Earnings Call: Q3 2012

Jun 20, 2012

Good afternoon. My name is Shey, and I'll be your conference facilitator today. At this time, I'd like to welcome everyone to Micron Technologies Third Quarter 2012 Financial Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer period. It is now my pleasure to turn the floor over to your host, Keith Bedard. Sir, you may begin your conference. Thank you very much. I'd also like to welcome everyone to Micron Technology's third quarter 2012 financial release conference call. On the call today is Mark Durkin, CEO and Director Mark Adams, President and Mr. Ron Foster, Chief Financial Officer And Vice President of Finance. This conference call, including audio and slides, is also available on my website at micron.com. If you have not had an opportunity to review the third quarter 2012 financial press release, again, it is available on our website at micron. Com. Our call will be approximately 60 minutes in length. There will be an audio replay of this call accessed by dialing 404537 3406 with a confirmation code of 90798592. This replay will run through Wednesday, June 27, 2012 at 5:30 pm, mountain time. A wet cast replay will be available on the company's website until June 2013. We encourage you to monitor our website again 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 regarding future events or the future financial performance of the company and the industry. We wish to caution you that such statements are predictions and that actual events or results may differ materially. Updated 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 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 we expected 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 presentation to conform these statements to actual results. I'll now turn the call over to Mark Durgin. Mark? Thanks, Kit. I'd like to start today by giving a brief overview of the quarter including some company strategy, I'll turn it over to Ron for financial summary, and we'll close our primary comments with Mark Adams providing an update on the market conditions and key developments in our business unit Revenue in the quarter was obviously performance and good work on inventory improvement by our business units and sales force. There's yet room for improvement on inventory management, but it was certainly gratifying to see the results this quarter. And with the closing of the Intel JV restructuring, we expect to benefit from an ongoing structural improvement in our NAND inventory end. In the quarter, we completed rollout of a new supply chain management infrastructure and though there were a few inevitable bumps along the way, process is complete and we look forward to building from here to new levels of customer service and responsiveness. The 30 nanometer DRAM yield ramp picked up steam during the quarter in all three DRAM manufacturing facilities. And is now focused predominantly on higher density 4 gigabit DRAM products. The technology team made solid progress on a number of new technology nodes including NAND DRAM, NOR, PCM, and some emerging memory, part types. The DRAM market found its footing during the quarter, and while NAND markets softened significantly since quarter end, we've seen improved stability here also. Mark Adams, and Ron Foster will comment more on all these areas. Given the current memory industry climate and changes here over the last 4 months, I'd like to spend a few minutes sharing some thoughts on the opportunities currently presenting themselves to Micron and on our path forward. 2 weeks ago, I marked my 25th anniversary at Micron. When I started, we had 1 5 inches wafer fabs and goats grazing out the front. I've clearly seen many changes in the company as well as in the competitive landscape of our industry. One constant has been Micron emerging from tumultuous times as not only a survivor, but a stronger company. While the memory markets are obviously somewhat soft currently, we believe they're bottoming we will have to win more to our backs moving into the second half of the year. We've taken steps over the years to broaden our product portfolio, improve our cost competitiveness strengthen our technology position and capitalize on the right strategic opportunities when they arise. It is my intent to continue to move in this direction. My focus is on building an operating and financial model that can deliver sustainable free there are many levers to pull in order to achieve these goals. As always, technology, capital efficiency, product differentiation, close customer engagement, effective sales channels, timely and low cost investment and manufacturing efficiency and effectiveness are key to optimizing our results. In addition, however, being cognizant of and reacting appropriately to memory industry supply and demand dynamics is important to achieving this result. There is currently considerable interest, of course, and whether Micron will consummate a purchase of LPIDA, which represents 15% to 20% of the DRAM industry capacity. As most of you are aware, we announced previously that we were selected to negotiate exclusively to become the sponsor LP in the bankruptcy process. We are in a unique strategic and financial position to take a look at this opportunity and are interested in pursuing it if it can be done under the right terms and conditions. In my mind, these include making sure we do not unnecessarily dilute our equity, nor incur excessive interest bearing debt that might overly hamper our flexibility moving forward. A deal with LPTA in this context should enhance scale and operating expense efficiency. LPTA also has a strong product portfolio, leading edge technology, strong IP and talented workforce. I think our track record of successful M and A transactions, which by the way, includes avoiding deals which do not fit financially and strategically speaks for itself. If a deal cannot be done on terms that are acceptable to us, I want to emphasize that we are also comfortable with our organic opportunities. Our customer base is fantastic and almost all are looking to do more business with Micron. Let me give you a couple of examples of other things you can will be doing outside of the effective ongoing management of the existing core business. On the product and technology front, 2 key opportunities include our hybrid memory cube and enterprise SSD products. These premium products are pushing micro further up the value chain with our customers and will help improve our margin structure over the long term. Key to success in these and other more system oriented memory solutions we are pursuing are the right partnerships up and down the value chain, including those with suppliers, customers and service providers. We will continue to forge close relationships with other parties to ensure that Micron solutions are the most widely available, flexibly configured and most value add for our customers and the end markets. While we're building core competencies internally to support these initiatives, I believe we can best enhance return for our shareholders by partnering closely with industry leaders in adjacent spaces to optimally leverage our individual strengths. We've got a good history of success in this area and existing partnerships to continue to evolve and new ones to emerge Mark Adams will cover a few highlights on some previously announced system products during his market discussion later on. On the cost and capital efficiency front, We recently took a tough but necessary steps to terminate our transform Solar joint venture. While we felt like our technology was strong, the marketplace dynamics did not support ongoing and potential future capital investments, which would have been required in order to move the business forward. We will continue to scrutinize all of our businesses to ensure we're focused on the right opportunities and managing our capital resources efficiently. While I won't rule out future diversification in a product in the new product areas where we bring significant core competencies to bear. Right now, we have meaningful opportunities to differentiate and grow in memory and memory systems markets so you should expect our investment focus to be there. I'll stop here and turn it over to Ron and Mark before returning for QA. Thanks, Mark. The company's third quarter of fiscal 2012 ended on May 31st. As usual, we provide a schedule containing certain key results for the quarter as well as certain guidance for the next quarter. That material is presented on a few slides that follow as well as on our website. The third quarter results posted a net loss of $320,000,000 or $0.32 per share on net sales of $2,200,000,000. The higher revenue in the third quarter came primarily from higher DRAM sales volume. Consolidated gross margin was relatively flat compared to the previous quarter reflecting improved margins on sales of DRAM products, offset by lower margins on NAND. Micron entered into a settlement agreement with a customer after our 2nd quarter earnings release, but before the filing of the quarterly report 10Q with the SEC. As a result, a $58,000,000 accrual was pushed back into the 2nd quarter results as a charge against DRAM and DSG revenue and was reflected in the Q2, 10 Q filing. This accrual is also reflected in the second quarter results presented today. The cash payment to the customer occurred in the third quarter. Inoterra continues to improve both production output as well as yields. Our share of Inoterra's results reflects this improvement although it is still a net loss Terra for $133,000,000. In the 3rd quarter, Innoterra repaid the loan and Micron made an equity investment of 170,000,000 increasing our ownership interest from 30 As Mark mentioned, during the third quarter, the Board of Directors of Transform, a development stage joint venture in which we have a 50% ownership interest, announced a plan to discontinue operations and liquidate the company. As a result, Micron recognized a charge of $69,000,000 in the 3rd quarter and the equity method investment balance was reduced to 0. Micron leases certain fabrication and other facilities to transform, which we expect to be terminated in the facilities reverted back to Micron. Depreciation and amortization decreased in the third quarter to $546,000,000 and certain production equipment, primarily in the Lehigh and Virginia NAND and 200 Millimeter NOR operations, have become fully depreciated We anticipate a further reduction in the 4th quarter depreciation in the $515,000,000 to $520,000,000 range. The income tax benefit in the 3rd quarter reflects a $42,000,000 benefit from the favorable resolution of an uncertain tax position in a non U. S. Jurisdiction that arose over several previous years. The original amount of accrual came through the Mnemonics acquisition where we had an indemnification our I'm Flash joint venture with Intel during the third quarter. As a result, Micron acquired Intel's 18% ownership interest in the I'm Flash operation in Singapore and purchased from the I'm Flash entity its production assets in the Micron fab in Virginia and the associated lease of a portion of that facility was terminated. Total consideration for these purchases was approximately $600,000,000. Micron recognized a $17,000,000 loss in the third quarter associated with the termination of the Virginia lease. Intel made a cash deposit with Micron of $300,000,000, which will be applied to Intel's future purchases under a new supply agreement. In addition, Intel loan to Micron $65,000,000 due in installments over a 2 year term. The existing supply arrangement through IMFT remains intact and Intel will continue to purchase their 49% of the output from the Lehi, Utah operation, while Micron owns 100% of the production output from the NAND operations in Singapore and Virginia. Beginning in the fourth quarter, Micron will take approximately half of the volume that was previously sold to Intel at prices approximating cost, A portion of this volume will be sold from Micron to Intel under a new supply agreement at a markup above cost Going forward, these sales to Intel under the new supply agreement will be reported as trade NAND sales in our on completion of wafer fabrication rather than after backend assembly and test are completed under the previous arrangement. $97,000,000 of backend inventories associated with Intel's supply chain was sold to Intel in the third quarter. Generating a one time increase in NAND sales revenue and reducing WIP inventories by the same amount. Micron and Intel will continue to participate in the development of NAND flash memory technologies and will fund these shared costs equally. Joint development of the technology was also NAND market prices declined across the board in third quarter. Product mix shifted toward MLC NAND, which drove higher bit sales, as well as significant declines in per bit costs and selling prices. Margins on trade NAND products decreased in the third quarter, primarily as a result of substantial market price declines, particularly for MLC products that outpaced the 29% cost per bit decline quarter to quarter. Trade NAND selling prices are down mid teens quarter to date, while trade NAND cost per bit is expected to decline is projected to increase in the high single digit range for the fourth quarter, following the robust 68% bit sales growth in the third quarter. Turning now to DRAM. DRAM revenue in the 3rd quarter increased 20%. Compared to the previous quarter as a result of a 12% increase in bit sales volume. The increase in DRAM average selling prices in the third quarter is primarily due to the effect of the $58,000,000 second quarter charge to revenue from the customer settlement I mentioned earlier. Normalizing for this Q2 settlement, average selling prices were flat quarter to quarter. Selling prices in the While prices were specialty DRAM product, which trend with a lag compared to PC memory, only recently began to stabilize. Quarter to date selling prices have remained flat as well. DRAM cost per bit declined 4% quarter to quarter, acute technology node migrations at all of our DRAM fabs. A product mix shift to lower density mobile and specialty products and the timing of and push quarter, just over 10% of consolidated revenue. NOR revenue in the 4th quarter is expected to be relatively the same as in third quarter. Nor product margins improved slightly in the third quarter as cost reductions outpaced selling price reductions in the period. The cost profile for our 200 Millimeter Nora fabs is improving as production levels are ramping back up. The charge for idle capacity for the quarter was $30,000,000 compared to $40,000,000 in the second quarter for all of our production operations. The NAND Solutions group swung to a slight loss in the 3rd quarter as average selling prices dropped faster than cost reductions. Revenue was up despite the price declines with a higher mix of MLC product and a reduction in inventory. Sales of SSDs and NAND component sales to SSD OEMs increased only slightly in third quarter compared to the previous quarter as we have worked through the demand issues over the past couple quarters. We are looking forward to additional growth in SSD sales as the market further improves through the remainder of the year. Improvement in operating income for quarter as more volume was moved into the personal computing sector at slightly improved average selling prices. The $58,000,000 customer settlement in the 2nd quarter was charged entirely to the DSG business unit. Our wireless solutions group continues to show the weakness of this market segment, and our customer group in particular, although margins improved slightly in both NAND and nor wireless sales. Operating income from the Embedded Solutions Group reflects broad based growth across all three Memory Technologies, and the successful transition SG and A expense in the 3rd quarter was within our guided range and is expected to be between $145,000,000 $155,000,000 in the 4th quarter. 3rd quarter expenses for research and development were slightly higher than our guided range due to the volume of development wafers process and the timing of product qualifications. R and D expense in the fourth quarter is expected to be between $225,000,000 $235,000,000. The company generated $686,000,000 in cash flow from operating activities in the 3rd quarter which includes the $300,000,000 deposit received from Intel. Cash and investments at the end of the quarter was $2,700,000,000. This balance includes cash, cash equivalents, short term investments of 118,000,000 and non current investment securities of $361,000,000 The cash and investments balance at the end of the quarter includes $876,000,000 of proceeds from the issuance of convertible debt securities, net of the cost of associated cap call transactions of $103,000,000 and other debt issuance costs. In addition, in the third quarter, we called for redemption of the remaining $139,000,000 on our 2013 convertible notes. $23,000,000, which was converted into 4,400,000 shares in the 3rd quarter and the remaining $116,000,000 of this redeem convert was converted into will be converted or was converted into 22,900,000 shares following the end of the quarter. Inventory levels came down in the 3rd quarter compared to Q2 for NAND DRAM and NOR. A portion of the decrease in NAND inventory was due to the sale of the backend inventory to Intel in the third quarter that I mentioned. Expenditures for property, plant and equipment $450,000,000 in the 4th quarter and between $1,600,000,000 $1,900,000,000 in fiscal 2013. With that, I'll turn it over to Mark Adams for his comments. Thanks, Ron. Today, I'm going to walk through some of our business highlights, provide a few technology updates as well as discuss current market dynamics in the memory industry. Our DRAM solutions group exceeded our forecast for sales bit growth and achieved record shipments in all of our segments, which include server, networking and storage, graphics and consumer, and personal computing. In particular, our specialty DRAM growth continued to outperform. The solar market is a good example of a specialty segment where Mike Brown has performed very well over the years achieving strong market share, which is approximately double our overall DRAM market share. This success demonstrates the strength of our product performance quality and overall customer support model. We believe the combination of unit growth driven by data center and cloud applications In addition to performance driven growth in DRAM per system will generate over 40% bit demand growth this year, and over 50% in 2013. In the PC segment, we have seen some improvement in demand after 2 quarters of stagnant growth. Somewhat related to the improved availability of hard drives. With 2012 year over year bit growth estimates now in the mid to high 20% range. This lower supply growth and demand recovery has led to an improving PC pricing environment. The demand catalysts for the second half of the year include ultrathin product launches utilizing our recently announced DDR3 Lm and soldered down 4 gigabyte DDR3 based modules as well as seasonal recovery and the upcoming Windows 8 launch on both Intel and ARM based platforms. In aggregate, we believe PC DRAM content in 2012 will average around 4.5 gigabytes. Compared to 3.5 gigabytes in 2011. This, in addition to a forecast that's calling for a small increase in unit PC DRM ASPs have increased from the bottom in late 2011 early 2012 and recent trends are now generally stable. From a technology perspective, our 30 nanometer process node will continue to ramp in Q4 and we expect to reach 40% to 50% of our output on the leading edge towards the end of the calendar year. This, in addition to our 20 nanometer ramp in 2013, should keep us in solid competitive position moving forward. We remain excited about in terms of memory performance in the server, computing and networking environment. We also shipped our first DDR4 samples key customers and remain well positioned for market adoption. We continue to focus on application specific requirements in our end user DRAM markets. Our NAND solution group sold a significantly higher number of bits and reduced inventory in Q3. Although SSD unit sales were down slightly in the quarter, We are starting to see signs of increasing demand both in terms of unit growth as well as average density. We delivered strong revenue growth in the quarter for Sales in this market stands for our continued success with our mainstream SADA drive C300. Additionally, our high performance PCIe solution and EntrySATA Drive, the P400E, continue to gain traction with customers We're looking to see more exemplify both our award winning NAND technology coupled with Micron's internally developed controller technology for high performance storage. On the NAND Technology front, in early April, Micron and Intel were awarded 2011 Semiconductor of the year by UBM for our 20 nanometer NAND technology. This is an important achievement as the award recognizes technology breakthroughs across the entire Semiconductor industry. Note that our 20 nanometer processes is a true 20 nanometer symmetrical memory cell and we were the 1st company along with Intel to produce 128 gigabit monolithic die. We also began sampling 20 nanometer TLC components with controller companies in Q3 with production expected next quarter. NAND prices remained under pressure for most of the quarter. We think it is worth pointing out that NAND ASPs stayed relatively strong, especially towards the back half of 2011, and this likely had some negative impacts on the growth of embed NAND in the smartphone, tablet, and SSD categories in the first half of twenty twelve. There also has been some wafer supply additions in the market, including our fab in Singapore. These conditions have combined to cause a near term oversupply situation. However, subsequent to our quarter end, In the last week or 2, we have seen channel prices for NAND have started to stabilize and in some cases, increased from where we exited Q3. We remain bullish on the NAND market. The fact that prices have declined at this pace has created demand elasticity with higher demand content in smartphones, tablets and FSTs being projected for the second half of the year. For example, NAND density per tablet is expected to grow close to 90% in 2012. The other good news on the outlook for NAND is what appears to be a very disciplined approach with all of the major suppliers reacting to the weaker pricing environment by slowing down, delaying or even cutting NAND wafer production. Our current CapEx outlook, which Ron described earlier, follows the same industry trend as we are not currently planning to add any new wafer capacity in fiscal year 2013. Coming into the year, market supply growth forecast for 2012 were in the 70% to 80% range, Today, we believe we're looking more like mid to high 50% with a similar outlook for 2013. We believe that supply growth is below the long term average demand in NAND, which is well above 60%. Revenues in our wireless solution groups declined mostly due to continued softness in the wireless new market as well as a winding down of the sale of the action modded NAND products required previously acquired at market price. Looking forward, we are encouraged about some new customer engagements targeting both low end and high end smartphones Behind and smartphone and Intel arm based tablet segment is growing and requires large densities of Mobile DRAM For example, mobile DRAM and smartphones expected to double in 2012. Micron is a great of our new 30 nanometer mobile DRAM devices, allowing us to cost efficiently produce all data that is required for this segment of the market. As you can see from our BU financial breakout, our Embedded Solutions group had solid performance both in terms of growth and profitability. In Q3, the embedded group qualified and shipped our initial EMMC products to the embedded customer base, saw strong DRAM revenue, which contributed to record results in our automotive sector and achieved record high embedded NAND revenue with broad growth across densities and segments. We have some significant embedded margin opportunities in DRAM and NAND over the next several quarters in enabled by our broad product portfolio, low cost position and customer and channel relationships. In terms of our Nora business overall, Clearly, the focus is to maximize the embedded market where the profitability is very attractive. Our big consumption with Nora continues to grow, and the overall demand is generally stable. Our embedded business is a great example of how our growing customer base values Micron's boat portfolio of DRAM, NAND and NOR. While we've experienced volatile market conditions over the past 12 months, We are optimistic that we can see an improved memory market during the back half of 2012. As I mentioned on our last call DRAM pricing seems to have bottomed out in the second quarter and in fact, we saw improved pricing in our Q3. While NAND pricing has declined over the past few months, We are optimistic that the market conditions will improve there as well. Our NOR business continues to provide stable growth and margin at the foundation of our embedded solutions group products. With that, I'd like to hand it back over to Ken. Great. Thanks, Mark. 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 we can hear you clearly. Please open up the phone line. Thank you, Our first questioner in queue is James Snyder with Goldman Sachs. Please go ahead. Your line is now open. Good afternoon. Thanks for taking my question. I was wondering on the NAND side, if you could talk about the impact of the higher MLC and 3 level per sale sales in the quarter. How did that swing your dip shipments and your ASPs? If you could provide some quantification on that, And specifically with respect to TLC, going forward, do you expect to increase the proportion of that? Well, I think that, And the first part of your question is that, some of the application markets that we're building products for are able to adapt the MLC and lower end products, the TLC shipments. We've said all along that Our technology lead in NAND has allowed us to ship LLC competitively in the marketplace, even competing with some of our competitors older technology TLC platforms. As we said, going forward, we've enabled both MLC and TLC in these products. And you can see that There is an increase in our, in our, shipments in the past quarter. That being that we've been able to enable some of this technology in some of the broader product portfolio. Okay. Then maybe on the SSD side, Can you talk about the inventory levels you're seeing out there in the channel or your customers right now? We've heard some some data points suggesting that maybe may have been elevated. Do you still see those elevated inventory levels? Well, and do you expect them to be kind of flushed out over the next quarter or so? Yes, that's we actually commented on the last two calls that we saw that pretty early in the cycle driven primarily about I guess some of the OEM and channels took in a lot of inventory free Christmas and they were sitting on a bunch of inventory. We think it's actually working its way out fairly well and we've seen pretty strong demand over the last month in the channel. On especially on the client SSD side. So we agree that that's been a trend. We think it's working itself out, in our the end of Q3 and certainly during Q4. Thanks. Just a clarification, can you provide a number for how much of the TLC was as a mix your announced sales in the quarter? TLC was about 9%. Great. Thanks very much. Thank you, sir. Our next questioner in queue is Alex Huang with JMP Securities. Please go ahead. Thanks so much for taking my question. Was wondering if you could give some insights into how you see the end market dynamics, specifically on the server side, the notebook side, and maybe the mobile wireless side. I think there's a lot of investor concern that may be particularly in the area of notebooks. We might be seeing an artificial strengthening in DRAM because of the hard disk drive recovery and maybe also some safety stocking against LPDA. I was wondering if you could give some insights on how you see, demand holding up going forward here with those considerations? So let me break that up to you. You asked about notebooks. You asked about, wireless and the server business. Up to tackle the notebook market, the desktop notebook market. In general, we do think there has been some support for hard drives, that inventory situation improving. And I think there's a little bit of a catch up as mostly corporate TC buying picked up after being away for about 6 months. I don't think they adopted the SSD platform as aggressive as everyone might like, which contributed to the inventory discussion I just had. So I think the notebook market did get some support from, improving hard drive environment I also think as we talked about, the Ultra fit and product launches as well as a Windows 8 will provide for some support beyond just the hard drive availability. And we think it'll be a better back half of the year. In the server environment, we continue to see a lot of new opportunities, not just the traditional data center, main applications, but when you think about some of the new customers, the Facebook and the Googles of the world, we're dropping in data centers more in a shrink-wrap environment with large server content. We're seeing large volume orders for servers And on top of that, as I mentioned in my comments, the density per server continues to increase for performance reasons. So we're pretty bullish on servers and We've had 3 consecutive quarters of record bit shipments in the server segment. On the wireless market, as I mentioned earlier, we're we see growth there as well, especially for us to recapture some share with our low power DRAM 30 nanometer product as we get into, increased, ramp for that product in Q4 and beyond. We have good customer access and the goals are in place to drive some additional volume there. And real quickly as a follow-up, With regard to the SSD opportunity and notebooks rolling forward here, there have been a lot of models being released with hybrid drives. And then obviously, the MacBooks came out with some very high density complete solid state drive. What are your expectations in terms of hybrid versus salt date and what are the OEMs telling you with regard to the price points to accelerate the full SSD versus a hybrid solution. Well, I think that, we're seeing about a fifty-fifty split in terms of a hybrid configuration with a pure SSD play configuration. I would say that, one of the comments I made upfront was that given some of the pricing we're seeing as well as the improvement technology from a technology node perspective and lower cost in the market today The economics are getting there where we've been asking the question what will take to accelerate SSDs. And we think we're pretty close to faster acceleration of SSDs in the notebook, given the gigabyte cost per gigabyte equation. So Well, I think it continues to be fair, but we see about a 50%, 50% ratio on hybrid versus pure SSD. Thank you, sir. Our next questioner in queue is Kevin Cassidy with Stifel Nicola. Please go ahead. Your line is open. Got it. Thanks for taking my question. I'm just if I can go to the LPDA, negotiation, Are you able to advise them at all on wafer starts for DRAM? It's Mark. Absolutely not. First of all, we don't have an agreement with them at all yet. And yet to be seen whether we do. Secondly, where are we to reach that point There's also some regulatory approval still required. So we're, we're a long way out before we would have any impact on the LP to operation. Okay. Thanks. And, can you say what what percentage of your DRAM revenue with specialty DRAM? Well, Kevin, that's just Kipp, sorry for the delay there. We're about 60% was in the specialty category. Next question you're in queue is Sean Webster with Macquarie. Please go ahead. Your line is open. Great. Thanks a lot. So for your fiscal Q3, your DRAM bit shipments were up 12%. What did your production do sequentially for DRAM? And on the NAND side, I think you said somewhere total NAND shipments were up 40% sequentially. And I was wondering what your production did sequentially? Yes. We quit giving away the production bit numbers because we just didn't find them very helpful for you, but I will say they were pretty close to guidance for DRAM and And actually, NAND was up pretty nicely as we had some pretty good execution to the quarter. Okay. Well, I'm sticking with production for your your capital expenditure guidance for fiscal 13, what kind of bit growth does that level support for you guys in both the DRAM and NAND side? Hard to give out a year over year number, which is why a few quarters ago, we switched to giving you quarters, maybe 1 to 2 quarters out because we can make such a pretty dramatic change in bits when we look at the mix effects. So we just we're just not going to go on a year over year basis. Okay. And then in terms of the channel inventories, you talked a bit about NAND, how many weeks are is the DRAM market looking like right now? DRAM right now is in the 3 to 4 week inventories. Would you characterize that as normal or lean or pretty normal. Yeah, we think it's about right. We've seen, as I said, pretty good activity around our DRAM and with with improving pricing, I don't want to say favorable, improving pricing in the market. And then, maybe just the final one on the Alpita, negotiations, is there isn't the ideal situation for for you not to be the sole bidder, but for there to be no bidder for the assets. In other words, I mean, wouldn't it just going through the bankruptcy proceedings on its own and, you guys benefiting directly from potential industry consolidation the best outcome? Sean, obviously, the benefits of the deal will depend on the details of the deal. And I think sort of the framework I laid out was, if we can acquire, assets under terms and conditions that don't result in dilution or significant acquisition of interest bearing debt that would limit our flexibility then, that can be beneficial to Micron shareholders. And, I think that's probably all I'd want want to stay on that topic. With Barclays. Please go ahead. Your line is open. Yeah, good afternoon. Thank you for taking my question. I guess first question was hoping you could provide a little color on timeline and or milestones and how we should think about, progress and your discussions with LPDA, and anything kind of mandated by the bank Court. And I guess as part of that question, how you plan to toggle, CapEx requirements that you may need both NAND and DRAM and I said particularly on NAND? So let me cover both those pieces. On the first piece, we're not going to speculate at all. I want the timeline might look like relative to to activity in the LP to case. It's, you know, these things are obviously, very changeable and a lot of different inputs can move dates around and as well as as well as all sorts of other things. So, what I can tell you is that, we don't reach any sort of agreement, we'll, obviously be letting you guys know. Having said that, the second part of the question was relative to CapEx and how we might we might modulate that. I think the $1,600,000,000 to $1,900,000,000 number that Ron gave you is is obviously for Micron as it exists today. Depending on anything else we might do relative to LPDA, We'd obviously take a look at where the most cost effective place to spend our capital is, and that would move the numbers around. That's helpful. As a follow-up on the NAND side, I believe you said in your prepared remarks, you you thought you would see bit growth of mid to high 50s, both 1213 I'm curious what, what you see for supply in both those years for the industry. And what would get you excited to think that we could see faster growth in 'thirteen. In fact, that reference to mid to high-50s is a supply prediction. And I think Mark also had in his comments that we look to the long term average demand increase to be well over 60%. And I guess within that, what kind of underlying assumptions are you making in terms of Ultra books, and full solid state drives versus the hybrids as we enter 2013 and I guess exit as well. Well, there's some pretty good third party data, if you'd like to reference that, but Ultra's do take a pretty good, content leap in terms of consumption of the overall bits. And the range is pretty wide, so I might let you just go research that third party stuff yourself. Okay. Sure. Last question for me. Again, in the prepared remarks, you talked about, optimistic view on memory for the second half of 'twelve. And I'm curious, you know, whether greater optimism NAND versus DRAM or both. And if you could provide any color on what's really driving that for you, that'd be helpful. Thanks. I think for us, on the DRAM side, the segments that I highlighted in my comments around server density growth as well as unit growth. We see a bit of a improvement in the PC desktop notebook climate as well as the networking and storage, we think they're all fairly favorable for DRAM hard for me to call DRAM versus NAND. I think there's a obviously NAND has gotten negatively impacted on the pricing side over last quarter to quarter and a half. And while we've been cautious in our remarks about NAND even quarter to date, We still we've seen a reason for optimism based around improving demand picture around client SSDs and we think improved densities on the tablets and smartphones. So, we do think that the NAND was a a mild supply oversupply condition. We don't think it's, structurally, that far out of balance. And we think that the back half demand profile will help that be in a better place. Okay. Next question, please. Yes, sir. Next questioner comes from Daniel Baronbaum with MKM Partners. Please go ahead. Your line is open. Hi guys. This is Adam calling in for Dan. Thanks for taking my call. Since you provided some details on negotiations with Alameda, can you give us some color on the rationale behind Duindiaku's in the first place. I mean, there's been a lot of speculation among investors about dilution, from combining OPDa's operations into your own. So maybe you can help us understand how you think about absorbing DLP to assets into your own and how that helps your business long term? Sure. The, the Alpita business, includes a significant amount of the worldwide capacity. And, and scales is, is always an important metric in our business relative to, to OpEx. It it comes with, with, talented employees, as well as a portfolio that, while it overlaps with ours in many places, also has some significant, value added products, and, and technology that, that is in some ways different than ours and supports, some segments that are attracted to us. Their, their customers, while they overlap, in some cases, also are, in other cases, different than ours. And, and the acquisition gives us access to, to an increased a TAM. There is a significant intellectual property available at LPDA at the support of the ongoing business. And, finally, I think I would, I would just highlight, the wireless segment where they have, clearly a strong product portfolio, but without all the various pieces to put together with it, we think that the combination of their portfolio with our portfolio in that area in particular, will provide a compelling offering to customers worldwide. So it sounds like you do expect concrete earnings and cash flow accretion from this? Well, we don't have a a deal. So I can't calculate any of those numbers. However, I I will tell you that, yes, certainly over the long haul, we would anticipate a stronger micron where we did consummate a deal. If that's not the case, we're not going to do a deal. Thank you, Pam. Next questioner in queue is UJorge with UBS. Please go ahead. Your line is now open. Thank you very much. Can I just ask you your question? If I back up to the opening remarks when you talked about not wanting to add more debt, and much more debt and not wanting to dilute equity holders. Obviously, the fear and following up from the last question, the fear is how is that even going to be possible? Let me just back up a little bit and ask you, for us to understand what your cash and comfort levels are, how much cash, how much cash do you need minimum to run the business? And as we've been hypothetically where to get it, given the increased scale of both companies. Any sense as to what is the minimum level of cash you require on the balance sheet? Vijay, this is Ron. If you're looking at the current structure of Micron. It's a, it's a it's a we're in a pretty good shape. I guess, if you look at pieces of the, of where cash is deployed. And and, we've got pretty good access to our capital around the globe and the current structure of Micron. So, it's it's certainly a sub-five $100,000,000 operating cash balance that we could operate our current infrastructure. Now if you're asking about what it looked like in some kind of combination, obviously, we aren't at a place where we could speculate on that without As Mark mentioned, having a deal, have more information. Fair enough. Let me switch to, some detail on on the NAND business. So as we you mentioned some pockets of areas I've seen improvement. Can you give us a little bit more insight into the various product categories and where you're seeing strength and weaknesses. And I said this because we've seen some recent data that shows the cloud market seem to have had a seasonal bounce. I'm not sure whether that is essentially what you're seeing as well. So if you can talk to microcredit cards, other cars USBs and other end products in NAND just to give us a sense of what you're seeing that would be helpful. I think actually you've got a good take on it. I think we've seen believe it or not, the retail has kind of held relatively stable for us in the NAND business, And we've also seen, what we think is a is a explainable rebound at some level on the client SSD segment as well. As we look at it, there was a fairly heavy inventory build coming out of the holidays And we've talked about that in the last couple of calls. And we started to see some increased, channel shipment of SSDs over the last few weeks and are pretty optimistic that that's a good signal going forward. Okay. And and just finally, if if I look at the, the lag effect you described, for the specialty areas. Any more details as to, I know you started to see stabilization there in specialty memory. In terms of the demand drivers for those, I will have expected a little bit more, given the initial ramp of Romley, I'll have expected a little bit more upside from the server side. Is that a misplaced expectation? And if we're Iranley is ramping as well as we seem to believe when might she start to see that. And then on the networking side, any more detail as to how do you expect that trajectory based on demand factors this year on ground going forward? Thank you. Yes, maybe could reinforce. We we're seeing that effect as we speak. As I mentioned, our server bid growth over the last three quarters has continued to grow and that we've set records over the last three quarters. In the networking segment, same. We've had some great performance in terms of bit shipments. So, we're pretty bullish about those two segments. And we think we're seeing the effects of that, plus continued application growth around, expanding data center application as well as cloud Architecture. Sorry, I wanted to just specify what's asking more about the pricing trend for those areas? Well, I think, as Ron stated in his comments, just There historically has been a lag effect, that indexes up the PC desktop and open market, the commodity market, And, as you see improvement in, the desktop notebook DRAM environment, There's normally a subtle transition. We anticipate that there should be improvement in our business going forward. Great. Thank you very much. I'd like to apologize ahead of time for not being able to get to everybody in the queue. We do have time for one more question but I would like to remind everyone we're hosting a Analyst Day in the fall here at the corporate headquarters in in Boise on October 12th. You can get more details on the website. And and with that, we'd like to take one more call. Understood, sir. Our final question for today's event comes from Hans Moses with Raymond James. Please go ahead. Your line is open. Hi. This is Brian Peterson in for Hans. Just a question on the NOR business. It was actually a little bit better than expected this quarter. Despite some exposure to the wireless side. Can you talk about how you expect that business to trend going forward? Well, I think we've commented in the past that the wireless NOR has been, declining and maybe even a little bit faster than we had thought. Having said that, as I mentioned, our embedded solutions group has done a pretty good job in growing the business and growing our units there. And certainly Nora is a core foundation in addition to adjacencies around DRAM and NAND in that business, but the NOR business and embedded remains pretty solid with a good pricing environment and a really long term, design in benefits there. So we think nor will continue to be very stable around the embedded business, going forward. Okay. Thanks. And just a follow-up on Alpita. Is there a search period where you have exclusive negotiation rights, or is there a timeline where this deal needs to be worked out, or or just any kind of perspective you could provide there? Thanks. Yes. I'm afraid we can't comment on any of that, any of that detail at this point. We're obviously under NDA. Okay. And with that, we'd like to thank everyone for participating on the call today. If you will please bear with me, I need to repeat the safe harbor protection language During the course of this call, we may have made forward looking statements regarding the company and the industry. These particular forward looking statements and all other statements that may have been made on 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 ten Q and 10 K. Thank you. Thank you. This concludes today's Micron Technology Third Quarter 2012 Financial Relief Conference Call. You may now disconnect.