Earnings Call: Q1 2014

Jan 7, 2014

Good afternoon. My name is Saiid, and I'll be your conference facilitator today. At this time, I would like to welcome everyone to Micron Technology First Quarter 2014 Financial Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers are there will be a question and answer period. Thank you. It is now my pleasure to turn the floor over to your host, Keith Bedard. Sir, you may begin your conference. Thank you very much and welcome to Micron Technologies first quarter 2014 financial release conference call. On the call today is Mark Durkin, CEO and Director Mark Adams, President and Ron Foster, Chief Financial Officer And Vice President of Finance. This conference call, including audio and slides, is also available on our website at micron.com In addition, our website has a file containing the quarterly operational and financial information, guidance, non GAAP information with reconciliation the slides used during the conference call and a convert debt and capped call dilution table. If you have not had an opportunity to review the first quarter 2014 financial press release. Again, it is available on our website at micron.com. Our call will be approximately 60 minutes in length. There will be audio replay of the call 6 with a confirmation code of 14 at 5:30 pm Mountain Time. A webcast replay will be available on the company's website until January 2015. We encourage you to monitor our website at micron.com throughout the quarter for the most current information on the company, including information on the various financial conferences that we will be attending. Please note the following safe harbor statement. During the course 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 section of Micron's website. Although we believe that the expectations reflected in the forward looking statements are reasonable, we cannot guarantee future results levels of activity, performance, or achievements. We are under no duty to update any of the forward looking statements after the date of the presentation to conform these statements to actual results. And now I'd like to turn the call over to Mark Durginmark. Thanks, Ken. I'd like to start today with an overview of the key developments during the quarter, followed by a few strategic and industry thoughts. I'll then turn it over to Ron for a financial summary. Before turning to Q and A, we'll close our prepared comments with Mark Adams covering additional details of our operational performance and market conditions. Fiscal Q1 was our 1st full quarter with combined Micron and LPDA financials. LPDA's financial performance met or exceeded the high end of the range for the key estimates we provided in early August. The early execution of our combined teams has been impressive and in conjunction with favorable market trends, our financial results were outstanding. We achieved record quarterly revenue of over $4,000,000,000, improved our gross margins to over 7 percentage points and delivered very strong earning performance Operating cash flow was $1,500,000,000 and CapEx was $669,000,000, resulting in free cash flow of $838,000,000. We're focused on a capital allocation strategy to maximize long term shareholder returns. With this in mind, we recently entered into a series of transactions to restructure our our existing convertible debt and address a dilution stemming from those converts, which Ron will describe in more detail later. We will continue to focus on optimizing our capital structure Although we had a head start on planning and technology development, we are still in the relatively early stages of the LPDA integration activities, which are going very smoothly. In particular, we're very pleased with the 25 nanometer ramp execution of both Hiroshima and RexJIP fabs, which position us at the leading edge in terms of industry Our outlook for memory industry conditions remains very favorable. In terms of DRAM, the Fire and Hynix Wushi fab last fall coupled with what was a healthy supply demand situation beforehand is resulting in significant reductions in inventory across the DRAM supply chain in particular for the PC and mobile segments. Our belief is that it is that this tight and further declining inventory situation coupled with balanced long term production and demand to continue to drive healthy market conditions. We will continue to monitor We expect to see the DRAM industry wafer production down about 5% in 2014 with total DRAM industry bit supply up in the mid-twenty percent range. Micron's total DRAM bit production including LPDA will be well below the industry for the calendar year at about the mid teens year over year given our DRAM to NAND conversion activity Beyond 2014, we expect industry capacity to remain relatively stable. For Micron, we Any potential decision to add capacity in DRAM is not just about current profitability levels, which while good are still below the long term average that we believe justified significant investments in R&D And Process Technology required in the business. In addition to attractive long term returns on the existing asset base, we would need to see a fundamental significant upward shift in bit demand consistently above approximately 40% compared to the current CAGR in the low 30% range before it would make sense for for improved gross margins. For NAND, we're projecting industry supply growth in the low 40% range for calendar 2014, This includes a 10 in 2013, but will be slightly above the industry in 2014 given our DRAM to NAND conversion. This supply forecast compares to the 5 year NAND bit demand CAGR in the low to mid-forty percent range implying favorable long term supply and demand balance. Our emphasis in NAND is on continuing to improve customer enablement and product placement in value added applications very pleased with the results shareholders and worldwide customers in 2014 and beyond. And I'll stop here and turn it over to Ron and Mark before returning for Q And A. Ron? Thanks, Mark. Our first quarter of fiscal 2014 ended on November 28th. To ensure you have easier access to the materials we're covering today, posted to our website a file containing the financial information I will cover, including GAAP and non GAAP results, certain key met for the share on record net sales of $4,042,000,000. These results include the unanticipated costs of the Ramba settlement and debt restructuring. As a reminder, the results for the previous quarter included the $1,500,000,000 non operating gain recognized as part of the purchase accounting for the LPDA acquisition. On a non GAAP basis, net income for the quarter was $881,000,000 or $0.77 per share, Non GAAP adjustments totaled $523,000,000 or $0.47 per share. Key adjustments included the following a $233,000,000 charge recognized on the Ramba settlement, which was expensed entirely in the first quarter. $111,000,000 non cash flow through of LPDA inventory step up related to the acquisition. $92,000,000 in accounting losses recognized on the convertible note transactions, a portion of which resulted from mark to market accounting and our improved share price in for the make whole premiums on the notes. Q1 adjustments also included $50,000,000 in non cash amortization of debt discounts and other costs. This primarily consists of the imputed interest dollars a price during the first quarter of $17.48. In the second quarter, we expect the following non GAAP adjustments Around $30,000,000 flow through of LPDA inventory step up reported as a higher cost of goods sold in Q2. This should be immaterial in future periods. Approximately $50,000,000 amortization of debt discounts on the convertible reflects $70,000,000 of losses when we complete the repayment of the 20272031A convertible notes. We estimate $15 to $20,000,000 for the tax effects netted against these items. Non cash taxes related to the LPDA acquisition of between $65,000,000 $75,000,000. Also, the anti dilutive effect of our CAF calls will be based on the average share price for the quarter. Assuming a $22 share price, this would equate to a reduction diluted shares of $43,000,000. Please refer to our convertible debt dilution table, which is included in the earnings call data file, posted on our website. And fiscal Q Run DRAM revenue was up 69% and gross margins were in the low to mid 30 percent range, an improvement of over 7 percentage points from the prior quarter. This was primarily a result of 2 factors: 1st, a full quarter of the favorable cost structure of Elpitas operations. And second, opportunistic shifts to a higher mix of wafer sales in both margins, despite having below average ASPs. Like for like PC DRAM ASPs were up double digits in the quarter. As you know, we participated in Innoterra's results with our 35% ownership interest. If you combine our and add back the inventory step up cost from the LP to acquisition, DRAM margins would be approximately 7 percentage points higher than reported on a GAAP basis. I'd also including the margin on the sale Inoterra is currently generating an annualized ROI close to 130 percent based on our total cash investment to date. As Mark mentioned, LPDA met and generally exceeded the performance estimates we provided in the early in early August. In December, LPDA transitioned to a cost plus model similar to our other fabs across the world. As a result, LPDA is now part of our total DRAM results and will no longer have separate reportable financials. DRAM guidance for Q2 is as follows: production bit growth is approximately flat Quarter to date ASP is approximately flat and cost per bit is down mid teens. The key items affecting our DRAM guidance for the second quarter are less impact going forward of selling through stepped up inventory acquired with LPDA. Continued transition of the fab 7 in Singapore to NAND production and opportunistically shifting to a higher mix of wafer based sales in both the PC and mobile markets with Turning now to actually 10% as we benefited from increased NAND volumes from Fab 7 in Singapore. Gross margins were in the low to mid 30% range. Up slightly quarter over quarter. Like for like market prices were generally flat to slightly down in the quarter, although initial output from Fab 7 is selling in component form at below average margins. Trade NAND guidance for Q2 is as follows: production bit growth up high teens quarter to date ASP down high teens and cost per bit down mid teens. The key trends affecting Q2 guidance are First, the continued conversion of Fab 7 to NAND, which achieved wafer output crossover in the first quarter. Also, considered our lower expected ASPs related to seasonal demand and increased production of high density products initially being sold in component of embedded in system sales, including SSDs, which should improve our ASP mix. Nore sales in the first quarter decreased compared to the previous quarter as we continue to see Nore applications primarily in the wireless space, convert to NAND. We see this trend continuing through Q2 with NOR revenue in the $100,000,000 to $110,000,000 range. Longer term, we expect to see revenue stability and growth in gross margins with the vast majority of Nora sales in the embedded The company generated $1,500,000,000 in operating cash flow in the first quarter. This operating cash flow includes a deposit from a customer of $250,000,000 associated with a long term DRAM supply agreement. This supply agreement provides for current market pricing subtracting the $669,000,000 capital spending from the cash flow in the first quarter, as Mark mentioned. We ended the quarter with cash and investments of $4,400,000,000, up just over $200,000,000 from our year end. Also in the first quarter, the first installment payment of $534,000,000 was made under Elpitas reorganization plan, The next payment and $3,200,000,000. Earlier in the second quarter, we executed a borrowing guaranteed by the export import bank of the United States. That netted approximately $435,000,000 with a cash interest rate of 1.26 percent and no significant financial covenants. Are continuing actions I mentioned earlier. We're executed in response to the significant increase in our share price over the past 6 months or so. Which has driven additional potential share dilution. The transaction has reduced current potential dilution by about 3% to 4%. Based on a net activities across the quarter was a decrease in debt of $243,000,000. We will continue to evaluate additional capital transactions line with our strategic objectives. Now I'll turn it over to Mark Adams for his comments. Thanks, Rod. As this is our first quarter with the Alpida operations fully integrated into our results, I thought it might be helpful discuss how we are structured within our manufacturing network before commenting on our Q1 performance and the current state of the memory market. We have communicated on past calls that over the last 18 months or so through M And A and redefining strategic joint venture partnerships, We have increased our overall capacity by greater than A key focus for us as part of this growth is to ensure operational efficiency in how we manage that capacity. After the sale of our Italy and Israeli fabs in our fiscal year 13 and with the close of our LPDA acquisition, Micron's volume manufacturing sites are based in 3 geographic areas: Japan, which is primarily focused on mobile and graphics DRAM, Taiwan, the location of Innoterra And Rex Chip Operations, which is focused on computing, server and networking DRAM, and Singapore, which is our primary location for a high volume non volatile technology with NOR NAND Flash manufactured there. Combined with our high volume production sites, we manufacturing some of our specialty embedded products at our Manassas Virginia facility and leverage our Lehigh, Utah plant for a strategic NAND and emerging non volatile production Our customers appreciate the geographic diversity as it creates and they also value and improving productivity across our network. We saw some noteworthy cycle time reductions at the sites in Q1 that led to strong bit growth production far exceeding our guidance. As our business increasingly diversifies across a growing number of end market segments, We continue to networking, gaming, mobile and storage all place different levels of prioritization in areas like assembly, test, supply, and quality. This diversification end market is driving us to think about each of them, each of these businesses, almost as independent operations. A good example of this dynamic is how we view our inventory. In our server business, we have customers who compete for large volume orders and thus rely on micro flexibility in reacting to their increasingly volatile demand requirements. NAND Flash, we serve consumer, automotive, mobile and storage customers where a growing number of NAND chips are integrated into packages and full system solutions. Each of these has their own build cycle and inventory requirements. Thus, as our business evolves, we may strategically choose to build inventory and or adjust our product mix accordingly. As Mark commented earlier, we were pleased with our Q1 results highlighted by a strong quarter in DRAM. Our DRAM gross margins to address their customer segments. DSG, WESG and ESG. DSG, which focuses on computing, network, or networking server and consumer, including graphics, makes up over 60% of our overall DRAM revenue. The combination of Micron's legacy mobile business and the former LPDOT Mobile business comprised roughly 30% of our DRAM revenue with ESG contributing the remaining server remaining segment serving automotive, industrial, military and medical customers often referred to as AIM. In my opening comments, design, we are set up to ensure maximum flexibility in our network. For example, in DRAM, we continue to evaluate our computing versus demand versus mobile demand profile to optimize profitability when possible. Even within a segment, we are managing our a We have customers requiring known Goodye mobile DRAM components. These are that are sold in Wafer form, as Ron noted. Where the margin profile is more attractive compared to fully assembled modules. Therefore, we are shifting some of our DRAM capacity in this direction to capture the incremental and are looking for more networking and embedded customers and thus expect a healthy DRAM business throughout the remainder of our second quarter. On the DRAM technology front, We are ramping our world class 25 nanometer process, and we have been pleased with the progress to date. We will continue to 25 nanometer and will introduce our 20 nanometer technology in the second half of the calendar year. We were also the first supplier to sample low power DDR4 to our customers and Chipset partners. This allows M2D bug their next generation systems and reference platforms with Micron Solutions. Our overall NAND business surpassed the $1,000,000,000 mark for the first time, an 8% quarter on quarter increase. Our trade NAND business achieved revenue growth of roughly 10 percent quarter on quarter with margins up slightly as bit growth was up 17% driven primarily from our Fab 7 conversion from DRAM to Hand. As is the case, any time new capacity comes online, we are in the process of qualifying customers on products that use the FAB7 output. We thus saw an unusually high percentage of our outputs sold in component versus prior quarters. We anticipate that this dynamic should last 3 to 6 more months as we align our Fab 7 output to customer qualification cycles. During the quarter, SSDs including component sales to strategic SSD customers represented 48% of our trade and end revenue with consumer sales coming in at 30%. We shipped our first 20 nanometer enterprise drive, the M500 DC product to a large OEM in Q1. In addition, we are on track for customer qualification of 20 nanometer client drives at major OEMs and channel customers in fiscal and have plans to begin production of a 16 nanometer client drive in our fiscal third quarter. Outside of solid state storage, We are seeing increasing NAND penetration into mobile where when packets behind an AMMC controller will offer attractive demand growth. In the embedded business, we are seeing growth for NAND, some of which is real solid state application such as automotive. Revenue in the mobile segment represented 12% of our trade NAND, while AIM was an aggregate 10% On the technology front, we are on track to ramp our 16 nanometer planar NAND this calendar year And we continue to make good progress on 3 d NAND, which is on track for production samples in late calendar Q1, early Q2. As we've commented on during prior calls, the NOR business is maturing, and we have focused on rightsizing our operations to align with the demand profile. As a result of nor industry dynamics, we view the nor operations as a cash flow generation business focused on healthy returns. To that end, our embedded business is driving the majority of our capacity utilization. The shift to a more embedded mix drove margins up from single digits to about the mid teens in Q1, despite ongoing IO fab charges associated with the business. We began moving north production to our 300 millimeter fab in Virginia which will provide significant cost reductions going forward when coupled with our leading 45 nanometer technology. We are focused on continuing to widen our cost advantage at Nora and growing our share in the embedded segment. In closing, We feel positive about the results our team achieved in Q1 both in top line revenue growth and operating margins as well our strong cash flow generation. The industry fundamentals remain solid as we're getting strong demand signals from the majority of our end segments and industry supply in both DRAM and NAND look in balance. We remain optimistic for a strong Q2 and feel a consolidated memory industry will continue to enable favorable market conditions over the long run. With that, I'll turn it back over to Ken. Thanks, Mark. And before we take questions from callers, I'd like to turn the call back over to Ron for just one quick clarification. Thanks, Jeff. I had one one correction. I want to make sure we got out there before our questions. And that is in the DRAM Q2 guidance, as you can see from the schedule we filed on the website, Our cost per bit is projected in the 2nd quarter to be Yes. Thanks, Ron. And happy to follow-up on that with any questions as well. But with that, we'd like to take questions from callers. Just a reminder, if you are using And our first question comes from Glenn Young from Citigroup. Your line is open go ahead sir. Mr. Glenn Young. Your line is open. Please go ahead. Sorry about that. Can you hear me? My first question is you. My first question is on the DRAM business and just trying to understand the shift to more wafer based sales. I assume one that, the more you do, obviously, it's going to have a negative impact on revenues. So just clarify that revenues might be down in the quarter if you move more towards wafer base sales? And then the ultimate question is, is it accretive to earnings because as you mentioned, gross margins are higher in that business? Yes. I mean, Clint, that's right on. The actual impact on ASPs is not necessarily favorable, but overall impact on margins is favorable. Okay. And sorry, just to clarify, and ultimately you believe it's accretive earnings, the combination of that will be better. That's primarily when you think about that, that's the decision I we're trying to make. Okay. Good. Thanks. Thanks for that. The key one is that both the ASP is down and costs are down and the spread between the two is better than our average. Hence, gross margin. There you go. Okay. Thanks. Second question is, your thoughts around the Wuxi fab, not in the sense of asking you when you think it will come up. But whenever it does, do you anticipate having to make any changes in the way you're looking at production based on the idea that that eventually comes back into full production? We don't see any of that today, Glenn. We certainly anticipate that that fab is of going to come back into full production. We see it happening maybe in a more measured way than some have prognosticated. But certainly, with type industry inventory today and some of the changes we're already making from DRAM towards NAND. We're not expecting any significant shock to the market or the system. And last one for me is just on CapEx. You're on a run right now, which would put you at the low end of your annual CapEx guidance. Is it your interest patient that CapEx on a quarterly basis will increase? Yes. Our guidance for the year is still intact, as I mentioned in the same range, 2.6000000000to3.2000000000 So there'll be quarterly differences. I think there's one clarification on CapEx just in general. As we move into more systems and solutions, some of that CapEx is going to things that don't influence capacity necessarily. Some of it goes into things around packaging technology and assembly technology that, allowing us to build these systems and solutions. Great. Thank you. Thank you. And our next question comes from James Schneider from Goldman Sachs. Your line is open. Please go ahead sir. Good afternoon. Thanks for taking my question. Was wondering if now that LP is finally integrated, you could maybe give us a refresher on the amount of DRAM Bs allocated to each of the PC mobile server and other specialty areas, if you would? Yes, we can do that. Would you like it on a revenue or bit basis? This would be great. Hey. Let's see. On a DRAM gigabyte basis, I'm just going to pick some of the bigger categories. Personal systems where Q1 was about 40%. Mobile was in the mid-thirty percent range. Server was in the mid teens. And then the rest would be captured in networking and AIM. Great. That's very helpful. And then maybe as a follow-up, I believe, and I may have not heard this right, that you talked about the, the the tech, the Singapore fab, reaching wafer capacity transition in the transition from DRAM to NAND. Did I hear that correctly? And then can you talk about when that might be fully position at this point? That's right. We were over 50% in the quarter completed and the timing is still still potentially variable, but I would look for that to complete out in the first half of the calendar year. And then just last one quickly for me. Sorry, assuming no changes. And as you know, we've always maintained the flexibility to make changes to your pending market conditions. But as we sit today, we anticipate bringing that out in an orderly fashion. Understand. And then last one for me would be just in terms of the OpEx profile from here. I think that you came in maybe a little bit under some of your targets. Can you maybe talk about going forward whether there's opportunities either on the SG and A or the R and D line to bring those down a little bit? I think there's some opportunity there over time. We came in a little under primarily I think in the current quarter, we had some reduced legal expenses that were contributors to that. But on a go basis, our focus on the R and D line right now is to make sure we're making all the investments we need to support the business from a system level solution enable perspective. And so we're not looking to drive that down in a big hurry. On the SG and A front, I'll let Ron comment Yes. In terms of overall, as Mark mentioned, we had we hit some timing differences quarter to quarter in terms trends, for example, our legal costs vary. You see our guidance in Q2 is a little bit up from Q1. And also we have wafer call cost timings to shift around and varied a little bit and Q1 came in lower. Q2 is probably more on a trend line just in terms of the near term view. In terms of forward looking cost structure, I think if you look at it as a percent of revenue, the way we're currently performing, we've talked about OpEx being in a 15% range. And I think we can structurally run well below that going forward, given current market conditions, SG And A would be commensurately lower as well. So in an absolute dollar standpoint, I wouldn't expect to see significant changes, but I do think as a percent of revenue, we can trend in the range we're running now. That's helpful. Thanks so much. Thank you. And our next question comes from Mehdi Hosseini from SIG. Your line is open. Please go ahead. Yes. Thanks for taking my question. 2 And starting with NAND, would you be able to elaborate the percentage of revenue of bids coming from the embedded segment of the market? Yes, I can do that for you. In Q1, No, we don't, I'm not going to be able to do that for you. We don't track them quite like that. Can you just mine? Well, we just don't track them quite like that. Because you said in Q2, you're going to see a mix moving more towards embedded. I'm just trying to get a better assessment of how that is going to impact the mix and the margin profile? Yes, let me maybe approach it like I did on the DRAM side. I'll hit some big buckets for you. And again, we don't necessarily include them embedded. So there'll be embedded applications within some of these different categories. But with that being said, Q1 SSDs around 50%. The consumer, which includes channel and CPG for us is around 30%. Mobile will be in the mid teens. And then again, networking storage and aim will make up the balance. Got it. So when I look at your NAND ASP and cost guide, it seems like margins are going to come down, ASP decline more than the cost decline. Is this trend going to reverse into the Q2 because of the mix changing or is that more of the ASP decline going to change. How should we think about the mix versus ASP versus cost into Q2? I think in general, we feel that we will improve our mix relative to the market after Q2. We're going obviously through a transition. In my earlier comments about the output out of Fab 7 trying to align that to customer calls. And it's probably another 3 to 6 month dynamic ongoing. The other part that's worthy of note is that, there's a natural ASP degradation if you're shifting from SSDs two components. It might not be as much of a margin hit as much as ASP is going down because the bill of materials lower and all that. So you've got the FAS 7 dynamic and just the mix dynamic that contribute to what assumes the current ASPs Got it. If I may just add one more question for the big picture, in the Analyst Day in August, you talked about be more aggressive on acquisition, especially as you focus more on the system level storage. Can you give us an idea or any kind of flavor as where you are and help us understand and elaborate on what kind of acquisition targets you're looking at? Well, I think there's obviously as we build out our organization, we're doing a lot of that organically. We'll continue to look at inorganic opportunity but certainly not in a position to go forecasting what, when, where or how any of that might happen. Is it more controller? Is it more softer or is it more just offered acquiring talents is what I'm asking? Well, we're acquiring talent across spectrum to support those system level solutions. So you'll note in last quarter, we brought in some more senior leadership in the controller area with Brian Angel. We also brought in stockgrass in the system level storage solutions area. And we'll continue to bring in people up and down the organization whether they're software folks, firmware folks or hardware folks to support those efforts. Thank you. Our next question comes When you look at your end markets between PC and SmartVoice, there's a lot of weakness. It looks like you guys had very good margins. And that's good supply discipline. You expect to see that operating stability and discipline continue into 2014, even after Wuxhee comes on? We do. We think that the overall PC market feels like it's stabilizing a bit, at least from from our customer's perspective, the demand is pretty robust, as I mentioned earlier, it's quarter to date. And we think that the balancing between that. And not just the smartphone segment, we've got pretty good inroads into what I would say is the utility smartphone business that our customer breadth there is allowing us to diversify away. And so we're not so heavily concentrated smartphone segment itself. And so we don't necessarily feel that we're overly exposed to that dynamic you're referring to post Wuxi coming back on, we feel pretty comfortable where we're at on the customer engagement model. And what the customers are asking from, Micron from a capacity standpoint. Got it. And then Peter, can you talk about what are the cost synergy opportunities, let's say, in test and packaging also wanted to get your thoughts on the yen, how you are you are looking at the site from there and any hedging there. Yes, again, I mean, on the packaging side, LPDA certainly had their own approach to packaging. And so as we look at Micron going forward. We've got we've kind of drawing up our own strategy in terms of internal and external approach, a hybrid approach how we're serving our product needs. A good way of thinking about this a rather simple way of thinking about it is for some of the higher touch higher value add product and applications. More of that will be done in house. And as we evaluate future opportunities, some of our more commoditized low end business PC mobile application where they don't require a lot of touch and development. We'll probably use some outside third party help to get that done. And Vijay, on the Jan and hedging question, I'll just make a couple of comments, see if I hit your point and ask for clarification if you want to go somewhere else with it. We use natural hedges in Japan and Taiwan largely to protect our balance sheet, along with some yen based forward contracts to protect on our yen. And our largest exposures, you probably know, relates to our JPY 140,000,000,000 of yen creditor payments scheduled out over the next few years in Japan. So we use we use those hedging approaches largely natural hedges, but some forward contracts to cover that. Another data point I might just mention is on the operating cost structure, a 1 yen change in the yen dollar rate will affect our operating costs quarterly in the neighborhood of 5 $7,000,000 just as a reference. Got it. Thanks. That's helpful. Good numbers, Dave. Thanks. Thanks. Thank you. Our next question comes from Mark Newman from Bernstein. Hi. Thanks for taking my question and good numbers today. My question is really on the NAND DRAM mix. So looking at the gross margins currently, I think both NAND and DRAM, are in the, somewhere in the low to mid-thirty percent gross margin. But currently, with your ramp that you talked about in Singapore, the conversion of DRAM to NAND, it is causing some little bit of problem on the ASP side and gross margin for NAND looks like at least what you're saying for the ASP a quarter to date seems to be down quite a bit. So with that in mind, it looks like the NAND go margin is going to be quite a bit below DRAM in the coming quarter fiscal Q2 and perhaps beyond. So in that case, I'm wondering, like, how you think about that? You commented, I think, Mark Durkin, you commented you may have some flexibility for how you look at things. And I'm wondering if, if you could talk a little bit about that, considering the fact that, the extra production that's coming out of the Singapore fab is causing pricing and margin to come down to your NAND segment. And if you would consider to perhaps delay that conversion to, to ease situation considering that DRAM is doing quite so well these days? Yes. Thanks Mark. It's a good question, one which obviously we think a lot about I think the key here is we want to be we want to be careful. We don't optimize the short term at the expense of a long term. And we'll continue to look at what the exact right balance is. But we think in terms of this some of our challenges right now relative to NAND as we bring this new capacity online or more short term oriented relative to enabling the customer sockets and getting the product place in the right place as opposed to all a long term supply demand phenomena. And when we look at the long term dynamic for NAND, we still think that's going to be a pretty robust And so we'll obviously keep a close eye on it. And we do have flexibility, but, as I mentioned earlier, our trajectory today is to continue to move towards closing that out in an orderly fashion over the next year. And just to add to that, Mark, as I think you numerically observed, but to be clear, the current margins are pretty darn close to the same Q2, we might have a little bit of shift related to mix as Mark Adams commented about, etcetera, but that's a short term phenomenon. So there's not a huge difference between the two right now. Got it. So what so basically, your goal is, you well, you believe that, the mix issue is a short term issue and you believe that within 3 to 6 months, as you said, you're going to be able to transition this extra production in Singapore towards more higher margin solution products and therefore, the margin should then catch up back to the kind of more similar to DRAM, kind of back to the kind of mid-30s or even higher, gross margins. So this think this, in other words, is more of a short term issue? We do. When you think about, coming online with a fab 7 or anytime you bring on new capacity out of a fab. Your customer qualification process is somewhat timely around their own products and So as we go through that, our early output tends to go into more commodity homes in the short term. And as Ron just noted, dramatically hit our margin in Q1. And so we are in the process of qualifying major OEMs on this output and we think the timeframe is roughly 3 to 6 months that will get us back to a more stable margin profile that we can drive the right capacity into the right sockets. Great. That's very helpful. And I just have one further follow-up. You mentioned 3 d NAND schedule samples. Late Q late Q1, Q2, can you clarify you're talking about, 2014 and That's right. I'm sorry about that. Yes, when I made the comment earlier, we're still on track and optimistic that late Q1 early Q2 production samples for 2014. The 3d. And any more comment on what on how you think 3d NAND how that will shape out in the future in terms of, potential mix, when production may ramp up, what the kind of, put product product categories would be with more higher end enterprise versus lower end, lower costs, any kind of comments you can help us and how to think about that? But I can tell you a little bit about how we see it. I mean, we think from 3d volume perspective, we think it'll be across the spectrum of application usage. We are looking to obviously enable it in the high end and use it to our advantage to drive enterprise, but the way we've architected our product is going to allow us to be cover our full breadth. We think volume is probably back half of twenty for 3 d. And thus, we think that where we are in our development, we're on track to do that. I see. So you think you think broad set of segments not specifically high end or not specifically low end? Do you think it's Well, the way we our design will allow us to focus on a couple of key markets that we view as kind of high value for for the sockets, but we we're not limited to where we can take this over the long term. Great. Thanks very much and good, congratulations. Thank you. Thank you. And our next question comes from David Wong from Wells Fargo. Customizing what gross margin would have been if the inventory for LPGA had not been written up in the November quarter? Yes, there was a reconciliation page and basically the stepped up inventory was 111,000,000 Okay, great. Thanks. Thank you. Our next question comes from Monica Garg from Pacific Crest. Thanks for taking my question. Just a follow-up question on the 3 d NAND. Could you maybe talk about, you know, if you when you target 3 d NAND, would you look at the cost structure? Is it below the your pain and man cost structure at that time? Or depending upon the applications, maybe some applications need higher endurance. So you may ramp CDNAND just for that patients to begin with. Maybe just could you, if you talk about your strategy on the 3 d NAND side? So, let me, let me try and characterize obviously early on as with any new technology, we're going to pick a couple of applications first as Mark Adams. Mentioned a moment ago, our technology, I think as you look at different suppliers in the marketplace, different suppliers are taking different approaches to 3 d NAND technology. Some of them as I think you're implying, Monica, have limited, performance on certain planes or parameters. Micron's technology, we believe, is more generally applicable to the full swath of applications currently being serviced by Planer NAND. And so, we expect over time we will roll our 3 d NAND across the spectrum. And yes, of course, we believe it will be significantly over time it will be significantly more cost effective than planar NAND given the scale that goes on with 3 d NAND. And then if I heard it correctly, you said the volume ramp is in later half of 2015. Well, yes, it's tough to pin down because we have to say what we mean by volume and all the details associated with that. But yeah, we believe it's a 2015 phenomena for production ramp on 3 d NAND and significant in the marketplace, probably more so in the second half than the first half. Okay. Just the last question on the current pricing trends in the NAND market. At least what we see on the channel side seems NAND pricing is slightly weak. Maybe could you talk about pricing trends in different segments in the NAND market? Well, actually it's interesting that the way you've asked the questions, the way we look at it, there are some parts of the NAND business that have remained very strong and robust. And there are some that have shown some of the weakness you're talking about. Some of that, by the way, is pretty natural out of the holidays. But it's not as severe as prior years necessarily. We also see some people who are exposed in the NAND business in the mobile market, getting a little more aggressive with that capacity and a low end client business. And quite frankly, we're not going to play that game. So addition to moving the components to other application segments, we don't necessarily want to sell our business just to compete from market share perspective where other people are trying grab share on pricing. So independent of the Fab 7 dynamic I mentioned earlier, it's overall. It's not not a bad NAND business. It's just there's pockets of weakness coming out of the holiday and with some softness where people are exposed. Thank you so much. That's all for me. Thank you. And our next question comes from John Pitzer from Credit Suisse. Your line is open. Please go ahead, sir. Yes, good afternoon guys. Congratulations on the good results. Just relative to the November quarter, I think you said there was a $250,000,000 benefit for prepay of DRAM from a customer. I'm kind of curious when does that product ship? And I guess Given that we're all worried about Wuxi coming back online and DRAM pricing going lower, what's the motivation behind the customer actually coming into a contract at today's pricing? Well, as we commented on earlier, the way we plan our business is basically with the full Wushi fab capacity in the market. And as Mark, Dirk can comment on earlier, we've got kind of a bit of a shifting dynamic with certainly Wuxi coming on at some point. We don't know when that is. At some point in the future, but offset partially by our continued fab 7 conversion. So if you put that all together and balance with industry output of about mid-twenty percent range of DRAM bit growth for the year. We think that's in line. We don't think that's drive a significant oversupply in the market. And we think the customers see that too. And so as that customers look for that 2014 sourcing. As they think about kind of when Wuxi may or may not come online, They're trying to lock up capacity and convenience. They're able to make it through as best I can see through calendar 2014 beyond. Mark, that's helpful. When does the product ship? We don't normally get into detail, but it's kind of over a longer period. The intent was to secure output over a long cycle, not in a specific quarter, for example. Great. That's helpful. And then guys, in the prepared comments, I think you mentioned that shipped an SSD enterprise drive this November quarter. Was that sample or was that actually true shipment for revenue? And I'm just kind of curious how do we think about the enterprise SSD as a percent of overall SSD mix? Any targets you can share with us for this fiscal year? And how should we think about the gross margin differential between enterprise SSD and consumer SSD? Thank you. Well, let me ask you the first question. It was a sample on the M500 DC product. It was based on our 20 nanometer technology. As we look at it, as I mentioned in terms of the NAND behavior in terms of ASPs and market on the higher density and the enterprise market. Obviously, we'd like to drive as much of our capacity to that where customers, who are who have got exposure into the high end smartphone business have capacity. What we're seeing is some aggressive pricing in the client business. And we're going to take a look at that versus our retail business, which is doing pretty well. And versus our component business and versus other application segments. So we don't necessarily want to go head to head and try to compete purely on pricing the client business. And if you look at our client on its own merit, our average densities and client are much higher than the market. And because we're trying to keep that above what I would say the trading client business, which again, If you've got a lot of capacity in the high end smartphone business that's exposed, you might be a little more aggressive to find business. Perfect guys. Thanks and congratulations again. Thanks, John. Thank you. And our next question comes from Steven Fox from Cross Research. Your line is open. Please go ahead. Thanks. Good afternoon. Just a couple clarifications from me. On the yen, for the current quarter, can you just give us a sense of what you're assuming and how much of a benefit it is quarter over quarter to And then, secondly, in terms of just looking at the LP to cash margins, don't know, maybe I missed it, but are you being specific about where they exactly were in the quarter? And then lastly, can you just talk about, I think you said you're still early on in in getting LPDA integration integrated fully. Can you sort of talk about what else is coming maybe between now and the end of the calendar year? Sure, Stephen. With regard to the yen, if you're talking about our forward view Q1 to Q2, we're not assuming that we don't typically assume any change rate changes in our outlooks as we give guidance going forward if that's what you were looking for. Yes. But so it's a benefit quarter over quarter. Is that correct? Like, versus what you just reported? Yeah. Yeah. Okay. And so just assume the current Yeah. In terms of your question on LPDA cash margins, we don't we're not going to give any more detail on LPDA specifically other than we mentioned we met or in general exceeded our projections we gave in August. And that was a It's a pretty good outcome in terms of pulling that through our business and getting it combined with the overall Micron. Great. And then just on the roadmap for LP to integration, Sure. I don't think there's anything alarming to the process. I think what the comments on integration are that the teams coming together are working pretty well. Of course, we've got kind of the 25 nanometer ramp ongoing as well as I talked about second half of the year twenty nanometer product in the market. So, as it relates to the focus of the teams and just the timeliness of the integration efforts with engineering teams coming together, the marketing organizations coming together. Looking at market segment optimization with that team as part of Micron has actually been very helpful for us because of the dynamic between the mobile and puting bit optimization we talked about from an ASP and wafer out perspective. So, a lot of normal stuff integration we feel pretty positive about. And I think the customers see the breadth and the opportunity for flexibility in our portfolio, whether it be in the mobile portfolio, or the pure computing portfolio. Thanks, Mark. I think we have time. Yes, you bet. I think we have time for one more color. Thank you. Our next question comes from Kevin Cassidy from Stifel Nicolaus. Your line is open. Please go ahead. Hey, this is Dean Ramalos calling in for Kevin. Thanks very much for squeezing me here. My question is, can you provide a little extra color on the relative performance and demand in the server segment? We often talk about PC and mobile, but how strong is that segment been from demand perspective and what do you see going forward? Kevin, I'm sorry, This is Mark Adam. We continue to be very bullish on the server market, really primarily for two reasons. One of which is the driving at the data center cloud computing dynamic, coupled with, as much DRAM as they can put in the servers they're putting into the bit growth in servers last year, continues to plan to this year's numbers. And we're seeing significant bit growth in the 50% to 60% range in the server market. So we feel pretty good about that business. It's been very stable and we've been capturing more share quarter over quarter for five to six quarters and give you a bit of quick in the server market records. Okay. And as a quick follow-up, from the inotera cost structure arrangement, does it matter at all which segment the device is for or how what else can you provide as insight to how that works? So, Dean, this is Ron. In terms of the in Oterra structure. We don't get into a lot of details on it, but as I think we've commented, it's it's an averaging pricing mechanism looking at past 3 months on a moving average basis. So there is a lag effect as it flows through. And then in general, we neutralize differences in mix so that we have the flexibility to move whatever products where we want in our system. So it doesn't have a difference fundamentally in our pricing or transfer pricing as a result of mix. Waiting on the call today. If you will please bear with me, I need to repeat the Safe Harbor protection language. During the course of this call, we may have made forward looking statements regarding the company and the industry, these particular forward looking statements and all other statements that may have been made on the call that are not historical are subject to a number of risks and uncertainties and actual results may differ materially. For information on the important factors that cause actual results to differ materially. Please refer to our filings with the SEC, including the company's most recent 10 K 10 Qs. Thank you. Thank you. This concludes today's Micron Technologies First Quarter 20 14 Financial Release Conference Call. You may all now disconnect.