美光科技 (MU) 2002 Q3 法說會逐字稿

Good evening, ladies and gentlemen, and welcome to the Micron Technology third-quarter fiscal year 2002 conference call. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions and comments following the presentation.

I said now like to turn the floor over to your host, Kip Bedard. Sir, the floor is yours.

Thank you and I'd like to welcome to Micron Technology's third-quarter of fiscal year 2002 conference call. On the call today are Steve Appleton, chairman, CEO and president, Bill Stover, vice president of finance and chief financial officer, and Mike Sadler, vice president of worldwide sales.

This conference call, including audio and slides, is also available on Micron's home page on the internet at www.Micron.com.

If you have not had an opportunity to review the earnings press release, it is available on our website at www.Micron.com. Our call will be approximately 60 minutes in length. There will be a taped replay of this call available later this evening at 5:30 p.m. mountain daylight time. You can reach that by dialing 973-341-3080, with a confirmation code of pound 333-6286. This replay will run through Thursday, June 27th, 2002, at 5:30 p.m., mountain daylight time. The webcast replay is available through July 2nd, 2002.

We encourage you to monitor our website at www.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.

During the course of this call, 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 10-Q.

These documents contain and identify important factors that could cause the actual results for the company on a consolidated basis to differ materially from those contained in our projections or forward-looking statements.

These certain factors can be found on the company's website.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We are under no duty to update any of the forward-looking statements after the date of the presentation to conform these statements to actual results. And with that, I'd like to turn the call now over to Mr. Bill Stover.

Thanks, Kip. Let's run through the results for the quarter ended May 30th.

For our third quarter, sales totaled $771 million, and the company had a loss of 24 million, or 4 cents per share. For the immediately preceding quarter, sales totaled 646 million, and the company recorded a loss of $30 million, or 5 cents per share.

Our third fiscal quarter's results covering March, April and May were noticeably influenced by volatile market conditions. Late last calendar year, the semiconductor memory industry experienced higher than expected demand, falling inventories, and increasing selling prices. These conditions continued into late March of this year, when inventory levels bottomed and pricing peaked. Since early April, selling prices have fallen appreciably. For instance, the 256 Meg sync, which was selling for about $10 in late March, sold for approximately $5 in early June. With softening in demand for the last half of the quarter, we sold approximately 17% less total megabits of memory quarter over quarter.

The footnotes to the financials in the press release point out that the third quarter had a net realizable value inventory adjustment of $26 million. This inventory write-down is the result of the analysis required under generally accepted accounting principles. Therein, we evaluated the quantities of products in finished goods and work in process, the estimated period of sale and the estimated sales price in the expected period of sale.

Absent the $26 million write-down and absent the effects of prior inventory write-downs, cost of goods sold for the third quarter would have been higher by an estimated $55 million.

Our best estimate of the amount of net realizable value adjustments remaining in ending inventory at third quarter is $110 million. We expect about half of this remaining amount to work through the fourth quarter.

Our supply arrangement with tech Singapore had a significant positive effect on the gross margin in the third quarter. With significant pricing declines occurring since March, it is likely that the gross margin on tech purchases in the fourth quarter will closely approximate the margin on wholly-owned products.

Micron Technology remains very well positioned with cash and liquid investment balances approximating $1.25 billion. And additionally, the company has approximately 150 million in liquid investments with stated maturities exceeding one year, which are reported as other long-term assets.

I'll turn the presentation over to Mike.

Thanks, Bill. As expected, demand for memory from the computer industry softened midway through our fiscal Q3, although Micron and our customers were somewhat surprised at the extent to which demand dropped.

As a result, the average selling prices for Micron's D Ram product offering declined by about 50% from their recent peak in the month of March.

I believe that this softening and associated price pressure can be attributed principally to two factors: Seasonal weakness in computer demand and relative leveling of memory content per system.

Historical data suggests that the demand seasonality issue will result in an uptick in PC unit demand to occur in the second half of the calendar year. This has typically resulted in a 17% sequential increase in PC unit growth with rallying points around the back-to-school and Christmas selling seasons. I've yet to see strong evidence of a re-acceleration of corporate IT spending to supplement this seasonality. Any such jump in corporate purchases would undoubtedly result in a more robust demand environment.

There is no question that our customers became concerned with rising memory prices during this spring and backed off with respect to continuing to ramp memory content per per system. The price declines that have taken hold in the past two to three months are easing the concerns and uncertainties about memory supply and pricing. As a result, we are observing a re-acceleration of memory content growth and re-emphasis on memory as a selling feature by many of our customers. When corporate spending does bounce back, I expect a boost in memory content for corporate desktops, which are lagging substantially behind consumer platforms at the present time.

I'd like to briefly address two significant transitions that are underway this year. First, the chip density move from 128 megabits to 256 megabits as the primary vehicle for mega bit production. Micron is now producing more megabits on 256 meg versus 128 meg and before the end of the calendar year, we will be producing more actual 256 mega bit units than 128 meg units, and will have started mass production of a 512 meg DRAM as well. While doing this, we are maintaining stable supply of the lower-density legacy memory devices that many of our customers in the networking, communications, and consumer space continue to utilize.

The second significant transition is the shift from synchronous DRAM to double data rate sychronous DRAM as the primary memory interface for the PC entry. This transition is occurring about as we expected and is seamless from both Micron's and our customers' point of view.

Outside of the computer area, while we are not seeing the explosive expansion of a couple of years ago, we did experience solid sequential growth of our business in the wireless communications and data networking segments in the quarter. In the networking space in particular, our shipment and revenue performance in fiscal Q3 was the best we have seen in over a year. Our broad memory product offering, which is becoming richer as we move forward with the addition of TCAMs, reduced latence DRAMs, and a variety of other devices puts us in an excellent position to capitalize on the growth and performance demands in the netcom area as communications infrastructure build-out continues. We continue to enhance our low-cost model through advanced technology deployment and timely asset acquisition. This has and will continue to enable Micron to thrive in a fiercely competitive environment.

Now we are leveraging that model to further cost-reduce standard memory products and also bring more innovative products to the market that are poised for strong growth.

Thank you very much, and with that, I'll turn it back to Kip.

Thanks, Mike. What we'd like to do now is take questions from callers. Just a reminder, if you're using a speakerphone, please pick up the handset when asks questions, so that we can hear you clearly.

Thank you, sir. Ladies and gentlemen, the floor is now open for questions and comments. If you do have a question or comment, please press the numbers 1 followed by 4 on your keypad. If your question has already been asked and you would like to remove yourself from the queue, please press the pound key.

Our first question comes from Eric Ross. Please announce your affiliation and proceed with your question, sir.

Yes. Investech. Maybe if I could get a little more detail on what's going on with the server products, particularly the 512 and one gig products, what demand you perceive from some of your customers over the next couple of months.

You know, Eric, it's Mike speaking. I - at my fingertips, I don't have a handle on specifically what demand is for high-density 512 or 1 gig products, but nothing - nothing extraordinary either negative or positive, as far as I can see.

Okay. Thank you.

Once again, ladies and gentlemen, if you do have a question or a comment, please press the numbers 1, followed by 4 on your keypad.

Our next question comes from Adam Parker. Please announce your affiliation and proceed with your question, sir.

Sanford Bernstein.

In your 10-Ks in the past, you've broken out the percent of refuse view from the JV. Is that something you guys can do now? And also, Bill, you stated that the JV was a positive influence on the overall results in the quarter. You know, what is your comment imply about pricing in Q4. I mean could the JV still be negative in the quarter?

We have indicated in the 10-Q, in the previously filed 10-Q that the tech semiconductor joint venture was a little more than 20% of our product.

Right.

And we have also indicated that the relationship with that joint venture has a lagging quarter pricing relationship. So you can understand from the recent price decline that there will be an impact in the fourth quarter as the purchase of product from the joint venture in the fourth quarter will be at higher pricing than existed a number of months ago. Beyond that, I think you'll just have to look to the pricing relationship to do some modeling on your own.

Okay. I thought that you had said that you expected it to be closer to neutral this quarter and that it was a positive in Q3.

In Q3, it definitely was a positive, as the lagging quarter effect was working off of pricing which was considerably lower late last year.

Okay. Right. All right. Maybe switching gears, another question. I mean, sort of at a higher level, what do you guys at this point think your competitive advantages are in the DRAM business and sort of excluding any acquisitions, how can you roll market share here in the next couple of quarters?

Well, I think our objective is to utilize the capacity that we have as most efficiently as possible. Obviously we have the dominion site that we're going to go through a conversion. Clearly, we think we're still a low-cost producer as a result of our process efficiency, and obviously we - we have a lot of operations around the world to spread out our R and D costs.

So we think we're in pretty good shape.

Okay. That's great. Thanks a lot.

Thank you, Mr. Parker.

Our next question of the evening comes from Joe OSHA. Please enclose your affiliation and proceed with your question, sir.

Yeah. Hi, guys. Merrill Lynch. A couple quickies. First, it seems like the timetable in terms of the sell-through of written-down inventory has shifted a little bit. Can y'all give me some sense as to why, you know, more of that appears to be occurring in the future than in the present?

Secondly, you know, obviously inventory was up. Can you give us some sense, you know, late in the quarter we did start to see a little bit of reversal in spot prices. Have you seen that inventory number begin to move the other direction at all?

And then third and finally, can you give us some sense, to the extent you can, wafers, you know, dye, whatever, into how much additional output the Toshiba facility is going to add to your company? Thanks.

To the first part of your question, Joe, at the second-quarter conference call, we had indicated that we expected about 50% of the then-remaining inventory write-down effect to pass to the third quarter. We're repeating that guidance, actually, now, at the third quarter. It does - or it would theoretically vary by way of product mix. As we looked at it today, as we looked at it through the third quarter close, it still looks about 50% of the remaining $110 million will pass through Q4.

On the inventory piece, Joe - this is Mike speaking - yeah, our inventory did go up throughout the quarter. Since the end of the quarter - actually, in the last couple weeks of the quarter, it basically remained flat-ish and since the end of the quarter or since we're three-and-a-half weeks into the new quarter, it's come down slightly. That has coincided with what I would perceive as a general uptick in demand, both from the OEM side as well as the spot side. On the spot side, it's resulted in a - in a price pickup of in the range of 20 to 30% in the spot market off the lows of three, four weeks ago.

And Joe, this is Kip. I'll follow up on the wafer outs. Relative to the Manassas facility, we're looking at between 3500 and 4,000 outs a week.

And that's what it's doing now or that's what it's capable of?

Yeah, we're on the lower end of that today. It's actually capable of significantly higher. On prior calls, we've talked upwards in the neighborhood of 16 to 20,000.

Per - okay. Per week?

In terms of based on the square footage that's available there.

Okay. But it's facilitized to produce less than that now, right.

That's right. It would have to be - obviously, we would have to facilitize it for the entire capacity to be utilized there, and in all likelihood, in the time frame, it would be 300 millimeter.

Okay. So 300-mil could go into that fab?

Yes, definitely.

Okay. Thank you very much.

You bet, Joe.

Thank you, Mr. OSHA. Our next question of the evening comes from John cross. Please announce your affiliation and proceed with your question, sir.

Morgan Stanley. Thanks.

Could you address or maybe talk about, if you could, kind of the impact of the DOJ antitrust investigation and the other things on the industry, just big-picture, kind of time line, and in your opinion, does that quell any potential consolidation and just kind of looking big-picture where the industry is now, given the demand/supply situation?

Well, obviously we're - this just occurred, so we don't really have anything new to say beyond the press release would you like to ask another question, John?

Sure. Could you talk a little bit more focused on the inventory side kind of the inventory, is that - is inventories at OEMs lean in the channel? Could you give a sense of kind of where you think overall inventory is, at your customers and out in the channel?

Sure. John, I'll address that.

On the channel side - actually I won't address the channel side. You'd have to ask our customers that. I have no idea what they may or may not have in the channels. With respect to what they have in our - the hubs that we operate at the customer sites, very little. We obviously manage that inventory and it's at negligible levels right now. My perception would be that the amount of raw DRAM inventory they might be sitting on is negligible, if not zero. The amount of inventory that we have on our shelves is certainly up from where it was a quarter ago but it's not particularly concerning to me. It's significantly lower than it was this time last year. So not - not too concerned about it.

Okay. Maybe finally, capex, just an update on spending for this fiscal year and outlook for next?

Yeah. For fiscal year '02, it will run between 900 million and a billion. That really will fluctuate a little bit just by timing of equipment deliveries here late in the fiscal year.

For fiscal year '03, it could run at the billion dollar levels, you know, pretty consistent with fiscal year '02, or it could run as high as 1.5 billion, depending upon just how market conditions shape up late this year.

So that would suggest that there's quite a bit of spending remaining to be done in the fiscal year, given the three quarters to date?

Yes. The - there's about 400 million which we are anticipating coming through Q4, and as I mentioned, some of that could slide into the first part of next year.

Okay. All right. Thanks very muchsome.

Thanks, Joe.

Our next question comes from John Joseph. Please announce your affiliation and proceed with your question.

Yes. Salomon Smith Barney. Mike, just wanted to flesh out a little bit your outlook on customer demand. Have you begun to see any back-to-school pickup yet or when would you expect to see that? And are you expecting, you know, a sort of a - the normal seasonal second half that you're talking about, or do you think it's going to be less than normal?

Well, John, I've seen - if I just take what our customers tell us, I think I could probably generally categorize that as typical seasonal increase in demand in the second half. If we look at the recent take rates or the recent buy rates from our major customers, certainly over the past four-week period, they're up significantly over the previous four-week period. You know, in the range of greater than 30% higher in terms of megabit consumption in the last four weeks versus the preceding four weeks, so those are positive signs from my viewpoint.

I'm not sure if that - that addressed your question.

Yeah. Are you beginning to see - is this just a little inventory bounce or is this the beginning of a - of a trend or is it just really too early to know?

You know, it's too early to tell. I think - I think I could almost, with certainty, say that some of this increase in demand is due to a re-acceleration of memory content per box. As far as whether this is an early buildup of systems for back-to-school selling season, I really couldn't say. I think you'd probably be better off asking our customers that question.

Okay. A quick follow-up. The recent uptick in spot market pricing, is that partly because your sales were down? There's some talk about (inaudible) having some manufacturing problems. Do you think there was just less product on the market so prices have ticked up a little bit or do you think maybe demand pull or maybe some of both.

I can only speak from our standpoint, and we've had enough inventory to feed into the spot market while prices have been going up, so I don't think there have been a lot of orders in the spot market that we weren't able to fill. So I - the only thing I contribute it to is demand.

Okay. Thanks.

Thank you, sir. Our next question comes from Bill (inaudible). Please announce your affiliation and proceed with your question, sir.

Advisors. And I was curious. Relative to dominion, what was the effect in the third quarter - in the third quarter, specifically, and in the Q, you folks identified the fact that basically that is a cost structure equivalent to the current Micron cost structure, and going back to the analysts' meeting, that sounds a little bit different. Can you give us some perspective there?

And then separately, megabit sales or demand, how would you - what's the percentage change versus the fiscal Q3 of '01, so the year-ago level? You talked about a 17% sequential decline, looking for year-over-year change also, please.

On the Manassas operation, or the dominion facility, until we have our process technology and ramp the facility to a noticeably higher volume, we aren't going to get the benefit of the, if you will, fairly cheap purchase price. So I think we indicated at - early in the year, at the analysts' conference that ultimately we would expect to enjoy a noticeable benefit by way of the reduced purchase price, but that really will not be enjoyed until we can get the process technology and the ramp completed.

Bill, on the second part of your question, I don't have those numbers at my fingertips but I'm happy to follow up with you after the call.

Our next question comes from David Wu. Please announce your affiliation and proceed with your question, David.

Yes, Wedbush Morgan securities. Gentlemen, what was the production - I know what the shipments were. What were the production ramp in the third quarter and what are your plans for Q4?

David, we were up about - approximately 30% sequential bit growth production and we're looking at about high teens for our fiscal Q4 over fiscal Q3.

Do you expect inventory to be down?

I can't make any prediction on what direction inventories are going to go. Obviously that's going to depend on what we see in terms of back to school and box loading.

Okay. Thanks.

Thank you, Mr. Wu.

Our next question comes from Dan Niles. Please enclose your affiliation and proceed with your question.

Lehman Brothers. Steve, maybe this is for you, you know, when - as you look at how pricing sort of gets set in the DRAM industry, you know, now with less players relative to, you know, how it was sort of getting set four or five years ago when there were more players, it doesn't seem as though there's a whole lot more stability right now or that it's, you know, getting set in any particularly different way than it was four or five years ago, in terms of supply and demand really driving the pricing levels as opposed to something else that's happening out there.

I mean, what's your kind of take on where pricing is and, you know, how that's moving around and fluctuating?

Well, there's still a lot of players in the industry, so supply and demand, as far as we can tell, still dictates what happens in the marketplace.

Okay. And then how much effect do you think things like the natural consolidation you're seeing in the industry - obviously, you know, you've gone ahead and bought the Manassas facility and obviously there's talks about what Heinicks will or will not be able to going forward. You know, sort of how do you see that having influenced pricing over the last, you know, quarter or two and, you know, what kind of impact, if any, do you sees that kind of as we go through the rest of this year, given some of the public statements made by the Koreans in terms of their plans to, you know, do something with Heinicks or not.

Well, I don't have any input on historical impact and maybe this is an opportunity just to give you a quick update on Heinicks. We don't have any ongoing discussions with them right now and I think it's obvious that Heinicks has their own set of challenges to go through before they ultimately decide what happens with that company between the creditors. The shareholders of the company and so forth. So we are somewhat just in a neutral position right now with no engagement.

Okay. And then maybe Mike, this is for you. Two things that seem to be happening. It seems as though DDR demand has picked up pretty rapidly, and could you now talk about, you know, the inventory of DDR that you actually have available, you know, relative to the SDRAM stuff and the trends you're seeing there, because it seems, at least from my vantage point, that DDR production, from a global basis, is maybe not been ramped as hard as need be, given some of the demand that we're seeing out there from the PC vendors.

And the second thing is, in terms of commercial PC memory per box, it's about 177, I think, with consumer around 275, and that's a pretty big difference between the two. Can you kind of talk about, you know, why you think it's so wide right now, and then where you think that gap might be by the end of this year or early next year?

Okay. On the - the first question, I probably would have answered it differently, had you asked me a month ago. I think we - I can't speak for our competitors but I think we were ahead of the curve in terms of ramping our DDR production more rapidly than the market was willing to take or was able to take, and that's changed quite a bit in the last 30 days, Dan. As you - as you mentioned, DDR demand has picked up quite a bit. I would presume that's tied to the chip set support of DDR that happens to be available in the market for some high-performance P4 systems, and our inventory levels, I don't have the - the numbers - specific numbers at my fingertips but they have come down, specifically oDDR in the past - in the past 30 days or so, and I think we're - we're poised for a pretty - pretty steep ramp here of DDR penetration through the second half of the year.

So generally, about as we have been depicting, although we did get ahead of the curve a little bit on DDR production in the spring time. At least ahead of what the market was able to digest. But I don't think that's the case at this point anymore.

On the consumer versus commercial PC, you're correct. There is a very significant disparity with respect to - at least according to the third-party sources that monitor this memory content per system.

I think it's on the order of a hundred and seventy, a hundred and eighty megabits for a commercial desktop versus 270 for a consumer PC. I think the principal reason for the disparity is due to the high attach rate of Windows XP for the consumer platforms. If I'm not mistaken, it's very close to a hundred percent. And most of those systems are either demanding or being loaded with 256 megabytes of memory. At least 256 megabytes of memory.

I would attribute the lag on commercial desktop - which, by the way, is relatively unprecedented. This has not been the case, with the exception of the last year. I would attribute it to lackluster demand for - on the commercial side, hesitance of corporations to do spending for IT equipment, and as a result, very low penetration rates of Windows XP in the commercial space.

If we - I would presume, based on my own knowledge as well as what customers are telling us, that when we do see an uptick in spending for IT equipment from corporations, an increase in memory content per box will accompany that. But we've yet to see it to date.

I guess is there any reason in the future where - why those two numbers - and maybe it's not six months, maybe it's more like 12 months. That when you get that upgrade cycle on the commercial side, that the commercial box loading numbers won't get close to the consumer stuff? Obviously, you've got things like graphics Ram and stuff that's higher on the consumer side but -

That's correct. Typically a consumer PC will have a higher content of graphics memory but if you look at historical data, which we obviously track pretty closely, typically the commercial PC is a leading indicator or actually higher memory content per system than the consumer PC, and I am not aware of any reason that those two won't be closely aligned here, once the market normalizes somewhat.

Great. Well, thank you very much.

Sure.

Our next question comes from Charles Boshear. Please announce your affiliation and proceed with your question, sir.

It's Bear Stearns, and just a couple of follow-up questions to earlier ones.

First, could you roughly break out what your percentage of DDR wafer starts are today, and just was wondering if you could provide a little color on how the quarter developed. With a 17% decline in bits shipped, was that something that was fairly weak throughout the quarter or did things take more of a sharp downturn in the last month or so?

Charles, I'll take the first part of that. This is Kip. We're running today approximately 30 to 35% of our wafer outside on DDR. The sales guys have - have that increasing to around 40% in our fiscal Q4 and then over 50% as we get into the fall time frame.

On the - the uniformity of the demand, if you will, throughout the quarter, we saw things start to deteriorate or start to soften in the first month of the quarter. If I'm not mistaken, our - probably our weakest shipment month in terms of megabits, was the middle month of the quarter, but we saw things start to weaken pretty quickly in the quarter and the prices actually started to degrade towards the end of the first month.

Okay. And you - you have seen a pickup in the last 30 days in terms of bit shipments and prices and inventories have started to - the needle is starting to move back the other way a little bit is what it sounds like. Is that correct?

We absolutely have. We're three-and-a-half weeks into a new quarter, and the - you know, whatever metric you choose, whether it's the average selling price or the megabit shipments or the DDR take rate, things have definitely improved in the last three-and-a-half weeks.

And when - last question is: When do you expect to see your first increase in output from the Manassas facility?

Right now, the - the manufacturing plan is to keep it in that 3500 to 4,000 wafer outs. We get it transitioned over to our technology sometime towards the end of the year and after that, the market will kind of determine, Charles, how we ramp.

Okay. Great. Thanks very much.

You bet.

Our next question comes from Hans Mosesmon. Please announce your affiliation and proceed with your question, sir.

Yes. Prudential. A question regarding the mix of your DRAMs by technology node. Thanks.

Sure. Do you have anything specific or do you want me to just to run through them real quickly?

Yeah. .13, .15, what percentage of your wafer outs -

Sure, sure. In Q3, question ran about 30% of our output at .18. We're over 60% at .15. And we're high single digits on the .13. And that's starting to move up pretty rapidly here in the next couple of quarters. We're still on target to have the sites worldwide converted to our .13 technology sometime early next year. Calendar year.

That's it. Thanks a lot.

You bet, Hans.

Our next question comes from Nema (inaudible). Please announce your affiliation and proceed with your question.

Mr. (inaudible), your line is live.

Our next question comes from Dan Scovel. Please announce your affiliation and proceed with your question, sir

Yes. Needham and Company.

Can you comment on your mix of spot market business and - and the prices as they sort of unfolded throughout the quarter and where they're at now?

Yes. Today - let me answer the last part first. Today they're in the range of around 2, 250 from one megabit equivalent and that would be the same for DDR or SDRAM and throughout the quarter, they went down. I think probably in the quarter that we're talking about, the lowest price is probably the price on the last day, if I'm not mistaken, and our mix of business was - we put approximately 15 to 20% of our material in the spot market in the quarter.

Is - has that going - is that trending upward now or is that staying pretty steady.

You mean since the end of the quarter?

Yes.

It - I don't have that data at my fingertips.

You earlier mentioned 300-mil. What is your current plans of looking at the 300-mil conversion?

I pretty much on track with what we had announced before. You've probably seen some orders being released for 300-millimeter. Those are headed into the Virginia facility. We expect those to land there sometime this fall, and then again, a lot of that is how we ramp the 300-millimeter just depends on market conditions and the cost competitiveness of 300-millimeter versus 200.

Okay.

And our next question comes as a follow-up from Joe OSHA. Your line is life, sir.

Okay. Thanks. Just to go back to the - the inventory situation a little bit, do you - are you able to form a sense, you know, maybe not looking at distributors, per se, but whether there was an inventory build earlier in your quarter at - you know, at your customers that attenuated as the quarter progressed, or do you have any sense that have at all?

I think - again, this would just be my opinion I've formed through looking at a variety of data, Joe.

I believe that some of our customers probably built some inventory in the first month of our fiscal quarter, which would have been March, because they had concerns about price movement as well as concerns about just strictly supply through the second quarter, and I think they were somewhat surprised by some weakness in demand for systems, and as a result, they bled off inventory throughout our quarter. My perception would be that they don't have inventory today.

Okay. And then also, I - you may have commented on this. I'm sorry if you missed it. Or if I missed it. Are you still seeing 256 meg versus 128 meg premium in per bit terms, and if you are, what's driving that?

They are today selling at virtual bit - price per bit parity.

Okay. There had been some speculation that there was unusual weakness in the notebook market. Does the 128 versus 256 pricing give you any insight into that, or do you have anything - any observation to offer there?

With respect to your comment, it's a little surprised. You know, if there were one particular item that were - I would characterize it being in very high demand, it would be the particular configuration of a 256 megabit DRAM that's used for a notebook module. The 16 megabit by 16 DRAM. But, no, I - no comment other than that.

Okay. Thanks a lot.

Thank you, Mr. OSHA. Our next question of the evening comes from ma nearby guy yeah. Employee's announce your affiliation and employee with your question, sir.

Yeah. (inaudible). Could you please talk about what was the sequential bit production growth during the quarter?

Yeah, ma nearby, this is Kip. Yeah, we were up approximately 30% in our fiscal Q3 over Q2 for production.

And could you talk about the cost per bit or just the cost of a part, where you are for 256 meg part?

We don't want to give out any specifics on that, as we know that most of our competitors are probably listening to us, but I can tell you that based on where we are in terms of wafer outs per week and where we are in terms of beginning the transition to .13, our costs are roughly equal to where we were a couple of quarters ago. And as I mentioned earlier, we have some pretty - some pretty big moves going to .13 here and with the Manassas facility on and we'll have three months of that, then we should be able to have a couple quarters here of reducing cost per bit.

So on an average, did your cost for a 128 meg part or 256 meg part decline sequentially?

Well we're not going again answer any specific questions on that.

I see. Now, if - once you include the Toshiba factory in your next quarter, do you think the cost of part on an average will decline? Despite the benefit in Boise, do you think the Toshiba facttory alone will carry higher cost. Do you think on a what of average will it be a wash or do you think on an average your costs will improve.

I just don't want to goes into making any predictions really at this time, Maneesh. Sorry.

Thank you.

Our next question comes from Ty Nguyen. Please announce your proceeds and proceed with your question.

Yeah, Robertson Stevens. I have a question. Do you see any pickup in demand in the wireless -

We're having a tough time hearing you. If you wouldn't mind speaking up for us.

Sorry about that. Yeah. Do you see any demand improvement in the wireless in the handset for your SRAM in the flash business?

We have seen some steady improvement in the wireless business. Nothing to get too excited about, but demand has gotten better from our perspective, at any rate. In the past couple of quarters.

And what percentage of your wafer out or your megabit sell contributed to flash and SRAM?

It's in the single digits. 5%. Slightly less than that, possibly.

Okay. And one last question. What is your capex for this quarter?

The capex? We're sorry. We didn't quite catch that.

For this quarter. What was your number for capex.

Oh, for Q3.

For Q3, question.

I think it was just over 200 million in Q3 and as we indicated, it could run 400 million in Q4.

In Q4. Okay. Great. All right. Thank you.

Our next question comes from Don Moriarity. Please announce your affiliation and proceed with your question, sir.

My question has been answered, thank you.

Thanks, do not, next question please.

Our next question comes from Ben Lynch. Please notify your affiliation and proceed with your question.

Yeah. Ben Lynch with Deutsche Banc. I just wanted to go back to another question. Could I confirm that there was no contribution at all from dominion in these results?

In terms of contribution, you mean -

In terms of sales or inventory change or pro - yeah, anything in the reported accounts.

We picked up the results of consolidation for dominion for - I'll have to double-check. I can't think whether it's nine weeks. I'll have to double-check the number of weeks in this quarter. But, yes, the Manassas operation is part of the results. Kip had indicated earlier that it has run 3500 to 4,000 wafer outs for the number of weeks, and (inaudible).

So the 30% Q on Q production growth includes nine weeks of dominion and the - I think the 19% change - sorry if I don't - I don't worry about the number, but the change in your bits shipped also includes contribution from dominion and the change in inventories also includes contribution from dominion. Could you sort of give us a feel for on each one of these how much - the first one you've done. On the other two, how much is coming from dominion, please.

I'll double-check the number of weeks of dominion output that's in this quarter and we'll clarify that before the end of the call.

And your second question was that - the amount of increased inventory?

Yes. Please.

We'll come back for those.

Yeah. One way to look at that, if you'd like is we're - as an entire manufacturing organization, we're running mid-to upper 40,000 wafer outs a week, and so if you put that in reference to the 3500 to the 4,000, that will get you pretty close.

Okay. Great. So, yeah, that was the first question.

Also, you didn't know for sure how the contracts (inaudible) mix had been in the first part of this quarter. Given that coming out of the last quarter, you were basically selling nothing on the spot market and this was sort of explaining why there was this big delta between spot prices and contract prices, what would be your expectations for the current quarter? Is the spot percentage likely to increase further or do you think it's sort of settled in the sort of 15, 20% range?

I think that's going to be a function of demand. You know, now that spot prices are either at parity or higher than OEM prices, certainly our OEM customers are not compelled to dabble in the spot market, so that may have a dampening effect on demand in the spot market. But, you know, it's - I've given up trying to predict what's going to happen in the spot market here in the short-term.

Okay. Yeah, I wasn't necessarily trying to predict what happens with spot prices. More just is the looseness - is the market loosening to an extent that, you know, there is going to be more stuff flowing through spot rather than contract pricing, but . . . No view, no view.

I think that's difficult to predict right now.

Okay. Also the question which was posed on the Department of Justice and you not really having anything new to say, if I tried a more specific question, could we give that a shot?

You can always ask.

I'll try anyway. Could you at least identify the sort of period that they're investigating? Is it the period during which prices fell precipitously or is it the period during which prices rose surprisingly?

Yeah. Unfortunately we won't be able to answer that question either. Sorry about that.

Okay. And the last question I have is, the one to one point five billion capex number, is the delta there likely to be 300-mil investment or 200-mil.

It's probably more market condition-based. We will continue to go through an analysis of the cost competitiveness of both of those, but throughout the year, it's really probably more market based.

Yeah. One moment that is, I think, relevant to that question is that in a very short period of time, all of the 200-millimeter equipment that you buy will be 300-millimeter capable as well, either with a chamber change or something to that effect. So as we go through time over the next 12 months, obviously we have some specific 300-millimeter equipment we're buying, but in general, you should be able to - you should expect that the 200-millimeter equipment will be very similar or the same as 300-millimeter equipment and it can run either one, depending on what conversion you want to do.

Okay. Great. Okay. Kip, I'll probably just check become with you at a later stage on this dominion, just clarifying compe the contribution from dominion.

We can update - had I made a reference to the nine weeks. I was off a month there. It's five - excuse me. It's a little more than five weeks of production or output from dominion that's included in these consolidated results.

With regard to increase in inventory, work in process and finished goods, it's only a few percentage points effect of dominion.

Great. Thank you very much.

Thank you. Our next question comes from Doug Lee. Please announce your affiliation and proceed with your question.

Hi. Banc of America Securities. Kip, I was wondering if you can give a rundown of what the current wafer start is by product density and then a quick follow-up for Mike.

Well, I can give you a little bit by - by product density, we're well over 50% of our wafer outs now are 256 meg. The 64 meg is more maintenance mode and it's been hanging right around kind of the 8% range.

We have now some starts on the 512 and then the balance would primarily be 128 meg.

Okay. Terrific. And then Mike, you mentioned - you made some comment that spot prices are at or above OEM prices. Is that - did I hear that right?

That is correct.

Okay. Any chance you guys can give us a - maybe just a range of where contracts are being signed at right now?

In the - on the 128 meg equivalent basis in the 2 to 250 range.

Okay. Terrific. Thank you very much.

Thanks, Doug.

Thank you, Mr. Lee. Our next question of the evening comes from Scott Randall. Please notify your affiliation and proceed with your question, sir.

Yeah. Hi. Thanks. Soundview. Bill, I wonder if I can circle back to the cost line. I want to reconcile a little bit the comment relative to kind of the $55 million that you sort of add back - simple math here - simplified math, rather, does that get me roughly to a - you know, kind of a steady state cost in sort of looking at manufacturing margin, maybe.

Well, the intent of our disclosure there is to indeed allow you to take out the effect of NRV adjustments from this and all prior periods, so the 55 million-ish would be what you would add back to however you were otherwise modeling, if that was your question.

Correct. And that's a pretty close approximation at this point?

That is our best calculation of the effect in Q3, correct.

Okay. Thanks. Then secondly, wondering, as you folks look at the market and I'm not sure this might be for Mike or - or Kip maybe, but relative to the market share that you think you had during the quarter, would you suggest that you - you gained market share, held market share? Any really noticeable change there expected that you had?

Scott, you know, we haven't seen any of the independent tracking data yet, so we - we don't know yet at this point.

Okay. I mean, anecdotally, talking to customers, is there any reason to believe that you - you could have lost share in any, you know, given density or segment or just too tough to say?

No.

Okay. And then finally, I know you normally don't break out inventory by - by segmentation, but I know in the press release, it talks about a significant increase in finished goods. Any chance I could get those numbers before you, ahead of the 10-Q.

We won't be able to provide a detailed breakout of that growth, no.

Is it safe to say that the majority of the dollar increase was in - was in finished?

I'm sorry, I couldn't hear the last part of the question.

Yeah. Just wondering if it's safe to say that the majority of the dollar increase was in finished goods.

Actually, that would not be a good assumption, Scott. If you remember, we ran, on average - if you just look at (inaudible) itself, you were running high 30,000 wafer outs a week and as we indicated we're now mid-to upper 40,000, so that's a big part of your delta in dollars as well.

Got it. Okay. Great. Thank you.

Our press release comment was with regard to fin significant increase in finished good.

And Mike has given some characterization of how that level has changed after quarter end.

Thank you. Our next question comes from Larry Bergman. Please announce your affiliation and proceed with your question, sir.

Cantor Weiss. I just want to clarify the average selling price during the quarter for both 128 and 256, and if you could compare it with the prior quarter as well.

The information we have provided in the press release indicated on per megabit basis the average in Q3 was 44% higher than Q2. A couple reference points for you. 128 meg sync that we had indicated in Q2 was about 250, moved to between 450 and $5 in Q3. DDR just increased modestly on the 128 meg. We had already indicated that on the 256 meg sync, our Q2 was a little less than 6 bucks, Q3 close to 10 bucks, and on the DDR, just about 8 bucks in Q2, and about 9 bucks in Q3.

Thank you.

You bet and with that, we'd like to thank everyone for participating on the call today. Full 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 your filing - to our filings with the SEC, including the company's most recent 10-Q and 10-Ks. Thank you.

Ladies and gentlemen, we do thank you for your participation in today's audio teleconference. Please disconnect your lines at this time, and have a pleasant evening.