Earnings Call: Q4 2010

Oct 7, 2010

Good afternoon. My name is Jovan, and I'll be your conference facilitator today. At this time, I would like to welcome everyone to the Micron Technology 4th Quarter And Fiscal Year End 20 10 Financial Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer Thank you. It is now my pleasure to turn the floor over to your host, Kip Bedard. Sir, you may begin your conference. Thank you very much and welcome to Micron Technologies quarter fiscal year end 2010 financial release conference call. On the call today is Steve Appleton, Chairman and CEO. Mark Durkin, President and Chief Operating Officer Ron Foster, Chief Financial Officer and Vice President of Finance, and of course, Mark Adams President of Worldwide Sales. This conference call, including audio and slides, is also available on Micron's website at micron.com. If you have not had an opportunity to review the fourth quarter fiscal year end 2010 financial press release, it is also available on our website at microndot com. Our call will be approximately 60 minutes in length. There will be an audio replay of this call accessed by dialing 7066 45,9291, with a confirmation code of 14483222. This replay will run through Thursday, October 14th, 2010 at 5:30 pm Mountain Time. A webcast replay will be available on the company's website until over 7th 2011. We encourage you to monitor our website at micron.com throughout the quarter for the most current information on the company, including information on various 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. We refer you to the documents the company files on a consolidated basis from time to time with the Securities And Exchange Commission, specifically the company's most recent Form 10 K and Form 10Q. These documents contain and identify important factors that could cause automated 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 we 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'd now like to turn the call over to Steve Appleton. Steve? Thanks, Kath. I also want to thank everyone for joining us today we are going to proceed a little differently than in the past, with the conference call. We thought the end of our fiscal year would be a good time to announce the change in the format for earnings call. As you know, historically, we typically covered some of the details of interest regarding bids ASP, costs, etcetera, in a verbal format, we decided to present that information in a posted slide concurrent with this call so that you can simply reference it rather than having to ask about it and providing more time for other discussion. And we'll have a couple of charts we'll show here as I speak, that reference that. So in consideration of this run, we'll still provide her to some of the financial information, but he's not only going to simply repeat what was in the press release or the posted financial statements. As some of you know, we organized the company in an effort to better serve our markets and, of course, the integration of Mnemonics provided the to implement this. We now have 4 main business units. We have what we call DRAM solutions group or GSG. We have a NAND solutions group which is NSG. We have a wireless solutions group, Wsg, and then we have the embedded solutions group, which we call SG. Alright. And we're going to be reporting on these market segments beginning with our fiscal Q1 earnings release. So in other words, the next time we have a conference call we'll report by market segment, and we've got the target, the finance team's working diligently on being able to do that. We're still evaluating the type of hysterical, hysterical. Sometimes it's hysterical, I guess. We're still evaluating the of historical information that we've we've historically provided, in combination the way that we're gonna do the market reporting moving forward, and you need to give us a quarter to work through that because obviously there's some market segment data that's required by the accounting ranks, and we wanna combine that with enough information around some of the more detailed bid cost, etcetera, data, to allow you to, you know, build your models. And we realize that you need some combination above, but give us a quarter to sort that out. And so as an example, this quarter, Railing's gonna break out the mnemonics results separately from microns, but that will not be possible moving forward because of integration. In other words, we will be running the business in that form nor will we be recording data on that basis. And then consistent with this change, we're going to adjust discussion during the earnings call to more general options and the way we would characterize it as technology operations and markets. Other executives in the future may come topics, but with that in mind, let me turn to those areas. On on technology and operations, during our fourth quarter, we managed through a number of technology transitions and more notably, it's it's, I think, pretty apparent that we've been migrating from Innoterra's trans DDR2 product to micro on STACK DDR3. The cost of manufacturing for Innoterra product in the 4th quarter continued to be higher than other micro facilities. This is a result of the lower yields and lower total output. But as of today, and Oterra has substantially completed the conversion, and they're now focusing on increasing wafer starts to full capacity utilization. Majority of this increase, as you might imagine, takes some time to flow through the facilities as expected to show up in our second fiscal quarter, and therefore, technology. That was across our OEM customers as well as our retail businesses. On the markets, from a demand perspective, as some of you no doubt been reading in the media. We did see softening towards the end of our fourth quarter, in our notebook desktop commodity DRAM businesses, and forecast the back half of this calendar year from our PC customers has come down from what we earlier indicated when we last shared our information for third quarter. It appears that some of the demand is being driven by, unstable consumer sentiment which there's also been a lot of media about, but also some of the softening in the desktop notebook space, I think, can also be a to the to the success of the tablet PC category. In the part and the in the smartphone segment, is also growing and I think having some impact there as well. However, I think to our benefit, this was our 1st full quarter with an rated mnemonics product portfolio, and that includes the DRAM NAND and node based solutions, clearly the the breadth of our product line is changing the way our customers depend on Micron. I think the benefit to Micron is continued diversification away from a commodity based business to a broad set of solutions that, you know, serve markets like computing, networking, mobile, server space, automotive, etcetera. And, of course, consumer electronics being a large part of that. It's also worth noting that Micron's percentage of business from our commodity DRAM business. Is now less than 25% of our overall revenue. And for those of you that have followed Micron for a while, that's down from around 45% in the first after this fiscal year, but more importantly, it's pretty stark contrast to previous cycles in the 90s and the early 2000s. Where Micron was virtually 100% leverage to the PC. A final comment, before I turn it over to Ron, we are also filed today an 8 K, that announced a cross license agreement with Samsung, that resulted $275,000,000 that will be paid to Micron, during the next couple of quarters. And if you if you want more information about that, you can go to the filing and read the detail on that. So as I mentioned earlier, we will provide more color by market segment as we move forward. I'll now turn it over to Ron to add some commentary on the financials. And then as, Keith mentioned, we, we also have Mark Adams, Mark Durkin, on the call and all of us will be available to answer questions after Rose's comments. Thanks, Steve. The company's 4th quarter and fiscal year ended September 2 2010. Our press release is available on our website along with a schedule to post certain key results and estimated metrics for next quarter. We've summarized that Cheryl on the following couple of slides which we'll continue to show here. Total idled facility costs, which are charged directly to cost of goods sold, were $40,000,000 in the 4th quarter compared to $18,000,000 in the 3rd quarter. A significant portion of the idle facility charges are included in NAND costs and relate to the startup activities at the and higher costs associated with our 25 nanometer production ramp impacted the otherwise improving cost trend. The decline in NAND bit shipments was a product of timing of shipments to our customers and an increase in finished goods inventory. We expect to see much this inventory fell through in fiscal q1. 1st quarter NAND cost reductions are expected to be down mid to high teens bit production up mid to high teens. Production increases are largely coming from continued transition to our 25 nanometer process technology, which is expected to crossover and become the highest NAND production in the first quarter. Operating expenses in the fourth quarter were $338,000,000. The SG and A and R and D spending of mnemonics is included in Micron's consolidated results for all of Q4 compared to roughly 1 month in Q3. Recall that SG and A expense in the 3rd quarter included expense for litigation accruals of $64,000,000. R and D expense in the 4th R and D expense for the quarter benefited from credits of approximately 50,000,000 from joint development grams. The 4th quarter R and D expense exceeded the estimate given at the beginning of the quarter primarily as a result of the timing and classification of these pre qualification wafer production costs into R&D rather than into cost of goods sold. The company $1,100,000,000 in cash flow from operating activities in the fourth quarter. This is the highest quarterly cash generation in the company's This comes at a time when the company has generated record levels of revenue, income, and cash flow for a fiscal year. Clearly 2010 was a year of standing financial performance for Micron as margins on our primary products were leveraged to generate substantial levels of profitability and cash flow. Micron's free cash flow significantly outperformed fiscal year with a much stronger balance sheet, $3,200,000,000 in cash and investments including $335,000,000 of restricted cash while debt was reduced by $640,000,000 As a result of purchase accounting for the Pneumonics acquisition, the margin on Pneumonics sales in the 4th quarter of 21% was lower than the actual margin but still higher than our single digit expectation at the beginning of the quarter primarily due to a change in the mix of products sold and lower production costs. As I mentioned, the mnemonic's results are included in Micron's consolidated results for all of the 4th quarter. With last quarter, there are a number of adjustments made in purchase accounting that distort the actual results from what they would have been had the purchase accounting not occurred. The GAAP NeuMoDx results for the 4th quarter included revenue of $555,000,000 with gross 21%. Normalizing for the purchase accounting adjustments, revenue would have been 602,000,000 gross margin of approximately 31%. We are continuing to work on the integration of Mnemonics into the company's operations, which will likely include redefinition of our reportable segments as Steve mentioned. Accordingly, we don't anticipate providing these standalone pneumonic results in the future as we won't be able to separately measure those legacy operations. As you recall, Tynix had certain rights that were triggered with the change in control of mnemonics. In August, mnemonics interest in a joint venture was sold to Hynix and the supply agreement with Hynix was renegotiated. They company received a total of $423,000,000 from the sale, of which $250,000,000 was deposited into a pledge account collateralizing the joint venture's $250,000,000 bank debt. The $250,000,000 is class applied on our balance sheet as restricted cash, while the remaining 173,000,000 is reported in cash and cash equivalents. When we line up the 4th quarter results to the prior quarter and adjust out the non recurring items noted in the non GAAP reconciliation that should be on your screen, we show non GAAP diluted EPS for the fourth quarter of $0.37. This compares to non GAAP 3rd quarter diluted EPS of $0.47. Take questions from callers. And our first question comes from Daniel Baum with Enriga USA. Can you talk a little bit out the technology cross license with Samsung. What drove, Samsung to want to pay you money for your life sense is, was there a specific technology that was the driver for the licensing, or was there a specific catalyst that was the driver for that? Yeah. It's a general pack Cross license funding is just recognition of the portfolio that Micron has. And, it's, as I said, it's in 8 K, it's a 10 year cross license. So, I mean, can you be a little bit more specific about you know, was there a specific driver, you know, why now, as opposed to some other time, you know, is there is there a specific technology that that drove that? Alright. No. There's not a specific technology. And I think if you're trying to determine if there's some kind of technology transfer that occurred in association with it. That that that did not occur either. You know, with respect to timing, I guess, you know, it takes 2 parties to go through a negotiation timing happens whenever it happens. Okay. Well, I guess really what I'm trying to get at is, you know, sort of obviously Samsung licenses from other folks as well and Samsung has tremendous amount of its own technology, and obviously, you're getting some technology from them as well. Really, I guess what I'm getting at is, you know, is there a specific roadmap item that you felt you needed from Samsung or that Samsung felt that they needed from you. And as we think about the transition, as we shrink you know, DRAM NAND down to the 2x nanometer nodes, are there technology transitions that you are thinking about that are critical to the manufacturer of any of your devices moving forward that requires some sort of change in to change in process? No. Other than, of course, what we do ourselves, to advance our own technology. This was a a general broad portfolio cross license in Micron, as you know, has a very, very strong portfolio. Okay. Thanks. I'll let myself there and let other people jump in. Okay, sure. Our next question comes from the line John Pitzer with Credit Suisse. Just one clarification. Historically, when you've kind of talked about current quarter AFP trends, you've talked about what pricing would do if it were flat from sort of today's level. I'm just kind of curious when you look at the fiscal first quarter you're giving for DRAM and NAND ASPs. Is that under the same sort of category or is that what you expect for the whole order? Same same category, same as we've done in the past. Okay. And then on the CapEx number, that a total CapEx number, including what may or may not be, contributed by joint venture partners, or is that the the micron cash out CapEx number. Yeah. That's a gross CapEx number. So, dollars that we received from the joint venture partners is or the CapEx that we would ex expand, I guess, on behalf of all of us in total joint venture partners. That's in that number. And then I guess, Steve, my last question. When you look at sort of the DRAM supply growth for the industry, clearly at calendar 3rd quarter, calendar 4th quarter, pretty significant sequential bit growth. And there's a lot of as to where DRAM prices might bottom. I'm kind of curious, how do you think your cash cost compares to the leaders in the industry some of the 2nd tier guys. And I guess the other issue is that the calendar fourth quarter seems to be a pretty heavy debt of repayment load for some of your competitors. And I'm kind of curious to how you think that might influence the decisions about running fabs down to cash cost or not? Yes. Well, first of all, you know, it's hard for us to know others exact cash costs. You guys are probably better at us than go through the analysis on that, although clearly we continue to look at our competitors and the same leaders in the industry. I mean, we really think that Micron's probably one of the top leaders in the industry. The thing that you have to keep in mind when you try to run through those calculations are that we our portfolio is really quite broad. In fact, the only sales there in Micron have the kind of portfolio we do. So when you talk about cash costs regarding what we what we call legacy products for specialty products. Those are those products are not driven by cost reductions. They're typically now driven by performance and features and reliability and delivery, etcetera. So you have to exclude those from the commerce because there's only only 2 of us that have those. With respect to, I think what you're getting at, which is the kind of the core high volume, DRAM that's going either into the PC space or in some applications in the mobile space. What is our cost on those products compared to others in the industry? And if you, if you look at the facilities that run those products for us, of course, they're, all 12 inch, and if look at the technology deployed, not what not what people are saying they're going to deploy, but what they actually are deploying then we think we're as good as anybody in the industry. And then, guys, I guess my last question maybe for Ron. Just help me understand. I know you're on an ongoing basis, talk about mnemonics as a separate entity, but relative to the inventory that you had to write up at the time of the acquisition, What's the first quarter where you think that fair value inventory will no longer be running through your P and L? John, it's a little it's a little hard to exactly predict the the timing. Some flow through obviously in the fourth quarter. There will be more of a flowing through in the in the first quarter and ongoing. I recognize it's a little challenge when we're switching gears to track where things are going, but, it'll, it'll certainly be affecting about the same level in Q1 and I expect the economics to be roughly the same in Q1 as you, as you'd see is we'll have trouble breaking it down into the legacy components that, that we've been reporting to this point. Guys. Our next question comes from Kate Kiplarski with Goldman Thanks so much for taking the question. I was hoping you could talk a little bit about the cost reduction road map in DRAMPA as the November quarter. You guys anticipating for the February quarter on the cost reduction side? We have a, you know, we got a pretty good roadmap ahead of us Kate, as as Steve alluded to in his comments, and Oterra has now, really turned to to ramping wafers back up and you'll start to see the full impact of that capacity, becoming much more cost effective for Micron in the fiscal quarter, so 2 quarters out. Cost reductions generally, probably mid to high single digits, for for DRAM moving into fiscal Q2. And you know, lots of runway ahead of that again. If you think in terms of of technology on the DRAM side, We are now, in the early stages of the 40 nanometer ramp occurring in, in Micron site in Singapore. That'll start to kick in. I also, in fiscal Q2 in a significant way moving to fiscal Q3. And, and we have obviously the ongoing transition of 50 nanometers in a trailer ramps. And, Mark, if I can add to that too, keep in mind Mark's comments about the DRAM cost per bit includes all, all DRAM. Yep. So there obviously will be more aggressive cost reductions on the core DRAM as Steve mentioned there. Alright. So but in total for February, you still think it would be something, you know, in the high single digits, not more than that? Yeah. And again, good placeholder. Okay. And then can I ask a question on, you know, the R and D spending? You know, it's quite a bit higher than what you guys expected. It sounds like you're keeping it at similar levels for next quarter. How should we think about R&D maybe going beyond November? Kate, first of all, I'll comment on the, what happened in the latest to quarter, we have sometimes the difficulty calling exactly where our pre call wafer timing will play through and which quarters it will hit especially if it's transitioning over quarters and we can accelerate or decelerate those plans as we flow through our prequel activities in our fabs. So, it was mainly just a timing effect that happened in our R and D and that with the one element of our R and D cost. It's a little hard to predict. But if you look forward from there, we now have the the R and D cost from the former uh-uh pneumonic activities as well as Micron and we're projecting roughly in the same range of 195 to 205 kind of range for R and D spending in the next quarter. And, that's sort of the range that we're seeing right now. It can be lumpy because of recall costs and how they flow through in a particular quarter. Okay. And then maybe one last question for me and, you know, recognizing this is a little bit far out, but if you think about your in the February quarter. You know what would the ASP environment and your bid growth have to look like for margins to be moving up from the November quarter in Amburary. Okay. And I think we're going to stay away from making any forecast on, as you know, revenues and or margin. Okay. Thank so much. That's it from me. Our next question comes from the line of Alex Gano with JMP Securities. Yes, thanks very much for taking my question. I was wondering if you could give some color. Steve, I believe you mentioned some of the strength the tablets may have seen in the past quarter and maybe Rob from consumer PCs. Do you feel with regard to your mix exposure to tablets and or smartphones that cover? I'll let Mark open in a second, Mark Adams, but I'll just make one observation because I think that, this a concern that's been actually voiced by a few, which is the stronger that the tablet piece, you know, the iPads, the tablet PCs are, that the more pressure of puts on DRAM because the less beds consumed in those compared to some of the more traditional notebooks or desktops. And and there there's I think there is some There is some truth to that, as I noted in my opening comments, although, you know, we're we're we also believe there's some incremental demand comes from that. But having said that, you know, what what's interesting is the the, more of those that are sold In fact, I I saw I heard a statistic yesterday when I was in Washington, DC from one of the other large, players, you know, in the desktop notebook PC space. And they commented that, that they're finding from the, data on the network, of, of the access of these systems, they if they actually own an iPhone and an iPad, that the there's a much greater preference to interact with the network on an iPad than there is in iPhone. And that's probably, you know, if they have both, for obvious reasons because of the quality of the display, etcetera. And the reason I bring that up is every time that that happens, it means that more data has to be moved and stored somewhere. And the more that that happens, the more servers, the more networking, you know, more infrastructure you need in order for that to happen. So, you know, oddly enough, the, the infrastructure business, and again, I'll let Mark comment more on that, I think, is is better, and actually pretty good, compared to what we're seeing happening in the PC business. And so there's a balancing act that happens there. And then on top of that, of course, it definitely drives the consumption of NAND. I don't mean there's anybody debating that that the more success that these that those have, drives more and more NAND consumption, because obviously, desktops and notebooks don't drive a whole lot yet until they start to a lot more assistive work. Just, one last comment is the exposure that we have in terms of customer opportunity both in mobile, and PCs. If you look at smartphones bypassing PCs in 2012, but still a pretty healthy PC market. We think that the NAND upside is very strong. And as Steve said, the impact on our infrastructure business, the server blade server market, enterprise market, networking market is very positive both for DRAM and potentially nAND around solid state. So, when we net it out, it's pretty exciting growth opportunity downstream. And, generally, you could to quantify what sort of server momentum you saw in the past quarter? Yeah. Where we talked about where Steve's come earlier on the, desktop notebook, was, we saw some softening demand. We didn't quite see in the server space. Server for us held pretty steady, both in terms of, units and overall ISP. Okay. Thanks very much. Our next question comes from Glenn Yang with Citi. Can you talk a little bit about your fiscal year FX and how you will sort of apportion that between your various lines of business? Yeah, this is Mark Glenn. It's, it's, 2 thirds NAND. A lot of it associated with the ramp of the new fab in Singapore and the rest distributed between the other fabs for technology upgrades. And maybe is there a part of that that's for this year that wasn't there last year? That makes the number look like it's going up a lot. That that's not driving any significant change in the number, but, yes, is a small amount of, technology upgrades with you with more. Okay, relatively small though. And then another question is just getting a sense of now that we're in an environment where DRAM is, ASPs are coming down and has somewhat helped rates. Are we seeing any change in the bit per box loadings, because of that? That's that's sort of point 1. And then the second thought here is If we look out into the February quarter and you make the point that you'll start to see more output from, you know, Tara point. And if we talk to some of your competitors, it sounds like that's around the time that some of those shrink activity ought to be hitting. It is a safe assumption that given seasonality, DRM prices ought to continue to be falling in the February quarter? I think, you know, with regard your question on, density. I think we, we, we start to, see some holiday configurations that are very favorable to DRAM increases. And, and mind you, if you look at the data over the last couple of quarters, it still has been, positive in terms of growth in the PC unit DRAM a megabyte per box. So, it might have slowed down mildly, but it wasn't so significant on the de specking argument over the last couple of quarters. And, and of late, we've seen, again, some, some, larger configurations for holiday placement. With respect to what happens with pricing in February, I don't think anybody really knows for sure. I would point out that, Nothing's been normal the last couple of years. Only thing the pricing environment. In fact, it it was, I think everybody was a little bit surprised by the strength of the price if you go back to last February. The December, January timeframe in particular, and then, you know, some strength moving into the back to school this season. Obviously, we're not seeing that. In fact, when I spoke, you know, if you remember in the summer, we, we met with, you know, we had a Analyst Day and I was in the Mark, and we weren't seeing any weakness at that time. I I admit I'm a little bit surprised by the weakness right now But, I'll also say that, you know, I think we experienced a covery, given all the damage that occurred in the industry. And right now, we are experiencing a demand we the environment and what and how sustainable that is, whether that plays out, you know, it's too hard for us to know, because, you know, clearly the economies played a role in that I will say that, if you look at most of the regions around the world, we tend to get caught up in the US. But if you look at most of the other regions around the world. You know, even in Europe, Germany's GDP looks pretty good. Their employment right now is back down to pre crisis level. UK seems to be doing okay. So there's some, some, something going on in Europe that's positive, but, you know, with respect to Asia, it's still pretty strong. And, and so I think that's adding some strength to, you know, to the overall market as well. But in aggregate, it's just too difficult to know what's going to happen in February and whether we do get some, you know, economic growth in the US to help bolster that or whether we don't. And, and, and I don't think that, I don't think that the, that the environment set that, you know, we it has to be it has to happen something has to happen on the demand side, you know, for for, for what I would consider to be a, you know, a strength in the pricing. I can't really comment on, you know, a lot of parts of our business are pretty good. It's hard to comment on whether or not, in aggregate, our business will weaken from where it's out of where it just kind of stays where it's at. You know, it's just too hard to predict, but but, you know, I guess, only time will tell. That's fair enough. Just last question is, when you think about your full year production numbers. Can you give us an estimate on what your bid forecast or your bid production growth you expect to see in DRAM and demand? Yeah. For the full year, I think a a good placeholder would be we expect to grow roughly with the market. So, you know, in the 50, 55% range on the DRAM side, maybe 70% to 80% on the hand side. Our next question comes from the line from Sean Webster with Macquarie. On the on the wafer, now that you've added, the mnemonics factories to your overall wafers, can you tell us what your wafer growth did sequentially? Be up a couple of percent, Sean. It was up in August a couple of percent? Yeah. Okay. What do you expect it to do in the November quarter? It's pretty similar, up just a couple of percent. Okay. And then, what are your mentioned your OEMs, the their targets were coming down in the back half of the year. Are they are they giving you any guidance as to what to expect for if demand sequentially for calendar Q4? Well, I'm assuming it's, I mean, you're asking around DRAM and its mid teens. Mid teens. Yeah. Would you characterize that as fairly normal? Probably, I mean, probably not, but at the stage point, there's kind of a, what's the new normal. We had a strong first half in demand and then coming out of the mid teens is probably less than we would have projected mid year, but, that's, that's where we see going into the season. Okay. And then on on the Samsung, royalties, do you have plans for how to account for that? Is that gonna just take your balance sheet or roll through your income statement now? Yeah. Well, it's going to come in in 3 payments essentially in the first quarter and the vast majority, it will be, will book to be directly on income in the this quarter. Okay. Would you recognize that as a revenue, or is this another income line item? Other income, probably. And then can you give us, your view on channel inventories right now for both DRAM and NAND? Yeah. Channel inventory on on DRAM is up about, up a little bit or in the 4 to 5 week time frame, time frame. Although, I wouldn't know that, that, that more generally categorized around DDR3. DDR2 is, and pretty, pretty good balance for us and and and both pricing and inventory have stayed relatively lean. On the NAND side, it's up slightly a little bit less than the DDR3 growth, let's say around 3 to 4 weeks Thank you very much. Our next question comes from the line of Ute Orgi from UBS. Thank you very much. Can I just ask you about what you're seeing for demand trends for some of your non commodity DRAM businesses? So things that go into mobile DRAM and sell networking. So, any comments as to what you saw in the quarter end in September 2nd and your outlook for another quarter for this, market space? Sure. So, specifically to the wireless mobile space it continues to be, pretty strong for us. Obviously, the Mnemonics acquisition in addition to our portfolio in our ability to serve that market. And, we continue to see strong demand around the smartphone market. And I think we were pretty well positioned there with higher density products our MCP lineup. If there's any, if there's any, story around less of the growth, it'd be even more on the low end of the mobile market. But even that, we're still seeing some pretty good, signs there. So mobile and in total is pretty strong for us. You know, some of the other markets we serve, I mentioned earlier that the, the server market remained pretty strong for us through, for our fourth quarter and quarterly to date, networking very similar. So I see, you know, all in all, the non commodity this has remained relatively strong for us. K. Let me speak to you a little bit on ask you about in terms of your, detailed business with, for Alexa, some of the comments have been essentially about weakness in retail for NAND products. So any comments you can make on your Alexa business, on the retail side? And as I look at your projection for price decline for NAND, next, in the in the end quarter. What should we think how should we think about your cost decline as you transition to what's the 24 permitted. Just get a sense of how the margins for that business will hold up. Thank you. Sure. Will come in retail, you know, there's a lot of, data out there, but you know, back to school seemed to happen just late and it wasn't that bad. Actually, there was a report out this morning from Reuters that, same store comps were up over analyst projections I think it was 2.8% growth on same store U. S. Retail comps. So in general, retail has been okay. And I would say that's about what we felt from, from the Lexar business in the, in the channel. The, overall trend going into holiday is relatively stable for us and Lexar had a pretty good 4th quarter. As a matter of fact, the year that we just finished was the best year we've had since the acquisition into Mike on. So, when you look at some of the, products around USB storage devices and, micro SD serving a growth oriented mobile market, it's, we're, we're more bullish on the retail space than, maybe, maybe someone looking at this, the raw desktop notebook market. And then just one last question, Can you just uh-uh comment on the target capacity for IMS and in terms of build outs and installation. And also are there any lead time issues on the side. That's my last question. Thank you. This is Mark. So we said a couple of times the full capacity of that site is roughly 100,000 years a month. We will probably get about 2 thirds of the way through that, in 2011, and we'll be monitoring market conditions, obviously, as we move through the year. But, that's sort of where we're heading to in terms of the next year. Relative to equipment, you know, obviously, the, steppers have been a, at least in different pockets. Stepers have been, subject to schedule slips. We're pretty comfortable right now with with our own deliveries and where those are going to fall relative to supporting the ramp and the technology migrations we have for them. Great. Thank you very much. Next question comes from Your line is open. Thank you. With respect to your licensing and royalty, revenue, as Imatera begins to ramp, should we think about that revenue line, developing? Do you have any classification as to what it was in the quarter? Tim, it's Ron. Yeah, the licensing revenue in the quarter was about 50,000,000 that hit the R and D line as I mentioned last quarter commentary, we've got some shifting from, revenue into R and D credits. So that's about the same as last quarter terms of the impact on the R and D line. And there were a few $1,000,000 still, flowing through the, the revenue line. So, that's the rough sizing of it. And, and, going forward, we will see the vast majority of the, credits coming through the R and D line as we flow through the year? How should we think about those as you go through the year? Do you think it can be fairly flattish from what you're outlining for the first would you have to grow the R and D? Yeah. We are not guiding out beyond the next quarter, but if you look our long term modeling, we've targeted roughly OpEx in the 15% kind of range. We're doing substantially better than that. And with the leverage model, we have an R and D with the credits were just talking about, I think we'll be dependent on the on the low side of that and roughly the same kind of range. Okay. With respect to NOR, could you give some guidance on how you perceive the environment there going forward in terms of bit growth on ISP? Should we think generally think about it as flattish on both accounts? How should we think about business? I think you categorize it correct. I think it's pretty flat, both on the on the ASP side and and growth. This is a general question for Steve. Obviously, as ASPs decline, you're seeing nonetheless quite strong cash flows. Given the cost structures that you see, and an expectation of a pretty mixed environment on the demand side. Do you believe that there's a fairly high level of confidence that you will be able to stay with an operating profit through the current cycle of softness. And, what are the key factors for us to watch over the next several quarters the ASPs decline seasonally? Thank you. Yeah. Obviously, we came share our internal forecast because we, we'll give financial guidance. But, our operating cash flow, we believe will still be pretty strong through the next 12 months, and we have modeled in declining ASPs. But having that, let me just point out again that less and less of our product is in the volatile commodity ASP arena. So you know, we're, we're less affected by that today than we were several years ago and then we were 10 years ago. So and we've proven, I think, in the last cycle, by the way, we were, again, we don't know Samsung's numbers because they don't break them out. But other than that, you look at the, in particular, the DRAM business, we were the only company that remained that positive operating cash flow through the entire goal on a quarterly basis. So, you know, we feel pretty good about that. I think that the number you or the category that probably the one to highlight is what is our operating cash flow and what is our free cash flow. You know, and I made the comment, in the summer that we're not to take all the cash that we generate and spend it all. So, as opposed to, you know, maybe historical circumstances us. So, we expect, again, we don't forecast, but, you know, we expect that, with the models we have that we will continue to look pretty strong on generating cash throughout the throughout the next fiscal year. Our next question comes from the line of Vijay Rakeshvath from AD. Just on going back to the memory side. It's only on the non flash, side, what what is this convenience for bit growth and ASP? We're going to I think we answered that a couple of times, didn't we? I'm gonna miss that study with that. But Would you like to try again? I'm I'm just wondering what the naught flash guide was for the for the next quarter, what the it goes in ASPs with. Well, we, again, we just said that think that they'll be relatively flat from where we are today. Okay. Got it. And on the DRAM side, you mentioned you know, it's coming down mid to high teens and, your constructions, mid to high single digit. On the construction Can you can you go over what the constructions were in house and in your area? Well, 1st of all, just to clarify, 5, when we talk about the ASPs coming down or or the cost reductions coming down, we're referencing our entire DRAM portfolio, which which incorporates legacy products and differentiated products that don't really have that much cost change over time because that's not the role that they play for us. And then when you reference the mid teens on the DRAM, you're then referencing or, or we were referencing this mainstream core volume DRAM that goes into a certain market segment. So you can't correlate those 2, just to, just to clarify. And then in terms of cost reductions moving forward, we, because of the some of the challenges that Innoveterra had historically, obviously, as Mark Durkin noted earlier, they get on a pretty good cost decline curve going forward from where they're at now. Having said that, we are also working on cost reductions and vertting to advanced technology internally, with respect to our DRAM. And I don't, I don't have a number to break them up between the 2. As to what contributes the greater to the cost reductions. But but keep in mind, there's a large percentage of our portfolio that isn't even the category. It's getting watered down in perched out, for the numbers that were shared earlier. Got it. Thanks. Next question comes from the line of David Wong with Wells Fargo. Some idea of the patent called bit Chip through the August quarter and what you're expecting going forward. Because if July was actually looking quite firm, that suggests a 12% sequential drop in unit shipment. August must have been particularly weak. And have you seen a rebound since then? Think Mark would, would would mention that we saw the back to school season happen later. Maybe you'd like to to go on with that, but we did, in essence, David, we missed part of that, what would be typical or normal demand for back to school in the August period. But, Mark, maybe you'd like to add more to that. Yeah. That's true. And I think, some of the timing of our output coming out of the fabs, allowed us to of that, from a production shipment out. So we couple those 2 later back to school and some of the time of our, our fab output that put us in a position to, to catch up and achieve what we achieved through the quarter. And at the end of August, Right. And then go going to your comment about the weeks of DRAM inventory in the channel being at 4 to 5 weeks. Now your shift were actually, a very low, again, given that big decline. So do you reckon that your competitors shift a fair amount more than into the channel? Yeah. You know, we do we did we did see that. And the other the other thing is that we monitor, you know, the end of the quarter activity. I mean, our customers, especially some of our channel customers are pretty good at predicting when our fiscal periods end and what we have in terms of quarter end deals. And so, given that we're heading into the holiday season, we weren't in a rush to liquidate inventory at depressed pricing relative to market pricing. So, the combination of those 2 facts, some additional inventory in the channel from our competitors and us holding back some inventory for for major customers, OEM customers for Christmas. Holiday purchases, we, we we follow. We're doing the prudent thing. Right. My final question. Yeah, I think, just a clarification on what I think you said in the past, your CapEx plan, that does not include any CapEx for in us here. Is that right? That's completely different from the CapEx. That's correct, Anthony. It's consolidated consolidated operations where we fully consolidate, we show all their CapEx. If we're an equity investor in Oterra, we do not show the CapEx and our CapEx numbers. Thanks very much. Our next question comes from the line of Bob Gujavarti from Deutsche to back. On clarification, you mentioned NAND bit growth for next year from of being maybe in line with industry at 70 to 75%. I I would intuitively think that you would outgrow the 3 given given the ramp of Singapore? Are there some puts and takes I'm missing? It's just we reference a 5th year number. And, as you know, we'll be ramping up the Singapore plant from the summer on. So, a lot of our bid growth for next year comes into the second half year, which is not is not included in our fiscal year guidance numbers for you. Okay. That that makes sense. And just a clarification on the DRAM it sounds like, just from your comments that enterprise in terms of servers and clients was reasonably steady, it in the calendar fourth quarter, is enterprise benefit from a budget flush, and do you anticipate your own big growth into kind of enterprise client and servers growing in kind of the calendar 4Q? Well, I think the, the demand appears to be consistent, which reference on whether it contributed to budget or just overall healthy demand. We're seeing very healthy demand and we're going to continue to supply, at the levels production output allows us to do. We have very strong demand from our customers as we see through the end of the calendar year. Thanks. And just one final real quick on that. I think earlier in the year, you were constrained on the server side, or are you constrained at all on products, for that market now? Or It's it's still something where we work at every day on to make sure we get as much of the product into the into the high end applications as possible. Our next question comes from the line of Bill Sezellem with Tieton Capital. Thank you. We have a couple questions. First of all, with the recent softening of demand, how does this qualitatively, if at all, impact your thoughts about CapEx in fiscal 'eleven, specifically for Micron. And do you have, any sense at at what impact it may be having on the industry's thoughts about CAP mix? Yeah. The, Bill, the range that we gave is pretty wide for a reason, because as Mark Durkin noted, we're going to keep our eye on it, pretty closely as we move through time. So we we obviously have the commitment to the initial piece of IMSF in Singapore, but but really on the margin, we can we can dial around that, in these other facilities and deploy more or deploy less or even deploy more. I'm the best we want, to take the capacity up high order keep our eye on the market conditions. I I will note that, I read yesterday morning, LPita's announcement to defer some of their in this environment. So, you know, I think that if you look at the strength of the balance sheet, you know, Micron and Samsung are are clearly the strongest in terms of cash and net cash after debt and debt payable in the next 12 months and so forth. And we have the luxury to, to, you know, I think add some or delete some on the margin and not have it really affect the balance of the the strength of the balance sheet I don't think that's true for several of the, for several of the other producers that they really will need to react, pretty quickly to, you know, any change in type of, you know, demand environment in order to keep their balance sheets even even by That's actually a good segue to, to the second question, which is industry consolidation. There's there's more chatter in the popular rationale about further consolidation. What insights do you have relative is to, microns stand on on the issue and, view of what may be taking place in the industry? Well, I I, 1st of all, it's hard to get consolidation in a in a rising positive environment. I said that many times before, and you'd be pressed to show me an example of that occurring, when the markets are good depending upon what segment it is. And so, you know, I think that the probability that occurring in a really strong environment was low. Clearly, we've had some weakening, for us, really only been in one of our categories, but nonetheless, it's the primary category for some of the other producers in the industry. And And I'll also note in the media, that, Sakimoto Son from LPIDA made a number of statements whether they're accurate or not, know because I don't know if he's quoted correctly by the press, but where he he commented that he was looking to buy into, you know, companies in Taiwan in order to try to, get more access to capacity or get more scale or something. It's a little hard to determine exactly what he's trying to do sometimes. But, regardless, you know, we're we're obviously in in the markets around the world and we'll continue to look at opportunities that arise. Again, I think if you look at our historical transactions, we we do them because they make us more cost effective because they give us up a much more efficient capital deployment model. And to the extent that those rise, we'll continue to look at them. But, you know, the environment right now isn't what the environment was 18 months ago, not even by a stretch. So just have to see how that unfolds, though. Thank you. Our next comes from Trenton Gera with Robert W. Baird. Could you give us a little bit more details on the 40 2 nanometer transition and potential mix, we can expect, at end of fiscal 'eleven? Sorry, I, we had a little trouble hearing you. I missed the second part of it, but relative to 42 nanometer, transition on DRAM, I can tell you that we, you know, we As we said, we, we, we ran more 42 nanometers than we originally anticipated, last quarter and we're anticipating a ramp that will begin the quarter we're currently in. In one of our manufacturing fabs, we already have output in an Oterra that was, impressive, I think. I think everyone was happy with the early results out of 42 nanometer in in Ontario. So, you know, that's that's really a, probably a fiscal Q2 and beyond story from Micron, it will play out throughout the fiscal year. Okay. And any estimate in terms of the mix it could be by endofthisfiscalyear? It kinda depends how we do at Innovara. That's a big piece of our total volume, but, you know, for the for the for the Micron facilities by the time we get to the end of the year, it'll actually be a mix of of 42. We'll have some 3 x in as well. And then, so that'll depend how that goes. But I'd say, for the Micron internal, it'll be, north of 50% And for Innoterra, it'll be in a similar range. Okay. And then, finally, if we assume a normal seasonal decline in pricing in cash over the next couple of quarters. Is that enough to, as an incentive for, smartphone OEMs, tablet OEMs to double alternative NAND Flash for next year, modeling production relative to what we're seeing in the second half. What do you feel that there is a need for a steeper decline curve in pricing for that to happen? Let me repeat that that for Mark. I think you had tough time understanding it. I think the question was based on do you need additional pricing pressure in order for the stronger markets to double memory content next year. Did I get did I summarize that, right? I think it was perfect. I think we're starting to see that happen already. And I think part of which is, given some of the seasonality, and I think part of which, those customers that, those customers that actually did do the de specking path didn't quite benefit from it on the on the sale into the channel of the customer. So I think we're going to start to see it sooner than than you might think, going into the holiday season. And how about for NAND? You know, NAND to me today, if you isolate, you know, the mobile and the SSD business, you've got a bunch of consumer applications driving NAND that I don't think it'll, it'll impact as much on the SSD front. Absolutely. I think, pricing will help increase density per box or per per drive. And on the, smartphone as well, I think, Roy, you'll see a number of, smartphones, with a number of different players coming out with density. Great. Thank you. And with that, we would like to thank everyone for participating on the call today. If you will please Bear with me, I need to repeat the Safe Harbor protection language. During the course of this call, we may have made forward looking statements regarding the company and the industry. These 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 10 K. Thank you for joining us. Thank you. This concludes today's MyCon Technologies Fourth Quarter And Fiscal Year End 20 and financial release conference call. You may now disconnect.