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.