Earnings Call: Q4 2013

Oct 10, 2013

Good afternoon. My name is Shee, and I'll be your conference facilitator today. At this time, I'd like to welcome everyone to Micron Technology 4th Quarter And Fiscal Year End 20 13 Financial Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. Thank you very much, and welcome to Micron Technologies 4th quarter fiscal year end 2013 financial release conference call. On the call today is Mr. Mark Durkin, CEO and Director Mark Adams, President and Ron Foster, Chief Financial Officer and vice president of finance. This conference call, including audio year end 2013 financial press release. Again, it is available on our website at micron.com. Our call will be approximately 60 minutes in light There will be an audio replay of this call accessed by dialing 4045373406 with a confirmation code of 7101-0239. This replay will run through Thursday, October 17th 2013 at 5:30 pm Mountain Time. A webcast replay will be available on the company's website until October of 2014. We encourage you to monitor our website at micron.com throughout the quarter for Please note the following Safe Harbor statement. During the course of this meeting, we may make projections or other forward looking statements regarding future events or the future financial performance of the company and the industry. We wish to caution documents the company files on a consolidated basis from time to time with the Securities And Exchange Commission. Specifically, the company's most recent Form 10 K and Form 10 Q. These documents contain and identify important factors that could cause the actual results for the company on a consolidated basis to differ materially from those contained in our projections or forward looking statements. These certain factors can be found in the Investor Relations section of Micron's website, Although we believe that the expectations reflected in the forward looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward looking statements after the date of the presentation to conform these statements to actual results. And thank you. And I'd like to turn the call over to Mark Durkin. Mark? Thanks, Kim. I'd like to start today with an overview of the key developments during the quarter. Followed by a few strategic and industry thoughts. Then I'll turn it over to Ron for financial summary and before turning to Q And A. We'll close our prepared prepared comments with Mark Adams covering additional details of our business unit and operational performance and market conditions. Our 4th fiscal quarter was highlighted by the long anticipated closing of the LP to acquisition. I want to thank all our team members, whether from Micron, LP to a wreck ship, for all their hard work, getting us to this point. While we were able to get a good head start on planning and technology development, integration is now in full swing and we get the ground running with solid combined financial performance in Q4. We expect this execution to continue in Q1 as we take advantage of the strong market conditions along with enhanced scale, technology, cost and customer positioning. Our DRAM business roughly doubled overnight as Alpita and Rexchip delivered scale in the PC segment and a leading mobile product portfolio that dovetails nicely with Micron's strength and other specialty DRAM categories such as networking server and aim. We were also very happy with the performance of our new Japanese team in the graphics arena and expect significant growth in that segment, driven by next generation gaming consoles hitting the market soon. Mobile DRAM is now in the mid to high 30% range of our DRAM bits with TC in a similar range and server in the mid teens. While consumer networking and storage and aim are all in the single digits as a percentage of bits, they remain higher than that in terms of revenue. In summary, we have a large product portfolio in every critical segment of the DRAM market and we will now turn our focus to optimizing margins and returns. Turning to the NAND business. We are building a large and solid foundation in SSDs, both through the expansion of our own SSD product lines as well as strategic customer engagement in the space. Micron branded SSDs and sales to our strategic SSD customers now consume in aggregate over 60% of our need NAND trade bids. We also have a margin driven retail business and are focusing on a growing set of opportunities to expand the high value embedded expand in the high value embedded applications. The wireless NOR market continues to moderate decline as predicted But embedded NOR remains very attractive and we're driving profitable growth there. We recently entered into an agreement to sell our 2 millimeter north fab in Israel, and we've started moving north production to Singapore into our 300 millimeter fab in Virginia. This will enable significant cost reductions going forward, while still providing ample capacity to service the market. Comparing our major technology categories, for the quarter, trade NAND achieved gross margins in the low 30% range, followed by DRAM in the mid-20s and NOR in the high single digits. As Ron will describe in more detail, the reported DRAM margins from the newly acquired capacity appears lower initially as both WIP and finished goods at close were written up to reflect anticipated related market prices. This purchase price accounting effect should flow through over the next quarter or so. We continue to make capital and segmentation decisions optimized margins and free cash flow over time. Operating cash capital expenditures of $332,000,000 in the quarter. Both these numbers include 1 month of LPDA financials. The Micron only fiscal 2013 CapEx of $1,400,000,000 came in at the low end of our updated guidance range as we deferred spending into 2014. As a result, our 2014 guidance of $2,600,000,000 to $3,200,000,000 is actually somewhat above what we believe the normal run rate for our business should be. Conditions remain favorable for a strong memory industry fundamentals. In NAND, we're projecting industry supply this year up the low 40% range with next year very similar. The 2014 projection includes about a 10% increase in industry wafer production with the remaining supply growth coming from technology. This supply forecast compares to the 5 year NAND demand CAGR of 43% and applying favorable supply and demand balance. Micron's total NAND supply growth will be below the industry this year and slightly above next year given our DRAM demand conversion in Singapore. Mark Adams will comment on the status and solid execution going on there. For DRAN, we expect to see declining industry wafers over the next 12 months with the recent fire of one of our competitors fabs amplifying this effect. Clearly, the fire is impacting and will continue to impact supply in the market as the fab in total, including potentially un impacted capacity, represents about 13% of III DRAM capacity. We are working with our customers to assist them where possible, but we are not currently changing any of our production plans as a result of the fire. Without making any major assumptions for the impact of the fire, we are projecting DRAM industry supply up in the mid-twenty percent range this year and a similar range next year. The current DRAM 5 year demand CAGR is in the low 30s, implying a favorable long term market situation there also. Micron's total DRAM bid production, including L feeder should be slightly above the industry this year and below the industry next year. This includes the impact of our DRAM demand conversion plans. It was a rewarding quarter at Micron, but much remains to be done. While the Alpida acquisition positions us as the world's best memory flyer and the industry dynamics are moving in our favor. We remain focused on optimizing value for our shareholders and worldwide customers I'll stop here and turn it over to Ron and Mark before turning for Q And A. Thanks Mark. Our fourth quarter and fiscal year ended on August 29th. Our website has a schedule containing certain key results for the fourth quarter as well as guidance for the first quarter of 2014. That information is also presented on the following slides. For our 2013 fiscal year, We reported net income of $1,200,000,000 or $1.13 per diluted share on net sales of 9,100,000,000 The results for the year include 1 month of the consolidated results of LPIDA since our acquisition closed on July 31st, Elpita's results include WEXGIP. The $1,500,000,000 non operating gain recognized as part of the purchase accounting of Elpita is the result of the fair values of the assets and liabilities acquired being in excess of the purchase price. Operating income for 2013, which excludes the gain on the LPDA acquisition, improved to $236,000,000 compared to an operating loss of $612,000,000 in fiscal 2012 as market conditions for memory products improved significantly around the beginning of this calendar year. The schedule currently displayed summarizes the purchase accounting for LPDA. Several noteworthy items include the $2,400,000,000 net assets acquired includes $3,000,000,000 of net working capital. Both cash and inventories were each just under $1,000,000,000. The amount of inventory as of closing was written up as part of the purchase accounting to its fair value, which Mark mentioned, is based on the estimated selling prices for the products. As a result of this write up, we expect lower margins on sales of LPDA products in the 1st few months following the acquisition as we sell through the material that was subject to the write up. Normal margin should return around the end of the 1st fiscal quarter. The amount of property, plant and equipment consolidated for consolidated LPDA including the fabs in Hiroshima and Taiwan was $935,000,000. This reflects an approximately $2,100,000,000 reduction through purchase accounting compared to the U. S. GAAP values immediately prior to the acquisition. In addition, you may recall that the U S. GAAP PP and E values of consolidated LPDA were previously written down by $2,800,000,000 through an impairment charge 2012 financial statements. Other current and non current assets include about $920,000,000 of net deferred tax assets, such as net operating loss carry forwards, which will be used over time to offset Japan income tax obligations. Total acquired debt, giving effect to Our payment to acquire LPDA of 60,000,000,000 yen or approximately $615,000,000 is shown on the balance sheet will be used to make under the plan of reorganization of JPY 200,000,000,000, there are no interest. However, they have been discounted to a fair value of $1,638,000,000 using an imputed interest rate of 6.25 percent. Concurrent with the closing of the LPDA acquisition, we also acquired Powerchip's 24% interest in Wrexchip. Along with Opita's ownership, we acquired a total of 89% of REX Chip, the remaining 11 percent represents substantially all of the noncontrolling interest valued at $168,000,000 reflected in the opening balance sheet. The SEC disclosure rules require us to file certain historical financial statements of LPDA along with pro form a financial statements. Statements as of and for the fiscal period ended February 28, 2013, as well as pro form a financial statements for Micron fiscal 2012 statements contain additional detailed disclosures of the purchase accounting for Alpida. Further details of the actual purchase accounting will be included in our 10 K which will be filed later this or $1.51 per diluted share on net sales of $2,800,000,000. Obviously, these results include the $1,500,000,000 acquisition gain. Operating income for the fourth quarter of $207,000,000 improved from $149,000,000 in the 3rd quarter, primarily due to an approximately 1 percentage point expanded gross margin and $46,000,000 operating income contributed by LPDA, which includes the net effects of higher cost of goods sold from the stepped up inventory value partially offset by lower depreciation from the equipment values that were written down in purchase accounting These factors were partially offset by acquisition costs and restructuring impairment charges incurred at the micron level during the quarter which are enumerated on the following included in our fiscal Q4 included revenue of $355,000,000 with 25% gross margin Alpita's net income for the 1 month period was $29,000,000. We are continuing to present items included in trended economic performance. These items are presented to reconcile net income for the period as reported to net income excluding these certain items. Note that the amounts and the reconciliation do not include all their related income tax effects as the amounts are generally de minimis due to our net operating Going the other way are the flow through in the fourth quarter of a portion of the stepped up inventory value in the acquisition in addition to the acquisition related $2,000,000, primarily from employee termination benefits associated with workforce reductions as we continue to optimize our global workforce structure, and write downs of certain assets in our Israel operation associated with their pending sale. The amortization of debt discount primarily reflects the imputed interest expense in the quarter Last quarter, we mentioned a gain we were to recognize in the fourth quarter of $48,000,000 associated with our ownership and in Oterra they sold shares to other parties at a price was significantly reduced in the fourth quarter as we began hedging LPDA's non USD exposures under our normal hedging policies as of the close of the acquisition. We expect to see some ongoing activity in this area since we fully incorporated Elpitas balance sheet exposures, including the yen denominated installment debt. And non cash income tax expenses, primarily in Japan, are offset by the deferred tax asset we recorded in purchase accounting. Adjusting for all these items, non GAAP EPS improved to $0.29 per diluted share compared You may have noted here as well as on previous slides that the number of shares used in the diluted EPS calculation has increased in the 4th quarter. The average stock price determine the amount of dilution. The number of shares used in the diluted EPS calculation for the 4th quarter includes 96,000,000 shares from the dilutive effects of convertible notes The capped calls that we have in place around our convertible notes, while not reflected in the EPS calculation, economically reduced the dilution from the convertible notes by approximately 53,000,000 shares at an assumed $18 share price. As our share price exceeds the upper As always, we are reviewing alternatives to manage our capital structure and will take advantage of opportunities we believe are in the best interests of our shareholders. In the first quarter, we flow through of LPDA inventory step up, reducing gross margin by $110,000,000 to $120,000,000. Amortization of debt discount on the convertible notes and the LPIDA installment debt of approximately $50,000,000. Non cash taxes related to the acquisition of between $50,000,000 to $60,000,000. Our going our ongoing cash tax rate is expected to be in the low single digit range. We expect restructuring and acquisition costs in the first quarter to be immaterial in the single digit million dollar range. Now, the more detailed discussion of our operating results will be at the combined company level, including the results of LPIDA, In terms of the guidance that Going forward, all of our Turning first to DRAM, DRAM revenue for the combined company increased 50% in the 4th quarter compared to the previous quarter reflecting a 42% increase in bit sales volume and a 5% increase in per bit average selling prices. 1 month of LPADA's results accounted for approximately 20% of the total bid shipments in the 4th quarter. The mix of LPDA's products average to a lower price when compared to Micron's average price. This is primarily a result of Micron's higher mix of premium ASP segments such as networking and aim, while LPDA has a higher mix of sales in wafer form. Currently, LPDA sells approximately 20% of their volume in wafers. Reduces the consolidated micron average selling price and cost per bit correspondingly. The cost for DRAM products increased in the 4th quarter compared to the previous quarter, mainly due to the higher cost of products purchased from In Oterra, which vary based on market prices. Our This is the first quarter since 2010 where our equity method pickup reflects income from in Oterra. Where execution in addition to the improvements in the memory industry has helped their return to profitability. Recall that we pick up Inotera's equity method results with a 2 month lag. Now in terms of guidance for DRAM, using quarter to date selling prices and projected product mix effects for the quarter, ASPs would be up mid single digits compared to the Q4 average as a result of market increases partially offset by the Projected bid costs are expected to be down low single digits relative to Q4 with the LPDA mix improving cost per bit. Partially offset by higher costs from Inotera's market based pricing. Projected production volume is expected to be up mid-40s in first quarter with a full 3 months of LP to volume. We to account for approximately 60% of DRAM bit production in the first quarter. Key themes affecting Q1 guidance include the relatively strong market conditions for DRAM pricing that Mark referenced and the continued transition of the former tech Singapore fab from DRAM demand. This transition is on track and expected to continue through the end of the fiscal year. Now turning to NAND. Trade NAND sales increased 3% compared to the third quarter, which reflects a 13% increase in bit sales volumes offset by a 9% decrease in per bit average selling price. Margin on trade brought about the offsetting effects of NAND a bit sold in Micron branded SSDs increased 23% in the 4th quarter, driven primarily by growth in the enterprise space, as we continue to build Looking at our NAND guidance for the first quarter. Using quarter to date selling prices and projected mix for the quarter, Trade NAND ASPs would be down high single digits with a decline driven by mix of higher density products on advanced technology nodes. Bid costs are expected to be down high single digits as well, while bid production is expected to be up low to mid teens as we transition our former tech Singapore fab to NAND production. Key trends for Q1 affecting this guidance are the continued ramp of the former tech Singapore fab to NAND, although the majority of the output in the fourth quarter was still DRAM, And as NAND replaces some NOR volume in the marketplace over time also add that revenue from NOR sales is expected to decline sequentially in Q1 as it did in Q4 to the $120,000,000 to $130,000,000 range. SG and A expense guidance for Micron only in the fourth quarter did not include any acquisition related costs, Adjusting for the $42,000,000 acquisition related costs in the quarter, SG and A was right in the middle of our guided range. We expect SG and A expense in the first quarter to be between $185,000,000 $195,000,000, including Elpitas costs. R and D expense for Micron only in the fourth quarter was at the high end of our guided range. Including LPDA for all the first quarter, we expect R and D expense to be between $340,000,000 $350,000,000. The company also generated $717,000,000 cash flow from operations in the fourth quarter. And non current investments of $4,200,000,000. Installment payer payment later this month, as I mentioned previously. Micron only capital spending during the fourth quarter was $286,000,000, which brought the fiscal year total to $1,400,000,000 at the low end of our most recently guided range as Mark mentioned and well below our original guidance for and $32,000,000. Estimated capital expenditures for fiscal 2014 of between $2,600,000,000 contemplates all the spending for the LPDA and Rex Chip operations as we converge on our technology and product roadmaps, Depreciation and amortization expected to increase from $486,000,000 in the 4th quarter to around $560,000,000 in Q1. During the fourth quarter, we received just over $300,000,000 in additional asset backed debt financing. And with that, I'll turn it over to Mark Adams for his comments. Thanks, Ron. As well as share some thoughts $81,000,000, up 7% when compared to our 3rd quarter. Total trade and gross margins increased slightly in the quarter as we continue to improve our mix. Partially driven by an increase in higher density, lower price per gigabyte SSD products and partially driven by early production capacity from our FAB7 conversion ending up in a transactional market such as memory cards and USB devices, which generally produce a lower ASP. Our SSD business is growing significantly faster than the overall SSD market. Micron branded SSD revenue for the year was 76% over 2012. It's worth noting that over 50 percent of our trade and NAND revenue goes to either Micron branded FSCs or our strategic customers who serve the SSD category with Micron's NAND technology. We continue to migrate our SSD product family to advanced lithography nodes Our 20 nanometer flash memory technology represented 40% of our client SSD shipments and our 25 nanometer process represented over 80% of our enterprise shipments. Our newly announced M500 based on our 29 nanometer technology is seeing strong acceptance, not only in client but data center applications. We've also qualified 2 new enterprise drives at Tier-one OEM, our P-four ten SaaS drive and our P-four twenty PCIe drive. On the technology front, Micron introduced its industry leading 16 nanometer mlc NAND, the most advanced processing node for any current product produced in the Semiconductor device industry. For this accomplishment, Micron won the Best Technology Award at the 2013 Flash Memory Summit held in August. We are pleased with the results from our NAND business and continue to look for ways to drive higher value features and functionalities to an increasingly segmented market. Our DRAM solutions group recorded a 34% increase in top line revenue with sales of $1,240,000,000 in Q4 which included 1 month of LPDA data. Excluding this LPDA sales for August, revenue was up 16% quarter on quarter, driven primarily by an increase in DRAM ASPs for the 2nd consecutive quarter. DSG gross margins were in the mid-twenty percent range, up about 1% from our 3rd quarter. Keep in mind the Q4 and Q1 DRAM gross margins are, and in the near term, will be negatively impacted by the flow through of Elbita's inventory. Which was written up to market value at close, as Ron described in his purchase accounting comments earlier. We achieved record bid shipments in all of our premium DRAM segments with a non PC business representing about 55% of our gigabit shipments in the quarter. We shipped over 300,000,000 gigabit equivalents into the server DRAM segment in Q4, driven by strong demand from our datacenter customers and cloud service providers. For fiscal 2013, 2013, this is a 53% year over year increase in bit shipments, which represented a 13% increase in revenue. We had a record quarter RL DRAM shipments set a company record as we are seeing strong demand from Tier 1 OEMs as well as through our distribution channel. We also had a strong Bitch shipments were up 38% quarter on quarter, and we expect strong demand in Q1. In particular, looking forward to the upcoming launch of next generation gaming consoles for this holiday season. Alpitas G DDR5 technology rounds out our portfolio in its fast growing segment. On the technology front, We recently announced our hybrid memory cube interoperability with FPGA platform from Alterra, a major milestone for us, in this new solution for Our RL DRAM3 product continues to receive strong market endorsement from our Tier 1 networking customer We are seeing strong yield improvement in our 25 nanometer process technology, and we'll continue to ramp this technology through fiscal 2014. We are also on track to introduce our 20 nanometer technology beginning in the second half of calendar 2014. Overall, the DRAM market remains tight. Given growing demand in the specialty markets and undersupply in the PC DRAM business, and the impact on supplies and the Wuxi accident. Inventories appear extremely low across both our OEM customer base and our distribution channel. We are on allocation with customers in multiple segments. OEM contract pricing, while increasing continues to lag the rising spot market. Our specialty business typically lags the market in terms of price movement but we are seeing increases across these segments as well. We are optimistic that the DRAM market will remain strong through the end of calendar year 2013. When you include 1 month of LPTA's mobile business, revenue for the Wireless Solutions group was up 70% quarter over quarter, coming off of Q3 where revenue was up roughly 30% from the prior quarter. Without the LP to impact, revenues for WSE were flat quarter over quarter as we were able to redirect some capacity to higher margin opportunities in Computing. Q4 gross margins swung from a negative 4% to a positive 8% in the quarter. Mobile DRAM was up 300 percent quarter over quarter, including LPDA, highlighted by increased low power DRAM share at Tier 1 customers. Mobile DRAM margins improved significantly in Q4 on increased shipments of our 30 nanometer low power DRAM product. Our mobile NAND revenue was constrained in the quarter, but gross margins were up mid single digits compared to Q3. Our Nora based MCP business saw demand continue to decline with margin pressure from idle charges. In the past, I've talked about the restructuring of our Micron only mobile business, WSE, We have taken significant costs out of the business and managed our mobile inventory to an all time low as we prepare for the integration of LPA's mobile business with WSG. We feel as one combined mobile business, Micron has the strongest mobile memory portfolio in the industry, We are excited about the combined mobile organization scale and product breadth in both low power DRAM and managed NAND Positioning Micron as a leader in mobile memory solutions. Our embedded solutions group recorded sales of $329,000,000, up 8% quarter over quarter, setting a record for ESG quarterly revenue. Investment and geographic expansion continues to pay off As we saw double digit growth in both Europe and Asia, operating profit remained strong at 19%, as our team concluded a solid fiscal year 2013. For the year, revenue was up 13% in our embedded business as we grew shipments across DRAM, NAND and NOR to a broadening customer base. Our Automotive And Industrial segment experienced 19% top line growth year over year. With the recent announcement of our field system labs in Germany and Shanghai We feel we are uniquely positioned to partner with our embedded customers in presale systems architectural design, qualification and post sale support. This level of customer engagement is a type of service that will continue to differentiate Micron's offering as we look to scale our embedded business. On the technology front, the team has done a great job marketing Micron's broad portfolio and a segment that was once dominated primarily by NOR shipments. In fact, today, our ESG revenue mix is relatively evenly split between DRAM serial and parallel NOR products at our 300 millimeter fab in Virginia, and we are in qualification with key ESG customers. We remain optimistic that we will see continued growth and the levels of differentiated service. Overall, the memory business remained favorable balance from a demand and supply perspective throughout our fourth quarter. Demand signals from our customers are strong, and we are in allocation mode across DRAM with general balance in NAND. The teams were able to execute in key areas such as specialty DRAM, enterprise storage, automotive, and industrial and low power mobile solutions in Q4. And we feel well positioned for a strong Q1. In closing, I want to welcome our new team members technology and strong customer relationships that are now part of Micron. With that, I will hand it back over to Kev Thank you, Mark. What we'd like to do now is take questions from callers. Just a reminder, if you are using a speaker phone, please pick up the hand when asking a question, so we can hear you clearly. And please open up the line. And our first question will come from the line of Glenn Young with Citi. Please go ahead. Your line is now open. Hi, it's Sadelaine Lee for Glenn Yang. Thanks for letting me asking you a question. My first question is Can you tell us a little bit about your CapEx split and also CapEx loading? Yes, this is, Mark, we gave you already the CapEx spend projected for the year. In terms of how that split technology wise, a little bit more than half on DRAM with the remainder to build out incremental 8090 series NAND conversion, which is 20 conversion to 20 nanometer and 16 nanometer as well as some early spend on 3d NAND. And then can you sort of help us in terms of ASPs after the Lucie Fire Pynix, what do you think pricing will do before, when they get back to their sort of normal loading sometime in the first half of twenty fourteen, what do you think pricing will do? Hi, this is Mark Adams. As we typically don't do, we will not comment on kind of future pricing. There's a lot of variables. We just don't have a handle on in terms of, what the competitive recovery would look like. Obviously, we're in a situation that, since then, up until quarter to date, it's further tightened what was a tightening market, but we're not in a position of predicting future pricing. Yeah. I think as well as As well as that, I would just add that it's still a little unclear to us at least exactly when there will be a full recovery. So, trying to get the dynamics around how that all plays out over time is very difficult. Our next questioner in queue will come from the line of Monika Garg with Pacific Crest Securities. Please go ahead. Your line is open. Hi, thanks for taking my question. You're operating margins on DRAM segment are much higher in then the NAND segment. And you're also guiding to ASP increase in DRAM and ASP decline in MAN. So the question is then why not delay the conversion of Singapore fab from DRAM to LAN for maybe a quarter or 2 quarters? Yes. What I said, Mark, is that we haven't changed our trajectory yet. And, what we've shared in the past is we want to maintain high degree of flexibility and active to our customer needs and what's going on in the marketplace so we can optimize margins. So I'm not going to comment on what we might do going forward. We're going to continue to watch the market pretty carefully and do what we need to do for Micron and our customers. Okay. The next one is on the WST segment. The revenues increased considerably and of course due to Al Qaeda's mobile DRAM business. But operating margins are still in the negative, right? So I'm just trying to understand the dynamics there. Is it the inventory because of that lower gross margin from LP to assets, could you just little bit walk on that side, please? There's that think you're hitting on a couple of areas that are relevant, but also we remember there's a 3 month, basically, a full quarter inventory flow through which will be much more positive when we get through that period, as well. There's also only 1 month in there. LPD image in the reported results. Yes. Let me take this chance also just to comment that In the mobile business, we are currently we are strategically looking at as a margin business, not a scale business. And so where we see opportunities to use our capacity for specialized and differentiated product in mobile. That's where we're focused on. We're not trying to necessarily grow the top line in mobile just to grow it. And I think from our perspective, when you add all those factors together, you'll continue to see hopefully us make announcements around differentiated products Thank you, ma'am. Our new will come from the line of Joe Moore with Morgan Stanley. Please go ahead. Your line is open. The 17% growth in NAND bits, you had talked about production up high single digits early in the quarter. Did you, was that from inventory or did you have upside from the production numbers that you thought you Yes, Joe, you're correct. That was actually reported a production number. So production numbers came in even better. I think Mark mentioned in his script that in particular, we were pleased to see that the 20 nanometer NAND is now more than 50% of our bits produced pretty pleased with how the team executed. And looping back also, Joe, to the tech conversion, again, while we're going to monitor that as the market continues to evolve, that transition when better than we ever could have possibly expected, the yields are phenomenal there and very, very smooth. Okay, great. Thank you. And then in terms of the tax rate that you talked about at the Analyst Meeting, you guys have talked about the disparity between kind of a cash tax rate and then the non GAAP from the true up of the NOLs around fair value. Are we going to be able to get visibility into what the difference is between those 2 tax rates going forward? Yeah. Joe, this is Ron. I showed you the effect in the latest reported quarter and I gave you a, a projection for the first quarter. So we will continue to pro form a that each quarter and give you the breakdown. The fact is that it's easier for us to actually project the cash tax rate and it's going to be in the low single digit range over time because of our tax structure. And that's what we'll actually be paying in taxes The GAAP tax rate is more difficult to figure out because it's an estimated effective tax rate based upon your projected annual profit. Or pre tax profits. So I can give you a pretty good diagnosis of cash tax rates. And each quarter, we'll break out the non cash portion that's in our GAAP number. Raymond with RBC Capital Markets. Please go ahead. Your line is now open. Great. Thanks guys for taking my question and congrats on all the execution of all the moving parts here. Is there any way you can help me get at what the gross margins would have been if you had recorded LPDA product at manufacturing costs as opposed to the marked up? Yes. Doug, if you look at my as a schedule on the pro form a, you should be able to pull that out because we showed the step up amount of the inventory around $40,000,000 for the fourth quarter. $41,000,000 on the non GAAP schedule that I provided when I made my prepared comments. So that the difference. Okay. That's not a significant number this quarter. Pardon me? Great. The $41,000,000, it's not going to move my gross margins multiple percentage points this quarter going forward, though, we'll have a more material. Going forward, I gave you the estimate $110,000,000 to $120,000,000 in Q1. Okay. And then I just wanna make sure I heard correctly you were talking in Oterra bits, even post acquisition integration, in Oterra bits in DRAM are going to make up 60%. Did I hear that correctly? No. In DRAM, LPDA bits make up would be makeup around 60% of our production in Q1. Our DRAM production. And how much is in Oterra? Well, it's a part of the remainder, the larger part of the remainder. Because those bits are at the cost plus accounting method? Market minus. In Otterra bits are market minus. And help Pete as part of our consolidated results. So does that address your question? Alright, Doug. Thank you. Okay. Thank you, sir. Our next questioner in queue will come from the line of Steven Fox with Cross Research. Please go ahead. Your line is now open. Thanks. Good afternoon. Seems like, once again, the, your business into the enterprise market is better than you would have thought, 3 months ago. I was curious if you could talk, especially on the SSD side, You mentioned some of the product successes. As you look out into this quarter, where do you see that going? And then secondly, on the service side, I wonder can give some more color around where you're being successful in the DRAM sales, because again, it looked like it was doing better than you would have thought 3 months ago. Thanks. This is Mark Adams. I think that we feel that we've got pretty good momentum both in terms of customer engagement and running out our product portfolio in the enterprise space. So we see continued growth there. And on the DRAM service side, I think we were actually mildly constrained, Q4. And so we have a reason to believe that's going to remain pretty strong through the quarter. And just a follow-up along that lines. I mean, you mentioned, web scale customers as being part of the driver. And I think you've also talked about the risks around the linearity of those customers. Is that something that played out in the quarter at all? And do you expect that to play out in the calendar fourth quarter? How do you see that market evolving near term? Well, we, we, so far, of the dull quarter today, we think that it's been mildly capacity constrained with good capacity bits being able to serve that space So we haven't seen any detriment to suggest otherwise. And again, I think we're We're getting some tailwind on customer engagements in this business with our product portfolio that, again, we're pretty positive and bullish going forward. Great. And then just wrapping all that in a bow, I was just curious as you apply all that to margins. How do you feel in terms of product whether it's SSDs or selling in the server market where are your margins optimized at this point in either product line or would you say there's room to improve that? Thanks. Yes. Again, we've probably won't touch that one in terms of future margins and future ASPs. All right. Thanks very much. Thank you. Thank you. Our next questioner in queue will come from the line of James Snyder with Goldman Sachs. Please go ahead. Your line is open. I was wondering if you could talk a little bit about the capacity plans, at alpeda hiroshima fab and also Rexchip in terms of what shrinks you're going to do over the next couple of quarters with the CapEx and transitions both on the mobile and PC DRAM side. Yeah. This is Mark, Durkin. At LP, we have a 25 nanometer, ramp well underway. And that's going quite smoothly. There has been some early activity at RedShip as well, although that will go maybe at a mute more muted pace and we'll continue to kind of monitor how we have our computing and DRAM mix and that may take things more than technology introduction at Rexchip as we try and try and get that mix right. But, Generally speaking, we have product running in both those fabs on the 25 nanometer node. 20 nanometer is really a second calendar half of 2014 story. There is, there is, there will be activity in the first half, but it'll be production in the second half of of 2014. And NAND, as we said before, we're over 50% 29ometer NAND already and will indoor 15 nanometer ramp, which, has gone very well. That's helpful. Thanks. And I was wondering, if you could maybe talk a little bit about understanding you want to keep your options open and keep things flexible regarding the tech transition to demand. But sitting here looking at today, would you expect that transition to be complete from an output perspective by the end of the calendar 1st or second quarter? I want to keep a little mystery in that dynamic perhaps. Okay, fair enough. Thanks so much. Thank you, sir. Our next question in queue will come from the line of Jonathan with Credit Suisse. Please go ahead. Your line is open. And guys, just real quickly, on the ASP guidance for DRAM in the November quarter, I'm kind of curious how much of that's being influenced by the addition of LPDA for 3 months in the quarter, I. E, if you just kind of look at the core Micron and Oterra DRAM ASPs, any sense of how you can tell us how that would have trended Q on Q? Yes, this is Ron. I mean, in general, if you look at the there are a couple of effects, James. One is the or, John, excuse me, the flow of market prices, which are up stronger than the average guidance we're giving But the LPTA product mix has a lower average price than that of historical micron, as I mentioned in my comments, This pushes down the average ASP in Q1 as you work that into the total mix for a full quarter. Everything big else being equal, I would estimate that the, based on today's pricing that the LPDA mix is taking us down in our average in the high single digit range. So the guidance we gave you up is muted by the fact that the LPDA mix is dropping us down in the high single digit range on average. Using quarter to date pricing and estimated mix. Perfect, Ron, that's very helpful, Ron. Thank you. And then either for Mark Durkin or Mark Adams, guys, there's been a lot made about the NAND trend from planar to 3 d. I wonder if you can help me better understand kind of the Moore's Law issues on DRAM, especially as we get below kind of 20 nanometer node, seeing a lot of white papers out there about whether or not we've got the right materials, what the cost curve is going to start to look like. And so just generically, as we think about the shrink capacity in DRAM, how does that look over the next several years? So, sorry, it's a question relative to NAND or DRAM or a little of both? No, to DRAM specifically. I think investors have kind of that is the 2 d to 3 d in NAND. I'm just kind of curious about what's going on in DRAM from a technology perspective. And is there a chance here that the shrink growth kind of slows here as we get below the 20 nanometer node? Absolutely. I think it's inevitable that the pace of technology node migration is going to continue to slow. There's no it's interesting because it's not like NAND where there's really sort of hard stop on playing in NAND. And, it just becomes very, very difficult with a floating gate tail to make it work at all below about 15 nanometers. But DRAM, there's a lot of bags in the a lot of tricks in the bag, sorry, it's just a it's an economic challenge to make that all play out. So I think you're going to continue to see technology migration, but maybe addressing smaller segments where there's some particular 4 factor need or performance need, as well as just the longer trajectory to get to the next node. But you will see nodes well below 20 nanometers over the next 5 to 7 years. Okay. Thanks, guys. Thank you. Our next question in queue will come from the line of of Jake Rakesh with Sturn AG. Please go ahead. Your line is open. Yeah, hi guys. Thanks. And just wondering, when you look at mobile, I know you gave out, your expectations for DRAM. When you look at mobile DRAM for next year, what do you think mobile DRAM grows? And also, on the NAND side, what's your split between SS and OEM retail now. Vijay, are you asking that from a micron perspective or a market perspective? If you can give me both for mobile DRAM? I'll give you a market, not like Mark, I don't want to keep some mystery in exactly what we do with our with our mix. But basically what you're seeing per handset only, you're looking at an average megabytes per phone of about $450,000,000 going to just over $700,000,000 in 2014. And on the NAND side, we're looking at something just below an average of 5 gigabytes of phone going to something just over 6. And that includes all handsets. It's an average of all handsets in. Got it. And on the NAND side, what's your split between SST and OEM retail? Again, from a market segment standpoint? Yeah. From a mic yeah. From from Micron and from Micron standpoint. I would say from a, from a Micron standpoint, we're running around 50% of revenues from SSD. And around 30% from Okay. And last question here. I know you there's a lot of focus on free cash flow. When you look at CapEx next year, I know it's coming down Any thoughts on where it is? And you guided to $2,600,000,000 to $3,200,000,000 for fiscal 2014, but you expect it to come down a little bit where do you think it comes in? Oh, after that period. So you're looking at 2015? Yes. I think we'll hold off on that one for now too. Okay. Thank you. Thank you, sir. Our next question in queue will come from David Wong with Wells Fargo. Your questions please. Thanks. One simple one, RNG, your guidance for the November quarter, $340,000,000 to $350,000,000. Just this include, is there some opportunity for rationalization of R and D going forward? Do you have duplication that you plan to eliminate so that the R and D will draw in future quarters? David, this is Ron. Yes, we obviously got the acquisition together and we're, we're looking at our go forward strategies for all of our operating structures. And, there's certainly our opportunities. The general structure of OpEx, both for our D and SG and A at LPDA was similar to ours as a percent of revenue. It doesn't radically change the percents of where we are right now. Going forward, obviously, we'll be looking at efficiencies and synergies that we can derive across the whole cost structure. Okay, great. And just to put a push a bit further on that CapEx question, I understand you don't want to give guidance for the outlook. But within that 1,000,000,000 to 1,000,000,000, are there any special charges that you're taking or special costs that you're incurring to integrate all your facilities? And can you quantify those for us that are one firmly type things? No, there's really not. It's it's really just the, technology migration across the entire network. And unfortunately, we only have time for about one more question. Erin Q will come from the line of Daniel Lamir with Lazard. Please go ahead. Your questions, please. Wheezing me in here. So, just a quick question, just in terms of, DRAM mix, what's the considerations here in terms of changing the DRAM mix here over time now that you have LPDA in terms of looking at increasing the networking or for DRAM, or, you know, versus mobile and PC? I mean, what's the considerations here? Well, some of that, Daniel is really, qualifying, getting those products into these applications in the internally qual cases as well as getting them qualified at the customer level. But the opportunity we believe is significant. We're obviously not going to quantify it here on this call, but You've heard reference today to historical revenue from Alpeter around wafer sales and personal computing and mobile. They obviously haven't, in the past, been very successful in getting over there, to these specialty markets and frankly, our customers. You can see we had records in basically all of our specialty markets. And we feel like we were constrained. There was more upside there. So think the opportunities there, our job is to go make that happen. But at the highest level, we're not, we're not seeking market share segments in any particular segment, we're, we're seeking to optimize our margin across the segments and drive differentiated products that have enduring value Great. Thanks a lot. Okay. And with that, we would like to thank everyone for participating 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 facts are subject to a number of risks and uncertainties, and actual results may differ materially. For information on the important factors that may cause actual results to differ materially Please refer to our filings with This concludes today's Micron Technologies 4th quarter fiscal year end 2013 financial release conference call. You may now all disconnect.