Status Update

Aug 8, 2012

Good morning. My name is Karen, and I will be your conference facilitator today. At this time, I would like to welcome everyone the Micron Technology SSC Business Update Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, will be a question and answer period. Thank you. It is now my pleasure to turn the floor over to your host, Micron Investor Relations Director, Ivan Donaldson. Sir, you may begin the conference. Thank you, and welcome to the Micron Technology as a Steve business update. On the call today is Glenn Hawk, Vice President of Micron's NAND Solutions Group, Justin Sykes, General Manager of Client SSDs and Ed Dollar, Vice President And General Manager of Enterprise SSDs. This conference call including audio in slides is also available on Micron's website at micron.com. Our call will be approximately 60 minutes in length There will be an audio replay of this call access by dialing 4045373406 with a confirmation code of 931-forty seven-six ninety seven. This replay will be run through Wednesday, August 15, 2012 5:30 pm, mountain time. A webcast replay will also be available on the company's website until August 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 Safe Harbor statement. During the course of this meeting, we may make projections or other forward looking statements and that actual events or results may differ materially. We refer you to documents the company files on a consolidated basis from time to time with the securities and Change 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. I'll now turn the call over to Glenn Hawk. Okay. Thanks Ivan. Hey, to set the stage, I'd like to thank everybody for joining us on the call today and also talk a little bit about the opportunity that Micron sees in the NAND industry. And in particular, why we're focused on SSDs. If we go ahead and go to the first slide, We like to look at the market growth in terms of gigabytes. This is important to us because it's directly proportional to the amount of capacity we have to put in place. But the wafers that we have to run-in our multibillion dollar factories, and, as a figure of of merit or referenced by comparison, our highest density NAND chip today is a 16 gigabyte chip. And, we measure the total industry in 1,000,000,000 of those gigabytes. And so as you can see here on the left hand axis, we're showing demand, total market growing from somewhere in the 30 ish billion gigabytes today to something around $160,000,000 as you look to the right in 2016. So just phenomenal growth. Now, I don't want to let this exponential curve, alarm any of you for our industry. This is actually quite normal. In our industry, the name of the game is to lead with NAND technology, get to the next lithography as fast as you can. And overall for the industry, we're able do that about every 2 years. And that means that we can roughly double the number of gigabytes that we can produce on a fixed capacity base every 2 years. Now if you do some math on this overall curve, you'll see that we're projecting something well north of that doubling every 2 years, which would be about a 40 percent compounded annual growth rate. The curve that we're showing here overall is closer to 50%. And in fact, a lot of our, our peers in the industry, analysts, etcetera, forecast things, sometimes closer to 60% or even higher. The point overall is that the NAND market is growing. And so in addition to racing to the next lithography, eventually, we're going to have to put some The industry is going to have to put some additional capacity in place. The I'd like to call your attention to the 3 colored regions on this graph. And what you see here at the bottom in the gray regions is sort of the traditional or maybe the original growth drivers for the NAND market. And this was removable storage SD cards, USB devices, things of that sort. And as you can see, the bit growth for those segments does continue as we move out in time. You see some other segments emerging, however. You also see, that later in time, mobile became a large segment, that consumed a lot of NAND bits. And one of the, one of the Yext see emerging there around 2011, 2012 is the dark green region, which represents tablet market. Now what we're here to talk about today are the blue regions here soon at the top. And as you can see, these are the most recent emergence. The CSSD and ESSD Designators here are designed to indicate the growth that we see in client SSD, Ultra Books, etcetera. And the enterprise SSD category represents the SSDs that we see in the even more recently emerging opportunities in the data center. And what I'm showing here again is the gigabyte opportunity. And later on in the call, Justin and Ed are going to talk a little bit more about the dollars. But the key point here is that this most recent emerging segment here SSDs, it's very exciting for us at Micron. And if you go to the next slide, that the reason that we're very excited in this opportunity is twofold. 1, solid state drives represent a more fully integrated solution. That gives us, as a NAND manufacturer, the opportunity to participate in additional value that our products bring to the world. Secondly, is the emergence of these of these new segments, it corresponds with a point in time that's very challenging for the NAND industry in terms of scaling. A lot of you may have heard that the entire industry is having an increasingly difficult time scaling to the next generation and keeping that exponential increase of bits growing for the world. And so what that means is that in order to in terms of bringing leading edge products and solutions to the world. And as a result, a big focus for us at Micron is capitalizing on this window of time where we have this opportunity to claim the value chain. And what we have been doing is we have been building upon our base of leadership in Silicon Technology And NAND product design and development. And we've added on top of that the ability to do our own controllers, both internally as well as externally with partners that allow us to manage that NAND media. And that's where a lot of the IP and the secret sauce, so to speak, that's required to deal with the challenges that I mentioned earlier with the NAND technology really come into play. On top of that, we've been able to add the other elements that are required bring total system solutions to market in the form of our SSDs, again, our client and our enterprise SSDs, which we will talk about. And we will also touch on at the end, an even higher step in the value chain that we're entering, which is the actual delivery of our own integrated software and hardware appliances. And Ed will touch on that at the end. So if we go to the next slide, I'd like to just touch briefly on each of these steps, so to speak. Most recently, you may have noticed we've had some very nice proof points for our technology leadership. Earlier in the year, we were awarded the prestigious UBM Tech Insight Semiconductor of the Year Award. And most recently, we also made a big splash with the introduction of our first to market face change memory solution for the mobile handset market. If we go to the next slide, we also, within the last year, recently introduced our leading edge 16 gigabytes NAND device, the one I mentioned earlier, and I spoke to a vet shown here. And overall, we have a complete portfolio of a broad range of densities, and it includes single level cell, multi level cell, and 3 level cell products. And, we also deliver our NAND components in, more highly integrated form factors that require controllers packaged within the solution. For example, embedded MMC managed NAND solutions. If we go to the next slide, I also wanted to reiterate that, with regards to the controller We have been shipping our NAND products with controllers for quite some time now. And as the challenges have increased, so has our internal capability on key core competencies like error, correction, and digital signal processing And we're now in the position where a lot of our products that are shipping today are shipping with our internal controllers as well as those that we work with our partners on. If you go to the next slide, the overall, this has enabled us to, enter the SSD market today, we have about 10% of the worldwide SSDs for client and enterprise combined. Again, Justin and Ed will speak some more about about each of those in the next section. Finally, here's a nice photo of our integrated software and hardware appliance that I mentioned earlier. This was brought about by an acquisition that we announced earlier in the year of Virtensis. This product adds virtualized IO appliances to our product portfolio and it enables data centers to share local storage across multiple servers. Again, Ed will touch on that some more. So with that, that's a very exciting time for us here at Micron. What this means to us from a revenue or revenue quality perspective is that as we move to the right, you're going to see an increasing percentage of Micron's NAND revenue go toward SSDs and these more fully integrated devices. And, essentially, what we're showing is that the years 2010 2014, you can expect to see that percentage increase from about 0 up to just over 40% over the next few years. And that of course will have a very positive effect on our bottom line as well. So with that, I will go ahead and turn the floor over to Justin. Thanks, Glenn. Next, we'll spend some time and drill into some more detail on what we have going the client SSD market. Go to the next slide. So first off, we're seeing some trends and shifts in the market that are really quite exciting for us with the introduction of the UltraFan or UltraBook devices in the notebook space as well as the continued growth of tablet PCs in the market. What we're seeing is by 2015, we expect that this market is going to grow to be about 60% of the overall client PC systems shipped in the market. The thing that's really key about this is both Ultra Books and tablets require some form of NAND for their storage device, whether that be the primary storage or caching. So this is really, really exciting to Micron and drives tremendous growth in the overall NAND market as you saw previously from Glenn. Looking at that in a little more detail, on the tablet space, we expect to see tablets grow on the order of about 76% between now 2015. And a portion of those will be raw NAND. Some of it is the managed NAND solutions that Glenn talked about. And a portion of it is also sata SSDs that will be consumed in these devices. And then finally with the UltraBook introduction and thinner and sleeker notebooks, highly appealing to consumers. And on a very fast growth rate, this year and predominantly going into 2013, these are using, SSDs for primary storage, mostly through the new module form factors called MSADA, as well as using NAND in a cash, either as an FSD cash or in a hybrid hard drive. Go ahead and go on to the next slide. So looking at this in the overall market and this chart, what you're seeing is our view of the overall SSD market. In terms of revenue dollars. And if you start at the bottom and look at the 2 blue pieces, really this represents the notebooks and tablets that are using FSPs in primary storage The notebook piece is predominantly driven by UltraBooks, although we do see a lot of SSD use in traditional notebook as well as a hard drive replacement in an upsell. The tablet piece is really just a portion of the tablet market that's using a SATA SSD. So we're not looking here at the EMMC or the raw NAND consumption, which is also quite large. Moving up. So actually to continue on the notebook piece, we really see this as the larger growth in the market was predominantly driven by the OEMs and new system sales. And as more and more of those systems transition to the Ultra Books. We definitely see continued revenue growth in this space. Moving up to the green section, this is the channel market. We define the channel market as e tail, retail, distribution, as well as some system integrator type customers. This is a market that Micron has been quite active in. We see it as a large portion of the overall SSD market. And continuing to be a significant portion going forward, although not growing at the rate of the notebook space. Micron predominantly addresses this market through our crucial brand. For those of you who are not aware, Micron has a, a brand through the crucial that is more focused on the e tail market. And really, if you go out on the websites and look for SSDs, that's really where you find the Micron product is through that brand. That's been quite successful for us and we continue to play in that channel space with that brand going forward. Moving up the chart to the next rung, you see the cash market. There's been a lot of debate in the cash market on whether the cashing will be hybrid hard drive or dual drives with an SSD. For argument's sake, what we've done here is just included our view of the total market, whether it be a hybrid hard drive or an SSD. And it is a growth market as ultrabooks come into the market, they need caching or primary storage. We see a lot of unit volume here, but the gigabytes in the caches are quite small, 24, maybe 32 gigabytes compared to, on average, 160, 170 gigabytes for primary storage So as a result, the cash market while large and driving a lot of unit volume is actually relatively small in terms of revenue. And we see it kind of peaking out in 2013 2014. And then it really starts to slightly decline as we see primary storage eating into that cashew market. And finally, there's a small section of other market, which is really kind of industrial more of the historical traditional SSDs in the market. At a top level, we do continue to see fairly strong growth in terms of revenue and especially in terms of units in the overall market growing from from this year at about $5,000,000,000 to just around $8,000,000,000 by 2016. A pretty exciting growth that we're seeing in this market go ahead and go to the next slide. So drilling into to what Micron's doing in this market Historically Micron entered the SSD market in a real way, really in about 2010. And we entered that market in the channel space through our crucial brand. And if we play this back a year, it'd be 100% channel for Micron and crucial brand for Micron in 2010. Through that year, we began to engage the OEM in the space. And we're able to successfully get some qualifications. And so by 2011, we were shipping into some OEMs and that began to become a more significant portion of our shipments. As I showed you in the growth chart, that's really where a lot of the growth is coming from in the market going forward. And it's definitely a big focus for Micron going forward. And we will project to continue to grow our share at the OEM space and as a result, it's going to continue to consume more and more of our output. So by 2014, we see the OEM piece being about 60% of our output and the crucial branded channel play being about 40% of the output. So by no means is the channel going away. We continue to see that as very important to Micron, but the OEM piece is also where we see the growth going forward. Go ahead and go to the next slide. Some of the proof points around the channel market Really, a lot of the press we get there is through the online website, the review site, who are looking at at the products that are out and available in the channel market predominantly through places like Newegg and Amazon. But the C400 has been very successful product for us there. We've been fortunate to get some very positive press reviews And through the life of the product, even as recently as this year, even after it's been on the market for over a year, we continue to get to get high rankings from the press in terms of quality and performance and continue to even win awards with the product. As early as as earlier this year. We've also seen some good press out of, some of the market analysts, really recognizing that Micron has taken a leadership position in the client SSD market and continue to see that kind of press and hope to see it moving forward as we continue to release new product And then finally on the OEM space, as I showed you, we have had some success in the OEM market and continue to grow that success. We see that as very key to our success going forward. We're at a point now where we have been qualified in 5 of the top OEMs in the world and, continue to grow that presence and look forward to adding more customers to that list over the coming year. Kind of a high level look here at what we're doing from a product standpoint to enable that success. We've really narrowed our product focus in on main storage. And we see really 3, 3 unique kind of segments in that market starting from the entry and going on up to do higher performance solutions. And as you can see on the left hand side of the chart, as you move up from the entry, up, you really get higher and higher performance products, but then the flip side of that can see on the right hand side of the chart is as you go up in performance, it also brings up the cost or the better way to look at it as you drive down into the the entry portion of the market, you drive down cost. And so there's trade offs and different portions of the market that can be addressed by each. So today where we are is in the gray boxes or shipping products. We have our C400, which is also available through the crucial brand as an M4. And that's really was a product that was brought out to address the mainstream of the market. And that's really the only market that was out there early on is really this mainstream or you might even consider it an enthusiast market. But that's really over time, it's come down to more mainstream acceptance in the market. And then as we've seen the growth in the client SSD market, there's really been a diversification of the needs of the market. And we continue to see that need in the SADA market for the higher performance product, but we also see a need for products that are more focused on cost while still delivering all the excellent benefits of an SSD through lower power and relatively high performance and ruggedness and quality, but really absolutely focused on getting some of the cost out of the system. And that's been very successful for us. And as we go forward, we continue to push down that that strategy in the status space with 2 unique product lines, moving into the next few months, we'll be releasing our 20 nanometer base products, again, focusing on performance for the mainstream and focusing on cost for the entry. And then over time, we'll continue to drive cost reduction in that space. But then there's really been a desire in SSDs to continue to drive to higher and higher performance. And the side of bus, we're at a point now where we saturated that bus and we can't get any performance out of it. The next thing on the horizon that opens up that bottleneck is really PCIe. And we we see an emerging market for PCIe in the very high performance enthusiast portion of the market initially. And then over time, that will waterfall down into the other segments. This is actually really a great story for Micron because as you'll see, when Ed talks, we have a very strong play and position in PTIE And Enterprise We have a lot of knowledge base around the enterprise PCIe space. We can take that knowledge and leverage it down into the client space as we move forward. Really feel that this portfolio puts Micron in a position where we're well positioned to meet the needs of our customers now and well into the future. So as we all know, the benefits of SSDs are great with the much higher performance, the ruggedness, the quality, the power, There's really nothing a person wouldn't want about an SSD in a system. It provides so many benefits, but there's been one real inhibitor and that's been the cost. The cost of SSDs has been quite high compared to hard disk drives. But I think for this year, we've really seen pretty, pretty exciting trends. We all knew the costs were going to come down. But what we've seen is primary storage at least enough capacity to be primary storage where a person could use it in a notebook and really not feel like they didn't have enough storage locally with them. Those those drives have broken through this $100 barrier. And $100 barrier is significant to me for a couple of reasons. 1, If you look at the channel market, there's kind of this emotional attachment to $100 and kind of this point where if you can pick up a product for less than $100, you really don't have to go through the whole thoughtful approval process And that purchase process just is that much easier for people. But then the other side of it in the OEM space is we've gotten to a point where the primary storage for a notebook can be had for roughly 2x what it costs to get a hard drive. And so that, that gap is continuing to decline And as we play this forward and roll out continued cost reductions in the SSD space through process migration as well as bringing out down the total cost of the unit. I can definitely see a point in the not too distant future where we'll be able to have this primary storage device at least on a per unit basis on par with hard disk drives. And that's going to be really tremendous for the industry and open up a huge growth in demand. Go ahead and go to the next slide. So as you've seen, Micron is keenly focused on continuing to be a dominant player. The client SSD market through growing our portfolio of products. We're continuing to grow our customer base with a targeted approach to ensure we continue to provide our customers with the highest quality level and support. We're able to do this through our vertical integration approach As a NAND for the supplier, we are uniquely positioned to leverage our knowledge that we have around the NAND silicon and build that out into SSD products through integrating our NAND knowledge into our SSDs through firmware development through the controller, through the SSD design itself, On into the qualification of SSD and the manufacturing of SSD really looking at it as a very holistic from silicon to complete system product And this is, something that is going to enable us to continue to provide very high quality feature rich SSD solutions to our customers moving forward. With that, I'll turn it over to Ed to look at the enterprise. Okay. Thank you, Justin. Good morning, everyone. I'm a Dollar, Vice President, General Manager of Micron's enterprise storage business. I'd like to take the next 10 minutes or so to discuss micron's approach to the enterprise storage market. So, please, next slide. If we start by taking a look at the enterprise SSD TAM. I like obviously to look at it by interface. We have it broken down by SADA SaaS and PCIe. If you look at SADA over calendar year 12 to 16, You see that it has about a minus 13 percent CAGR over this period, while SaaS and PCIE are showing CAGR's in the mid-30s. I believe SaaS is at 36% and PCIE is at 33% over the same period of time. And so both SaaS and SADA are faces that certainly have been around quite a while in the interface and the results of this growth, in my opinion, is twofold. Number 1, it's because the total cost of ownership model in the industry is being much better understood by our customers and data center customers as well. And of course, I think as NAND dollars per gigabyte cost decline, that total cost of ownership certainly becomes more attractive to more customers. PCIE specifically is certainly a much newer and more, exciting interface and gives the server OEMs a new view of storage. And so I'll likely a couple of more minutes discussing this So as I noted on my previous slide, PCIE is new and most importantly puts storage back into the server. For those of you that recall, it wasn't that long ago that the world moved DaaS or direct attach storage out of the server given its growth. In fact, I think I was actually at IBM when this transition actually happened. I think this new movement is certainly not going to move storage back is storage back in, but it's going to challenge the conventional storage OEMs for value, hence my storage wars title. And so if you take a step back and look at this from the high level, I think what we'll start to see is higher densities and higher performance PCIe drives making their way into servers first under the guise of cash and the value of performance in the NASH or sands will certainly be challenged. I'm not saying that they will be necessarily compete for gigabytes, but they certainly will compete for value. For example, if your cash becomes big enough, it no longer becomes a cash, it becomes your primary storage. And like anything else that's new and disruptive, there are certainly challenges that we as suppliers and the industry is facing with things like usage models being a little bit different and technical requirements than your historical data storage would present. Interfaces are certainly varying. We've got things like AHCI NVMe, SOP as interfaces that are being talked about. And certainly for factors is another one that are kind of being defined on the fly. Right now, for example, we have at least 4 different form factors that are being designed at Micron just to service And so if I take a look at Micron's approach to servicing this market by interface, let's let's start with Zada. You just heard Justin talk about what we're doing to service the client SSD market. And for SADA, in the enterprise, we were building upon that foundation, reuse for us is something we take pride in. And we do this by adding enterprise features such as things like data protection, different over provisioning, etcetera, to service this segment. Right now, we have 2 generations, service in this market, P300, which was introduced back in 2010, the P400E, which was introduced 2011, and we're currently in locations with OEMs on our latest P400 M drive. Each of these drives continues to build on our client investment, again, with the addition of features and new lower costs man lithos required to meet our customers' demand. The 400M, which, as I say, is in qualification with OEMs today, utilizes our 25 nanometer enterprise level MLC NAND. Next slide please. As I said, I want to spend a little bit more time talking about PCIe, because again, I think it's one of these sub segments That's certainly new, exciting. And I would argue the competitive landscape is certainly going to be heating up in this particular sub segment. I want to start by talking about 2 very different architectural approaches to this segment. At the highest level I look at it as being 2 fundamental approaches to building PCIe cards. The 2 that I want to talk about are what I would call host based management versus drive based management. And simply stated what that means is of whether or not the server itself manages the card or does the card manage itself? And these are very different approaches that frankly speaking yield different results. And so let's start with what our competition is doing. It's what I call host based management. And so what this does is it pushes the management of the drive back onto the whole store, in most cases, the server. It uses the system CPU and system memory to manage the drive. Now what's nice about this approach is that you can use a smaller FPGA on your drive and it allows you to do relatively the penalty system resources to manage your card instead of doing what you bought the service for, which is compute work. And so this is the approach that our competition has taken. Our approach, again, is quite different. It's what I call a drive based management approach, And this approach allows allows the drive to handle the management of itself freeing up system level resources, again, to do what the server was purchased to do, which is compute. The downside of this approach is that it requires you to develop your own ASIC and manage it yourself. But for all that hard work and investment, you get a much higher And just to illustrate the difference in performance that you get, RP-twenty H-three 20 H drive that we're shipping today has more than 2x the performance of our competition. We're delivering random REIT performance north of 800,000 IOPS and random write performance somewhere close to 200,000 IOS. And again, this is roughly 2x our competitor which in this market is customers involved their understanding of the value and usage of high performance PCIe drives that this will be the winning architecture. And I think we're heading in the right direction because of this. Now the other two things that I mentioned earlier are form factors and interfaces. And I want to talk a little bit about form factors. As you look at this slide, we developed a unique form factor, unique to PCIE, not unique to the industry, with a two and a half person in this drive with our partner, Dell, It allows it to fit in an existing socket and improve serviceability because it's in the front and not inside the server. And as you can see, solution for the front of their storage devices. And so again, somebody that values high performance PCIE values the approach that we've taken to this market. Next slide please. Okay. So let me finish the interface discussion by focusing on SaaS. Given that SaaS is growing at about 36 percent compound annual growth rate, it should be no surprise to anybody that Micron has its eye on this interface. We're building upon our SADA and our PCIe system knowledge and most importantly, our OEM relationships to develop world class SaaS products. We are currently in qualification today with OEMs on our first SaaS drive called the 410M. The SIG's 6 gig SaaS drive uses our 25 nanometer MLC NAND technology. And we're really excited about this and have received very positive feedback from our OEMs with regards to the performance of this drive. As we look to the future and see SAS users admiring the performance that we get out of our PCIE in a 25 Watt envelope, My expectation is that we will potentially start to see pieces of PCIe showing up in SaaS and vice versa. And so out in time, it wouldn't surprise me that in the 2015, 2016 timeframe, that some of these architectures start to consolidate around a higher power, higher performance interface that allows you to take advantages of both the legacy world and frankly speaking where the world is going. And right about this time will be interesting because this is when we expect to be really ramping some of the new memory technologies that we think will put us in a leadership position to take advantage of our investment in solid state devices that we're making today. Next slide please. And so finally, I wanted to end with, again, a very brief summary of what I think enables Micron to win in this space. I think as you've heard from both Glenn and Justin, This concept of being a vertically integrated manufacturer is a very important piece. We have the luxury of calling folks on the phone at Micron and having very detailed technical conversations about not only the capability of the current silicon that we're utilizing in our drives, But most importantly, what we can do in future designs at the silicon level to make the most out of the drive that we build. And so having that vertically integrated manufacturing infrastructure that we're building upon, I think, is critical to us being a winner long term in this space. I think as you've seen, we have a very targeted portfolio of enterprise products. SADA, we're building on our investment in client PCIE is a homegrown solution that puts us in a performance leadership position, and we expect to build upon that with our current OEM relationships And likewise in SAS, we're building upon the relationships that we've developed through the client level business and into the enterprise business to move and to ship our high performance, high value products into OEMs that value that vertically integrated solution from a manufacturers such as Micron. And so to sum it up, I think we have a great product portfolio. We have key relationship with both storage and server OEMs. And we're excited to be in this business. And so with that, I'll turn it back to Ivan and Glenn. We will now take questions from callers just a reminder, if you're using a speaker phone, please pick up the handset when asking a question so that we can hear you clearly. Operator, go ahead and take Our first question comes from the line of Sean Webster from Macquarie. Hi, great. Thanks guys. And thanks for hosting this call. It's for educational A couple of quick questions. One is I was curious on what the mix today is for your business on SLC versus MLC and how you expect that to evolve over the next couple of years. Yes, this is Glenn Sean. I'll go ahead and take that. Overall, the vast majority of what we ship is, is multi level sell. We do have a pretty good business still with single level sell into some, very high reliability mission critical applications. And we do run 3 level cell as well. And in fact, we've recently increased our production of 3 level cell. And essentially, our strategy here is that with the customers that we're engaged with, they tend to value some of the performance and reliability aspects of our multilevel cell devices. We've received very positive feedback from our customers that are using these devices in some critical applications. Our strategy with free level cell is that we run it to the extent that we really need to to adapt to market conditions. And given where the NAND market is today, we've decided to increase that. And we're currently in the running in the low single digits. And we can modulate that. Again, depending on the amount of capacity we need to serve in institutional portions of the segment, that aren't really a strategic focus for us but it does become important during a softer industry times like we're currently faced with. Okay. And then if I if I do some simple caveman math for the, units and the revenue numbers you gave us, I get an implied 20 I know you don't guide for the future pricing, but it looks like you're looking at 20% to 25% a year price reductions. Given the challenges in terms of migrating the future process node, is there any barriers or do you think that seeing those kind of price reductions as we move to the mid teens or even lower in terms of process node technology? Yes, great question. I mean, it's certainly one that receives a lot of tension within Micron. These days because, it is getting so much more difficult for us to get to that next lithography. However, we're pretty bullish on our technology roadmap. In some of our other discussions that we've had publicly, we've talked about the opportunity that we have scale our existing planar NAND technology. We've also talked about opportunities that we have to go vertical with the so called 3 d NAND technology And we also are placing a couple big bets on some emerging technologies. And we're confident that between that multi pronged attack, so to speak, that we're going to be able to keep up with the delivery of these market cost reductions that enable new inventions for the future. And then just one final one and I'll go away. On the controller technology side, that's clearly very important, maybe even getting more importance going forward. In terms of your mix today within solid state drives, how much is Micron design Micron only controllers? And I was wondering if you can give me a sense of what the bill of materials the share of the bill of materials and a solid state drive is for the controller part? Thank you. Yes, you bet. You know the, maybe I'll answer it and then I'll turn it over Justin here for further clarification. But I think that, our best proof point for our internal controller capability is on that P3.20 product that Ed Dollar just referenced. That sets a pretty high bar in the industry. Yeah, that's probably the most difficult SSD or SSD like product to produce. And that's using a controller that has our firmware. Of course, we use, partners to manufacture that ASIC because we don't do that within micron spabs. But that is an internal design that we're proud of. And I think it's a very good proof point for that internal controller capability. But that said, our product portfolio variety is so wide. We know that we're going to have to partner with others order to be successful in this market. And in our client SSDs, that's certainly where we've been doing quite a bit of that. And I'll turn it over to Justin to answer the rest of your question there. Yes. So I think as Lynn was saying, for client SSDs, we were partnered on all of our controllers today. None of those are developed in house But what I want to expand on that is, as well as controller is important, the firmware is actually even more important in our mind. And while we are partnered, it doesn't mean that we're just taking an off the shelf product. And I think it's pretty widely known that we're partnered with Marvell today. And that's been a good partnership. So we're using Marvell's hardware. We work closely with them to get the features we need in the product to make sure that it works well with our NAND. And then we develop all of our firmware 100 percent in house. And that, that really sets us apart and allows us to not only design in very high quality, but also be very active to our customers' needs. The second question, I think you had a question on how much of the BOM was controller based that? Yes. Just a ballpark. Yes. So I guess I'll expand that and maybe answer it in percentages. The controller is a piece of what goes into the SSD besides the NAND. But I think what you're getting at is how much of it is NAND and how much of it is not And it really depends on the capacity point. But for primary storage in the 128 gigabytes and above range, that will range from 10% to 20% of the total cost. Great. Thanks a lot. Thank you. And our next question comes from the line of Monica Garg from Pacific Crest. Hi, thanks for taking the question. Just as a follow-up, first of all, to the last question, could you talk about like your controller strategy on the client side and enterprise side So client side, I think you just clarified, seems more kind of collaboration with excellent artists. How about on the enterprise side? Is it all internal or again on the coordination side? Yes, I'll answer that. Thanks for the question. I would say right now, we have a kind of a dual prong approach 1st and foremost, on the low end of the enterprise market, as I stated during the discussion, we will utilize the controllers that, that Justin uses in his client drive. And we will build upon those, making sure that we have the the right features for a particular segment in the enterprise market. For the PCIe, the controller was developed internally, for our future products, if you look at our PCIe and our SaaS roadmap, we will have another version of in house developed controller for SaaS and another version of the in house controller developed, for PCIe. Control of that's being developed for SAS will be able to be reused for a SADA. So again, if I look at the enterprise segment. From a status standpoint, there's a couple of different usage models. One of them again is a a boot drive application, so to speak. And so I think the strategy of reusing client with the appropriate features works very well there. But clearly there are customers who require, features, things like security for data, rest, etcetera, that, that we believe will fundamentally be better serviced off of the controller that we are designing in house for our SAS segment. Okay. Is it possible to share the bond percentage on the enterprise side also? I actually prefer not to. I think I would well, let me just comment on this. I would say that the percentage is certainly lower. And if primarily lower because of the the densities that we're shipping into enterprise are typically higher than what we're shipping into the client side of things. So I would say on average, it's lower than what Justin stated. Sure, definitely. So, another question on you talked in the beginning of the presentation about integrated software appliances and the Wortences acquisition. So the question is when are you planning to introduce the product in the market? And the strategy would be to kind of go with the storage OEM like ENC, which you are doing with DF Cash solution. Or are you planning to go completely Micron solution? So, great question. So, a couple of things with regards to the Virtensis acquisition. Number 1, Vertex has had a virtualized appliance in the market that we continue to support, and we will be seeing revenue from that by, I would say by the middle of next year to a very select handful of customers. That is a virtualized auto appliance without storage. Obviously, we bought the company because we valued their PCIe sharing technology And so what you will see from us and what we are actually demonstrating right now with a handful of select OEMs is in fact that that appliance with our P3 20H PCIE cards sitting in that appliance. And so the value of having a PCIe card in an appliance, is 2 fold. Number 1, we can get much blade service have very limited space. And today, you have to open up a blade and you put less than a terabyte storage in them. And once they're in there, they're native to that particular blade. What we like about this solution is, A, as I said, we can get much more storage into the appliance. And number 2, to either a blade or a rack server, you can partition the storage and you can do it on the fly by sharing the storage where it needs to be shared which we think number 1 has value. And number 2, what it allows you to do is not only split up the storage dynamically, but allows you to fundamentally share that storage. So think in terms of a rack of servers where today you may have an instance of a database sitting on every one of those servers utilizing precious storage, well, what happens if you put that database in Iraq appliance and you have the ability to share that across each one of those servers connected to that appliance, well, then your total cost of ownership starts to look dramatically better. And so We fundamentally think there's a large value there. As I said, we're demonstrating that with key OEMs right now. My expectation is that we will start to see production level versions of this later next year. All right. Thanks. Just one more question on the client side. When you talked about 60% attach rates in client side in 2015 in the presentation, Was it just pure SSDs or it was pure SSDs plus cash SSDs included? That was pure SSDs plus cash included. So is it possible to share the split or I don't have the split off the top of my head. But out in time, we definitely see the majority of that shifting towards primary storage. You. Our next question comes from the line of Glenn Young from Citi. Thanks guys for hosting the call. Kind of a higher level question. When you guys are out of the market competing with your SSD solution, what's your customer say are the key differentiator for you or for your competitors for that matter. What what makes them choose a micron over someone else? Yeah, this is, this is Glenn. I'll start, but then I would be willing to bet that Justin and Ed can also elaborate on some things here with their specific segments. But the thing that I hear most often is that customers want to work with us because we are fully integrated, because we have the core capabilities from, Silicon Leadership all the way to system, leadership. And we're even pushing farther, vertically, as Ed just described with our, with our appliance strategy. So increasingly, I'm hearing from customers that that's becoming a bigger part of their decision process. And not just because of what I think has been largely talked about in the industry lately, about the abilities to engineer solutions or, between the them. But as we ramp into high volume production, what's becoming very much on everybody's mind is the consistency of supply. And the quality of that supply. And, certainly, as the NAND market goes through its cycles, the NAND manufacturers, having that captive supply can bring something to the table that a lot of the other companies can't. So that's essentially what I'm hearing. And I think also in some of the successes that we've had within both the client and the enterprise segments, our ability to work closely that our competitors can't is something that's, getting more and more of our attention and focus. Justin or Ed, would you guys like add something. I think you covered it quite well. Yes. I think Glenn, I think that makes perfect sense. And I agree with what you said. I think if you look at the if you look at our competitors that don't have their own NAND supply, there's clearly worry about supply, especially especially if that particular competitor is competing with a man manufacturer such as us. I mean, that's definitely something that we hear concerned about from our customers, I'd also add that, that our competitors that have to purchase NAND, they're clearly doing the purchasing from multiple supply points. And at the end of the day, as much as we look at NAND as being a commodity, not all NAND is created equally. And so what that fundamentally means is that If you're going to design a drive to utilize more than one supply of NAND, that in itself presents challenges above and beyond what I think we have to do with the intimate knowledge that we have of our own NAND. So maybe to bring that a little bit nearer term, in the press now they're talking about supply reductions by some of Micron's major NAND competitors. Is that the type of inconsistency that you're talking about or is it really inconsistency in terms of a bigger supply condition? No, I think that's a real good point. And I mean, we're with our industry peers right now and that we're not really excited to have a lot of capacity either. And, that's going to remain so for some time. But as this long term demand in these new applications kick in, you bet things are going to tighten up once again. And I think that's going to lead to a different dynamic. That, will favor the NAND suppliers who are manufacturing their own SSDs. Okay. One last question, which is just about the controllers again. First of all, can you just, for educational purposes differentiate between an SSD controller and a NAND controller, NAND specific controller And then talk about where you think the value is between the two of them to your customers. Where is greater value? Well, let me kind of just maybe take a step back here when people, I think, use the term NAND controller versus SSD controller. I think it's it's two points along a continuum of complexity. All controllers must somehow manage the NAND media And again, as the technology scale, that alone gets very difficult. And I think that's something that, certainly we have an advantage in But the other side of that controller is what talks to the outside world. And there's a big difference between an SD controller or a USB controller versus a client SSD status app controller versus a PCIe controller. Each of those are very, very different. And so the key And what we're doing here at Micron is we're developing our controllers in a modular way with these building blocks where we can efficiently and efficiently kind of mix and match them across those different product families. Is that something that you would sort of characterize as a differentiating factor for Micron, how do your competitors, try to do the same thing, or can they? Yeah. I think, our competitors, depending on who you classify as a competitor, will certainly have a different strategy. If you're a USB or an SD company, you're going to have a very kind of narrow focus strategy. Yeah, I think for us where we have a full product portfolio, it's in our best interest to really create a very reusable, efficient platform. And, a lot of the learnings that we have in different segments, we can easily apply to the others. And as Ed mentioned earlier, we're we're very interested in reuse. So I think for a company like Micron, that's a very natural approach. I do think it is one that we have a competitive advantage in because we've kind of grown our capability through the ranks, so to speak, as Micron first entered the NAND business, a lot of the focus was on the more traditional markets USB SD devices. And we had to hone our controller skills based in that those markets. But as we've claimed the value chain, we've carefully expanded that capability. As Justin mentioned, as we first deployed the client SSDs, we took advantage of the fact that we have our own channel and initially started our ramp into high volume through our crucial dotcom capability. Once we gain confidence in our controller and our manufacturing ability, we're able to engage with OEM and go through the hurdles of some of the intense OEM quality you have to do to engage such markets. And then is that just demonstrated we've hit an even higher hurdle of going through those same qualifications with some large enterprise OEMs as well. So it's been kind of a process for us. And we do think that we've arrived at a pretty good point that does give us a competitive advantage with a very solid controller strategy. Thank you. And our next question comes from the line of Kevin Cassidy from Stifel Nicholas. Thanks for taking my question and thanks for giving this presentation. With your SSDs, what's the split right now for single level cell devices versus, 2 2 level cell and 3. And what do you see for 3 level cell in the future? Okay. Yeah. I'll let Ed and Justin both answer that question because I think it's a different answer for those respective markets. Yeah. I'll go ahead and start the client. So for the client space today, it's 100% MLC in our client drive and really no demand or desire for an SLC product in the client. MLC provides all the performance, endurance, reliability that we need for the notebook market space that we're addressing. Looking forward, I think there was a question there on triple level sell in SSDs. That's not something that we have in the market today. But there is interest there. It's an area we continue to investigate and, really without divulging any future product plans. I think I'll leave it at that. Yeah, I think for enterprise, definitely a bit different. I would say right now we're probably in the in the 70% MLC, 30% or so, SLC. And the reason for SLC is primarily because of the usage conditions associated with something like a PCIe caching solution. As you can imagine, if something's a cash, the number of rights per day, fills per day, total bytes written, pick your reliability metric, is quite different in that environment. And so for us to meet some of the very high bars that are being set by our customer's usage models we have SLC offerings on those interfaces. Okay. To make sure I'm clear on this, is that a different controller then for an SLC than would be for an MLC? No, we our controllers are designed to to be able to deal with both of them, primarily the fundamental difference between handling both of them has to do with the ECC engine that we embed into our controllers. And so the reality is you can always hook one up It's just a matter of what the reliability will look like as you run it through the error correcting engine that's put onto that controller. Okay. And maybe we didn't talk a lot about the process technology. As you go down to 1 1x level. And how much does the controller change there? Then also I know in the roadmap, there's plans for going to 3b, and I just want to know what happens again with the controller technology as you go to these different process nodes. Yeah, Mike, let me comment on that. First and then maybe Glenn or Justin can add something. But it really fundamentally comes down to understanding what the usage conditions are of system that you need to deliver. And there's many ways to deliver those. You can do that, hopefully by starting with the best ECC engine you know how to do. And, I think that's the general approach that we take, but there's a lot of knobs that you can put into a system, and again, I think given our understanding of what the NAND does down to the electron, I think we're in a fantastic position to know which knobs we can turn and how to optimize those knobs to deliver the highest performance, highest reliability at a particular cost point in the market. And so what that means is when we get to the 1X nodes and beyond, we know the knobs that we can use. And so I I fundamentally believe that we will be in the best position to deliver that combination of reliability, performance and cost to our customers as we continued on the scaling of our NAND technology. And operator, I think we have time for one more question. All right. Our final question comes from the line of Ryan Goodman from CLSA. Question on the Cashing Solutions. You had introduced a product called Adrenaline back in January. Now it sounds like you're not looking for a lot of growth in this subsector in the market and it sounds even like you're deemphasizing this in a longer term strategy. Just wanted to know if you could comment on that and maybe talk about how you're going to approach this market in the next couple of years. Yes, excellent question. So I guess I'll start with Adrenalin is a cash. It's offered in the market as a cash, but I don't want that product to be confused with the caches that are being used in UltraBook. So the adrenaline is a 50 gigabyte, cash. It's higher capacity. It's really was designed and brought to market as a think of it as kind of a I don't know, a high end cash, a main storage cash, because if you look at a 50 gig cash, you can really put just about everything you're using on a daily basis in that cash. So really what you have is an SSD for all practical purposes, along with some caching software that allows you to attach it to your hard drive that probably for this is offered to the crucial market, probably the person buying that has a hard drive already in their upgrading, allows them to attach into that hard drive, continue to have gigabytes or terabytes of space, sorry, and all the benefits of an SSD. So that's really a different approach, from what's happening in the ultrabook space where 24 gigabyte caches. And in that space, it's really all about for as little money as possible. How do I get some of the goodness of an FSD and hit Intel's minimum target requirements. And so through the upgrade market and the etail space, we'll continue to focus on that at Journalin product and continue to have offerings like that, which are really we're taking and we're bundling Cashing software with would really be considered a main storage SSD and allowing somebody to take a lower capacity main storage and have the benefits of the hard drive space behind it. Okay. That makes sense. And then one other question going down a different line. In Ultra Books, it sounds like Intel is pushing more for a standardized form factor. They have this next generation form factor. But then in the market today, I mean, we're seeing a variety of form factor coming out, especially from some of your competitors. Just wanted to know your thoughts on that and the strategy there longer term as well. Thanks. Yes. I mean, I can't really comment too much on intel's desires for the ultrabook market other than what they've made public already. I think you're going to see different customers trying or different OEMs try and differentiate themselves from each other. And so you will see different different offerings in the market, whether that be a transformable where it's got a touchscreen and a flip screen or maybe a screen that removes from board. I think you're going to see a lot of innovation in this space as the OEMs try and figure out really what best addresses their customers' needs. Sorry, I just meant in terms of the actual SSD form factor though? Oh, the SSD form factor, predominantly what we're seeing today is MSADA in these devices. There's definitely discussion about some other module form factors going forward. But, really they all kind of address the same desire and that's to get an SSD into a smaller form factor that enables a thinner and lighter ultra book. So to us, we're pretty ambivalent about what that module form factor is other than we like standards because it's just much better for the industry to have standards. And with that, I would like to thank everyone for participating on the call today. If you'll bear with me, I'm going to read 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 forward looking statements and all other statements that may have been made in this call that are not historical facts are subject to a number of risks and uncertainties actual results may differ materially. For information on the important factors that may cause actual results to differ materially, please refer to our filings with the SEC, including the company's most recent 10 Q and 10 K. Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude Micron's