manufacturing and back in and throughout the company is trying to drive better performance in how we operate. From the time we buy materials all the way to finished goods And, we've gotten some outside help in the last 2 years in terms of how we operate our fabs. And quite frankly, the last quarter that we reported in Q1, we we got a pretty noticeable benefit for us in cycle time improvements. I'll use the example here in NAND both in the, 20 60 nanometer process that we're driving improved performance in our fabs. And that comes from taking a look at everything we do in the fabs and understanding our practices versus other, peers, not just in memory, but in the semiconductor industry. And we've been able to distill a much harder and rigorous process in the driving performance. And, again, not the front end of our business, but also in the back end of our business. Having third party suppliers come closer to us and operate their businesses on campuses of ours drive better performance and better, inventory optimization. So you're gonna see us continue to talk about these things in coming calls and and meetings such as this to let you know how we're doing to become the world's best memory manufacturer on the manufacturing and, operational footprint. Separate from things like how we look at the asset and capacity of inventory and how we look at driving better utilization of our fabs in terms of throughput and cycle times is how we are engaging with our customers. Because if you, as you saw in both Mark and myself's content earlier is when you go engage with an automobile manufacturer, or a large financial institution looking for enterprise storage, those conversations are wildly different. On top of that, when you have the solution as opposed to an ingredient, those conversations are entirely different. On a micron is to continue to bring in resources who understand the markets that we're selling our technology into and their requirements. And you can see that's a pretty big shift from a decade ago where memory was primarily a demand fulfillment model. And as you think about our ability to go identify working relationships with large scale customers in the cloud enterprise storage, If you think about the those conversations, they're more about, hey. What can we do together? Not what is the price of your product? What can we do together to enable a differentiation for my solution? And you'll hear a lot from Brian early today and in terms of how we look at the overall memory solutions opportunity at our customer base. What those conversations are like, we have to be able to be set up to engage with customers that way, both on presale and understanding the requirements, implementation, really post sale. And so that dynamic is what we're investing in at Micron is putting together not just a sales organization, but business unit mentality and marketing capabilities around understanding requirements and how to help our customers innovate. And finally, you know, in the past, you'd hear a lot about, you know, modules and industry standard and JEDEC and what have you. In each one of our segments, you see unique product configurations. If you take a look at mobile, for example, You've got DRAMs and NOR DRAMs and NAND and packaged together in a solution. That solution is unique to a customer. I can't take that solution and give it to the next customer. That's coming from an environment where you could literally take a module from customer a. And if they didn't want it, they could buy customer b could buy it. And so the shift in how we engage with our customer shows up in terms of our product development. And it's a core focus we have to continue to invest in to drive like for a customer. It's more of a 1 to 1 relationship. And beyond that, what we're developing, it's no longer about just in a standard model configuration, it's about things like controller technology, firmware, software, and even as far down the path of developing storage appliances, for example, to enable our customer base. So the shift in our business is driven by the demand for memory in these unique application segments. The opportunity for us is to take the capacity, which used to be primarily what we brought to the market, and add value to that capacity through higher value capabilities on top of the silicon And as we do that, we think we can drive better returns for the company, and we feel very optimistic that we're in a good position to take advantage that. Again, Brian will talk more about that as it relates to how we see all of memory solutions going into our customer relationships. So with that, I'd like to stop and take any questions on, what I presented here or just general operational questions for the company. Hi. In order to kind of incent the Salesforce to think in the same way that you're thinking in terms of inventory management. Have you changed the way they're incented, I. E. Are they given gross margin goals? Are they given volume goals? Are they given this percentage of your business needs to be system, sales Sure. There's definitely a change in the in the motivation incentives of of really the whole company. The the issues that you're talking about as it relates to shows up a lot in product mix, for example, too, how we're trying to incentivize mark share opportunities in the higher margin segments as an example. So that is very well aligned with what we're trying to drive the behavior of the team and not just in sales, by the way, in in in in the BU marketing teams and trying to drive, relationships that enable us to grow our share in in high value segments, as an area that also beyond sales is driving behavior. Just as a follow-up to that, the very last slide you had, the where the solutions would enable you to offer higher margin, products. Of the 5, since you have the 5 solutions, one of the key solutions that you think you have a core covenant core competency inside the company. And what are some of the areas that you think you can benefit by going into the market and making acquisitions? Well, I think suffice to say the way we've listed these, from the base up upwards, become areas that we're gonna continue to in more and more. So if you think about, you know, components that's kind of been our core capabilities of the company, we've got a good controller acknowledging the company as well, although in certain applications, primarily commodity based applications, we may look to leverage third parties where we don't add a lot of value to control the development we have a pretty strong controller organization within Micron. As you get up the stack here, we're looking to both organically, build out these teams and then see if there are other opportunities that we may look to acquire, but these are definitely Each of these elements are definitely critical to succeed to advance us down the food chain. Two questions if I could. One would be on your 3 d NAND strategy as an operational from an operational standpoint, how big do you think 3 d NAND is going to be for Micron over the course of the next 1 to 2 years in terms of your own capacity, how much you'll allocate on, Planier versus 3 d? I have a follow-up. Okay. I'll come back to the follow-up. We we're not set to talk about that for a variety of reasons. Wanna is, you know, we don't want to send any more competitive information than we need to on our 3 d NAND strategy per se. I would say that we, and I'll let Scott talk a little bit. We feel pretty good about what we're doing around 3 d. We made some choice in the technology level, around the architecture of our 3 d NAND. And we think the both the technology we've developed and where we're going from an end market segment initially, will be pretty successful relative to what we know our competitors are doing. That's helpful. Thanks. And then as a follow-up, I think Mark laid out some overall supply growth forecast for the industry that you see for 2014, 2015, and beyond. In past, you've said where my client's gonna end up relative to those industry charge So could you maybe share with us those? I don't think we're I don't think we're prepared to talk about that other than what we've shared with you so far on nonfiscal year this year. I think the message is that that I'd like reiterate that Mark stated is, we're gonna be awfully careful about how we look at that. We don't feel in the industry structure that this is a market share game. This is a return game. I think that's both a message that both Ron and my market tried to hit you and I was stating earlier, if we just took our current capacity and as we execute moving those to better value segments, we'll have a much healthier business, you know, all in a trip without trying to nail the number per se on on supply and demand in terms of that been a tough challenge. Can you talk about how you think about the speed 16 nanometer NAND or the the major ramping right now will depreciate over time and and how that the speed of that depreciation impacts your desire to hold inventory. And then just in addition to that, how long you think that Planner NAND will be sold into the marketplace? Is that something that will be sold in 2016, 2017, 2018, or will it be supplanted by a different technology? No. Specific, but just how is that going into your desire to hold inventory? Thank you. Well, I mean, maybe the best examples are to think about markets like NOR that have been a pretty successful market for a lot longer than people might have forecasted. And when we think about Planner NAND and then the 60 nanometer platform, which does drive a lot of what we think. In the inventory perspective of the old days where people are running fast and process migrations where every 12 to 18 months and cost, you know, that's that's one set of parameters. Today, where there's longer lithography curves and in fact, 60 nanometer looks like a a very mature technology relative to any other thing anything in plan or after that. We have options. Businesses will require that. We have options that look need product support for 3 to 5 years at a minimum even longer. So as we think about the behavior in NAND, we think the Planner NAND does have some long lasting, opportunities in the marketplace. And that's, as you as I showed that chart earlier about you know, certain parts of our manufacturing network, we're set up to drive legacy performance that way because the quite frankly, the business wants it. It's justified. Not everything is a, you know, a a dollar per gigabit dollar per gigabyte model. And and and we as the business evolves, we think there'll be more of that. Yes, the question about the way you're talking about managing inventory a little bit differently. Can you put that in the context of NAND this quarter where you had a bit of incremental NAND supply. And it looks like you're hitting the price a little bit as you move that out. How'd you balance what you're doing there versus holding inventory looking for a better price once you get new customers qualified. Well, so it's interesting. In the past in the memory business, you'd say, well, over time, memory pricing is going down, so you better get rid of it it out. Right? That's the kind of the old memory model. As we look at our business right now, we don't see that. We don't we don't think that way in terms of our business. I mean, there's there are end markets that can consume that memory, maybe not in the current quarter. And that's our, you know, maybe it's not in component form or maybe it's in USB form or maybe it's not in mobile in this quarter, but maybe that there's a high demand for another product that we will move into the following quarter. So we look at our overall inventory perspective a lot more on the demand side of where can we move this capacity rather than just dump it per se. And I think that's the behavior that's consistent with the rest of the memory industry. Because at these end market segments, it might not be ready in the current period, whatever that period might be, but we feel pretty confident that we can move these other application segments without, putting a lot of this inventory out of just to move it from our inventory. A quarter where you have some incremental demand supply coming on And you are moving it out. Like, why not I mean, you talked about on the call that that sort of get cost getting new customers? Well, I think that issue is the issue you're talking about just in the current is more driven by the material that's coming out of a new fab coming online you know, and those parts aren't yet qualified. I made a comment on the earnings call that, you know, whenever you bring up a a new fab in that capacity, the customer qualifications have kind of come in at a certain time, it's lined up. There's always a little bit of a early pre ramp material that we have to, you know, get rid of in some shape or form. Think that's more inception than the norm going forward. Ron had mentioned, one of the areas of improvement were, gross margins. Wondering if you could talk a little bit about the the, the path to gross margin improvement, broken by, on the DRAM side as well as on the NAND side. On the NAND side is a little bit, you're below some of the competitors. Yep. What tailwind do you see on on that side? And then on the DRAM side, if you, include the equity income from in Oterra, your DRAM, your non GAAP DRAM gross margins are higher. So maybe you could talk a little bit about how you look at the DRAM gauge margins as well. Sure. And I and I think, both Brian and Scott will will get into more detail, but let me just make a couple of comments on that question, which is around, gross margin performance. On the DRAM side, we've had a pretty good history of driving our capacity into in the segments, and when you look at some of the performances as in in server and networking, in automotive, most segments, we've already got products, and and and relationships that drive us to leadership position there. Where we got on the DRAM side is, Alpida and Micron in parallel, are are trying to drive process technology to be the best in the industry. And I think that's where, for us, in addition to continue to grow our share in some of these segments, innovative and leading us, to, to a leadership position in DRAM process, it will be critical. So that's one more of technology investment. And I think one of the hidden benefits of Alpida is, is we have now 2 R and D teams coming together as 1 in accelerating path to faster technology, migration in DRAM. On the NAND side, there are a couple of different issues that I would say that that we're working on right now. First of all, a number of our competitors have done fairly good job migrating their capacity to TLC, triple level cell. In the past, our philosophy, and we think it worked well was a triple level cell while it did allow for a cost reduction in comparable per gigabyte, opportunities when you're selling these components. It also came at a price degradation because the products didn't warrant it. Today, we're finding out that our competitors have done a better job at at enabling triple level of sale. That is not something we can't do. As a matter of fact, we're in process. It's not new news. We're trying to catch up. We think that adds some capabilities. We think that, in a different to that, we we are, investing heavier to grow our mobile, share and, in NAND. Around EMMC, for example, a market that, we had not participated on as well, because of our, kind of legacy, mnemonics relationships brought us into more of the feature phone market. And we were later to the smartphone business, and we're playing catch up there in the business. I think, you'll hear Mike talk about but later, Mike Rayfield, we feel pretty good about our business there. So we actually think that the issues that drive the NAND margin gap are more around how we go to market and product and technology roadmaps, and we think we're it's it's, correctable, and we're on a path. Yeah. Talk to one more question. Just as a follow-up to that, I mean, 50% of your gives to SSD market, right? So could you maybe talk about how much is enterprise SSD part of that? And what do you think your current market sharing enterprise SSD market could be like 3, 4, 5 years. Well, there's there's 2 issues going on. There's an in the SSD sector, obviously, there's client and enterprise. We've seen some pretty aggressive competitive pricing on the client side. And a good example and overall return perspective. On the enterprise side, we continue to develop and grow, and we had another good quarter in Q1. The client business is initially won because we wanna see how that behaves because, yes, it's a higher ASP business, but there's obviously a lot of costs going into it. And in a in a scenario that you have a large competitor trying to gain share, want to be careful about moving our capacity to a to an environment like that when there's other alternatives. So, we think in the short term, we're gonna continue to drive enterprise. But we think the client 1 has to be watched because it we don't want that to become just another commodity memory That's just not what we believe is in the right interest of the company. Now long term in memory around solid state storage, we fundamentally believe that you have to have access demand. That's skin in the game. If you look at today's business, people in the business trying to go out. They just haven't been able to succeed. There's a number of customers, both early companies, and even a couple of public companies who haven't made it. Because they didn't have access to the core technology and they're buying technology and basically integrating into an SSD environment. We don't think that works both from a scale perspective, and we also don't think from a technology perspective because when you think about enterprise storage and things like reliability and derm endurance performance and all the metrics that a financial institution or a large insurance company, these companies are driving enterprise storage applications. NAND has to be enabled to perform at that level, and that enablement comes with deep cell technology level understanding and mapping with controller and firmware technology, there's got to be access to the technology. And we think in the enterprise space specifically, if you don't have access to the land, forget the fact that you just can't build as much as you'd like because you don't have the capacity necessarily. You don't own you need to have a technical know how to actually enable that man to be world class and storage, and we think that's pretty important over the long term. And that's really why we like our position, over the next 3 to 5 year horizon in this space. Okay. Thanks very much. Okay. We're gonna take about a 15 minute break now. So if you wanna go, use the restroom, grab yourself a refreshment, I'll put this back here at about 8:40 to restart the next section. Thanks everybody. Did you see that, may for us, Mister Nikos, got into the wrong pair of hands and twos, which sold. Before I saw, I was so much for hope you owe the extraordinary notice to the store. Back. It's not the you all confirm. I'll see. So breathing cities, fading by degrees that we were eating all rusty to peaceful. I'm trying to look at the backyard country homes in branches, watching lights between branches below. And no one owns. That's not too bad at home. Don't hit room for expansion no more. It's a corner of the floor Don't you I'm I can't wait. In this case. I am lost. You. I will with I'll take blame. I can't accept that. Okay. Can be right. I am love. I am big. I've lived here all my life. A piece of people that go, ma'am, go. What is he that I have in there? Oh, I would talk with her. Charlie, he plays the guitar. Down in the courtyard ever in May. All man can notice in the space. Mom and she's a little bit to the That would turn on the tea. But so embarrassing to see all the other people. Don't know what they mean. It's magic at birth. We spoke with but now this world has got a Okay. Percentage. You. Well, and not just phone my camera with the people on a few minutes or two way mirroring your campaign. The Uh-uh. Don't everything. Of this world. Okay. If everybody can please take your seat, we need to get started, get things rolling here. So please take your seat, and, next section is gonna be, Scott DeBora, our vice president of R And D. Okay. So first, I'd start off with a little review of, some of the progress over the past year. And it kinda leads into some of the questions that the we're gonna be going through and trying to address. And then also the the big challenges of our of our focused effort of the next year. On on the DRAM side in 2013, really like like the rest of the company from a technology development point of view, it was all about, how we put together 1 R and D team out of the, talented in Hiroshima and other other parts of Japan, along with our R and D team from the rest around the rest of the world. And and generally, I'll I'll talk in quite a bit of detail about about what the plan is, but we're really happy with how this has come together. Think, the the focus has been great, and and I think we're in a really strong position now. Coming out of the year, We're in a in a solid position on 25 nanometer DRAM with with, the the node reaching maturity. And ramping fast. And, also on our 20 nanometer, effort on yield ramp is is well underway. And and we're in solid position there. On the NAND front, we we, we've had a a really really successful story on plainer NAND over over the past, year from a development point of view on 16 nanometer. And that's now, doing doing great and ramping and manufacturing, and I'll I'll give you some more detail on that. I think that's really the picture or the story of of NAND technology for for for 2014 in terms of volume manufacturing. And then the other big thing on on from a kind of a a milestone point of view in in 2013 was really around the enablement of of, system technology in the form of HMC, hybrid memory cube. And in addition to, Micron delivering products that Brian's gonna talk about in a little while on on on the memory cubes to, key customers. A lot of the technology story is around the structure maturity that's occurred, from our suppliers and from and from the overall technology base that supports 3 d integration and and TSB technology. So we're really pleased with those. The upcoming year and all these will talk in more detail about but the upcoming year is all about ramping 20 nanometer DRAM. The roll out in the in, in the year on 3 d NAND, where we're still intending to sample, some some product in the first half of the year, but the the real story then happens beyond that in terms of manufacturing enablement. And then tech stand and, commitments to customers on on system level technology, around HMC. So jumping into some of the key questions that that have come up, first is is all about what what do we look like in the DRAM world following the LPDA acquisition? And then a lot of questions about, what's what our view of what happens to DRAM after 20 nanometer technology. So I'll try to try to touch on those. First, a discussion around what what our view of of DRAM Technology Development looks like following, the Alpida combination and I think this is a really good story. And I think it's going to continue to play out over the next couple of years in terms of our technology position overall in the DRAM space. One of the key pieces to, to how we put this together was we did we did have a a joint development program with Alpida that we put together prior to the closing of the agreement. So we did it about 5 or 6 months ahead of time. And what that really enabled us to do is combine the teams and come up with a strategy so that we hit the ground running at close with, a real execution plan. Certainly, I am sure you can appreciate when you when you put 2 big entities like this together, there's a risk for, missing a step on on technology execution while you try to figure out how you're gonna you're going to work together. And I think the pre closed JDP really allowed us to, to hit the ground running and, and not miss a beat. When we look at the technology component, the components of our of our organization now to drive the DRAM roadmap, There's some some real interesting dynamics around the not just the bandwidth, which is, of course, very important, what the LPDAC position brings to us in terms of technology bandwidth, in terms of fab infrastructure and characterization and all that kind of hard, hard asset type things related to technology development, but also a team of of very talented, development people in in the LPDO organization that come over and really bring a different perspective, and a and a unique experience base. So the combination, I think, is exceptionally strong and really positioned as well going forward. When we look at how we're going to do technology development, I think it really brings best of both worlds, from Alpida and and Micron, together where we make use of the final development in manufacturing model that Alpida has talked about prior to acquisition for a long time. So we have the nodes rolling out and ready to ramp up in, in a volume, big volume manufacturing fab as soon as they're ready. And that's a a key piece to the model going forward. And they're currently focused on 20 nanometer, yield improvement. In Boise, we still have the capability to do some of the more disruptive technology developments that's going to be required as we face these goods notes coming up. And we can do some new materials and maybe more, little riskier development invoicing without risking our manufacturing base in, in Japan. So it's a great combination, and I think it's going to position us really strong. When we look at at our technology evolution path right now, so our 20 nanometer focus right now is it's It's the hard, hard technology development. It's doing well. It's it's completely in Hiroshima. The two nodes behind that, in my view, are still difficult, but relatively evolutionary. So I think we see a clear path to how we're gonna do what we call a a 1x and a 1y node. Really, the the 2 the next two nodes on DRAM behind our 20 nanometer. I think we have a clear path on those, and I think the node behind that is is the one that is potentially very disruptive and, you know, gonna require some more innovation. You know, a year from now, we may talk about the fact that we think it's another evolutionary node and certainly we're going to work very hard to make that happen. But I think we've got some other ideas for how we come in on the ones you knowed in a in a little different way. Okay. On the on the NAND strategy and a lot of I know there's a lot of questions around 3 d. Some of them already came out this morning. So I'll talk a little bit about how we we transition from planar to 3 d and and kind of what the status of of that looks like right now. So on on planar technology overall, our 16 nanometer node is is looking very strong. And it's ramping and manufacturing at this point. So when we look at, a couple of the key aspects of the 16 nanometer technology, first one is that I talked about previous meetings, is the way that we've designed it is an effect. It's a a very effective capital efficiency node for So when we look at the cost of transition for for micron from our 20 nanometer node to our 16 nanometer node, it's it's one of the lowest and in our history, at least. And it was it was designed in a way to come in with with minimal fat impact. So that that's looking really good still. The other thing that's really good is through a bunch of kind of strategy adjustments. We've also managed to really improve the quality early on in the ramp of this technology. And if we compare, on this chart, the performance of the yield improvement the time we entered into manufacturing, this is by far the best NAND technology introduction that we've had, the green one is the pre one from time. So Blaineer's looking pretty solid. And we have our first SSD product qualified on the 16 nanometer note as well. So we're feeling very good about this. What this does is set a very high bar for three d to come in as a more cost effective solution. So we have a we have an aggressive time on technology enablement for 3 d. And then, a little different timeline when we talk about where it becomes cost effective and really, a real cost advantage over this, what we think is an excellent 16 nanometer node. So the 3 d is on, it's it's progressing nicely. One of the things that I think is important when we look at three d right now, and at at the highest level, it really is starting to feel like you can look at it almost as just another shrink when you model how it's going to work out in terms of almost comparable to historical basis. If you look at the 5th for wafer obviously, they're very significant. But when you add in the comp the complexity, the process the process complexity, with it, it winds up being a cost reduction that's relatively similar to previous name shrinks. I'll talk a little bit more about that in a minute on the road map also. Okay. So the next the next big topic is around what we see as in the core technology area, disruptive technology that we have to be cautious with or or, I stand and have a roadmap for, and some other trends where we think we need to be investing. And and some of them have been have been mentioned quite a bit. On the on the core core technology piece, one of the things to emphasize the in, when we look at the amount of bandwidth we bring in from the LPDA acquisition, certainly it's a big benefit on the DRAM side. But it also It also carries over to being versus it winds up boosting up the bandwidth overall for pretty much every program we have in in R&D right now. When we look at the road map for, the memory space overall and for the the memory solutions that are required to cover it, We still see NAND and DRAM as being ex exclusive coverage for certain parts of the NERI business for at least the next 5 years. And and really indefinitely on certain parts. So if you look at the at the real high performance and of the spectrum, which is it's shown in this in this graph, the DRAM is just very difficult to displace in this spot because of endurance and speed. Now the cost structure DRAM obviously doesn't compete with with memory as you go, as you go to towards NAND. But DRAM itself has a very long life in terms of covering a portion of the memory solution space. It's gonna be difficult to displace. On the other side of the spectrum, there's lots of discussion about how resistive RAM and other things fit into the picture. But on the pure cost point of view side of this equation, man is is not gonna be touched. Over the next over the next 5 years at a minimum, no matter what other technology comes in. So when you look at the discussion around these new memory technologies, We believe the opportunities are really in in in a focused area on high very high performance with non volatility and kind of a medium space that we call storage class memory, which is, nonvolatile a little better performance than NAND, and, by the worst cost structure in DRAM. So we we see the world kind of evolving towards those two things as Not replacement opportunities necessarily for DRAM or NAND, but for, you know, memory performance solution enabling type type type of technology. So We're putting a lot of focus into, that that segment of new memory technology development. And in addition to that, when we look at how we keep differentiating in NAND and DRAM, we think there's a lot of room in that space also. And part of that brings back to how we manage that memory, some of the controller development, different things that Mark alluded to earlier, putting more focus on that. As well as package technology, which we think is a true differentiator, over the next several years when you combine it with kinds of memory technology. And we really think HMC is just the tip of the iceberg as we look at what unique packaging can enable in terms of in terms of new system solutions. Okay. On the on the roadmap side for both NAND DRAM and new technology, I'll kind of talk through, each of those where micron sees, the the opportunity. And there's a there's a few kind of subtle points from this too that that, that because important. When we look at DRAM technology specifically, you know, we talk about, node cadence, reducing. And Eventually, that that does become the case. But from a pure technology point of view, at this moment in time, our focus is on actually solidifying our DRAM technology base, from where it's been. And so we we have we have some catch up to do and, like, we believe the combination of LPDA and Micron puts us in a strong position to get this pointing nanometer node out really start putting us back in a in a solid position on DRAM. So when you look at the 20 nanometer timing and then the next node behind it, which is 1 x nanometer timing, those are kind of on a historic type pace, but it's really because we're coming from a bit of a catch up position, and we need to nail those 2 technologies to put ourselves in a strong position relative to our competition. The 1 Y node beyond it then starts looking a little bit farther out. And as I the know beyond that is is one with a lot of disruption to it and and potentially timing challenges. On the NAND side, this this, this shows our 16 nanometer technology, which is, is out in the market now, and it's going to really be the, the dominant piece of planar technology come ramping up in Micron's fabs over the next year. Think that's a really solid note, as I mentioned before, and it is gonna make it it's gonna it's going to impact the timing of where 3 d NAND really makes sense. On this particular graph, I'm showing where volume capability is, which we could start with. The technology will be available from from Micron's point of view, to start looking at ramping up volume in 2015. Now when we look at the projection, we think it's more like a second half of twenty fifteen story, when it actually starts becoming something significant in the marketplace. And a lot of that is, again, driven by the fact that the planar technology is is so cost competitive. Last thing on on NAND then is beyond this initial generation of of 3 d NAND, the still a couple more generations beyond that of 3union cost improvement, density improvement, that we see on the roadmap right now and have, have significant programs behind enabling already. So I've been down to the emerging memory technology line. We rolled out face change material technology, in 2013. We we produced volume of face change. Going forward, we're focused specifically on, the the 2 kind of a new memory technology pieces that I mentioned on the previous slide. One is in the in the ultra high performance kind of place with non volatility. The other is in this medium density, medium performance kind of space. The new memory technology, we're looking to have positioned to roll out in 2015, 2016, 2017, all fit into those type of categories. And we're not providing much detail on on what those technologies are right now, for competitive reasons, but we believe we're really well positioned with the technology to come in and and solve the solution space that that we've identified is critical. So overall, when we look at, at, our our technology position, the roadmap we're going to enable, the performance we're getting and the and the bandwidth that we've added with with Alpida over the past year. We're feeling really good about our our current position of the technology that's rolling out and and also about our our competitive position going forward. K. And I'm happy to take any questions on those topics or other technology topics. Scott, earlier, there was some reference in an earlier, presentation that the ability for customers to use memory to differentiate their products was more prevalent today than it has been in the past. Would you discuss kind of your per the perspective of of how expensive it is for Micron to develop those solutions relative to the price you're able to to garner and and just how that how that equation might work and how you're looking at it. Yep. So there's a couple pieces to that. Obviously, from from from a core component point of view, we we try to build in the capability that can cover a wide space of custom applications. And We try to leverage as much of our core capability across, whether it's unique mobile applications or server applications or or you know, in packaged memory applications. We so we try to leverage the the real extensive piece, which is the Silicon Development of the 20 nanometer node, for example, to to cover that type of broad space. The second thing then is when we go and look to, the next stage of the call around, say, packaging development for, 3 d I, TSB type things. Then again, we look at a space of applications, and we try to leverage our our technology development off across as big of a space as we can. And if you look at GSV H the stuff that enables HMC, largely also is very relevant for enabling, new mobile packaging technology and, wide ao type application. So we leverage it at that point. Where the cost starts coming in is then just business business rationale relative to unique designs, and the product engineering infrastructure to go make those happen. So the there's an additional cost, but the big expensive pieces of it, we we try to build up front to cover the wide space of of technology in general. So to the bottom line R and D number, there's there is some impact, but it's not as big as you might think. Scott, you mentioned, on the cost of transition for 3 d, that's about price on the graph that you showed, the cost of transferring for, like, 20 clean nanometer. Can you go over what's the, you know, where's the cost involved? What is the effective way for out you get, on when you go 3 d versus that same 20 nanometer thing that you showed. Thanks. K. So first off, on the where's the cost involved? You mean, from a from a fab tool perspective? Or Yeah. So, when we when we look at a transition to 3 d, a lot of the planar infrastructure actually is still totally usable. Most of the additional complexity from a process point of view is in, dry etch film technology and CMP. And those drive, as you might imagine, when you're building a big stack of material, those those drive a lot of additional, fab capacity requirements in those areas from a from from others like lithography, it it relaxes the requirements. But but the the bulk of it is in those areas. And then when we look at, at, a, conversion to 3 demand from a from Planner, you know, there is a significant impact on the number of wafers you get get out of a a given square footage. And, So I I think you can you can think of it probably roughly somewhere between, a 1.4 to maybe a 1.8 kind of trade ratio in terms of wafers. So somewhere somewhere in that range, reduction. That'd be your questions. That that's a 50% So for every for every wafer, you would started before on a on a on a planar node, well, for one way for you're starting on a 3 d NAND node, you'd have to subtract 1a half or somewhere in that ballpark. Got it. Thanks. Hey, just a question on your planer, man roadmap Some of the other MAND OEMs have talked about strengths beyond 60 nanometer going to 1y, 1z, etcetera. So from a micron perspective, should about 16 nanometer as the last time of shrink prior to 3 d? Yeah. From a micron point of view, the the, roughly the the shrink looks about like a one y that other people talk about. And the one the one z node that is that's out there from from some people is you know, a pretty marginal shrink on on the 1 line node. So it it it kinda depends on on maybe your confidence in 3 d and some other things. Was that note actually makes sense? Just a couple of questions. Going back to 3 d, when the secondary relation is commercialized. Do you think it's predominantly used for MLC or PLC or both? Both. So the from our point of view, at least, when we go to vertical NAND, MLC and TLC will be enabled. Okay. And how should we think about the cost or CapEx, the comes from gen 1 to gen 2? I think back on a more traditional kind of NAND node conversion, range. So if if you look at it, like, from a I think it'll be similar from when we went from 25 nanometer down to 20 nanometer. From 1st generation 3 d will be to 2nd generation 3 d, you'll be kind of in that ballpark. Is that because your reducing the predictive steps or you're reusing planar capacity? Be because there's not as much new, there's not as much new steps in a second generation relative to a first generate. It's not as big a change. And then once the reuse will actually happen on gen 1. So when we when we when we go from from planar to 3 d, that's that's when you'll get some benefits and the reuse. And then one one glass from back to DRAM, is there any, like, capacity issue at 19 nanometer? Well, from a from DRAM point of view, you know, I've I've been here 20 years. There's always a class or issue. So Is this one different than the past 2 years? Yeah. The the the challenge that actually happens when you start going, you know, at some node, whether you wanna call it 1y or 1z The challenge that starts happening is you you're getting to the point where you can't fit the number of films that it takes to build a capacitor inside the space that, you have available for the past year. So you either have to come up with new films that can be substantially thinner, which is a possibility, or or you have the capacitor problem. Does your roadmap account for this? Mhmm. Yeah. Yeah. Catcher technology is one of the fundamental limiters on on where DRAM goes. Hi, Scott. Back on back on DRAM. Yeah. So 20 nanometer notice with the first node where you're aligning both, you're merging the road maps for both, LP there and Micron. But, yeah, you have, I would assume, fairly different tool sets for both companies. So I'm just curious how your good man. Is that? I think historically, both Michael in Otterra and Alpida have been pretty savvy in terms of shrinking at what fairly cheap compared to your competitors. Yep. In terms of your CapEx. Is that gonna be changing a 29 nanometer when you're when you're merging these roadmaps and just, you know, how can we think about how how is these roadmaps gonna be merged considering the different tool Yeah. So if you if you look at our base for where 20 nanometer is going, we have Hiroshima and Rexchip, which are historically relatively well aligned. They're part of the, LPA family, right? And the technology from a from that point of view is going into 2 fabs that are are pretty consistent with the new technology on the 20 nanometer node that we've developed. On the on the in a tear side, the story is a little bit different, and and we we go through and make sure we do the best we can in terms of capital efficiency for for Natera to help them out with that. And then it's down to technical judgment on which tools used for steps. So it won't be completely matched through significant parts of the process flow. Critical parts will be matched and and and the materials will have to go fund those. But I I think, the the question's a good one and the the challenges there, but but we did we did choose the technology, you know, to make sure that it was the most capital efficient, as you say, for for that rollout. And 20 nanometer is where we're aligning things. Thanks. Scott, can you talk a little bit about your, the roadmap for wide IO as a application that TSV, also maybe talk about what time frame you see white eye or in the industry from other players. Well, we wide a l for us or wide a l 2, is is an important direction relative to mobile. And it you know, Brian, Brian about it a little bit more and probably Mike also when we talk about the mobile space. I think I think it's, again, it's more of a late 2014, 2015 kind of story, with with real enablement in 2015 for some kind of volume that would be meaningful, if that answers your question. Sorry? Okay. Scott, I'm sorry if you if you said there's an it, but how important is EUV to 1Y and, 1Z? Can you do it without EUV? Yeah. We can do it without EV. EV is important from a cost point of view, and it's important for several different memory technologies that we look at. But from a cost point of view, not from my enablement to the node itself. So we have technology path for 1y, even to one z, without EV, but but at a cost point, that EV is, provides a, an advantage, then then it it fits in nicely to both 1y and 1z DRAM, as well as some of the other new noise. Well, it's, you know, that's a we are assuming that we don't have the UV. With with, the rollout of 20 nanometer technology across our Broad DRAM base, we're constantly making decisions that make EUV less appealing, because we enable more and more double patterning capability quadruple, whatever patterning capability. Every time we go farther down this path, EV has a higher hurdle to get to, to work for us. K. We're out in there. Okay. Good morning to to everyone, for those of you that I haven't met, my name is Brian Shirley. I over see what we call the DRAM Solutions group, which is one of our 4 business units. And this morning, I'm gonna be talking to you, both about DRAM, as well as NAND. And, you know, I think, the the key question we wanna try to, this morning is really as as we look forward, what are some of the key market trends, the the product trends out there, the needs for for both DRAM and NAND solutions, and and how does that overlay our ability to put those trends into good products? Using the the processes and technologies that, Scott's team develops. How do we get these into, good, high value added solution for our, for our customers. And to start off that discussion, I think, you know, the the landscape I'd like to show you is is shown here, essentially drawn into, 4 segments, and and a pretty important segment, by the way, in the middle, holding all of these together. Now these these four segments, you've seen this earlier today, you know, this is a pretty good proxy for how we've organized the in terms of our 4 business units. Thinking in terms of computing, a lot of what happens in servers, as well as, frankly, the networking pieces that hold it all together. Obviously, the historical base of DRAM with PCs and and now moving to UltraBooks, but also game consoles, that frankly can almost be thought of as compute plat forms themselves, moving over to storage. And obviously, the world, moving quickly through new generations of price SSDs, and the world of of, cloud storage and making sure that, the right parameters are in place for, the necessary compute data coming over, for persistency. Moving down to embedded, obviously, we have the world of automotive, industrial, medical, military, some pretty exciting applications down here. Historically, a little bit smaller DRAM content. Mike's gonna speak a little bit more about that, today, Mike Rayfield. And finally, over to, to mobile, with just obviously explosive growth. Frankly, as we look across this landscape, I have to tell you from someone that's been in the memory industry for more than 2 decades. This is about as as exciting of a landscape as we've ever seen. Opportunities across this entire spectrum for higher value added products, products that are not dictated by a particular JETEK, wide enabling spec products that start to look a little stickier, higher value added, in, in some sense, is almost like ASIC type opportunities for the customers that need the performance out of the memory. Some specifics on that. As we look at the DRAM side, our view, looking at a a 5 year demand, bit CAGR here of about 27%. You know, PCs, obviously, not the, not the driver there, but the good news here going forward is that the gross specifically in in mobile as well as infrastructure is just, staggering. And, Mike will talk further about the, the handset opportunities well as tablet, but you look across the infrastructure space in particular, driven by, the demand of servers, not just at the unit level, but frankly, high content per box at the, at, at the server level, really giving us, just a wide range of opportunities to play in here. It's just much more than a than a PC game, and I think that's that's evidenced by the, by the graph. Some specifics on that. You think about the graphics and consumer world, some we'll show you some products coming up here momentarily. New generation of GameCon sold, that, as I mentioned, really are more computing platforms these days. These are not not just graphics boxes. Using, to a t, 16 times the memory bit content of the previous, game console. That's that's a pretty nice, memory requirement out there from a memory supplier perspective. Networking, another huge, huge opportunity for Micron. This has been a, a good historical segment for us when you look at the next generation of gear coming forward, the networking guys are talking about platforms that just flat can't be done with traditional DDR architectures. That's where, reduce latency DRAM, where HMC, frankly, are not just, interesting memory architectures, they are necessary to make the next generation platform, actually function. And then again, getting down to enterprise spectacular growth here, that's driven partially by the number of servers, data center applications, corporate usage, the cloud, etcetera. But probably even more importantly, the amount content per box. So as, for instance, the industry standard server platforms have moved from Sandy Bridge to Ivy Bridge, the the amount of memory that can be placed inside of a SERP has taken some nice steps forward, and the server users are responding to that. They're filling up their boxes with a lot more memory and we see that daily, having, having a hard time keeping the server, server modules in stock. So some some great opportunities there. Now what you see here is a a rundown this is actually for, fiscal first quarter 2014, Micron's, revenue perspective across DRAM in total. So this is the first quarter that we were able to put together, the XLPTA operation as well as the, the Micron operation. And what you see here is obviously in, a a nice, a nice set of products going into mobile, And what you also see is a good, specialty segment penetration, driven, both by the the micron networking portfolio, automotive, industrial medical, etcetera, as well as the graphics portfolio, from the Alpida operation that was that was integrated. Server, in there as well. All of this server demand as as talked to you in the past, Micron in the past Micron by itself doing a good job, we think getting our products or capable, and and a nice, for the size of the company prior to integration, a good percentage of our material out to server market, you'll see this server percentage, of our bits grow going forward as we now take, the 25 nanometer process at Hiroshima recip, and move that into server capable applications. And then, that generally will come out of, PC and mobile. So you end up with, with 3, good, nice, large segments with just a ton of value added opportunities, and, and, obviously, the specialty segments of graphics, networking and automotive AIM applications as well. Now, turning over, talking some specifics on product lines here. I wanna talk briefly about, about GDDR5, you talk about a success story out of integration. You know, if you had asked Micron, 6 months ago, as we close the, as we close the deal, how would we gauge success of the integration with with Alpida from a real, a real perspective on product productions on on technology. As Scott indicated, some phenomenal progress, not just on 25 nanometer ramps, but also 20 nanometer development. From a product standpoint, really the the the key things that Mike Rayfield and myself were keeping an eye on, we're making sure that that through this integration, there were no hiccups specifically in getting some next generation graphics parts launched, and on Mike's side, some, some new LP architectures. Graphics just a huge success story here since since close, our new team members, in in, Japan and Germany have sample, launched, and ramped, a leading edge, 25 nanometer, 4 gigabit, GDDR five component, which frankly is the backbone of some of the, the obvious game console boxes out there. And, this is just a a spectacular product for us. We like it as well because when you talk about the crossover between, with our with our new consolidated customer base, graphics opportunities, as well as server opportunities, GDVR 5 ends up being a, a component that has applications in both for HPC opportunities. Graphics DRAM is actually a pretty nice performance point being used in a lot of the upper end HPC platforms. So it starts to show you some of the synergies. We think are are already in execution as we go forward to the integration, just the product line that we're very, very proud of, to have marched forward through this integration. Another product, that is here and now, something called nonvolatile dim. This launch last year is a DDR three module. What this is is inside of a server, today, all industry standard servers using, 8 gigabyte and 16 gigabyte DRAM modules. What nonvolatile dim is all about to the user, the dim looks just like a memory module. You plug it in the same way, same interface, But on that module, there's actually a controller and micron man behind that. So for, error, data recovery, for system checkpointing, the the module is actually capable of persistent storage. And this ends up being something very, very interesting to just about every server OEM we're selling to. This is, this is here and now in DDR3, getting some great traction in in 2014, you'll see this extended up to DDR4. An HMC update at Supercomputer team, last November, in in Denver. We had, demos with several leading industry OEMs out there, we are now sampling the production device. So this is, this continues to go fantastically. HMC gen 2 here and now, what you saw at ST 13, several platforms from Fujitsu from several of the notable FPGA vendors, and 18 plus design wins and counting for Gen 2. So very, very pleased with with HMC progress. You'll see this be a, something that's getting more traction, and and continuing to, to, diversify in terms of of variance of HMC for other applications. So, a lot happening with HMC over the next two years. And then finally, something that we call the, automata processor. We've got, about every officer at Micron has a different way of pronouncing this. So, tomato tomato, I I don't know. But, it's this is Atomata, processor. And what this is all about, this is something that we unveiled at supercomputer 13 as well. And, this is something that's been in development for, about a good, 6, 7 years at Micron behind the scenes. What this is is an array of DRAM memory arrays coupled with processing elements in situ to make a a very, very powerful pattern recognition engine. And what that's capable of, is taking, you you would take this in certain applications load it up with a large pattern that you would like to match against and then run real time data through this through this engine looking for match is. And that ends up being a pretty, pretty powerful capability, that takes certain, computing problems, things in light vision recognition issues, network virus detection, bioinform addicts, for instance, it takes the problem and rather having it be an exponential problem as those problems get larger, it makes it a linear problem. So this is getting a ton of interest. I I should caution. This is not a 2014 revenue kind of product. This is a long term play. But we think one of the most exciting developments out there showing how memory, is moving up in the system, what can really do. This will be present in high performance computing systems. You talked about, a lot of the problems that that are are being sent to the cloud today, it's all around something called unstructured data And frankly, to sort through that kind of data, you need a you need a pattern recognition engine, like this. It's something we're we're pretty excited about. Now moving over to the NAND side, the, 5 year CAGR here continues to to just grow by leaps and bounds 38%. View and you see how that breaks down, really the key areas of interest here, obviously, on the enterprise decide, we see a very strong move to PCIe interfaces. Frankly, that's something, Micron been working on as well. You'll see more on that coming up. Just an interface that gets the most out of the NAND and and make sure that enterprise SSD applications, the goodness of the NAND and the component technologies we've been working on comes through. Client SSD attach rates, driven by cost reductions on 20 nanometer NAND as well as 16 nanometer NAND, continue to grow. We heard from a number of OEMs at, at CES this year that attach rates are, moving up quickly as we go through 2004 team. Some OEMs talking about attach rates as high as 25, even 30%. So, just to, we think a relatively conservative view here on client SSDs something that will be a big volume driver going forward. And then obviously, on the mobile side, specifically in handsets and tablet, everything happening with eMMC, and soon, a, a UFS architecture to really drive the next generation memory interfaces. This is a breakdown, same as we showed on the DRAM side, fiscal Q1 2014 Micron's position is NAND, just a bit over 40% of our capacity working its way into, system solutions. And by that, we mean solid state drive. So this is SSDs, moving through, through micron channels, through through our own consumer channels, for instance, Obviously, a mobile piece that you will see continue to grow, a a a nice piece of embedded, that Tom Eby is growing in ESG driven by the needs of automotive, and and, Telenav systems, for instance. And then, obviously, with our Lexar brand, and something we call consumer products group, removable media and other doing, doing well. In terms of the, the PCI or I'm sorry, the SSD portfolio, very, very broad portfolio out there. It's a lot of different needs. You know, working from the bottom up, which you really see are the, you know, the personal storage drives, driven by traditional data interface, and, you know, generally focused on on making sure that applications have enough, persistent storage for the applications at hand. Moving upwards in terms of cloud storage, obviously, mission critical. And then you get to these IO accelerators, which frankly is where the value of NAND and PCIE in general really, really comes through. To that point, Micron, in production today with a PCIe drive, this was actually an internal controller, using, obviously, our own NAND an internally developed controller, something called the p 420, and it's out there doing very, very well today. The reviews are coming in the graph of that, just bear with me for a second here. What this is, is in an enterprise application using an SQL database. So so the kind of database format that's really used in in, in several corporate and data center application today is a good measurement. There's an open standard, measure measurement, tool set called, Sybench, What this is is is an hours worth of test points across a variety of applications, measuring, the different competitors across the X axis and transactions per second on the y axis. The key thing is making sure not only that the performance level is high getting the most out of the NAND, but probably most critically that it's consistent. And the way that you get see frankly is by being the builder of the NAND component, as well as the controller. So trying to get the goodness out of both the NAND and the controller working with each other to make sure that not only is the drive a high performance drive, but making sure that that high performance comes through no matter how the SQL database hits it. And you can see here just a, really a leadership position, and this has been validated by a number of the test benches out there. So overall, NAND, NAND focus going forward, we are believers, as as both Mark and Mark said, and certainly, Scott, the foundation of that strategy is really around good component technology, certainly a leadership position in 16 nanometer, getting the most out of planer and a trans transition to vertical here. Controller side, As Mark indicated, we do have internal bandwidth. We are always making sure that we use that internal bandwidth where it can do the most good. We don't like we have to do everything internally. But there are several areas where for fast time to market, for critical IT, you will see us using our our base of internal controller designers and making sure we're in a good leadership position there. And then using external controllers, for the follow on product, it's a pretty diverse space here. But then moving through the lives. And then, obviously, the software pieces as we start seeing, really a a bigger push by ourselves working directly with the true end customers on the needs of their application, be it application specific software, be it around virtualization, several areas here that we believe software really will be the next piece of the value add equation for, enterprise fees in particular. And then as you saw with Micron and our purchase of, of, Vertensas, working our optimized drive into the appliance space, as well. Pretty exciting place here. This is a long term battle. More to play through. You will see Micron, keeping a close eye out there, partnerships, investments, whatever we need to do both organically and inorganically. To make sure that from that foundation, from the base of the component itself, we're we are capturing the true value add of NAND inside of the system. And with that, I'd like to go ahead and, open it up to Q And A. Yeah, Doug. Hello, Doug Friedman, RBC. If you could answer, what do you think Micron needs to do on the product portfolio side in terms what are some of the critical parameters or specifications that the products need to deliver in either NAND or DRAM or both? To drive up the value chain. So as investors, we sort of have a hard time telling, you know, what is it, what is the key spec or performance metric that we need to be paying attention to in each of those categories? Great question, Doug. The, you know, I'll answer that first looking at the DRAM side. You know, I think the, you know, the the the the key things we're looking at from a, kind of a value add perspective, it it ultimately comes down to, performance of the end system. And and admittedly, that is getting a little bit tougher to measure because it's tough to separate, as it as it once was the performance of just the memory from the actual end systems. So a lot of, a lot of the goodness of HMC, a lot of the goodness of what we call in package memory, which frankly on the DRAM side is where we're putting a lot of resources. It's all about, certainly the in bandwidth, as well as the latency figures, and how we measure that internally is the, our share of the you know, the wafers or the product space going into that. Now on the DRAM side, frankly, we think we've done a pretty good job you know, we, we are excited taking that forward to 20 nanometer, and using the core capabilities Scott talked about to continue to get the, the goodness out of the DRAM wafers. NAND side I think we have more to do. And and really, the key parameters on the NAND side, you know, ultimately, we're you know, what we're doing day in and day out, taking a look at the end applications out there, the real customers driving those end applications, and looking for a share of market in those opportunities, where ultimately from a, from a true system performance view, the value of NAND comes through. And the share of market we have in there will really be our our indicator of how we're doing in that space. Your 2nd generation HMC. Can you maybe give us some scope around the revenue opportunity and how you're feeling about the ROI on product line. And then maybe if you could, similar questions around DDR5 and also at Tomata. Yeah. Good. Good question. So, HMC, as we've been saying for some time, you know, first of all, for the, you know, big picture on the, on on the design wins, when we started the program several years ago, we really started it with a view around high end computing you know, really driven more by the, by the HPC by the, by the cloud opportunities. I'd say the pleasant surprise that happened, over time was that it really ended up becoming the networking guys, that came in with a view that that need to happen. So for us, a lot of enabling horsepower has not just to target the HPC space, but really after networking in particular. And I think as we've been saying for some time, this we're not going to give any any figures, 2014, there will be, revenue on HMC in 2015. You know, we think you'll start to see it as a need mover. So, we're we're pleased with that. A tarot stuff processor, frankly, it's further out. I'll just I'll I'll tell you bluntly. It's, you know, We are as excited about that product line from a long term view. You when you when you're in the memory industry, you think in terms of the long term, it's you know, there these developments are are not easy. You know, they take some time and something like the automadot processor it does take software behind it and a and really an additional layer of programming. By the way, we've invested a lot of resources make that programming easy. So there's a, something called an SDK, a software design kit, that is available at the point of launch, for this for this processor, and and a wide array of of application specific tools that go around that, helping us to try to get the ROI out of this earlier, frankly, by by helping customers make it value added in their system. But, again, I would not call that anything a 2014 opportunity. Long term opportunity, there, you know, we think, we think as, as we go through the applications, that it can uniquely help to solve, we think is staggering, but you have to be thinking kind of 10 year tenure blocks for something like automaton. Okay. Yeah. Brian, on the enterprise SSD side, I think 2 years back, you guys bought Wortenches, flash appliances, guys, When you start to see, you know, products roll out from that family, from the vertices on the flasher clients, right? Thanks. Good question. So, so really looking at the Retenses end applications, you know, I think, really, as we start to get into 2015, you'll start to see significant, product opportunity with the kinds of converged PCI e switch that that that box enables, helping to you know, really bring the network closer to the actual server CPU. That's that's picture was all about. And as we look forward to 2015, we think that's, that's where it really starts to fly. Yeah. Hi, Brian. I have a question on the ultra dim product, right, where people are trying to put flash directly on the dim bus. So first of all, how do you think product stacks against the OPCI solution or or any PCI solutions? Secondly, would you look to bring some product like that in the market? And I'm sorry, Monica. I missed that, PTIE versus Ultradone. Oh, versus Ultradone? Yeah. Good question. You know, there are, in the NAND space right now, there's just this explosion of different textures, different ways to try to, you know, to try to figure out how to use man. And, we're believers that, the the best places to put it from a from a true storage standpoint, really as you're looking at at at real time cashing of the data is on the PCIe bus itself. And then for that system checkpointing that we described early that's where NVDIMM comes into play. So NVDIMM and Ultradim are really 2 different, 2 different platforms or 2 different ways of solving things. UltraDIM is is, really looking at the problem slightly differently. And we think there there could be some applications there, but, generally, the way these systems work, what's been enabled off of the dim bus versus what's uniquely enabled off of the CIE bus, that's that's where we're putting our focus. Questions? Okay. With that, I'm gonna go ahead and turn it over to, to Mike Rayfield, and we'll go from there. Mobile's gonna, that cleanup today. So, I'm gonna talk a little bit about, handful of things we're gonna talk about how we view the mobile market because, it's pretty rapidly evolving. And, I think how you view it will give you an idea of, you know, how we behave. I'm going to talk about what's really driving performance requirements in mobile because they're changing pretty dramatically. Then I'll talk about the opportunity itself and why at least I think a lot of us are under calling it. So to give you an idea how we look at the market, talk about where we're focusing at Micron and mobile and then give our as an update on on the progress we're making. So, you know, we, I guess, we met 6 months ago or so in New York, and I was talking about the smartphone market being a 1,000,000,000 unit a year opportunity that was just the start of mobile compute think. And a bunch of you afterwards came and said, you know, a billion units a year is never the start of anything, right? It's either the middle or the end, but those kinds of numbers can't be the start. And I think we've started to see in mobile how it affects, markets that are adjacent to smartphones, if you will. And, and, ultimately, it ends up being a much larger opportunity. There was an article that came out earlier this week. It was, Walt Mossburg's new site and that the headline was Apple, the largest personal computer supplier in the world now. It's sort of that gets you to open you take a look at it. And the reality in order to get to that, all you do is you say tablets or personal computers. And then if you take it the next step, you say, ultimately that smartphones personal computers, you start to all of a sudden have a whole new set of opportunities that opens up and they're all based in the same architecture. So then if you go and say, I've got automotive, which uses exactly a mobile architecture. Ultimately, I'm going to have televisions that use a mobile architecture. It becomes many, many billions of units. And it also also leverages all the innovation, all the work we're doing on mobile right now. So where there's that amount of computing, there's always gonna be memory. What happens is is we've got all of these different form factors. We've got our small phone. We've got our tablet. We've got one in our what's in our car. And we expect the same experience from the same thing that your high end devices do. For us, you're just not going to buy them. And so the ability to do that says that low cost, all of a sudden, has significantly higher functionality than any of us factored in before. And then the last adjacent market, you think about taking your smartphone, taking the glass off, taking the plastic off, putting an edge connector, and you've got a server. Now I've got I've got the technology we developed now in mobile that spans all those marketplaces and then ultimately crosses over into the cloud. It's a pretty exciting space. So what's driving the additional computational requirements in mobile? We talk about gaming and video, things like that. You've heard about, 4 k video. It was only 4 or 5 years ago. I was walking around telling people that 7 20 p was going to be important on phones. And they said, the hundredth time I was crazy, the reality is 4K video is going to come to your phone. And it's not because you're going to have full length movies, right? A full length movie on compressed will be 500 gigabytes, but you are going to want to take small video clips at Forte, blow them up, cut it out, I still have a 1080 p video that I can go off and show people because I've been able to zoom in and have very high quality. So things like that are gonna pushing more and more memory content, whether it be NAND or DRAM. Larger displays, the innovation is going on in terms of how pleasing the devices are to work with do you get that? You get a better user interface. You get more layers in the user interface. It operates more rapidly. That tends to drive more memory in all these devices. You've got, if you've seen the specials on people carrying their smartphones over to the, Olympics in Russia, they turn them on an hour later. They've been packed and everything on the smartphone is gone. So the reality is now these things have so much processing capability and there's so much content in them, they become we have to same kinds of security things that we put on our PCs and our desktop computers, that's going to drive more, more performance as well as more memory. And then finally, all the things I do on my mobile device are replicated many times in the cloud. I take pictures all over the world. I store them on Dropbox. My wife would rather see him on smugmug. They get started on smugmug. The whole phone's backed up somewhere else. So that opens up another interesting adjacent opportunity as we put storage in the cloud. More successful we are in the mobile business, the more business we create for ourselves in the cloud. In terms of the market, there's no argument about it big Right? And I think the debate comes down to where are the different segments of it. A couple of years ago, people said that people are gonna wanna carry a mobile phone, use it as a computer. I've already got two screens. I've got a television icon. I've got a computer. That debate's pretty much The devices are accessible. People own 2, 3, 4 devices. They're comfortable with that. So that drives pretty significant growth. The high people talk about the high end of the market is slowing down. And therefore, that's where all the memory usage is. The mid range and low end is what's speeding up. But if you remember, when we talked 6 months ago, we talked about, Xiaomi had a device that was a 2 gigabyte phone for a $130 on subsidized in China. That's a new point that didn't exist. You look more recently, even at companies, like Motorola. Right? So the Moto X is a 2 gig of phone, it's about $3.20 unsubsidized. You think about Lenovo gets behind that brand pushes that level of functionality at that price one. That's half of what that capability was, available for only a couple of months ago. So what happens is when we talk about well, only range is growing. That's great. The mid range or mid price devices and low prices devices now have the same amount of more functionality than the $700 devices had only a couple of months ago. And it's going to keep moving in that direction. And I think, I think if you just keep watching is look at the graph on the bottom, it shows entry level devices not going above a gigabyte until, what, the year 2017? It's racing upon us right now, right? And if you start to vary that yellow bar just a little bit and it starts to what the high end phones and tablets are. Automatically, the market becomes significantly larger than they always have modeled. And I think that's a pretty exciting thing to to watch happen. So let's talk about the opportunity. You know, people, will come and say, you know, mobile's great. It's big, but it's about to turn into the PC market. It's just going to be commodity and, and you're going to go down the same that ultimately PCs went. I don't believe that's the case. There's a couple of reasons, right? We focus on 2 things. We focus on LPD RAM. We focused on managed memory or, or managed NAND. And we're not trying to own the whole market. We're gonna pick those pieces of the it that makes sense from a margin standpoint. And the reason those things are stickier or make more sense is they're harder to do. So when you go and get qualified on LP3 at a company, you go to the SOC or the, chipset supplier, you go work getting that qualified and making sure the system works optimally so they're in customers to get it production. You can't choose to yank that part and put another one in. And the reason is first thing it was hard to get to point. And secondly, when you do that, you gotta go back to the carrier and get qualified again. And a carrier qualification takes some number of months and you've all of a sudden missed the window. So the onus is on us to be a better supplier, more reliable supplier if we take that responsibility to get that design in, but it is stickier. It is worth more to people. And that's why, I believe that it's going to have a different attribute than historically the PC market has had. As we've, I think when we talked last time, I talked about the focus being integration of LPDA and managed NAND. We now call it LPD RAM and man in because LP has been integrated. Our low power DRAM strategy is the LPDA product. And what we've been able to do with that is they had a relatively narrow the own customers, and I think create a much more stable and growing business, than the two companies could have had separately. The other thing we're doing is, I've been told a number of times in the last 2 days that we're behind on mobile memory, mobile man, e m m c. That's right. We're making good progress catching up. And the way we catch up is, again, we bring some amount of value to the customers that somebody else doesn't. What that means is we use our unique man technology. We add our own firmware. We work with 3rd party controller companies to modify their hardware. And ultimately, the high end, we'll have our own hardware. So we get in with the customers, we get in with the OEMs and the chipsets suppliers early and go off and make sure that we bring them something somebody else can't, and a lot of that is in firmware. And then finally, the, the, I grew up in the SoC world, I spend a lot of time with those folks. And the reason is, is they're the only people that really know, 100% what memory interface gonna ship in 3 years because they're designing it right now. So if I work in collaboration with them, I get my memory to work very closely with their new interface then in 3 years' time, all that work I've done just turns into design wins. And so that coupling allows to be a much better partner to theirs and allows the OEMs to get the production much quicker. So an example of that, back, just before Christmas, we sampled LPDDR4, the first in the industry to sample to our chipset customers and to the OEMs. And why that's important LPDDR4 is higher bandwidth than existing PCDRAM now, extremely high bandwidth, extremely high performance, extremely difficult to build and extremely difficult to get integrated into the SoC because it's high performance. You want to get the most out of it or the lowest power. We're doing that integration right now and our customer our partners are bringing up their SoCs with our parts. Our partners are bringing up their systems with that. And in a year and a half or 2 years when that ramps production, our goal is we are the best couple of those and we have the best solution historically been this because it's just playing hard and we've got to work together earlier. And then we talked about firmware. This is, this is the place we differentiate and we catch up in, in managed NAND you'll start to see the progress on that going forward. When I look at sort of how do I measure progress? I talk to customers every day. And the the conversations start to shift from, you know, how many DRAMs can I have or how much man can have to, I've got a problem? Can you help me solve it? And we solved that through early working with the, with the chipset partners, through early working with the OEMs and for you know, solving some of these issues that they've gotten firmware. And as long as the conversation keeps moving in that direction, I think mobile continues to be very differentiated. It continues to be stickier in a design win business. And ultimately, I think that's the best way we bring value to the company. So with that, happy to answer any questions. There's a microphone somewhere. There we go. Mike, it's pretty well known that very large mobile customer had a contract with LPDA that expired at the end of last year. Can you give some color around how you expect that relationship to progress? Maybe if a new contract is in place and does that relationship move forward in that mobile DDR for. So, so without talking about specific customers, you know, help you to have great relationships with a number of customers. We've got great relationships with a number of customers. Our goal is fundamentally to add those 2 together and continue to have great relationships with all those You know, it's a, it's a pretty concentrated business. And, I think that So big customers and the big suppliers learn a lot from each other, and there's no reason why we shouldn't just continue to have great relationship with all the folks that I'll be to have a had them with. Can you talk a little bit about 64 bit and going into handsets and what you expect that might do for mobile RAM requirements is that a driver is a screen form factor of bigger driver. And then with 4 K, did you mention when you thought we'd start to see that high end handsets? Okay. So on, on 64 bit, the simple tactical challenge in the short term is, it is it's dual channel memory. So I've got to make sure I've for 3 gig, I've got 21a halfs and for 2 gig, I've got 2 ones. I think the real interesting thing with 64 bit is it ultimately gets a lot more capability. The GPUs on 64 bit systems are going to be significant only higher performance. And if, you know, living in a GPU world for a while, it drags a huge amount of data. You need a lot of data. You need it very quickly. So I think what it will do is drive significantly higher performance and tighter coupling with the memory, which is all good. It requires a lot more work to get it done. It requires DDR4, requires next generations. And then with that, we'll get additional, capabilities, whether it be graphics, whether it be, better UIs, and it'll just continue to build and add, I believe, to the to the growing both NAND and DRAM meet and phones. And then, well, you had a second one. Oh, 4 k. So, you know, I think 6 months ago, had you said anybody would have 4 k. They would have laughed you off the stage. So it's raging up on us. I can't imagine that at Mobile World Congress, which is in what, 2 or 3 weeks, somebody isn't going to show something with 4 K. And whether it's a prototype or production or whatever it might be. I mean, the the people's insatiable appetite for great content just it won't stop. And so it we'll just keep clicking along. Unconvinced. I'll buy 1, of course. Hey, Mike. We're seeing, some pretty significant changes in the landscape and the handset market got the big guys, Apple Samsung, but China Hink seems to be on the rise. Can you talk about maybe some of the geographic challenges and how getting to be better with a broader base of customers is important to your business model? Yeah. So the a couple of years ago, the mobile business was pretty concentrated. 2 big guys and everybody else. It's still relatively concentrated, but there some shifts over the last little while that are pretty significant, right? China Inc, if you will, has got some people that are showing up as real tech technology leaders, not followers. So we've got local resources, both technical and support that live in those regions that support it. Clearly, the Lenovo Motorola deal as that goes through, you know, Motorola has a great relationship with carriers around the world. And you imagine the might of Lenovo behind that. It could be pretty interesting as well. We could have, you know, additional big players. And what we found the cost of a design win business is you've got to win the design. So we're pretty aggressive at putting the design resources, support resources right next to out of that marketplace in terms of are you shipping wafers to these customers, MCPs, and how important is the broadness of your portfolio? So, LPDA had a great, known goodbye business. And, both for support, putting memory on top of processors and modems as well as, working with MCP and EMCP partners. We saw we've very rapidly seen that range of the market move from nor to MCP to EMCP. And it it's been over the last three quarters very rapidly, and it will continue to move on to EMMC. So the focus on firmware for EMCPs and the MMCs is, I think, going to pay off pretty quickly as those guys transition to that. Because it wasn't long ago that that region was all about low end and cost. And now low cost happens to have a pretty significant amount of functionality and they're going to have to go to a more aggressive memory strategy. You touched on the opportunity with 64 bit. I'm wondering if you're expecting based on the design work going on that this upcoming 2014 holiday season could be a bigger opportunity for you in that area. Is it more of a 2015? So 64 bit is here. Right? It's it's not everywhere, but it's here. And, you know, once Once the first thing falls, it goes pretty quick. So I it's gonna be in 2014, there's gonna be a lot of 64 And ultimately, that's going to be great for the consumers, right? And it's, it's snappier. You can do content that you couldn't have done before. It'll be richer as you put it on a large display like a tablet. You know, it's gonna be a lot better than the notebook computers most of you are using in terms of processing power right now. Great. Thank you very much. Alright. Hopefully by this point, we've, we've covered most of the questions that that, you guys wanted to hear us talk about. But certainly, I'm here to to try and wrap up any loose ends or or cover any additional ground. And overly on on some of the folks that already spoke, if I need to. But let me just wrap up quickly by by, saying, you know, we, we think this business is is in great shape on a go forward basis. We think all the all the, the cogs of the wheel or all the legs on the stool are there, and we anticipate a a favorable industry dynamic, moving forward. We're building and continuing to build and improve on our balance sheet, and and planning our our use of assets in a in a way that will know, not only build a company, on a go forward basis and achieve our operational goals and and, place our product portfolio where we needed to be long term successful, but also deliver a great return for the shareholders. Part of that process is gonna be, you know, continuing to invest in our business, whether that's in, optimizing our supply chain or making sure we're deploying advanced technology to stay at the efficient operating frontier. We're going to continue to focus, internally on running our business cost effectively. But we're also gonna continue to invest in the system level solutions and differentiated products and make sure that that, you know, as the future comes, We've got all the right memory to go with with all the, developing into applications. And finally, we're we're targeting, you know, the value added segments. And and we're making sure that not only our manufacturing, footprint is flexible, but we have all the right assets out in the field, close to the customers to give us the opportunity to move our our capacity and our output to the to the most value added segments in the future. And all that's being done, with an eye to taking care of our shareholders. So let me stop. And, try and wrap up here with, a few questions, and, we'll go from there. Mark, there's talk of Hynix having some percentage of their capacity that can't migrate to the next gen node So they've gotta put in some new leading edge, I guess, capacity, but it's supposed to be capacity net neutral. Do you have a percentage of your capacity where you can say, hey. This this isn't gonna be able to move forward. And at some point, I don't know if it's 2 years down the road or 3 years. You need to put in a new facility like Hynix is doing. And and if so, what might that look like and and what kind of capital raise or not raise, but cost would that entail? Okay. I think there's actually there's, there's a couple of questions, buried in there. The the first one is, you know, relative to to Hynix and their need to add some cleaning space future. That, to me, that rings, quite true and and something that makes, complete sense for them to do on a on a number of different planes. For for Micron, we've been optimizing our our capacity footprint over the last year. We've as you know, we've shed a lot of of 8 inch assets, either either sold them or, diminished our our ownership share or our obligations relative to to off take of capacity, relative to some of those. And we've consolidated our our our flash operations in Singapore. We're on the, on the roadmap to to to finish that out moving forward. We have we have identified certain fabs where we're gonna leave capacity behind, for instance, in in Virginia, you know, where where we we anticipate less capital investment there to migrate that technology because, you know, the reality is we've got a lot customers that need long term, commitments for the products, the more value add and stickier these products become, you know, the more the customers are interested in support, and that makes financial sense to us, and we're gonna we're gonna do that. I think as we sit here today, most of the rest our existing capacity is is in pretty good shape to, to con at least a 300 millimeter capacity to continue to migrate. We do have some white space in Singapore to facilitate a 3 d NAND to transition, not the totality of it, but a but a significant piece of it. And so we're in pretty good shape there. Having said all that, when we think about the future and and the need for for incremental capacity and how we might want that to come on board. You know, at some point, it probably makes sense for Micron to have some additional cleanroom space. Not necessarily even increase the number of wafers, that we put into the marketplace, but but to make sure that we can continue to to migrate because these technology nodes do become, more complicated as we move through time. So, you know, we would to the extent we decide we need that, we would look to do it on a on a, you know, cost effective basis, but not necessarily with a mind of building out a big new fab. We would look to have have cleaner space available as as as others in the industry are doing to facilitate our transitions to enable maybe, small incremental, additions of capacity on a go forward basis. So, hopefully, I covered all the different angles in there. Mark, could you maybe talk about the DRM and NAND pricing trends, what you're seeing in the market? And if you see weaknesses any segment of the normal markets that you could take to stabilize that market. Yeah. So, Yeah. I don't want to get into sort of update updating guidance or anything like that, but I think you guys can go out and look at spot market trends. And so you're probably aware that that, spot market numbers for DRAM have been relatively flat. And, you know, that's kind of as we thought it would be when we gave guidance. And so without updating that, I'll just say, you know, with that, that at least is still in alignment. Relative to, to NAND, there has been weakness in the spot market as you guys can go out and look on and see for yourselves. And that's also kind of as we expected when we gave guidance back in January. So you know, the market is about how we expected it to be. At least as you look at what's going on in the spot market, you know, relative to what Micron is gonna do, with its capacity, you know, we're gonna continue to work on those value added, But but, you know, one of the things that hopefully came across today is that Micron structurally is different than it's been historically. We have a relatively, a low fixed cost in our overall operations. And, you know, part of that is by virtue the way we've acquired low, low, low cost assets. Part of it is that the the capital intensity in our business has been increasing. And so we look at our business today. We've got a pretty variable cost structure, and we've got lots of flexibility in terms of how we deal with capacity to to, you know, the right market environment out there. Mark? Yep. Mark. A couple of questions. Where do you stand in kind of the vision next 3 to 5 years on 4 millimeter wafers in addition. Is there anything that you can do on the testing and packaging side to also offer cost improvements outside you know, the standard stuff that we've been talking about in terms of capacity utilization. Certainly. On on both of those, you know, relative to 450, that's, if that ever happens, which I think is in doubt at this point, and we could talk about that if you wanna ask a follow-up, I I I am I am not at all convinced the 450 millimeter will ever happen, at this point. But to the extent it does, it's a long way out in the future. So I feel really good, that our investment in 300 millimeter capacity is one that's got an enduring lifetime and that there's not a a lot of necessity for Micron at least, over the next 5 years to be spending a lot of money on 450. Of course, at some we're gonna have to watch, but there's a lot of investment that needs to go on in the equipment community to make that happen. And, the, you know, the the value at the end of the day to the customers that would buy that equipment, I think, is is dubious. So when we're not, we're not really focused on that. The sorry. The second piece of the question was oh, testing and packaging. Yeah. You know, Micron, I think we we probably should put it in our technology section because there's a there's a there's a whole technology platform at Micron around around test capability, that ripples through all our all our various products. We design all our own testers, and we manufacture them in house. And we enable our products to use those testers in, clever and interesting ways to drive a lot of capital out of our end structure as well. And so as we are migrating, recently acquired capacity, to advance technology nodes. We were also embedding, in those products, some of the some of the things that are needed to facilitate the mic on and test strategy. And, yes, we anticipate significant cost reductions as that rolls out through the through the capacity that was recently acquired. It did necessarily have that capability before. We actually started that as part of a JDP, prior to closing with LPD. So So, many of the 25 nanometer products that we'll roll out here over the next year will be able to take advantage of that. Yes. Hi. On the shareholder returns, Ron mentioned, about wanting some operational flexibility and mentioned about potentially wanting to get to a net cash position. I wonder if you could just be a little bit more, give us a little bit more guidance on how we should think about, shareholder returns. Is it going to be something that might happen this year, or is it more like a 2015 type of story. And do do you have in mind, like, a net debt 0 or actually net cash position that you actually want to have? Yeah. So I, you know, obviously, I don't wanna box myself in relative to to when that might happen. The the first priority, I for us is to cover the operational needs and and, importantly, to make sure, that that we're making the right investments for to position the company for for a a successful future. And so we're gonna that's what comes first. We will, of course, continue to to, nibble away at the debt and try and do that in a way that that is anti dilutive. So think of us in terms of definitely continuing to take a look at our converts on a go forward basis. But beyond that, I don't wanna get into projecting exactly, you know, when we might take some other steps because you know, frankly, we don't know exactly what the market's gonna look like. We don't know how much success we're gonna have with our products. We think it's gonna be pretty positive, and we're gonna have a have a good run here, but but we I wanna maintain flexibility and make the investments we need to make to continue to grow the company, as well as, potentially return some stuff shareholders beyond that, some dollars to shareholders. Mark, a couple of questions. Historically, there's been some fungibility of capacity between DRAM and NAND. As you start moving below 20 nanometer for DRAM and start moving to 3 d for NAND, Can you help us understand what happens to the fungibility? Yep. And does that help the supply situation? And then my second question, what sort of sustainable margins would you need to see before you went out and did a greenfield? So relative to the capacity fungibility question, the between technology nodes, that's gonna that's gonna get tougher and tougher because the the the the technologies that are gonna continue to divert. So as we move to 3 d NAND. As Scott talked about, there's a relatively large capital investment that's required to facilitate that transition. Those tools are not necessarily bunchable over the DRAM side. So I think while you may see, competitors in the space, continue to optimize here while we're running significant amounts of planing in, that'll probably go away over time. You won't see as much of that. Relative to the implications of that. I don't know that they're that they're all that huge. I I think the DRAM capacity that's in place looks like it's pretty appropriate for the market on a go forward us. And and, likewise, on the NAND side, there is, you know, I think there there there is certainly a a a faster growth trajectory in of how many bits are needed for storage in the world. And so that one may break down more quickly over time, but but, Yeah. I as I look at the the business, both DRAM and NAND today, I don't foresee, you know, that there's a need for a lot of additional capacity and think that it's gonna stabilize in about the right spot. The second part of your question? Oh, yeah. So when would when what would the sustainable margin number be, for Micron to to say, hey. I need, need new capacity? You know, I think the best way to answer that is to say it's a big, big number. And and, you know, the reason is quite simple. When when when when you think about adding new capacity to the marketplace, first of all, the new capacity, the greenfield capacity is much more expensive. You're you're buying, you know, all new tools as opposed to making small incremental investments to facilitate technology transitions. And you've got a much larger fixed costs associated with that, then it has to depreciate over time. So your margin on that incremental capacity is lower. And then you've got to factor in, that's a small increment relative to your installed base, And and if it's a significant increment, it's gonna impact the ASP you get across the rest of your business. So when when I think about building a new fab, I just think it's a long, long, long, long time in the future. Because I I I gotta I've gotta be sure I'm gonna get a return on an capacity of an extended period of time, and I gotta be sure that I'm not building so much that I impact my the rest of my business. I think, you know, I think it's it's it's it's possible, you know, that that people will look at what's the demand curve out there in the future. And and our margins getting so high that we're doing damage to our customers and pinching off and end market demand. And, you know, if margins got so high that that were a problem, my response would be I wanna have, you know, small amounts of clean room available where I can add small amounts of incremental capacity, not build big greenfield fabs. And so that that seems like the way, we would approach the future, and that's that's certainly how I think about it today. Alright. Perfect. I'm Given the present state of NAND pricing in the first quarter being weaker than I think some might have expected, what would it take for you to slow down your NAND capacity expansion going on in Singapore? Yeah. You know, again, we we're not we're not really interested in in commenting on exactly what's going on there with that transition, and taking any detail to it. But I'll answer a bigger question, which is you know, what would how does Micron look at at running its capacity full out or flat out in in either segment, DRAM or NAND versus market conditions where there's significant ASP erosion. And I just said we've got a we've got a pretty variable cost structure right now. So we'll look at our end markets and we'll look at what we think the relative balance over time is, and we'll we'll make adjustments as we seek it. So, Mark, that sounds like a very different answer than we've heard for many years. I mean, number 1, it sounds like your variable component is much higher. And and therefore, your willingness to pull back or not expand at the same rate that you had originally projected, that's that's changed. Is that a fair fair interpretation? The the industry is very different, and Micron is very different than it's been historically. So, yes. Another question on your capital structure. If the world plays out the way, I think you and everyone in this room hopes it does over the next 2, 3, 4 years, would you like to get to the point where Micron's capital structure, whatever debt you have is all straight debt. Would you like to eliminate the converts totally over time, or do you envision converts always playing a role the company's capital structure. I, I think we're we're on the road in that direction. I think I think 3 or 4 years in this business is a long time, and I don't know what other you know, growth growth initiatives or opportunities or or or situations might be out there. But I I think the trend, definitely, for Micron, is gonna be more straight debt and and less converts. Mark Adams did a good job of laying how you're striking strategic partnerships with a number of customers. And it makes a lot of sense. There's two areas though where it seems slightly problematic to me. And that's in the the server market where a lot of the big, OEMs are under pressure from the cloud vendor who seem to care about low cost more than anything else. And then also in the mobile category where the best growth is coming from those emerging markets, which are also very cost sensitive. Can you talk about how you strike partnerships in those areas? Yeah. So, you know, I think think any large markets, they're always going to be cost sensitive. So for us to have partnerships in those areas, we've got to be delivering real value to help the customer at the end of the day. And that's kinda how we approach it. As as you mentioned, you know, the server business is kinda a little bit. There's there's sort of mission critical, high, high value servers, and there's more and more some of these data center servers that are that are, just moving data around the Internet that we're we're cost they are more cost sensitive, and and there is less less value, that can be supported, through through what has historically been the value proposition and service, which is quality. And, and bit error rates and fit rates over time, etcetera. That doesn't mean there aren't opportunities to do things that are unique for those data center customer that can add value for them. And so that's how we that's how we approach those kinds of customers is, you know, what do you need in your business where we can differentiated value. And so far with a number of them, we've been able to find find opportunities. I think over time, you know, in the in the mobile space, we'll we'll see similar things like at where we can potentially help them drop memory tiers out of the overall system functionality, or where we can bring a differentiated performance by getting more closely integrated with their end systems, that maybe help them strip costs out of other parts of the bomb. And so you know, we just look for for how do we get the memory more closely integrated into the end system in a way that delivers value and then try and share that value with order. We would take, 1 or 2 more. 1 more. Okay. Hey, Mark. You talked a lot about focusing on solutions for customers. And at some point, can you move the model more to, like, a backlog model, like a lot of other companies in the sector? Yep. So, yeah, it's a it's a great question. And I I can't tell you the I think the answer is yes, but I can't tell you when because, you know, there there's a long history in this business that that I think Ron, you know, showed you about. People are are, or or or customers remember that. And are nervous about it. And I think on the one hand, they would like to have, long term contracts with more built in ability, but on the other hand, they're nervous, that that they, not that they miss on an opportunity to take advantage of a misbalance in supply and demand at some future point in the business. And so structuring those, those deals is something that we're certainly interested in doing and that we are open to doing and are talking with customers about But there's a history on our side as well, which which says you better hold the money. Because because, it's those those things are tough to enforce. So, you know, I think it's a matter of time and, and and, and relationship building before we can get to that end state. But I think it is a trend that you will see more of that in the memory industry over time. Alright. I wanna thank you all again for coming. Hopefully, we answered a a a lot of questions, and we certainly we certainly tried to cover a lot of ground. It's great to see. A lot of old friends here again. And, I'm glad we're able to, to have all the momentum we have in the marketplace today. So thanks for coming. Just a couple housekeeping items. There is, lunch outside there to go boxes if you're in a hurry too.

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