美光科技 (MU) 2004 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to your Micron Technology third-quarter 2004 earnings conference call.

At this time, all lines have been placed on a listen-only mode, and the floor will be open for your questions following the presentation.

It is now my pleasure to turn the floor over to Mr. Kipp Bedard.

Sir, you may begin.

Thank you very much.

I would also like to welcome everyone to Micron Technology's third quarter of fiscal year 2004 financial release conference call.

Of course, on the call today are Mr. Steve Appleton, Chairman, CEO and President;

Mr. Bill Stover, Vice President of Finance and Chief Financial Officer; and Mr. Mike Sadler, Vice President of Worldwide Sales.

This conference call, including audio and slides, is also available on Micron's homepage on the Internet at micron.com.

If you have not had an opportunity to review the third quarter of fiscal year 2004 financial press release, it is also available on our Website at micron.com.

Our call will be approximately 60 minutes in length.

There will be a taped audio replay of this call available later this evening at 5:30 PM Mountain Daylight Time.

You can reach that by dialing 973-341-3080 with a confirmation code of 4844814.

This replay will run through Thursday, July 1, 2004 at 5:30 PM Mountain Daylight Time.

A Webcast replay will be available on the Company's Website until June 23rd of '05.

We encourage you to monitor our Website at micron.com throughout the quarter for the most current information on the Company, including information on the various financial conferences that we will be attending.

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 achievement.

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.

With that, I'd like to turn the call over to Mr. Bill Stover.

Thanks, Kipp.

We are quite pleased with the profitability achieved in our third quarter, which ended June 3rd.

I'll summarize the results for those who may not have seen a copy of the press release.

For the third quarter, net sales totaled $1.1 billion, and the Company recorded operating income of 110 million and net income of 91 million, or 13 cents per diluted share.

Net sales for Q3 increased 52 percent over the same quarter of fiscal 2003.

The next slide we have provided depicts the earnings-per-share calculation, as this is the first period in quite some time where basic and diluted earnings per share are not the same.

The basic EPS calculation, as seen on the top portion of this slide, includes the shares outstanding plus the stock rights issued to Intel.

The fully-diluted EPS calculation adds the net effect of diluted stock options under the treasury method, and the effect of the convertible debentures under the if-converted method.

Gross margin for the quarter came in at 35 percent.

That's up from 25 percent in the preceding quarter.

The improvement was driven by increases in average selling prices virtually across the board.

Selling, general and administrative expenses were up to $94 million, as a result of profit-sharing and performance-related compensation associated with the Company's profitability, and as a result of higher legal costs.

Research and development expenses vary significantly with the number of wafers dedicated to new device development and qualification.

Third-quarter R&D totaled 181 million, down 7 million from the preceding quarter.

The 300-mm line in Manassas, Virginia received qualification of its first device in the third quarter.

Near-term R&D expenses are expected to be in support of CMOS imaging, NAND Flash development and next-generation DRAM devices.

The dollar value of inventory increased $87 million, as compared to the end of the second quarter.

Approximately 60 percent of that increase was in work in process.

Finished goods inventories increased just slightly quarter over quarter.

Slides that you see depicting cash provided by operating activities -- you can see from this slide the cash flow provided by operations remained at a healthy level in the third quarter, just over 250 million.

The estimate of $1.5 billion for fiscal year '04 still looks solid for capital spending.

The relatively heavy fourth-quarter load is reflective of the timing of tool deliveries during the year.

Capital spending for fiscal year '05 will likely run somewhat in excess of fiscal '04's $1.5 billion level.

As of quarter end, Micron had cash and investment balances exceeding $1.2 billion, and our debt-to-equity ratio remained below 20 percent.

I'll turn the commentary over to Mike.

Thanks, Bill.

Customer demand for Micron's memory and image sensor products was solid in the previous quarter.

The primary memory demand drivers, PC and related computing products, continue to show impressive unit growth and memory content richness.

The end result of both unit and content growth is that memory demand from the computing industry has been stronger than we would normally expect in the first half of a calendar year.

Because of the strong demand, the mainstream memory technology for computing, DDR DRAM, has been in a tight supply situation throughout the fiscal quarter.

This is evidenced by the significant ASP increase exiting the quarter versus the average base price going into our fiscal Q3.

The demand strength from PCs, as mentioned above, contributes to this, and nominal industry and megabit supply growth is also playing a role in what has been a favorable supply/demand balance.

With the strong demand for DDR, the PC memory technology transition to DDR2 will likely occur more gradually than previously expected.

However, we are ready for the transition as it begins to gain momentum over the next several quarters.

We are in a great position on DDR2, with the broadest product portfolio of low- and high-density module solutions in the industry.

The desktop PC market is currently being enabled with new chipset technology that supports DDR2 memory.

The server and notebook markets are slated for chipset enablement later this calendar year.

As has been the case for several quarters now, non-computing end markets -- such as Mobile handsets, digital consumer electronics and networking and communications infrastructure products -- have also remained strong.

With each segment showing sustained growth, the overall electronics industry demand environment is healthy, and the most robust we have seen since calendar year 2000.

Micron's focus on diversifying our product portfolio to address the needs of emerging markets is reflected in our increasingly broad wafer start profile.

This diversification is driving more moderate megabit growth rates overall relative to past periods.

Put simply, it is our objective to optimize value for shareholders.

Our diversification strategy to go beyond computing is progressing well.

In the DRAM business, this consists primarily of synchronous DRAM, which is growing in terms of both customer demand and our output.

Demand from the consumer and communications space for 64-megabit to 512-megabit synchronous DRAM devices is steady, and market pricing for all SDRAM products is stable.

The customer-based and end-market applications are attractive, and we have established a pattern of allocating more silicon each quarter to support this business.

A byproduct of the standard DRAM family, CellularRAM or Pseudo Static RAM, is gaining more traction in the mobile phone market as a replacement for traditional asynchronous static RAM.

We're providing CellularRAM in densities from 16 Mb to 64 Mb, both directly to mobile phone makers and to semiconductor manufacturers, that incorporate our memory into multi-chip package solutions.

The growth rate of our CellularRAM business is exceeding internal expectations, a good indicator that the technology has been embraced by customers in the mobile space.

Our family of NOR Flash devices, which consists of even-sectored Q-Flash or Strato-Flash-compatible products, is generating stable to moderately increasing revenues on a sequential quarterly basis.

This is a general-purpose memory product going into a wide variety of applications, from digital satellite or cable set-top boxes to high-end routers.

We expect this product line to continue to exhibit slow density migrations relative to DRAM; thus, the technology investment required is minimal.

The mobile phone industry is embracing Micron's CMOS sensor technology for camera applications.

We are rolling out a shrink or format reduction of the current VGA sensor, and new 1-megapixel and 2-megapixel mobile centers.

Our teams are working with leading OEMs and enablers to get these new chips designed into next-generation phones.

On the digital still camera front, we are shipping 3-megapixel sensors in volume commercially to complement the existing lineup of 1-megapixel and 2-megapixel imagers.

We have begun sampling a 4-megapixel sensor that will move to volume production later this calendar year, and we intend to have this in cameras that will be available for sale this Christmas season.

The family of CMOS sensors is a nice complement to our memory products, and provides significant synergy with a common customer base in the primary targeted mobile phone, digital still camera and automotive applications.

At this point in the year, we are pleased with the market environment, and look forward to what should be a strengthening memory demand from PC makers in the second half of this calendar year.

Our team is executing well on the technology transition and associated cost reduction fronts.

We will continue to place considerable emphasis on our evolutionary process of diversifying the product portfolio, such that Micron is positioned as a premier silicon provider in a variety of key markets.

Thanks very much for your continued support, and I'll turn it back to Kipp.

Thanks, Mike.

Appreciate it.

We'd now like to take questions from callers.

Just a reminder -- if you are using a speakerphone, please pick up the handset when asking questions, so that we can hear you clearly.

With that, we'd like to take questions.

(OPERATOR INSTRUCTIONS).

Michael Masdea, Credit Suisse First Boston.

Congratulations, especially on the profitability on the cash flow side.

I guess my first question -- I'll just keep on that theme there, keep it at a higher level, too.

There's been a number of changes you guys have been talking about for some time now, and you're talking about fewer competitors out there, you're talking about more -- Mike just talked about more product diversity probably leading to -- you can make the conclusion -- to better supply/demand for the industry.

You have got 64-bit in Longhorn out there.

You had good profitability this quarter, which is partially resulting from that.

Can you just walk us through what a cycle kind of looks like, or what profitability is going to look like for you guys going forward, relative to the past, and what ROIs are going to look like?

Is this a secular change, or just something you're taking advantage of at this point in the cycle?

Michael, this is Steve.

I think that we have a couple of things going on.

Obviously, if you look at year-over-year and the general trend, for just the core DRAM, that has been improving.

And even though we've talked about -- the pressure on the pricing kind of comes and goes a little bit in this time period, but in general it's still pretty good.

And so we're going to benefit from that.

But the other thing that we have been working on, of course, is what Mike Sadler referenced as our non-core DRAM.

And of course, at the last conference call, the reason that we were focusing on that is because we expected the margin to be equal or better than what we were able to achieve in our core DRAM.

And it has turned out that that in fact is the case, even in an environment where the core DRAM is pretty good.

So if you look at the margin on something like some of our specialty DRAM, like a Pseudo Static RAM, or if you look at the margin on the imaging products, it's actually been equal or better than what we were able to achieve on the core DRAM in the environment we're in right now.

So I think, for us, it's changing the nature of the Company going forward.

Now, one added note I probably should include is that we said that -- if you go back a quarter, we said that it was accounting for about 5 to 10 percent of our wafers at that time.

We said in this quarter we expected it to be somewhere between 10 to 15 percent, maybe up as high as 20, if it hit just right; it's actually right around 15 percent, and we are still in line with the end of the year, expecting that the wafers will be 20 to 25 percent into the non-core DRAM business.

So it's a transition that is occurring for us.

It's not what I would consider a high rate of transition, but nonetheless it's occurring, and we are pretty focused on it and we feel pretty good about that going forward.

And, for Mike, you talked about the PC environment being pretty healthy.

What are your customers saying going forward about seasonality and about visibility, especially on the PC side?

I just happened to be looking at some of our current larger customers in our portfolio, their demand projections in terms of normalized in megabits, Michael, for the second half of the year.

And it looks like about 20 to 21 percent growth quarter over quarter, Q3 versus Q2 or what the projections are, and about the same rate of growth for calendar Q4.

So again, we always take all of our customer inputs with a grain of salt.

But 20 percent range on a quarterly basis -- sequential quarterly basis for each of calendar Q3 and calendar Q4 are -- is about what it's averaging out to be, in terms of the projections.

All right, that sounds good.

Just a final question on the Flash side.

You didn't talk as much about NOR.

Is that -- you're not focusing on that as much?

And also, kind of are there any opportunities there, just because it sounds like things have been constrained throughout most of your last quarter?

Our NOR business -- when most people talk about the NOR Flash business, I think the primary application that's being discussed is the mobile phones, cold storage for mobile phones.

Our exposure in the mobile phone area has been relatively insignificant, and it continues to be the case, but the strategy -- our strategy in the NOR area is to provide a general-purpose NOR Flash device to the marketplace, and the primary applications are outside of mobile phones.

So consumer electronics products and high-end networking and communications infrastructure products.

The business is growing for us;

I think it's a steady growth rate.

It's a little bit different than what you would think the high-end DRAM business is.

It's not as much a focus on density and increasing density.

So it's a relatively stable, moderate to slow growth business for us, and we plan to keep it that way.

I would also add that from an investment standpoint, a technology investment standpoint, it's minimal.

It's really running on technology that has already been created for other products.

Glen Yeung, Smith Barney.

Thanks, good quarter.

I think I read in your press release that some production changes were made that resulted in lower wafer output.

I wonder if you can give us some detail there?

And what does that tell us about the outlook for the next quarter, as hopefully you sort of reconcile some of those issues?

Does that mean we can see a better pop versus the -- call it the bit-growth (ph) forecast that you may have for the third or fourth quarter?

A couple of characterizations I want to comment on.

One is that we have to be careful between bit growth calculations related to our core DRAM and the non-core DRAM because, remember, the non-core DRAM -- which is either the legacy or the specialty DRAM or the Flash, as Mike just mentioned, or the imagers -- don't translate at all into bit growth, and we have been making that comment for a couple of quarters now.

So first of all, backing all the way up to the original part of the question about the wafer outs -- and it's also related to what you see in our inventory, because Bill commented in his opening remarks that the WIP had gone up, and that's a result of a couple of things.

What I referenced in the press release about the wafer output being sub-optimal, if you will, while we go through a transition, that's true.

As we allocated more wafers to the other products, we have a transition period that we have to go through, because cycle times are not exactly the same, processes are not exactly the same, et cetera.

And that accounted for a lot of what we experienced, but I think that by and large, we are through most of that.

And what you are referencing is what do you expect in the quarter going forward, and in fact we do expect wafer outs to go up.

And how that translates into the WIP is pretty direct, and that is we expect our wafer output to be higher this quarter than what it was last quarter.

In order to do that, of course, we have to have the WIP to do that.

So we started putting those wafers into the line in our third quarter, knowing that this quarter they will start coming out.

So that is how that relates and translates.

So I'm not quite sure I get the ultimate result here.

Is that to suggest that if you have a -- if we sort of set a benchmark, and I won't commit you to a number, but if we had sort of normal revenue growth in the August quarter, given the fact that your wafer outs are going to be slightly higher, the rate of growth could be a little bit higher than what we might normally see?

Yes, that's right.

That's right.

The wafer outs, I think -- the wafer output growth will be higher than what you might normally expect.

Adam Parker, Sanford Bernstein.

I've got a couple of questions here.

I know you commented on some sequential demand for Q3 and Q4.

Can you comment on how, Mike, that compares to normal seasonality?

And do you have a different view of what PC unit growth will be now for the year than you had, say, a quarter ago in terms of what the OEMs are saying?

So more about the PC space than the DRAM content side, if you could, please.

The numbers I quoted earlier on the 20 to 21 percent growth quarter over quarter in both Q3 and Q4 were from the large PC customers.

To be honest with you, Adam, I've not connected that to a particular PC unit growth rate, although I can just quote you the numbers that all the large research firms are putting out, which is somewhere in the range of 10 to 15 percent annual growth.

Yes, and I was sort of hoping for a change in your perspective from the box makers on units, but I guess I can work it back from your comments.

Kind of switching gears, what are your expectations for your own inventory this quarter?

I mean, do you expect it to grow another 20 percent sequentially, and are you shipping directly to OEMs now, or to some of your storage warehouses, or how has that changed in the recent few weeks?

In the last few weeks, things have been -- demand has not, certainly, been on fire like I would say it was 60 to 90 days ago.

It has slowed down somewhat, which is typical for this point in the year.

June is probably -- I have not looked at this by month, but June typically is one of the slower demand months for PCs, and things start to rev up for back-to-school season in July.

That's what we are expecting; our customers are pulsing us quite regularly on our readiness to support a pretty strong demand surge here in the second half of the year.

So we have taken advantage of the last couple of weeks to make sure we've got inventory well positioned to support demand growth as it occurs here for back-to-school season, and we would expect that to kick in in the month of July.

Does that mean you don't expect your inventory to build this quarter, or how would you guess that your inventory would kind of shake out during this quarter?

We've built in nominal inventory growth, which would still be reflective of a typical days of sale or weeks of sale, but it's going up, as our output is going up for the quarter as well, but not significantly.

Okay, sorry, a couple of other quick things.

What percent of your total wafers out or your total revenue was on legacy DRAM here, and how do the margins on these things compare to your overall business right now?

Adam, this is Kipp.

In the quarter, we were pretty close to about 25 percent of the wafer outs were on the legacy products.

I think we've mentioned in the past that they generally have a little better contribution margin for us, or gross margin contribution.

So in terms of your total revenue, can you talk about it, or just the wafers out?

I would prefer to just keep it at the wafers out level.

Lastly here -- this is something I've kind of asked about over the last couple of quarters, and I think maybe Steve commented on it a couple of quarters ago when I asked it.

I thought maybe we could get an update.

But if we look at your cost curve, and where it is versus the competitors, where do you feel you are right now?

And I know you won't talk about the total cost of it per part, but where do you feel you are versus the competition?

I think, Steve, you commented a couple of conference calls ago that if the other guys kind of correctly adjusted for R&D, you believe you were the lowest-cost producer.

Do you still think that is the case?

And if so, what percent is your lead, and how do you see that changing over the next couple of quarters, please?

Well, you know, Adam, it's pretty tough for us to get the cost numbers from our competitors, but I'll make a couple of comments as to how we directly view that.

And remember, with respect -- the way that we measure that is with respect to the core DRAM that we're producing that is using leading-edge technology.

So that's the only number that's of that significance, because that's, first of all, the number that the others typically report if you get a report from anybody.

You know, Infineon reports their number, but they say there's fully-loaded costs for their advanced DRAM.

And a couple of the others do, but they are pretty focused on advanced DRAM.

And there's no sense in reporting their cost on the legacy DRAM because it's a low-density (multiple speakers).

I totally agree, yes.

We still believe that we're in the lead, and there's a couple reasons for that.

First of all, we believe that maybe a competitor or two has been able to start to approach the percentage of our conversion of our advanced DRAM to the 110-nanometer.

But for all practical purposes, we're 100 percent on our advanced DRAM now running on 0.11, and we're preparing ourselves for the 90-nanometer transition, and that is not true for anybody else except for maybe Samsung, which is hard to know for sure.

Even Infineon, on their last call, said that they were not going to be able to make -- they obviously didn't make the transition, and it was going to be delayed, even until later this year to try to get up into the kind of percentages that we achieved towards the end of last year.

So we not only were using the most advanced DRAM process out there to make our leading-edge DRAM, and as a result, that directly translates into bits per wafer; that's one data point.

The second is that, as you know, we have also been the only one, to date, able to implement 6F-squared cell, which we have communicated is about a 20 percent advantage over the 8F-squared cell device.

So we have that advantage, in combination with the 110-nanometer percentage of our product running, and those combined lead us to believe that we're still ahead.

Now, is that directly translatable, on an absolute basis, to where we are ahead of the others, because we all have slightly different advantage of that time (ph) in relation to other factors, but those are the two biggest factors that we know.

Now, the thing to mention is that we are in a period of time where there's kind of -- by the way, to translate that on a cost basis is that when you look at the efficiency of our bits on a per-cm-squared basis, we're about 10 percent improved this quarter over last quarter, to give you a relative data point.

So we improved our efficiency about 10 percent on a per-bit basis for cm-squared running advanced DRAM, to give you a data point.

Now, that will be countered, to some degree, because we're also ramping a 300-mm fab right now, and those early 300-mm wafers, of course, are not as efficient as our 200-mm is, and that will counter it to some degree.

So you've got to take all those factors into comparison, but we feel pretty get about where it's at.

Okay, one last thing is what do you expect -- I don't know if this is for Bill, or -- but what do you expect your depreciation to look like this coming-up quarter and then maybe next year?

I know you said your CapEx would be slightly higher than the 1.5 billion for 2005 fiscal, but what do you expect for depreciation kind of Q4 and next year?

And then also, how do you think you're going to fund the CapEx for next year, please?

The cap total for the current fiscal year -- your initial question was depreciation and amortization for fiscal year '04, which is just over 1.2 billion --

Right, so for -- okay, fine.

-- for fiscal year '04, so you can back into Q4 with that number.

It will be a little over 315 million, then, for Q4.

You're going to be running for next year probably in a 325-per-quarter range.

And your last question was really the funding of CapEx profile for fiscal year '05, which with our view of the market demand and ASPs, we are very comfortable with funding that from cash flow from operations.

David Wong, A.G. Edwards.

On your 300-mm plant, can you give us some idea how this is likely to ramp through 2005, and what your expectations are, in terms of when it will actually help, in terms of profitability and gross margins?

Sure.

As we've said before, we have been in the process of getting it qualified, and Bill mentioned that we have qualified the first devices off of it now, and it's in fact in a ramp stage.

We expect, by the end of this year, by the end of calendar '04, to get up somewhere between 2,500 and 3,000 wafer starts by the end of the calendar year.

Now, that's the level the we have committed to.

Going beyond that, we will just continue to monitor the market and decide how much we want to take it above that.

But we are committed, at this point, to go into that 3K level.

And again, whether it happens in December or January, it's hard for us to know exact granularity, because it is a 300-mm that's in the ramp stage.

And the wafer starts, by the way, are increasing as we speak, every month that goes by, so it's in that process.

Primarily, we're installing what you would consider to be second and third sets of equipment to do the same process, in order to continue that ramp, and we feel pretty good about where it's at.

I'll take this opportunity to mention that it is the first -- to our knowledge, anyway, it's the first qualified 300-mm device that uses copper anywhere in the world for DRAM.

So if we looked at actually the depreciation associated with this, is this a positive impact on gross margin or a negative impact, as of the end of this year, given this plan?

If we understand your question, you're asking basically when does the 300-mm become advantageous for us?

That's right, on the gross margin line.

The 300-mm in Virginia today, we are going to have to get to this level where the wafers are coming out that I've already mentioned.

So we would expect it to occur sometime in mid '05.

Manish Goyal, Neuberger Berman.

Could you please talk about what was the production growth in the first of this quarter and shipment growth on a sequential basis?

Sure.

We'll address the production bit growth and, as you know, we never try and forecast the shipment piece.

On production, we expect probably to begin the quarter looking at about low teens for sequential bit growth, Q4 over Q3.

But I was asking for the reported quarter.

What was the shipment bit growth and production bit growth for the reported quarter?

I was just -- it was a little bit negative.

It was about down, I think, 2 to 3 percent or so.

For both?

For production and shipment both?

For production, yes, and for shipments as well, because in Q2 we actually had higher shipment numbers than production numbers.

We still brought down a little bit of inventory in Q2.

I see.

And then, how do you reconcile that with your comments on the strong demand?

I mean, if PC units will be higher sequentially, how do you reconcile that with what DRAM declining sequentially when the DRAM content is increasing, according to you?

I'll address the inventory on the DRAM.

We intentionally accumulated a small amount of finished goods inventory on the DRAM side, so we could provide a better level of service to our customers.

What we had done in fiscal Q2 and, frankly speaking, in fiscal Q1, is we had drawn finished goods inventory levels down to uncomfortably low levels.

And as a result, we were not providing the level of customer service that we wanted to.

So in Q3, we intentionally grew inventories so that we were better positioned going into Q4.

It was insignificant, in terms of number of units, but easily could have shipped more.

We chose not to, so that we had inventory better positioned to support customers.

My question was more on the market, that if PC units will be higher sequentially and DRAM content is increasing, how come your sales in units are lower sequentially?

Well, Manish, also keep in mind that you're talking about -- and Kipp's reference is DRAM bit growth.

We just mentioned how much of our product is going into non-DRAM, which has no relevance at all to the bit growth number.

So if you look at what happened in Q3, we -- a couple of things.

We allocated more product to what we call lower-density legacy type products.

We allocated more wafers to imaging products, if you will.

And of course, the Flash continued to consume about -- actually, it consumed a little bit more, but it consumed pretty close to what it was.

So, measuring on a pure bit basis doesn't give you the total picture, and that's how we reconcile it ourselves.

Just one more question.

On the cost side, it's actually -- with your JVs and some of the inventory benefits from the past, it's kind of hard to gauge what was the cost improvement on a sequential basis.

Could you talk about some of the cost improvements on a sequential basis on the production side?

Well, we're not going to give you -- we don't give cost data, obviously, in terms of --

No; if you can talk just on a sequential basis, as opposed to giving actual numbers?

Well, the way that I've described it before was we improved our bit efficiency per cm-squared by about 10 percent.

John Lau, Banc of America.

Looking out into the second half of this year -- there's two questions that I had -- what is your projected percentage of the bit out (ph) as DDR by the end of -- DDR2 by the end of the year, sorry?

And also, in terms of the sweet spot in density for digital still cameras by Christmas of this year?

On the DDR2 output for us, toward the end of the calendar year, so calender Q4, we are thinking it's going to be somewhere in the 15 percent range, in terms of total DRAM demand for PCs.

And that's about where we have our production output dialed at this point in time; it's probably worthy to mention that we can adjust that up or down.

It's just a matter of a wafer start decision for us.

But at this point, it's probably about 15 percent.

On the digital still camera, the sweet spot at the end of this calendar year is probably going to be, for CMOS cameras, probably going to be 3 moving to 4 megapixels.

And then, finally, just to recap, you had mentioned that for bit production next quarter, you would be in the low teens?

Correct.

That, again, is referencing separate and apart from the imaging devices.

Right, from the wafer start of the CMOS sensors.

Bill Dabellum (ph), Davidson Investments.

Yes, my apologies.

I had a couple questions.

First of all, relative to the inventory WIP, net that is billed (ph), that is, if we understand correctly, in non-core DRAM.

Is that accurate?

It's not completely accurate, Bill.

It's a combination of everything that we have.

We expect the core DRAM output to be up, and we expect the non-core DRAM output to be up, so it will be spread across the whole product line.

So when you had referenced the differences (ph) in Pseudo Static DRAM, did it does go across the board with some different changes that you're making?

Well, it's a combination.

Keep in mind that we have basically five major fab sites, and they are all running different products, and they are all changing their mixes and starts to accommodate both the increase that we have had in the non-core DRAM within the DRAM business, and to accommodate the non-DRAM products.

So it's really not fair to say that it's attributable to any one thing.

By the way, even just being a cycle time difference, you also have simply a change in the product output related to changing (ph) on the input that occurs while you're trying to get that product to flow through the line.

I think we also mentioned, Bill, or have acknowledged the ramp on Virginia to anticipate the WIP builds, as well, there, for even just core DRAM.

That makes sense.

And then, moving to the TECH joint venture, would you please characterize the margins from TECH in the Q3, versus the margins on the product produced at internal fabs, and versus TECH in the second quarter?

We're not going to give the specifics there, but you can make some correlation or some assumptions with the improving price environment that you saw for a good portion of the quarter, but there were some nice margins that we're seeing realized there on the TECH.

And just because of the way the agreement works, it would be straight-up logical to assume that margins were better at the TECH JV, both sequentially and versus internally produced product.

And frankly, given that the increase did take place throughout the quarter, wouldn't it be fair to presume that those margins would improve in Q4 versus Q3?

Or are we jumping a little too far?

If you look at our disclosures on the relationship with TECH, you can draw back to changing ASP assumptions in any given period, and what that relationship should be.

So the start of your presumption there -- we are not going to give you specifics, but it's reasonably well-founded.

But the connection that you drew forward-looking -- I ask you to go back and take another look there.

And then the final question -- Mike, you had given what the PC manufacturers were giving for indications for sequential growth in Q3 and Q4.

How does that compare to normal?

It's typical normal seasonal patterns.

Not any stronger than a typical seasonal pattern?

Not in terms of growth rate on a relative basis.

Of course, the overall PC unit growth rate this year, again ranging in 10 to 15 percent, is a significant improvement versus the last three years.

But in terms of the quarterly growth in Q3 and Q4 that our customers are talking about, it's nothing out of the ordinary.

Joseph Osha, Merrill Lynch.

For starters, I just want to try and get my hands around the revenue mix.

It looks to me like you have probably got 4 or 5 percent of revenue from CMOS image sensors.

Would it be fair to say that there's another -- call it 2-3-4 percent coming from the Flash memory and complete non-DRAM products?

Would that be fair?

As you know, we have not typically given away revenue percentages, but what I will tell you is for the quarter, we had slightly over 15 percent of our wafer outs were on imagers, pseudo SRAM and Flash-related products.

Okay, it would be fair to assume that revenue is probably trailing that a bit, given the fact that it's growing, yes?

And, as we mentioned on previous calls, more of those products get sold in die form, as well.

Now, the second question, then, with that in mind, can you -- I believe you gave us a wafer out number for DRAM that's non-core DRAM.

How should we think about the piece of DRAM that is not sort of PC core memory?

Repeat that question a little bit.

I wasn't quite sure what you were asking.

Basically, what I'm trying to do is separate the -- because you talked about court DRAM and other, I'm trying to sort of separate the non-DRAM businesses from the business that's DRAM but not advanced DRAM, like legacy products.

We tend to break that down and say DDR, SDRAM and then this other category of image sensors, RL (ph) DRAM, pseudo, et cetera.

So in those categories, SDRAM wafer outs in Q3 were about 25 percent.

DDR was about --

And I should think of that as legacy product, right, Kipp, for the most part?

Some of those are.

Some are 64 and 128, but there's also a growing balance of 256 and 512, as well.

But they do get, sometimes, called legacy.

And then roughly half of your wafer outs are DDR?

Yes, about 60 percent, and then around 15 percent, just over 15 percent in kind of that other category (multiple speakers).

A second question, then -- looking at -- and this has been touched on some already.

I sort of do a little organic cost calculation, and given these assorted legacy issues that you cited, I can see why the core number that I end up with is flat.

Would it be fair to say that, if I just look at your PC DRAM business, that the decline in cost per bit should be somewhere 7 to 8 percent, something like that?

High single digits to 10 percent, yes, encore products, yes.

Fair enough.

And then third and final question, you did say that bit production, all in, was going to be up in the midteens this quarter; correct?

We started with low teens.

Low teens.

Now, then, unless you're going to build inventory, that means that this bit shipment number has got to kick up pretty substantially, then; right?

We'll let you guys monitor the market through the quarter, and we are happy to update you on what we see and what we hear from customers.

And I'm sorry, one last final one.

Back to TECH -- as I recall, what tends to happen is you get this kind of up whipsaw effect with Technology, and obviously, this quarter it was quite favorable.

Could you, in sequential terms, actually see Technology -- now that the price is reset again -- go back to being a slightly negative influence on gross margin for the August quarter?

Again, you'll have to make your predictions on ASP.

In our disclosure, you can identify that it is a lag quarter pricing relationship that we're purchasing product from TECH, but again you'll have to make your ASP predictions.

Can you tell me what percentage of your wafers are TECH right now?

In our 10-Q and, I think, 10-K, we note those as being around 25 percent or so.

Okay, but this kind of whipsaw lag effect is still in place, yes?

The pricing legacy, yes, if that's what you're saying.

And then also -- which I think is what you're talking about, leads to the delay.

And you're trying to get to the gross margin contribution?

Right, because you've price at the beginning of each quarter, and then it's either -- so it still works that way.

Nothing has changed?

Yes.

Krishna Shankar, JMP Securities.

The number for Q3 and Q4 -- you said 20 percent sort of growth from your key PC customers.

Is that for DRAM bit demand growth from your customers?

Yes.

What I was quoting there was DRAM bit demand growth from a pretty good cross-section of our large PC customers; that's correct.

And, given the fact that NAND Flash pricing has receded quite a bit in the last few months, do you see some changes in the balance out there from the key guys shifting capacity from DRAM to NAND Flash and vice versa?

Well, a couple of comments about that.

One of them is I've read quite a bit in the media lately about the fungibility of NAND versus DRAM.

One thing I would give you a little bit of a note of caution on is that it's true -- both of them are starting to use leading-edge capacity, but there are some tool differences.

So if you really want to make a switch in your capacity (ph) from one device to the other -- either way, by the way -- you've really got the leadtime of some of the critical equipment required to do that, so it's not exact; even though it's close, it's not exact.

And you can choose, by the way, to maybe make some of that transition, but what you end up with is not a very efficient fab, because you end up having idle equipment.

So the way that you would do it to optimize efficiency is to really take about four to eight months to get the tool set reoptimized.

It's doable, but it will take that time period to do it.

But the second and, I think, really related more to your question is, what will drive that switch?

And that's really margin differences between DRAM and NAND.

You can run all the numbers.

Basically, the way that we see it is that some of the specialty DRAM probably has a margin that's equal or better than some of the NAND product, but that the NAND today is probably equal or better than we consider to be some of this core DRAM, which is the bulk of the market.

So it's your call as to when that motivation is to try to make that change.

I don't see a lot of incentive to make a change right now based just on margin discussion.

And then, on top of that, you've got to add this delay effect as to the time it takes to reoptimize the equipment in the fab.

And secondly, what is your viewpoint on what 64-bit commuting with the new Microsoft 64-bit, what comes up, how does that change your viewpoint on DRAM bit demand versus capacity additions over the next 12 to 24 months?

I'll let Mike answer that, but it can only be better.

Mike?

Well, you've not only got 64-bit computing, you've got a new operating system which, admittedly, is at least a year, maybe a year and a half, down the road, talking about what is commonly referred to as the Longhorn operating system.

Even today, you've got a new chipset technology which some of our customers are commenting there is some pent-up demand, customers waiting to get their hands on the new chipset, which just has been enabled in PCs today.

So all of these new technology developments, whether they be hardware- or software-oriented, are resulting in incremental memory demand.

Tai Nguyen, Susquehanna Group.

Could you give me a breakdown, in terms of like 256 versus 128 bit that you shipped in fiscal Q3?

Well, we can.

It's becoming less unless relevant, but if you want to dive into that detail, we can.

It's really easier for us to stay in that SDRAM, DDR discussion.

Well, how about your 512?

What's the percentage of your wafer outs on 512?

It's running about 5 percent today.

And in terms of your CMOS sensor imaging, could you give us more of an update like how you guys are doing out there in the marketplace, like how is your design win (ph) and how is that being adopted outside?

Actually, let me correct the answer to that last question.

I was looking at the wrong number here.

We are running just over 15 percent now in the 512 arena.

And, if you would please restate your question?

We're having a tough time hearing you.

In terms of like the CMOS sensor, could you give us an update in terms of like how you guys are doing out there?

And then also at the 4-megapixel, what is the advantage between your CMOS sensor versus CCD?

First of all, on the CMOS sensor market in general, we are gaining a lot of traction here, literally as each week goes by, particularly in the mobile phone area.

We have engaged virtually all the Tier I phone makers and some of the technology enablers, as well.

This is a rapidly growing market, so it's rather difficult to measure market share in a traditional sense, but we think we are very well engaged, we have got a lot of traction, and if we are not the number-one market shareholder in the CMOS area, we are certainly in the top two or three.

And the business is growing dramatically.

We could not be more pleased with the progress we're making in the primary growth market, which is mobile phone cameras.

On the digital still camera side, you asked a question about our 4-megapixel -- what are the advantages relative to CCD?

Is that correct, or to other CMOS?

CCD.

Cost, number one -- significant cost advantage, we believe, relative to CCD, and we can enable the delivery of much lower-cost cameras to the market with our CMOS technology relative to CCD.

And we believe that, from an image quality standpoint at this point, at the 4-megapixel level, it's debatable whether CCD offers any significant advantage, to be perfectly honest.

We think we're the only provider of CMOS that delivers an image quality that is comparable to that of CCD at the 4-megapixel level.

Chris Danely, JP Morgan.

This is Sean Webster, calling on behalf of Chris.

I had a couple questions, to start with, on the revenues by end market for this quarter.

Can you kind of characterize what the relative mix was between like your traditional computing, which I think was like 75 percent last quarter or so, and comm and some of the other end markets you serve?

Well, this would be kind of a stab at it, but Kipp talked about DDR memory being about 60 percent of our wafer starts.

That's basically almost exclusively going into the PC market.

By definition, everything other than that is going into non-PC markets, and that would be split among a variety of end applications, whether it be consumer electronics -- items like digital cameras or set-top boxes or digital TV sets or DVD recorders and so forth -- and then the traditional communications and networking businesses like mobile phone routers, switches and base stations and so forth.

So beyond the PC applications, it's a wide variety of both consumer and communications applications that are consuming our devices.

And then turning to the inventory growth quarter over quarter for this current quarter, did I understand you correctly that the growth was driven by all product segments?

Well, it was driven by -- yes, when you say all product segments, it was driven by -- well, I can't say all, but a large percentage of the products that we are now running in the fabs are essentially all increasing in output, which is directly related to the amount of wafers that were put in the fabs to do that.

And how about on leadtimes for DRAM and your image sensors and your Flash?

Has that changed in this current quarter versus last, and what do you expect to happen in the future?

It varies, depending on the product, obviously.

And I could generalize -- on the DDR side, leadtimes have come in, and they have been reduced in the last 30 days or so.

I wouldn't say that we can deliver product off-the-shelf in all cases, but leadtimes have come down and they are still pretty substantial on the non-core DRAM products and on the image sensors, in the neighborhood of -- I'm going to generalize here, but 6 to 12 weeks, in general, for the non-core DRAM products.

And do you expect those to come in, in the next quarter and the coming quarters, or remain flat or grow, or --?

We are expecting that for the non-core products, that we're going to continue to have a pretty healthy backlog built up, and be quoting significant leadtimes.

On the DDR material, my expectation is, as I indicated, we expect the demand to be increasing pretty significantly, based on what our customers are telling us.

So I would expect us to build or to add to leadtimes here and add backlog as we move through the year, through the hot seasonal periods on the PC demand side.

Clark Fuhs, Fulcrum Global Partners.

Thank you.

Wafer starts have been running for you guys about at the 50K per week level, until this most recent quarter, where I guess you have had some transition issues.

I think, Kipp, you stated in the last number of weeks or months that the rate went down to about the 46 to 47 level.

Can we assume that that was the rate kind of in the middle to back part of the quarter, and it's ramping back up toward that 50K per week level now?

Yes, that's right.

And you can also expect as we go through the year that, of course, the Virginia ramp will continue to increase, as well.

So it will actually, as we move through the year, get up above that number.

That's what I figured; that's great.

Will you be back at the 50 level mid-quarter Q4, or are you at that level now?

Well, we think we'll average it right around there for the whole quarter.

And in terms of finished-goods inventory levels, I know you guys have stated the industry is about the two- to three-week level in the past, and you were kind of at the lower end of that range.

Does that still hold?

Yes, it does.

I couldn't tell you exactly where we are today, but less than two weeks, in general.

And then, a couple on the financial side.

Any expense guidance for SG&A and R&D?

What does that look like for the fourth quarter?

Fourth-quarter SG&A in the 85 to 90 million.

Not too much changed there.

Again, the current quarter was influenced by profitability and compensation-related costs and profit-sharing and some legal expenses.

On the R&D side, we have been running -- we trended down a little bit this quarter.

We've used about 175 as a reference point for Q4.

That's probably a good reference.

And there was only, I think, if I read in the 10-Q -- I may have read this, or maybe you stated in the last conference call that the NRV (ph) entering the quarter, or the remaining stuff that was written down that still had to be kind of shipped out was around about $16 million, and you're going to take some of that in this current quarter.

Do you have that number off-hand?

I think you are referencing the prior conference call, which had indicated the bulk of that 16 would go through the Q3, which it did, related to some SRAM product that we finished moving out.

I believe there's 6 million that's left as of quarter end.

And my guess is that 6 million goes through Q4, and then we never see it again?

It will be de minimus by year end.

And I know you haven't really talked about this before, and it might be a little early.

But a tax rate that we can kind of filter for fiscal '05?

I'd like to think that '05 is going to have the pre-tax number sufficient to burn through that NOL -- that's a couple billion dollars.

For the near-term, until we utilize virtually all of that NOL, you should still think of roughly $15 million per quarter, consistent with international operations.

So it depends upon the profitability forecast about how that goes.

And the NOL cumulative to this point in time is how much?

(multiple speakers) will get that number for us before we close out the call.

I don't have it at my fingertips.

Hans Mosesmann, Schwab Soundview.

I'm not sure if you guys answered this one.

I got dropped off here briefly.

Inventories at hubs -- where are they today, relative to the last quarter?

Relative to last quarter?

Yes.

Not a measurable difference.

I mentioned that we have got slightly less than two weeks' total finished goods inventory in hubs.

It would probably be about a third of the total, roughly.

I presume our definition of hubs is synonymous -- hubs meaning basically vendor-managed inventory at the customer sites.

Ben Lynch, Deutsche Bank.

I apologize for the background noise.

I know we're probably going to get lost in the moving parts, but you said ASPs were up about 15 percent Q on Q; gross margins were up 10 percentage points.

Why do we see so little leverage, particularly given that DRAM costs fell 10 percent Q on Q, and also inventory up would have helped the fix-cost coverage?

I know we're going to get lost a bit in the moving parts, but if you could sort of just give me a better understanding of that, that would help.

Let me clarify a couple of pieces.

That 15 percent increase in the ASP indicated in the press release -- that's a good reference point.

If you think about overall costs holding flat, you'll see that the 15 percent ASP improvement translates to that gross margin change from 25 percent to 35 percent.

I think what you are picking up, though, that may have confused was that we had a 10 percent bit efficiency gain on our core DRAM.

That's absolutely correct.

But for the overall mix of costs, costs were flat.

And just a sort of a market question as well, please.

You've made some comments -- June is normally weak, et cetera -- but we did have a surprisingly strong first half this year, particularly Q2.

Why has that gone away?

Why don't we -- haven't we sustained this unusually strong first half into June?

This is not our area of expertise, of course.

I think you'd be better off asking our end customers.

My observations are, number one, that we had a very favorable supply/demand balance working through calendar Q2.

I would not characterize PC demand as being on fire; it was relatively strong, certainly relative to the last couple of years, but it wasn't spectacular.

We're presuming there is some pent-up demand for the new hardware technology and the new chipset technologies that's just been delivered to the market this week.

And as I think has become the pattern, we're expecting a lull before the back-to-school demand and the Christmas season.

So nothing that has really occurred has been alarming, other than the fact that demand was relatively strong in the first half of the year, particularly considering what the PC industry has been through in '01, '02 and '03.

And adjust the last question.

Steve, I think you spoke on the last call about some of the industry struggling with 110-nanometer yields.

How do you think, for the other guys -- and I know you might choose not to comment on other guys, but you did when things were not going well for them.

Do you think things are going better for them now, and does that maybe contribute, do you think, to this more recent weakness from the supply perspective?

Yes.

Let me perhaps characterize it slightly different, without saying anything about any particular company.

You have trench technology and you have stack technology, and the trench technology, from our understanding, has had a heck of a time going to the 110-nanometer.

And they still have difficulties with it although, as you would expect, it is improving.

Interesting enough, the percentage of product that is now running on 110-nanometer trench technology still has not reached the levels that for those of us that have been running the stacks.

So I think that they still have problems with it, although there's no question that it's getting better, as you would expect.

Andrew Root, Goldman Sachs.

Just a couple of quick follow-ups on the copper.

Does the qualification of the copper parts on 300-mm have any effect on accounting from an inventory, gross margin or R&D standpoint?

It does have the effect of moving those costs out of an R&D classification into an inventory and pass-through to cost of goods sold, as those devices are sold.

So is that partly a one-time jump in inventory, just what we're seeing this quarter?

No, it would not have a significant effect there.

Marginal?

Okay.

And then I think you indicated, Steve, that the cost crossover for 300-mm copper is kind of mid '05.

Was that fiscal or calendar, and is that normal or is that a slightly slower ramp, because copper is just harder to bring up?

First of all, it's a calendar reference, and it's nothing unusual related to copper for us.

Remember, that's a reference for us.

It's related to getting the volumes up in the facility, such that we start to achieve some scale.

Orrin Hirschman (ph), Ohio Investment Group.

It's OH Investment Group (ph).

Congratulations on the progress.

You mentioned the goal for bit growth the next Q (ph).

Any venture for bit growth the following Q in terms of beyond, higher, lower or any number?

We couldn't quite hear you.

You are awful soft.

Could you repeat the question?

Sure.

You had mentioned your goal for bit growth the next Q. Any thoughts for the following Q after that, as we go into more seasonality?

Well, this is unrelated to seasonality.

We run production facilities 24 hours a day, seven days a week.

What we provide is our production, what our projected production bit growth is, excluding image sensors.

So it's not related to what we think we're going to sell.

As Mike pointed out earlier, we have got demand profiles from customers looking more like about 20 percent sequential, quarter over quarter.

Our bit growth in production will be more in the neighborhood of low teens in Q4.

If you'd like me to take a shot at Q1, fiscal Q1, I'm happy to do that, as well.

Yes, that's the question, please.

We will probably be in kind of the mid to high single digits in Q1.

And that's, again, because of capacity constraints?

Correct.

As we have talked about on the call, we do continue to move wafer capacity to non-core DRAM.

And just my last question.

Actually, two last questions.

Any thoughts on gross margin expansion, in a qualitative or quantitative sense, for the next two or three Q's?

Well, we never give you the gross margin guidance, you know.

We've hinted to what costs will do in the different categories, and of course the other factor there is ASPs, which we don't control, and that's the part that you get paid for.

The last question, on the CMOS revenue.

You didn't want to actually break it out, but can you even state a goal, whether that can be a $100 million a quarter business over the next year or so?

Well, it's hard to define exactly.

There's no question we believe it will reach $100 million per quarter for us; it's just a matter of when.

And I don't have enough granularity right now to predict when that quarter will be, but we wouldn't even be interested in the business unless we thought it would do that.

Matt Gable (ph), Calypso Capital (ph).

Just some housekeeping issues.

What percent of bit shipments in the May quarter were 256?

What did costs do sequentially?

What were the bit shipments on 256 correct megabit DRAMs?

And you want me to include SDRAM, DDR, DDR2?

Sure.

Okay.

We ran about, let's see, about 9 percent, roughly 10 percent 256 meg SDRAM.

We ran about another 40 percent in 256 meg DDR, and then I think -- yes, about 2 to 3 percent in DDR2.

What did your costs do sequentially in the May quarter?

Well, we kind of answered that before.

In core DRAM, they were down 10 percent.

And bit production, 0.13 and 0.11 in the May quarter, what percent?

Yes, we were pretty close to -- just right around 70 percent of the outs were -- the Micron outs were 0.11, and about 25 percent were 0.13.

Remember, the stuff that's not 0.11 is not core DRAM that most people think of when they talk about DDR and the advanced stuff.

The stuff that's not 0.11 is related to products that are either legacy or products that are non-DRAM.

Brian Eisenbarth, Davidson Investment Advisors.

I hate to beat a dead horse here with pricing, but maybe if we can just get a little bit more information -- in the press release, it says that low-density DRAM benefited prices.

Can you give us an idea of how the pricing environment is looking for high-density DRAM, and possibly in the non-DRAM product, if you're seeing kind of a similar pricing scenario there?

And we've noticed in particular this quarter, and I guess a little bit last quarter, that the spot market is becoming less of an indicator for pricing for you guys.

Are your customers more willing to enter into contracts now at possibly higher prices, that they are starting to see that they are running into some problems getting all the DRAM they want?

We're still looking for customers that are willing to pay higher prices, by the way.

So if you know of any, please let us know.

But in general, our exposure to the stock market in the last couple of course, quite honestly, has been relatively insignificant.

Last quarter, the amount of product that we put into the spot market under the Micron brand was approximately 0 percent, slightly higher than that.

Most of our product is sold under contract, and that doesn't necessarily mean that it's at fixed pricing throughout the quarter.

The pricing still floats, and is negotiated fairly regularly.

But most of our core DRAM product is sold on a contract basis to customers whose names you would recognize, the large PC customers.

And the pricing for everything else, particularly the SDRAM products, was relatively stable throughout the quarter, stable to a bias toward increasing.

If you want any more specific than that, you can research this pretty easily; there are a number of services that provide pricing, and those services are generally pretty accurate.

I guess, just as a quick follow-up, it seemed like -- in fact, during the downturn, when there's less demand, that the spot pricing and the price -- the pricing you guys would mention was pretty much seemed to be predictable in what was going on in the market.

Now, it seems like your pricing is increasing at a higher rate than what is observable out there, as far as the services you mentioned.

So maybe it's just more of a lag effect, but I was just curious about why contract pricing seems to be increasing at a faster rate than spot pricing.

Is it just because of the demand/supply dynamics have tightened up so much now?

You're going to have to draw your own conclusions on there.

I couldn't help you a whole lot.

Mark Edelstone, Morgan Stanley.

Mike, in your prepared comments, you mentioned that the transition to DDR2, while it was going to ramp here over the next couple of quarters, was going to be somewhat slower than previously thought.

What do you attribute that slower-than-expected ramp to?

Well, on the desktop side, which is the -- those are the only platforms that are really enabled for DDR2.

The feedback that we're getting from our customers, which, again, are one step removed from the end customer, is that there is not a real compelling case to pay a higher price for the memory solution.

And, as you're probably aware, the DDR2 market prices today are significantly higher than the price for DDR on a per-bit basis.

So there's not a compelling performance advantage that can justify the price increase.

I think that's not necessarily the case on the notebook and server platforms, and that's why we're expecting a more aggressive take rate, if you will, on the DDR2 memory for the server and the notebook platforms when they are enabled later this calendar year.

Two follow-on questions to that, then.

One is, what do you think the delta might look like between DDR2 and DDR pricing, as we're going to be midway through the second half of the year?

I'm not going to predict that.

We know what our cost delta is, and I'll just leave it at that.

You're going to get predictions all the way from probably at bit parity to 100 percent premium.

It's probably going to be something in between that.

Just one other final opinion, then, if you have it.

It seems like the PC market, at least on the white box side, and also the motherboard business in Taiwan, was soft in May and it's been somewhat soft in June.

And it certainly seems like that is seasonal, but maybe a little bit worse than seasonality.

Do you think some of that incremental weakness has been triggered by the upcoming launch or the launch just happened with Grantsdale?

Could be.

I think that question will be answered over the course of the next couple of weeks, if in fact there has been a significant amount of pent-up demand for the Grantsdale launch.

But that's one theory, and I guess, like I said, the next two to three weeks will probably tell if that holds out.

We did want to circle back and clarify the net operating loss carryforwards.

It's at about $2.7 billion.

Okay.

And with that, we'd like to thank everyone for participating on the call today.

If you will please bear with me, I need to repeat the Safe Harbor protection language.

During the course of this call, we may have made forward-looking statements regarding the Company and the industry.

These particular forward-looking statements, and all other statements that may have been made on this call that are not historical facts, are subject to a number of risks and uncertainties, and actual results may differ materially.

For information on the important factors that may cause actual results to differ materially, please refer to our filings with the SEC, including the Company's most recent 10-Q and 10-K.

Thank you for joining us.

Ladies and gentlemen, thank you for your participation.

This does conclude the teleconference.

You may disconnect your lines at this time, and have a great evening.