Earnings Call: Q4 2012

Sep 27, 2012

Good afternoon. My name is Karen, and I'll be your conference facilitator today. At this time, I would like to welcome everyone to Micron Technologies Fourth Quarter And Fiscal Year End 2012 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. It is now my pleasure to turn the floor over to your host, get better. Sir, you may begin your conference. Thank you, Karen. And I would also like to welcome you to Micron Technologies 4th quarter fiscal year end 2012 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 Micron's website at micron.com. If you have not had an opportunity to review the fourth quarter fiscal year end 2012 financial press release. Again, it is available on our website at micron.com. Our call today will be approximately 60 minutes in length. There will be an audio replay of this call accessed by dialing 404 5373406 with a confirmation code of 300 42904. This replay will run through Thursday, October 4th, 2012, and 5:30 pm Mountain Time. A webcast replay will be available on the company's website until September 2013. 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 statement During the course of or the future financial performance of the company and the industry. We wish to caution you that such statements are predictions and that actual events or results may differ materially. We refer you to the documents the company files on a consolidated basis from time to time with the Securities And Exchange Commission, specifically the company's most recent Form 10 K and Form 10 Q. These documents contain and identify important factors that could cause the actual results for the company on a consolidated basis to differ materially from those contained in our projections or forward looking statements. These certain factors can be found in the Investor Relations section of Micron's website. Although we believe that the expectations reflected in the forward looking statements are reasonable, we cannot 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 with that, I'd like to turn the call over to Mark Durkin. Mark? Thanks, Kit. I'd like to start today with a brief overview of the key developments during the quarter and an update on the proposed LP acquisition, followed by a recap of fiscal 2012 and our focus heading into 2013. After that, I'll turn it over to Ron for a financial summary and we'll close our comments with Mark Adams discussing key developments in our business unit and operations as well as an update on market conditions. Revenue in the quarter was down about 10%, primarily due to a reduction in DRAM bits. You may recall that we had forecasted in our previous earnings call that this would be occurring as we transition significant production to more 4 gigabit densities. Also impacting this comparison was a significant reduction in inventory for both DRAM and NAND that occurred in our fiscal Q3. Gross margins were pretty flat quarter over quarter with improvements in NAND and NOR and offsetting reductions in DRAM. From a market perspective, NAND flash demand improved during the quarter and this coupled with muted industry supply led to improved ASPs compared to the quarter to date estimate we gave you in late June. On the other hand, DRAM market prices deteriorated during the quarter, primarily related to weakness in the PC environment Although our net DRAM S ASP was essentially flat due to mix improvements. NOR revenue remained stable in the quarter and we were pleased to see NOR gross margins improved by 5 percentage points, mostly due to cost reductions. Total inventory was down again in fiscal Q4. We are continuing to focus on improving our turns over the next several quarters. In DRAM, 30 nanometer yields are on track and we should see a nice jump in production and cost improvements over the next few quarters. From a NAND perspective, we had the 1st full quarter results following the restructure of our supply and technology agreement with Intel in April, All product coming out of IMFS in Singapore and our Virginia fab now flow to Micron. As a result, we a much larger base of wafer capacity in our trade NAND business targeting key growth segments, including SSDs, smartphones, and tablets. Although we would have preferred to be reporting better financial results for fiscal 2012 today. Looking back, we had some significant highlights in the year. We achieved increased manufacturing scale and performance as we completed our volume manufacturing ramp of our world class flash memory facility in Singapore technology and transitioned Micron's DRAM operations to 30 nanometer DRAM manufacturing. We launched the hybrid memory cube product line reinforcing our leadership in performance DRAM technology. We completed the successful implementation of our new global supply chain management system. We achieved the successful outcome in the RAN Bus antitrust trial. We redefined and expanded our joint venture with Intel. We signed a sponsorship agreement to merge LPDIS operation into Micron and which upon close will place Micron as the industry's leading memory pure play one of the top 5 semiconductor companies in the world. Relative to LPDA, let me elaborate on a few of the items and update you on the timeline to close. The Japanese court and LP to trustees ran a rigorous and thorough sponsored process and determined Micron's sponsorship proposal to be the most attractive alternative. We believe the proposed agreement represents the best solution for LPDA's debt holders, employees, customers, the Japanese Semiconductor And Electronics Industries. For Micron, the deal will provide greater manufacturing and R&D scale as well as a significant product, customer and cost synergies, all at attractive economics for Micron's shareholders. The combined company will be well positioned to grow and thrive, optimizing the potential return for all involved. The financial terms and expected timeline to close have not changed since our announcement in July. On September 11th, the US HSR waiting period expired and depending on the timeline for other government approvals, we still expect to close sometime in first half of twenty thirteen. Entering fiscal 2013, we are focused on on driving our return to profitability with the continued emphasis on cash flow. We do face some headwinds from the macro environment from the demand profile in a number of segments. Specific to DRAM, prices are currently soft. While certain amount of supply has come offline, we still need to see improvement in demand the market to get things back on track. The upcoming Windows 8 launch and proliferation of DRAM and mobile devices should help get the ball rolling Although it's hard for us to predict the timing of a recovery, Mark Adams will comment later on this. NAND market prices are currently up quarter to date following the nice ASP recovery over the summer. And we don't see any disruptive supply coming online in the near future. We expect strong demand for SSDs and ultra thin enterprise server and storage as well as the proliferation of smartphones and tablets to fuel significant and consumption. From an operational standpoint, we continue to drive manufacturing cost reductions and optimize our product mix focused on the best margin and growth opportunities. We also intend to be very disciplined in our spending profile both in terms of overhead and CAPEX and manage our inventory levels carefully. I'll stop here and turn it over to Ron and Mark before returning for Q And A. Thanks, Mark. Our 2012 fiscal year ended on August 30, on our website, we have provided a schedule containing certain key results for the fourth quarter as well as certain guidance for the next quarter. That material is also presented on a few slides that follow First, the fiscal 2012, it ended in a net loss of just over $1,000,000,000 or $1.04 per share on net sales of 8,200,000,000 fiscal 2011, comparatively showed roughly breakeven net income on sales of 8,800,000,000. Total sales for 2012 decreased about 6% compared to the prior year as a result of generally severe price pressure in the memory industry as a whole. DRAM sales for 2012 reflect a 12% decrease compared to 20 11 The product of a 59% increase in DRAM bit sales, offset by a 45% decrease in average selling prices. Vids sales into premium DRAM sectors increased 62% in 2012 compared to 20 11. Trade NAND sales grew 19%. The product of bid sales over 2.5 times the 2011 level. Offset by a 55% decrease in selling prices. Trade NAND sales were favorably affected by the higher mix of Micron SSDs in 20 12, which decreased year over year in line with the general decline in market demand and the performance of our customer base in particular. On the cost side, DRAM bid costs in 2012 decreased 32% compared to the prior year, roughly consistent with a long term industry trend. NAND bit costs over the past year decreased 45% compared to the prior year as we leveraged our industry leading process technology. Broadly, annual sales for 2012 were comprised of about 44% NAND, 39% DRAM, and 12% NOR. Turning now to the 4th quarter results. We posted a net loss of $243,000,000 or $0.24 per share on sales of $2,000,000,000. These quarterly results compare to a net loss of $320,000,000 or $0.32 per share on net sales of 2,200,000,000 for the third quarter. 4th quarter revenue was sequentially lower in total as well as for both DRAM and NAND on generally flat pricing for DRAM products and slightly lower pricing for NAND products. Although DRAM pricing was generally down in the 4th quarter, as Mark mentioned, improved mix in our premium segments yielded an overall flat average selling price. Both DRAM and NAND saw lower volumes of bit sales. As a result, when combined with stable bit costs for both DRAM and NAND across to two quarters and better nor margin performance, consolidated gross margin was fairly stable for the 3rd quarter in a row. Depreciation and amortization in the 4th quarter was $509,000,000. This decrease compared to recent historical periods is due to certain production equipment primarily in the Lehigh and Virginia NAND and 200 Millimeter NOR operations that have become fully depreciated. We anticipate depreciation and amortization expense will be approximately $2,000,000,000 for fiscal 2013. As a result of the changes to the I'm Flash joint venture, With Intel that occurred in the third quarter, NAND sales to Intel decreased by half in fourth quarter, consistent with our previous projections. That volume has now shifted to trade NAND going forward. However, trade NAND bit volume growth for Q4 although consistent with our projection did not reflect the magnitude of this shift for 2 reasons. First, one time WIP sales to Intel, which were part of the I'm Flash transaction, masked the normal Q3 to Q4 growth rate. And second, some production volume went back into WIP as we refilled the manufacturing pipeline with Micron trade products So you can better ascertain the underlying growth rate A higher volume of SSD sales in the fourth quarter mitigated the decrease in trade and NAND selling prices compared to the third quarter. Price decreases for NAND components enabled increased penetration into the client SSD space. Sales of enterprise SSDs were also up nicely, albeit on a lower base. Trade NAND selling prices are up a couple percent quarter to date. While trade NAND cost per bit is expected to be down a few percent in the first quarter. Trade NAND bit growth is projected to be flat in the first quarter compared to the fourth quarter as we transitioned to new technology nodes. DRAM revenue in the 4th quarter decreased 9% compared to the previous quarter as a result of a 9% decrease in bit sales volume, consistent with our prior guidance due to a mix shift to lower density specialty DRAM as well as initially lower yields on our new 4 gig DDR3 ramp. Selling prices for specialty DRAM products improved slightly in fourth quarter, while prices in the PC sector dropped significantly due to weakness in demand. Quarter to date, selling prices are down in the high teens compared to the Q4 average. DRAM cost per bit declined slightly quarter to quarter, and we are forecasting bid costs for DRAM in the 1st quarter to be down in the high single digit range as we continue the transition to our 4 gig DDR3 product. This transition is also driving bit production up low to mid teens in the first quarter. Nora sales increased slightly in the 4th quarter compared to the 3rd quarter and represented 12% of total revenue for Q4. NOR revenue in the 1st quarter is expected to be in the same range as the 4th quarter. We anticipate lower cost reductions will continue to outpace selling price reductions in the first quarter. Turning now to business units. The NAND Solutions Group revenue declined from the 3rd quarter due to the one time impact of selling back end inventory to Intel during the third quarter that I mentioned earlier. Trade NAND sales in NSG were up in the 4th quarter on increased volume and stable average selling prices. NSG was able to achieve positive operating income from the 3rd quarter level on improved product mix sold in the 4th quarter including the 67% increase in bits sold in SSD form as well as lower cost based sales to Intel. Operating income from the DRAM Solutions group in the 4th quarter primarily reflects the lower DRAM revenue trends I commented on earlier BSG sales into the personal system sector decreased as we moved volumes into higher margin areas, notably networking, as pricing into personal systems came under additional pricing particularly in the latter part of our 4th quarter. DRAM sales into the personal systems market were just 14% of total sales in our 4th quarter. Our wireless solutions group performance continues to reflect weakness of the feature phone market segment and our customer group. In particular. Revenue declined for the third quarter, primarily due to lower NAND sales as we transitioned to new products and configuration and as customers work through existing inventory. Wireless DRAM and NAND declined ahead of product transitions, while wireless NOR sales remained steady quarter to quarter. The Embedded Solutions Group results continue to reflect growth, particularly in the Automotive And Industrial sectors. In fact, in the fourth quarter, ESG reported its highest revenue level since the establishment of our business unit. The revenue growth came from the broad strength across the technology portfolio as NORNAND and DRAM revenue increased from the 3rd quarter. In addition to the top line growth, ESG operating income strengthened at the 4th quarter results included better cost performance than the previous quarter and improved factory utilization. In operating expenses, SG and A expense in the 4th quarter was slightly below our projected range as a result of lower cost associated with pending legal matters and lower personnel costs from our variable pay plans. We expect SG and A expense to be between $135,000,145,000,000 in the first quarter of fiscal 2013. 4th quarter expense for R and D was right at the high end of our guided range, These expenses vary primarily due to the volume of development waivers processed and the timing of product wells. R and D expense in the 1st quarter expected to be between generated $450,000,000 in cash flow from operating activities in the 4th quarter. Comparing operating cash flows in the third quarter to 4th quarter, the I'm Flash Restructure transaction had a favorable impact on Q3 from the $300,000,000 deposit received from Intel in the third quarter. While the fourth quarter operating cash flow was negatively impacted by $45,000,000 of product sales invoices charged to that deposit. We ended the fiscal year with a cash and investments balance of $2,900,000,000. This balance increased $718,000,000 compared to the previous year end, as we generated $2,100,000,000 of cash from operations raised $1,500,000,000 net new financing and spent $1,900,000,000 in capital expenditures. Inventory declined $82,000,000 quarter to quarter where finished goods reductions more than offset the WIP increase related to refilling the back end pipeline after the Intel transaction. We expect expenditures for property, plant and equipment for fiscal 2013 to be between 1,600,000,001,900,000,000 slightly weighted toward the earlier part of the fiscal year. Now I'll turn over to Mark Adams for his comments. Mark? Thanks, Ron. Today, I'm going to walk through some of our fourth quarter operational highlights as well as discuss the current market dynamics in the memory business. Our NAND solutions group recovered from a weak ASP environment in the beginning of the quarter. If you recall, ASPs were down mid teen this quarter to date during the 1st few weeks of our Q4. Prices recovered during the quarter the trade NAND business ended up with slight revenue growth and stable gross margins. In addition, finished goods inventory declined quarter over quarter. Micron SSD revenue was up 33% in the quarter with unit shipments up over 50%. We're seeing steady growth of our client SSDs at key OEM partners and continued growth of crucial branded SSD drives in the channel. Where other channel competitors have struggled to generate a profit. Cruisehill continues to drive solid financial performance. We are now shifting client SSDs to 5 of the top OEMs in the world and plan to grow our share in the coming year. Client SSD revenue was up close to 30% in Q4. For fiscal year 12, unit shipments more than doubled. Also part of our growing client portfolio is our new MSADA SSD, which was selected as best of show award winner at this year's Flash Memory Summit as the most innovative Flash Consumer application. On the enterprise side, our data drives the P300 and P400E continue to be the lead drives for us this quarter in terms of shipments. We also maintained steady progress in qualifying our PCIe drives with leading OEM customers and are now gaining traction through our distribution channels as well. In Q4, enterprise SSD revenue was up over 50% albeit off of a relatively low base. We're gearing up for some new products this fall, including an enterprise grade SADA Drive, and our first SaaS drive. Both drives are in qualification now with OEMs. Unique features we provide with new products showcase our silicon to system strategy, including the firmware and hardware management schemes that are only available from a Micron integrated FSD. Another example of our growing system capability is acquisition of our TENSUS this fiscal year, which had provided myron with a virtualized appliance. In combination with our P320, PCI E cards, It provides much more storage in the appliance versus local service storage. And when we hook these up via PCI interconnect, you can share the storage across an enterprise environment. We've also made significant strides in the quarter and in the fiscal year with our internal controller development. Our controller strategy is really 2 prongs using both internal and externally designed controllers. We're focused at high end of our system solutions for our internal design controllers. However, approach is modularized and can be scaled down to the lower end client systems over time. On a NAND technology operation front, we continue to be pleased with 20 nanometer ramped and expect production in Q4 with SLC and TLC essentially splitting the remainder. Although fiscal Q1 will only see a small reduction in trade and NAND cost per bit, We expect to average down mid to high single digits over the next several quarters, mostly related to the 20 nanometer execution. As I mentioned earlier, following a tough first half of the calendar year, NAND prices started to recover over the summer, and we have seen continued improvements in market prices subsequent to our quarter end. In terms of NAND inventory, we see the channel balanced about 3 weeks. We are excited about the drivers for NAND, including FSDs, tablets, and smartphones, and believe industry bit demand compounded over annually 5% from 2012 through 2016. In 2013, industry bit supply forecasts are up in the low fixed percent range, well below historical levels. We continue to seek balance between our current capacity and serving our customer needs. Our DRAM solutions group achieved record shipments in networking storage, graphics and consumer segments this quarter. On the server side, we increased market share with existing customers and 1 critical qualification slots that our new customers are not high growth data center market. We did, however, see some price pressure in the server market as OEMs compete for this growth oriented data center business. Not unless the server growing market segment share is helping to drive DRAM bit demand over 50% year over year. The networking segment has another strong quarter of exceeding targets for revenue, bit growth and gross margin. In terms of demand in the segment, LT adoption is progressing well. While the Americas and Japan have strong investments in The infrastructure, so does China will continue to grow despite some weakness shown in the European market segments. During Q4, we have seen softness in PC demand, although we were able still able to maintain minimal ASP declines in the quarter. That being said, we are seeing price weakness in Q1 and see short term challenges with channel inventory overhang and OEM customers remaining generally cautious. The demand catalysts for improvement in the PC DRAM segment include the upcoming Windows 8 launch with both Intel and ARM based products expected in T OEMs, in particular with the ultra thin category. From a technology perspective, our 30 nanometer us know to solve volume ramp in fiscal Q4 with qualifications across a broad customer base. The timing of our 4 gigabyte transition actually limited our output in fiscal Q4, but we expect to catch up this quarter, which coupled with the 30 nanometer technology is providing significant bit growth and cost reductions. Another key aspect of our cost per bit and output improvement over the next couple of quarters is inatera's execution. In fiscal Q4, they took steps to remove a production bottleneck during what was a slow demand period. Moving forward, the throughput and percentage of wafers on leading edge technology Oterra will improve. In aggregate, we expect crossover of output on 30 nanometer in the current quarter, putting us in a much stronger competitive position. We are also progressing with a 30 nanometer design shrink which will give us additional cost reductions over the next couple of quarters. Our 20 nanometer process node will commence in calendar year 2013. All in all, we see quarterly cost per bid reductions averaging mid to high single digits over the next several quarters. Premium market prices were generally stable coming into the quarter, although things began to weaken in July, and we've seen that trend continue as we head into fiscal year 2013. In terms of DRAM inventory, we believe that the channel is currently running about 6 to 8 weeks on average. Some of the short term weakness in PCC DRAM seem attributable to a pause prior to the Windows 8 launch. We anticipate things will improve with the new OS and in combination with ultrathin form factors, although timing is difficult to predict. Outside of PC, we're generally pleased with DRAM demand with several segments driving bit demand well over 40% year over year. That said, continued mild or even lower industry supply bit growth might be the required catalyst to get the ASPs back to profitable levels in the future. Current industry bid forecasts are high 20s for 20% for 2012 And somewhere for 2013, although there's no certain possibility of further supply or CapEx cuts in the industry given current ASE weakness Revenarwireless Solutions group declined from both the UHAN and NAND as we continue to work on aligning our product portfolios to customer demand. Nor sales stabilized and were essentially flat quarter over quarter, As we rebuild our wireless business, we remain focused on profitability. Despite the top line revenue decline, we see better operating performance in WST which will be our focus and to be fair for a combination with LPADA's wireless business. Fiscal Q4 saw the introduction and rapid growth of the smartphone and open market in China This is expected to represent the majority of the rapidly growing Chinese smartphone market, which is forecasted to grow from 50 units 50,000,000 units in 2011 to 600,000,000 units in 2014 due to the rapid transition from feature phones to smartphones. During fiscal Q4, this emergency this emerging market adversely affected our wireless revenue due to abrupt NAND MCP density changes. However, in the long run, we anticipate this modest growth to be a huge opportunity for Micron due to our future portfolio alignment. One example is the ramp of our 40 gigabit low power DDR2 mobile DRAM, which is growing in presence significantly hitting the portion of the market. We're also excited to announce the official qualification of our 1 gigabit phase change memory based MCP product with 2 key mobile customers. We expect volume shipments to commence in fiscal 2013. I also want to take this opportunity to welcome Mike Rayfield, who recently joined Micron, as our new Vice President of the Wireless Solutions Group. FICO has an impressive background in the wireless business. I know he's excited to hit the ground running and help position this segment for growth and profitability in the future. Our Embedded Solutions group had another solid performance with record revenue and gross margins driven by strong quarter over quarter shipment growth in DRAM, NAND and NOR and across all regions outside of Europe. We had strong design wins across all technologies and privileged strength in the networking and automotive segments during the second half of the year. In automotive, where we are now ramping the AMMC product killer for which is expected to drive significant over 150 platforms at 60 Chipset partners during the last year. These qualifications span all segments with particular strength in consumer networking ensuring that Micron embedded memory solutions were supported and pre validated with TIBS solutions to enable our customers fastest time to market. We are leading the Nor industry from a manufacturing and technology perspective with 45 nanometer now ramping in mass volume on 200 millimeter and then the recent introduction of 45 nanometer 300,000,000 in North Virginia fab. Moving into 2013, we'll continue to focus on growing our share key embedded segments leveraging our product portfolio, technology leadership and manufacturing scale. Our operational performance at fiscal 2013 is to continue the deployment of advanced technology, which I described earlier in business unit discussions, as well as improved cost efficiency in our fabs, optimize our inventory and enhance supply chain management. Our product portfolio expanding scale and global manufacturing presence requires a greater focus on supply chain management. The same goes for inventory management. We are testing our business units and our sales team to increase turns and quarterly sales linearity for high volume products, while we are also ensuring we have the right levels of strategic inventory for premium margin specialty products. While we have experienced volatile market conditions over the last 12 months, We are optimistic that we can see improved mining market looking out over the next 12 months. While demand prices have indeed weakened we have seen a nice recovery in NAND FPs and our overall NAND demand, while we're benefiting from slower industry supply. Our newer margins improved in Q4 and this business continues to generate substantial free cash flow. We remain focused on optimizing our product portfolio portfolio as well as leveraging our technology leadership and manufacturing efficiency to enhance our financial performance in 2013. I'll turn the call back over to Chip. Thank you, Mark. We will now like to take questions from callers. Just a reminder, if you are using a speaker phone, please pick up the handset when asking Our first question comes from the line of James Schneider from Goldman Sachs. I guess, 1st of all, on the NAND side, I think you referred to some industry decodes estimates for 2013 in the low 50% range. I was wondering based on what you see today, do you think we're going to end up for the industry on the high or low end side of that? And where do you expect my to come in in terms of that industry debt growth higher or lower? I think the answer to your question is probably both both on the low end, both the industry and Micron. And then, can you maybe talk about in the wireless solutions group, what are the steps you're going to take to start turning around the profitability in that segment. I think you obviously referred to improving gross margins in the nor flash space. But can you talk to maybe some other actions you might look to take either operationally or in terms of culling and pot portfolio there? Sure. I think it's it's important to note that the business our wireless business has evolved from both the acquisition of mnemonic and kind of where this segment was. And we had a pretty high, heavily concentrated business in the feature film market. We've been moving our product development efforts as well as product roadmaps towards toward a smartphone piece of the business. And our advancement in terms of low power DRAM will allow us to get more aligned with the broader demand cycles in the mobile phone market. So I think from a product perspective, we're well aligned going forward. We also have been taking a look at our spending across NAND DRAM and NOR to make sure we're focused on these future products and making some tough choices on some of the existing or historical legacy products that have not generated profit. So between the expenditure side and some product alignment, of course, our new leadership. We feel pretty good about the business going forward. That's great. And the last question for me would be, I think you gave a number in terms of the SSD sales for fiscal 'twelve. Are you curious, make any kind of guess about what that number could be like on a your basis for 2013? You know us James, we try not to predict anything like that or forecasted, but nice try. Thank you. And our next question comes from the line of C. J. Muse from Barclays. I guess first one on the DRAM side. Can you talk about what you're seeing there in terms of utilization rates particularly from the Tier 2 guys? Are you starting to see them ratchet back or or they're still they're still lingering? Really, we just read the same stuff in the press that you guys do and it's hard for us to comment beyond that sort of speculation. Okay. I guess thinking a little bit longer term, can you share with us what the was, you know, PC server mobility, etcetera, in August. And where do you think that could, you know, move to 12 months from now? And how we should think about the implications to gross margins for that business? Sure. On a revenue basis, we were exposed to the personal systems by about 15% This is a total revenues had a pretty strong server business, low double digits, networking and storage, mid teens. Mobile, low double digits and then the AIM was around 10%. Kirter to talk about where you see that going, 12 years or 12 months from now? Can I just say, just going to repeat my answer from the last question? It's really hard, especially when we're talking revenues. You only have to also predict not only your growth rate in bits, but also what the ASPs are going to be doing. And that's just a pretty difficult quarter. Sure. Very fair. And then last question for me on the NAND side. Can you walk through the roadmap there in 20 nanometer when we should start to see You talked about, I guess, mid to high cost down each quarter. Will that commence in calendar Q1, Q2? How should we think about that I think the answer is, we're really focused on hitting more of a crossover towards the end of the first half of twenty thirteen. So then you'll see some of that cost flowing through to our NAND COGS So today, we're shipping the product, but we expect to continue to increase volumes that allow us to realize cost savings I can add I can just refer you as well to your guidance sheet. You can see there for Q1 'thirteen we're suggesting down down a few percent in NAND and then a more aggressive cost down in the next few quarters after that. Thank you. And we also have a question from the line of Daniel Amir from Lazard. Thanks a lot. Thank you for taking my question. Can you a bit expand, you know, how you see kind of the PC market playing out in the next year, given, you know, Windows 8, UltraBooks, some of the changes that you've done also to the DRAM franchise. And then I have one follow-up. Thanks. Well, I think we commented earlier that currently, we're in a soft PC DRAM market condition. And we do have some belief that between Windows 8 and further enhanced delivery of ultrastin products from across the OEM base can infuse some higher demand signals. It's hard to call. It doesn't seem like it's going to be in a real short term, but But, we think over the fiscal year, we see some balance there in terms of the markets, some recovery in the PC space But that's really around those 2 demand drivers, offset obviously by smartphone and tablet growth and how that impacts the overall long term piece of the business. Okay. And then in terms of, how should we look at kind of best guess a bit on cost downs in the DRAM space here in the next year. You know, I don't know how much you want to comment on potential LPDA, but maybe without LPDA We're looking around 30% to 40% on DRAM. And our next question comes from the line of Stephen Chin from UBS. Hi, thanks for taking my questions. First one I had relates to your mobile DRAM products. I I know it's still relatively modest business for you currently, but we're learning, from your perspective, what was the current, content for mobile DRAM in the smartphones that you guys had exposure to. And also is your ability to produce more mobile DRAM is that going to be the, do you see the limiter to, helping you guys grow your MTP business? Sure. I can start with the first part of that. The raw data. And then maybe Mark can jump in with some of the spots around how the market's headed. But today on average of all handsets, you're looking at about 3 15 megabytes per phone average handset and about 3.5 gigabytes of NAND. In the smartphone segment itself, you're currently looking at smartphones in about the tall 600, low 700 megabytes per handset and more in the low 30s to 40s gigabytes in NAND in the smartphone segment. The average megabytes per handset next year by 3rd party analysts are expected to grow again over 100%. And NAND up around 50%. Okay, perfect. And just looking at your their Solisafe business, obviously, that you guys have a number of different products that are helping to expand the portfolio both on the client side and the enterprise side I care to take any guesses as to, what kind of margin profile the overall business will look like in a year's time. Enterprise pieces, whether it's the PCIe or the NASH drive? Yes, it's really making it easy. For me to answer. I just keep saying, sorry, it's too hard to predict. Okay, thanks. And I guess one last question in terms of capital equipment reuse. Can you remind us, given the latest generation of NAND, the photography equipment that you have what would be the smallest node that it can be reused on for DRAM? Thanks. This is Mark. There's really a lot of fungibility and we have really state of the art lithography equipment in all our manufacturing fabs depending on the on the manufacturing technology, we use that equipment is generally fungible down to 15 nanometers on either technology. Thank you. And our next question comes from the line of David Wong from Wells Fargo. In terms of your technology, you were talking about NAND transitions down to 29 meters. What visibility at the moment for future alignment transitions and when do you expect you'll have to have EUV to keep progressing? Well, we, as I just mentioned, David, we can take the existing, immersion high NA capacity on down to the 15 nanometer range. Obviously, we'd love to have a low cost EUV solution available. If the manufacturing costs were there today, we'd use it today. But we can continue to migrate our technology without it, and we just continue to monitor that. And we'll be, we'll be adopters as soon as we see the the return. Right. And on LP, if I understand correctly, you do in addition to the regulatory agreements, you still need a final decision from the quarter for the deal to progress under the negotiated term. Is that correct? And if so, is there a deadline for when the court will make that determination? You know, we, we still see this deal closing the first half of twenty thirteen and we see that the from our perspective, the bottleneck in that process is likely to be the regulatory approval. The court process will run its course and we think the regulatory approval will overlap or extend beyond the end of that process. And our next question comes from the line of Ryan Goodman from CLSA. Hi, thanks for taking my question. I have a question on the DRAM side of things. In the past, you've talked about specialty DRAM prices as trailing the commodity trends with lower highs and then higher lows. So sort of a a smoother trend over time. But then if we look back over the past year, there really wasn't that boost early in the year in prices when commodity was doing well. Last quarter. It sounds like you kind of tracked it in line with flattish trends and then looking ahead, you're talking about down in the high teens. So I guess how should we think about this business going forward relative? How it will trend relative to the commodity trends? Well, I think that, certainly there are certain segments that are experiencing significant growth, but there's also new dynamics going on in the market segment. And I'm thinking specifically about server, where we've seen commodity application growth, but also on the low end of that segment, some level of commoditization with generic platforms and non branded solutions, where when you look at the likes of Google now being one of the largest third manufacturers in the world. So I think we're seeing peaks of parts of that segment under some price pressure due to the commoditization of it. But overall, we remain very bullish about the server business. And I think it will continue to behave as such. I think the other side of that of the equation is that There wasn't really a big rebound as you might have suggested in the first half of the year. We didn't see that. It might have slowed, but still DRAM didn't really have a recovery in such that it's just been a longer prolonged pricing environment that see, especially been said black and now kind of in line with where it normally is. Okay. And then just a on the NAND side of things. We've we've seen kind of a reshuffling in the competitive landscape, at least on the custom embedded side of things, where, with some of the larger buyers out there has had shifted their supplier base. Just curious what you guys are seeing in terms of how that's impacted the opportunities you have. Has this opened up anything or are you seeing any these competition upfronts where you haven't in the past? Really, Graeme, we haven't seen much of a change the opportunities to increase our market share are available to us from various customers and As we, as Mark noted, we're excited to get our hands on additional trade NAND bids that we can go service these guys in a higher manner. And our next question comes from the line of Doug Freeman from RBC Capital Markets. Great. Thanks for taking my question guys. Mark, you made mention that you guys have the fungibility on the equipment front. To go to lower nodes. How about transitioning from DRAM to NAND? And when I look at what's happening in the marketplace, it sounds like demand market clearly in better shape in the DRAM market, but yet your output is increasing fastest on the DRAM side. How do we reconcile that? Well, Doug, you know, I think that's, that flexibility is definitely there. And that's certainly, something we have the ability to do as we migrate the future nodes the opportunity to take DRAM capacity and move it to NAND is there, it's cost effective and efficient. It's not something you want to do with high frequency, but it is something you can do as you plan roadmaps and technology, no transitions to efficiently take DRAM capacity and migrate it to NAND. And for that matter, it's the opposite of your thesis, but you can do it the other way around as well. I guess my question is really looking at next quarter, you're getting production up in DRAM faster in bit terms than your NAND side, and and I'm trying to understand why you're doing why you wouldn't have inverted that this quarter given the condition in the marketplace? Simple answer, Doug, is just the timing of the strengths. We've got a real nice deep ramp here on 30 nanometer DRAM in Q1. And our real steep ramp in NAND that's going to 20 nanometer really happened in Q2 and Q3. And I guess as sort of a follow-up, how should we think about this status of your inventory and whether you, you know, inventory did come down a little bit this quarter. Is that the right level of inventory and how should we think about your ability to to model inventory for the next year, so to speak? Is there an opportunity to to run your factories a little leaner so that there's higher turns. How should we think about that? Doug, as I commented on in my opening discussion, We will continue to look at inventory over the last couple of quarters. I think the team's done a pretty good job on that front. And then we also, as we a look at some of these more system level solutions. Enterprise SSD, for example, it's when we take capacity from just selling raw components to building solutions oriented products, it might limit some of the future reduction potential, but we will continue to look at it. And we feel pretty confident. We're putting the right controls in place to make sure inventory stays at the appropriate level for the business. And my last question for you, can you guys give us an update on new technologies? I mean, we talked at the last Analyst Day about a whole laundry list of potential candidates for the next generation technology. Where do we stand on that and in any time frame? Well, we continue to make good progress on a number of different technologies targeted at really slightly different applications. Obviously, we're in volume manufacture now on on phase change. So I don't know if you count that as an emerging memory anymore because we really don't. We count it as as here today and going into volume applications in 2013. But beyond that, some of the RA RAM Technologies and other, more advanced next generation memories. We're making good progress on them. I don't see any of them having a significant impact in 2013 or really in 2014 with the possible exception of some volume on the vertical NAND Technologies if you include those in that bucket. Great. Thanks for answering my questions. Thank you. And our next question comes from the line of Alex Gana from JMP Securities. Thanks very much for taking my questions. If I heard you right, you talked about, what mobile DRAM and being down in the mobile category. And I was wondering, is that a phenomenon of your customers working down inventory during what should otherwise be seasonal strength? Is it ASPs? Or is it simply your customer mix and maybe not having the best share positioning as we go into the holiday season? Openly, I think it's really the latter area. We're working ourselves through some, customer concentration customer mix issues that don't really reflect the large term potential as we transition, but that's what's causing some of the impact of the financials. And how long will it take you to maybe realign that customer concentration? How can you What kind of window should we look forward to? I would just say this without trying to predict too much in the future. Alice, I think that we've been working on this for some time. And remember, some of the product technology that we have that goes to that space the value of commodity line in the wireless space, we can also use other segments, namely embedded So as we're focusing our customer engagement development efforts on some of the better pieces of the wireless business, We're able to use some of that capacity and drive ESG, for example, to hire their highest quarters since they've been formed as a BU. So I don't want to predict the future. I would say that this is a known process that we're going through in the company. Obviously, you haven't yet hit the financials, but we're pretty encouraged by things like low power DRAM on our 30 nanometer node and the uptick that we can see from wireless. In addition to our longer term prospects of of a combined Micron and Alpita wireless business. Okay. And then if I could add F and D seems to be performing pretty pretty well, but the DRAM as it pertains to the PC industry is struggling. How can you reconcile that? Is the FSD business experiencing some of the similar business in DRAM? Or has your share gained been so great that it matches us? I think when you look at SSPs and It's the client SFP business is coming from a sort of lower penetration, right, that the business uptick given where pricing is in the value consumers are placing on it continues to improve. And the core DRAM growth obviously doesn't in line with the same track. It's coming from a much larger share of the platform. Okay. One more if I could. You mentioned Windows being a catalyst eventually. It sounds like you're not yet seeing much of a boost. Can you talk about your expectations around the build cycle there? And maybe about average density as it pertains to now that we have Windows RT and we have Windows X86. We believe that the builds have largely taken place. And as Mark mentioned in his commentary, PC OEMs are being extremely conservative. They don't want to have a high risk of inventory obsolescence. And in terms of the second part of your question, remind me again I guess I was wondering about what this does to average density, especially now that we've got to deal with the factor of, you know, the Windows RT versions out there. Yes, let me answer it maybe two ways. If you go on to a lot of the online website sales organizations for the various large OEMs, you're seeing a fairly large concentration now at 6.8 gigabytes. That being said, when you look at the 3rd party data, they're only suggesting about a 20% to 25% bit growth in the PC area for next year. Yes. Thank you. And our next question comes from the line of Steven Gramalos from Stifel Nicholas. Hello. This is Dean Bromlow calling in for Kevin Cassidy. Thank you very much for taking that call. I have a question and a follow-up. As we head in the fiscal year, can you comment on your expected change in the NAND Flash wafer output? We don't expect a large change in the number of wafers currently. And as a follow-up, Do you have a projection on how your mix of SLC versus NLC and TLC may change, heading into next quarter? It won't change all that much from where we are today. We're running basically high 70% MLC and the balance split pretty evenly between SLC and TLC. Comes from the Zachary Shiar. Your line is open. Can you hear me? Yeah. Can you hear me? We can hear you now, sir. Please go ahead. Yeah. I was just wondering, more Can you give us some color in terms of the past quarter in terms of how the sequential ASP trends were between the two SSD segments and how much more value can you add to strengthen the ASP in that segment? And I have a follow on. Sure. Well, I think, as the track of cost per gigabytes and ASPs have gone throughout our 2012 year. The demand cycle for client SSD went up significantly. And that's what's shown up in our financials as far as the client SSD performance. When I look at much more value is there. I think the value around that is driven by the industry's ability to remain competitive on the ASP front. To drive a good, a good level of demand on the longer term PC builds. And I think that seems to be in a pretty good, pretty good place today. So I think there's with increased newer ability to drive cost out over the next 6 to 12 months, we would anticipate continued demand growth there. On the enterprise side, There's a lot more ability obviously to differentiate both in terms of form factor as well as performance and reliability features that We think it's already in place, but we'll continue to grow as the development as we talked about earlier in our controllers and firmware. And error correction, those types of things, fit into our product portfolio, which will again allow us to drive more differentiation and value. Follow-up on this on Oahu. Can you give us some color on the 2013 CapEx between the DRAM NAND and the North segment And does it include LPDA at this point of time or should we model something going to be incrementally for LPDA once the acquisition gets closed? Yeah. So think in terms of, NAND and DRAM roughly balanced and, and, that number, that we floated out there 16 to 19, you know, we continue to work on that. And, as we as we really tuned our investment, for 2013, just on what strictly needed to try particular product introductions and efficiency in our technology implementation. LP does not include it in that number. Obviously, depending on when we close LPDA, the numbers will change. But I think you should expect that to the extent we are investing at LPDA, we'll be trading those opportunities off against internal opportunities to make sure that we're putting the capital in the highest return on investment. I can just add one quick follow-up Can you just characterize how much was the supply cut in the DRAM between the first half of this year and the second half of this year? Thanks. Probably need to ask the people that actually made the cut, to be honest with you. Okay. Thanks. Yvette, with that, we'd like to thank everyone for participating on the call today 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 this call that are not historical facts are subject to a number of risks and uncertainties and actual results may differ materially. For information on the important factors that may cause actual results to differ materially Please refer to our filings with the SEC, including the company's most recent 10 Q 10 K. Thank you for joining us. Thank you. This concludes today's MyCon Technology 4th quarter fiscal year end 2012 financial release conference call. You may now disconnect.