美光科技 (MU) 2007 Q1 法說會逐字稿

Good afternoon, my name is Henry, and I'll be your conference facilitator today.

At this time I would like to welcome everyone to the Micron Technology first quarter 2007 financial release conference call. [OPERATOR INSTRUCTIONS].

It is now my pleasure to turn the floor over to your host, Kipp Bedard.

Sir, you may begin your conference.

Thank you very much.

I would also like to welcome everyone to Micron Technology's first quarter 2007 financial release conference call.

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

Mark Durcan, Chief Operating Officer;

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 website at micron.com.

If you have not had an opportunity to review the first quarter 2007 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 replay available this evening at 5:30 p.m. mountain time.

You may reach by by dialing 973-341-3080, with a confirmation code of 8248568.

This replay will run through Thursday, December 28th, 2006 at 5:30 p.m. mountain time.

Our webcast replay will be available on the Company's website until December 21st, 2007.

We encourage your 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.

With that, please note the following Safe Harbor statement:

During the course of this meeting, we may make projections or other forward-looking statements regarding future events or the future financial performance of the Company and the industry.

Which wish to caution you that such statements are predictions and that actual events and 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 in the investor relations section of Micron's website.

Although we believe 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.

With that, what I would like to do now is turn the call over to Mr. Bill Stover.

Thanks, Kipp.

I'll first summarize the financial results for the quarter which ended November 30th.

For the first quarter net sales totaled $1.58 billion, approximately 15% above the immediately preceding and year-ago quarters, and the company recorded net income of $192 million, or $0.25 per diluted share.

We're pleased with these results and the reflection of our balanced portfolio of DRAM, NAND and image sensor products.

The major themes benefiting this quarter's results were returns on our DRAM portfolio due to improved pricing, the product mix shift to higher mega pixel devices which sustained CMOS image sensor gross margins, and higher NAND margins, which should improve in the future, commensurate with ramp efficiencies in Virginia and Utah.

Gross margin for the quarter noticeably improved to 31%.

Selling, general, and administrative expenses were roughly flat as compared to the prior quarter, recognizing that SG&A now runs at a higher level than a year ago due to the addition of IM FLASH, TECH Semiconductor and Lexar.

We expect the quarterly run rate in '07 to be between 140 and $150 million.

We have announced that our ramp of the Utah 300 mm NAND operation is on schedule and going well.

As you think about research and development expense levels in our second quarter, be mindful that the preproduction wafer processing in Utah will be reflected as R&D expense, not inventoried or charged directly to costs of goods sold.

Accordingly, R&D expense for Q2 could be as high as $250 million.

On qualification of the new fab, R&D expense would return to more normal levels.

Our forecast for capital spending in '07 is $4 billion, approximately $1.5 billion of that '07 capital spend is expected to come from partner contributions.

The second half of fiscal '07 will really be the first period to see noticeable benefit of increased volumes coming from Manassas and Lehigh NAND ramps.

When we look at changes across the balance sheet over the quarter, the most notable change is the increase in property, plant, and equipment which reflects the ramp in Virginia and the buildout in Utah.

Both inventory and accounts payable saw increases in part reflective of the ramp increases associated with NAND.

I'll close there and turn commentary over to Mike.

Thanks, Bill.

As expected, Micron's fiscal Q1 was strong across all of our large focus market segments.

Principally, the computing, mobile communications, and consumer electronics segments.

Significant demand drivers are PCs with increasing memory content, wireless handsets with growing camera penetration rates, and seasonal builds of consumer electronics gear.

We continue to shape the company as a broad-based supplier of semiconductor solutions, and this quarter's results speak well to the progression of this strategy.

Computing demand for Micron is buoyed on several fronts.

Strong seasonal demand, our alignment with customers that are market share gainers, and increasing memory content associated with Vista deployments have resulted in a favorable DRAM environment in the computing segment.

I believe it worth noting that we are on the front edge of feeling the Vista impact and this will layer in throughout 2007 as the new operating system gets traction in the market.

All computer providers began increasing content this fall in anticipation of the release.

Based on input from customers, I will not be surprised if two gigabytes per system quickly becomes the most popular configuration for optimal balance of price and performance.

In the server space, we remain positioned as one of a small subset of suppliers delivering the full range of memory technologies and densities required in the quality and reliability conscious server market.

To restate what I have said repeatedly in the past, we are not abandoning the desktop and notebook markets by any means, rather we are optimizing our technological advantages in scale to broadly serve those computing customers that can offer a wide range of come suitor solutions.

The favorable computer marketing environment was a major contributor toward the 15% DRAM average selling price boost quarter over quarter.

There was some notable shifts in memory technology demand during the last quarter.

Server customers made a fairly dramatic transition from DDR to DDR-2 mid-quarter.

This transition increased overall DDR-2 demand and we redialed wafer inputs accordingly to achieve appropriate balance of DDR versus DDR-2 output.

Another significant technology event in fiscal Q1 was the initial production ramp of our 78 nanometer, 1 gigabit DDR-2 device.

In addition to enabling us to meet our server customers high-density memory module and performance requirements, this device has an industry-leading die size and cost profile that makes it an attractive solution for the notebook and desktop markets as well.

In the mobile communication space, which continues to be the most significant demand driver for our imaging business, we saw another quarter of strong growth and high gross margins.

Higher pixel density remains the trend as we saw our business transition to over 70% at one megapixel and higher, and notably, over 50% at 2 mega pixel and higher pixel density.

Competition in the mobile space will continue to increase, but we are in great shape to leverage our leading position to mine untapped market share at mobile handset makers.

Looking forward in the very near term, growth could be dampened due to seasonal demand drop off and potential build up of handset component inventories in the channel.

From a handset memory perspective, we continue to round out our product offering in the areas of low-power DRAM and cellular RAM.

We are starting to get commercial traction with MCPs integrating our low-power DRAM and NAND flash chips.

While this will not be saying contact revenue contributor in fiscal '07, it is another key piece of the portfolio enhancing relationships with our wireless customers.

Speaking of NAND flash, our 72 nanometer deployment continues to go smoothly and we are on track with 300 millimeter capacity additions in Virginia.

The market has been reception to Micron product and we are well-positioned to place our growing production capacity.

NAND is clearly a competitive battleground right now and will continue to be as we wrap up the consumer buying season and enter what is typically a slow demand period for consumer electronics and peripherals.

We are pleased with early OEM customer interest in card-level products from Lexar, and will be working aggressively to enhance Lexar brand presence in the retail channel.

One by product of our diversification strategy has been the necessity to carry an increased level of inventory to support proprietary products, or in many cases we have a sole source position.

To this end we saw modest inventory growth in imagers, synchronous DRAM, DDR and RLD RAM.

For more commoditized and multi-source products, such as DDR-2, we ended the quarter right about where we began with about 1.5 weeks of finished goods on hand.

Looking forward, I continue to be encouraged by think ongoing strength in the DRAM market.

Many Decembers are slow, but this year, most customers are mandating continuous shipments through the holidays.

Setting the table for what we expect is going to be a great start in calendar '07.

Thanks for your continued support and interest in the company, and happy holidays.

[OPERATOR INSTRUCTIONS].

Your first question is from Michael Masdea of Credit Suisse.

Please go ahead.

Thanks a lot and great quarter.

Maybe a question on the inventory front.

We have seen a lot of strength later in the year than I think a lot of people were thinking earlier this year.

Any concern given that inventory has been so lean that your customers are building out some inventory?

Mike, you made a comment about wireless, if you can give a little more color on that.

I think it varies by segment, Michael, first of all, let me address them by size for us anyway.

In the PC area, absolutely not.

Matter of fact just over the weekend I got a call from an executive at one of our PC customers in a panic that they couldn't get enough memory to put in systems that they were selling that day for delivery by Christmas.

I believe that customer is a fair proxy for the rest of the industry.

Absolutely there's no inventory buildup at all in the hands of the PC makers.

I don't necessarily believe that to be the case in the mobile phone area.

We are aware that some of our mobile phone customers as well as some of our module integrators in the camera space have accumulated inventory and it's reasonable to expect it's going to take some time to work through in the early part of 2007.

Those will be the two most significant areas where I think I have pretty good visibility at the component level.

That's overall taken the supply chain as you think inventories went up a little bit in the quarter?

I don't believe they did in the PC space.

I believe they did in the mobile handset space, yes.

Great.

Try to build up some inventory weakness, or do you think they are going to try to keep it lean?

I think they would leave to build up inventory, because they are all expecting a pretty significant boost in demand, at least at the memory-per-system level associated with the operating system roll out.

It's just a question as to whether or not they are going to be able to accumulate inventory.

We don't have any customers today that would turn away any shipment of DRAM, period.

There's no way they would, and I think they would love to accumulate some inventory a little ahead of the consumer release of Vista.

Last question, production versus shipment, can you run us through what happened this quarter on those two metrics and what your plan is for the coming quarter.

You can probably tell, Michael.

We basically shipped everything we made.

That's the simple answer in terms of the PC segment.

And as Mike indicated we built a little bit of inventory strategically and basically some of the specialty areas, and the image sensors we might be sole source in those products.

Any initial targets on demand or the supply side in terms of how you are going to grow next quarter.

We can give you input on bits growth next quarter.

We see DRAM up to mid-single-digits, these are all production numbers.

We see flash up similar to what we saw this quarter, and image sensor wafer-wise is fairly flat in that upper teens to lower levels, so that will be more impacted by-- as Mike described what is going on on the inventory curve.

Great.

Thanks a lot, guys.

You bet.

Thank you.

Your next question is coming from Shawn Webster of JPMorgan.

Please go ahead.

Thank you.

Can you give some color on the demand environment for what you saw for PCB RAM in Q4 in terms of sequential bit growth in Q4 and how you think the demand environment is looking as we go into Q1 and then I have a follow-up, please.

Sure, my best term in terms of demand growth in calendar Q4 versus the prior quarter, calendar Q3 was certainly upwards of 10%.

We were not able to satisfy the demand in calendar Q4, so we're still coming up short with respect to what customers would want from us.

Looking ahead in the very near term, if I aggregate say five or six of our top PC customers we're looking at megabit demand growth in calendar Q1 of zero to 5%.

In line seasonally perhaps slightly higher than what would typically be seasonal calendar Q1.

On the pricing environment for DRAM you said ASPs were up 15 in DRAM; is that right.

Overall ASPs were up quarter over quarter 15%.

If we were to get a little more granular on that, if I were to say, lump the DDR-2, combine the DDR-2 products that are going into PCs, they were in the neighborhood of 25%, and the rest of the portfolio was down-- I'm sorry not down-- not up as high as 15%, but obviously reaching that balance of 15%.

I see.

In the DDR2 area we have had 7 straight contract pricing negotiations where prices have increased, and I would have to go back to 2001 when Windows XP was released to have that kind of price lifting performance.

If pricing stays flat to where it is today, what do you think your pricing could do sequentially in the February quarter.

If pricing were to stay exactly flat where it is today, on a DRAM price-per-bit basis, it would be flat with fiscal Q1.

In the DDR-2 space it would be about up 3% or so.

Okay.

Thank you very much.

Sure.

Thank you.

Your next question is coming from Hans Mosesmann of Mellenberger Capital.

Please go ahead.

Thanks.

Thanks.

Quick question on the NAND environment in general entering the first half of calendar '07.

Can you give us a sense of what is happening out there?

There's a lot of indications that a tremendous amount of bit growth in supply is coming online, can you give us a flavor?

Sure.

I can give you a flavor on my perspective on demand and we can also talk quite a bit about what Micron's doing on the supply side.

I can't speak for anybody else.

As you know we're growing our NAND output pretty significantly and either Kipp or Mark can address that here after I'm finished answering your question.

On the demand side, we have seen demand weaken for the Christmas season, if you will and our expectations are that we're going to be in a relatively weak demand environment in calendar Q1.

And continue to be in an environment where supply exceeds demand, And the logical conclusion you could draw from there is we're going to continue to see price pressure and that's absolutely what we're expecting.

I can address the NAND production side.

Mark can follow up with some of the technical milestones we've hit as well.

We-- we're starting to see some pretty strong sequential growth in NAND that's going to continue.

We're not going to give out some exact numbers for next quarter, but it should be every bit as good as we saw this quarter.

Year-over-year, we have mentioned on prior calls we'll be well over 200% year-over-year.

On the technology front, what we're doing from a cost perspective on NAND, I think it's safe to say we're hitting all of the milestones we set for ourselves and we're pleased with the way the technologies are rolling out and the fabs are ramping.

Relative to how we think we'll do from a cost perspective, we're looking for 40 to 60% for the industry over the year, we think Micron will exceed that number with an opportunity to continue to upside the production as we move forward.

Relative to exactly where we are on some of the technology fronts, 72 nanometer continuing to ramp well ahead of schedule, 50-nanometer looking very good and very healthy in the manufacturing environment, and MLC qualification and production early in the calendar quarter.

Okay.

As a quick follow-up on the NAND front, what was Lexar's in terms of revenues?

I think the expectation was $160 million for the quarter?

Yeah.

We gave a reference, just so you guys could model when with first took over Lexar.

Now our reference point is going to be for our entire NAND business.

Which was approximate about approximately 15% for the quarter.

Fair enough.

Thank you.

You bet.

Thank you.

Your next question is coming from Nicolas Gaudois of Deutsche Bank.

Please go ahead.

Hi.

Good evening.

Could we start by having some color on bit growth, please, for the prior quarter, for DRAM, either production or shipments, and maybe if you would care to give us some color on the NAND side as you stated that basically you expect pretty much the same level for fiscal Q2?

Thank you.

Yeah, we don't be providing specific bit growth on shipments, which I think was the first part of your question.

And was the second part production related to DRAM or NAND?

Yes, DRAM, yes, first of all.

You should see quarter over quarter in the mid-to high single-digit production coming from Micron.

And again, if you followed Micron for a period of time, you'll know that we allow you guys the flexibility to figure out what shipments will do during the quarter.

Right.

But for the prior quarter in fiscal Q1, DRAM production grew by how much.

Actually it was a little higher than that for the core DRAM segment, for production in fiscal Q1.

Great.

And NAND you said you would grow by pretty much the same amount sequentially in fiscal Q2.

Would you care to give us any color on the prior quarter on that?

No, not yet.

We are very sensitive of what our competitors are listening to us say on these calls and that's one area where we think we're executing pretty well and we're going to continue to execute in this manner, if you will.

Figure 200% year-over-year, and we're-- already having some fairly strong bit growth quarters.

Okay.

Fair enough, and just as a follow-up, on the imaging side as you are saying-- Mike just stated some inventory correction on growing customers, will we be looking for seasonally down quarter for February quarter on imaging or maybe a bit worse than that, revenue wise?

We have 11 weeks left in the quarter, so it would be difficult for me to say with-- quantitatively what is going to hatch but we are dealing with two issues here.

Number 1, our customers do have inventory in select product configurations, and we are also going into what is seasonally a slow selling period for mobile phones and mobile phones continue to be the significant driver of demand for our imaging business unit.

So we have those two issues to deal with, and it is going to be a challenge to keep things growing on the rate that they have been.

Great.

And with that should we expect operating margins to contract for imaging--

Again, that's one of the areas we're going to stay away from.

We'll give you cost direction, and really up to you in the market to decide what the ASPs are relative to that.

Okay.

Thank you very much.

You bet.

Thank you.

Your next question is coming from Alex Gauna of UBS, please go ahead.

Thank you.

I was wondering if you could give a little more color on handsets.

I know you are seeing weaker than normal seasonality.

What would you define as normal seasonality, and how much weaker are we looking at with the inventory correction?

I'm going lump memory and imaging in here and put things in terms of units.

Flat to down 10% is about what I'm looking at for calendar Q1, and I'm not an expert on the mobile phone business, but my expectation is that would probably be in line with what the case seasonal, maybe slightly-- slightly greater decrease due to inventory situation.

Okay.

And are you seeing anything opportunities in the first half of the year in mobile handsets in terms of getting your specialty DRAM content up?

Yes, we are.

Primarily in those cases-- I mentioned earlier that we are getting more traction in the MCP space, which is, for us, anyway, it's high density NAND chips of a gigabit or two gigabits attaching to a 256 megabit or 512 megabit DRAM.

Obviously or should be obviously aimed at mid-to high end mobile phone business, and I don't want to overstate this, because it still is going to be relatively insignificant in terms of the a revenue driver for us in '07, but we are growing that business pretty nicely as we move through the calendar year.

And can you update us on your MLC progress on the NAND front?

MLC-- we're anticipating starting to ship product in the-- probably early in the first calendar quarter.

From a technology readiness perspective we're really crossing the Ts and dotting the Is and crossing the Ts, as we go out and benchmark our MLC offerings relative to the competition, we believe we're from a quality cycling liability perspective, we're ahead of or exceeding that available in the marketplace today.

So we'll very happy with how our MLC is going.

We'll be rolling that out throughout 2007.

Thank you very much.

Congratulations nice quarter.

Thank you.

Your next question is coming from James Covello of Goldman Sachs.

Please go ahead.

Good afternoon guys.

Thanks so much.

Question first on an argument that a lot of people are making about the obsolescence of 200 mm capacity as it relates to the ability to produce DRAM, in other words, sometime in '07, it's not going to be economical to produce DRAM on 200 millimeter capacity any more.

Do you have any thoughts on that as it relates to your business or the industry supply?

I think you need be more granular when you say DRAM.

There's lots of DRAM in the market place that's not the high density going into the computer space or the PC space.

So to the extent it is going into the computing space, and it does need to be the high density, lowest geometry achievable, I think the answer is, yes, that is the case, and in fact if you look at Micron's own production, we essentially don't produce anything any more on 200 millimeter of any significance that goes into that space.

However, we think the 200 millimeter for the specialty DRAM will be applicable for quite sometime in the future for a number of years, where it doesn't drive the density so much.

As an example, we still ship 64 meg today into some applications and where it doesn't need the density, then I don't think that argument holds true.

How much 200 millimeter capacity today is producing high density DRAM?

In other words, how much might become obsolete relative to that high density DRAM as we go through '07?

What I'm trying to get handle on, as we're looking at the supply and demand models for '07, what should we assume comes offline in terms of being able to produce high density?

I don't have an good estimate.

I would suspect that the vast I can't imagine there's much left of 200 millimeter running high density DRAM.

There's certainly not for us.

As I think about the other competitors in the arena, most of them have been in that transition this year, if not before.

Okay.

Final question for me do you have a depreciation estimate for us for fiscal '07?

$380 million is what came in in the first quarter and we were looking at about $1.8 billion for the fiscal year, given the significant growth at Manassas and at Lehigh.

Terrific.

Thank you so much.

You bet.

Thank you.

Your next question is coming from Glen Yeung of Citigroup.

Thanks.

Can you hear me okay?

You bet, Glen, go ahead.

I was just listening to the forecast you guys gave for bit production in the first quarter of mid-to high single digits, and then bit band growth of flat to up 5%, and when I take that as one point, I sort of layer on the fact that clearly there's not enough PCBM going to the market today, how should we think about pricing-- I know you don't like to give pricing forecasts, but-- it would argue that pricing will be down a little bit in the first quarter.

Well, keep in mind-- by the way I'm not going to make a price for increasing prices or decreases prices.

The prices will be what the prices will be.

Our market share in this space is in the neighborhood of 12 to 14%, so significant production increase for us not going to have a huge bearing on the overall market.

So if you take the number that we shared with you, which is our production output increasing high single digits and demand increasing maybe low to mid-single digits, yes, we're going to be in a position to take a little bit of market share in calendar Q1, and thankfully I can get some of our customers off of my back with respect to us not really living up to what they expect from us in terms of production output.

To the extent that that marginal increase in output has an impact on pricing, so be it.

If it does we'll just deal with it.

Right.

And then I think I heard over the course of the call you suggest that you might see 2 gigabytes as sort of the standard configuration relatively quickly.

Is that assumption that in 2007 the average configuration per PC is 2 gigabytes or just for the Vista-related systems.

I'm speaking specifically about Vista systems and this is way out of my area of expertise with respect to what the penetration of Vista is going to be in the overall PC market.

But the dialogue we have had with two customers in particular on memory con figs is it's centering on two gigabytes.

Do you have a sense as to what bit per box growth was over the course of the quarter and any feel for what it might be in the next quarter?

I believe-- the data-- by the way this is third-party data, but the data we have on bit growth for box for 2006 was about 39%, if I'm not mistaken.

I would say it's higher in calendar Q4 than the first three quarters of the year, and what we're looking at in '07 is between 40 and 45%.

I personally believe that's light because I think it discounts the memory content for Vista.

On the slide we show on the webcast, basically if you average '06 memory content per system, you are about 750 megabytes and we're exiting the year at about 950.

Okay.

I appreciate it.

Thank you very much.

Thank you.

Your next question is coming from Douglas Freedman of AmTech Research.

Please go ahead.

Hi guys.

Just a quick one on the MLC introduction, at what node are you going to bring that in?

And then a few follow ups.

MLC will be first introduced at 72 and followed up at 50, we did have some limited MLC at 90, but the bulk is coming in at 72 and 50.

And also sticking with the NAND, if we could, what percentage of the NAND this quarter was supported with internal production?

Basically what you are asking is did we supply any to Lexar, isn't it, Doug?

Yes.

And the answer is No.

To Lexar continues to be sourced externally?

Yes, in fact we have stated publicly, probably by summer, second half next year, best case.

That we would be starting to supply any major product to Lexar.

I'm trying to get at what your internal bit production was.

But let's move on a little bit, though.

Wafer starts for Q1, any projection on how much we should expect wafer starts to be up for Q1?

That will be up a couple Percent across the entire production operation.

Okay.

And then in the past you have offered a gross margin on the image sensor product line.

Yes. 41% for the quarter.

And lastly-- well, a few-- few more quick ones.

One timers expected in Q1?

I know we have got the Avago purchase that just happened, what is the accounting treatment on that going to look like for Q-- in your fiscal Q2?

You have got a little better than $50 million, and the bulk of that is going into intellectual property acquired and the assembled work force, so amortized over a couple year period.

And one last one for you, Steve, if you could-- you have talked a lot in the past about being a consolidator in the industry.

Are you still looking at more memory-related acquisitions?

Can you let us know a little bit of what our appetite is there at this point in time, and what you see in the landscape?

I think we have been pretty consist important on that front as you have already noted.

We'll continue to be interested.

Of course, we're not interested in something hostile, so we would have to-- you know, we're passengers on that bus, and I think the reality is that while the DRAM market is okay, some may say it's good, some may say it's okay, depending on what product segment you are in, but the fact of the matter is while the market is in this environment it is right now there's probably not a lot of opportunity because people just continue to drive ahead on the road.

To the extent that it gets more difficult, I think that's where you see opportunities surface, and as I said, for quite some time, we're interested in, and we're always looking.

You have got-- if I could note you have a growing marketplace in the mobile market with NAND headed into that market and your image sensors headed into that market.

Would you at all be interested in looking at newer assets?

Well, I'm not going to go down that path and comment on what may or may not be out there for us to look at.

And I'll just leave it at that.

Okay.

Thank you.

Thank you.

Your next question is coming from Daniel Amir of WR Hambrecht, please go ahead.

Yeah.

Thanks a lot.

A couple of questions, first of all on the image sensor business, you made some comments on the increasing competition in the market, can you elaborate on that a bit more?

And then a follow-up to the image sensor is that you were saying about 70% is north of one mega pixel, what is kind of the expectation by middle of '07 to that ratio?

I'll let Mike handle the pixel density penetration for this market.

With respect to composition in image sensors, I think we are starting to see-- in particular since since we pretty much pioneered I think the technology ability to be higher quality and lower pixel size, et cetera, than the CCBs, and as a result we have generated a lot of success.

It's of course a lot easier for everybody to follow us in that, because everybody gets our roadmaps now.

As a result we're seeing a lot more people plow into that space.

In particular, of course, it also has been growing in size, so it's becoming more attractive.

When we look out over the horizon, I can name all of the competitors out there that you know as well as I do.

If you look at some of the larger semi producers that we already compete with they are going to be in that space, and they're trying to establish that position, and I also think you are going to find a couple of more traditional CCD companies trying to migrate to that space and establish position as well, and I think the success of that will be dependant upon what parts of the total pie are they able to contribute technology too.

Because you have both semiconductor now, basically pixel technology, but you also got to remember you have optics and packaging capabilities, IE modules, et cetera that become a factor, so the names are obvious of those that have that capability, and of course, we have certain pieces of the puzzle as well, and we're aggressively trying to either organically build or acquire the parts that we don't have.

On the picks sell density question, the-- just to make sure I'm clear on this, the 70% of-- at one-- one megapixel or higher is in reference to our revenues.

If I were to put in that unit terms it would be approximately 50% of our business is 1 megapixel and higher.

Couple of things happening here.

The two megapixel chip in the mobile phone area is probably our most successful chip currently with respect to it's profile over the next couple of quarters.

So I believe that that's probably going to continue to increase.

The significance, by the way is the higher we get in pixel density we get, I'm generalizing here, but the higher in pixel density we get, the narrower the competitive situation is and the conclusion you could draw is the higher our margins are, and that's true.

Having said that, we have a few key projects going with VGA sensors as either second cameras in a two camera phone, or the primary camera in a low-end phone that are volatile in terms of volume.

They could spike at any point in time and throw that ratio, if you will, out of whack.

If that were not to occur I would say this is just going to continue to increase in terms of pixel density moving up towards 2 and 3 megapixel.

One other question related to the NAND business, you commented on the MLC shipping here in Q1, or starting to ship here what is kind of the road map to end to of the year?

What percentage of your production could be MLC?

Well, I don't think we want to get into too much specificity, but I would say by the end of the year, depending on how market acceptance is, we'll be over 50%.

I think more generally relative to NAND growth throughout the year, we have a pretty good surge coming out of Virginia in the first half, and you really should think about Lehigh as really being fourth quarter before you start seeing significant impact in volume from there.

Okay.

Thanks a lot.

Thank you.

Your next question is coming from Tim Luke of Lehman Brothers.

Please go ahead.

Thanks.

I was just wondering if you could clarify your commentary with respect to how we should see OpEx trending in the coming quarter, and separately given the progress on the NAND margin side, is there any change in the way you proceed across favor towards sort of break even in terms of the time line in '07.

Sure, Tim, this is Kipp.

On the operating expense, SG&A we have guided basically 140 to $150 million per quarter going forward here.

You are going to see a spike here in fiscal Q2 of somewhere up towards 250 as we move more and more process qualification, product qualification through Lehigh.

We will expense that as Bill mentioned.

Then as he also said, that should trend back to more normal levels of in that $170 to $200 million range, in terms of -- sorry, go ahead.

Carry on, there.

That's fine.

Okay.

In terms of our cost NAND profile.

We think the industry will probably be down 40 to 60% and we think we'll be significantly above that, and we already are seeing double-digit sequential quarterly cost reduction as well.

In terms of how that relates to margin, I'm going to let you overlay what you think your ASP assumptions are.

What was your prior commentary with respect to break even?

We haven't ever projected a time frame.

All we have done is consistently given cost-reduction targets, which we're exceeding today and let you guys decide what the ASP is going to be.

Lastly, Kipp on Lexar if you have any color on how you perceive that trending in the fiscal second quarter and what some of the issues are for that business currently.

Maybe I'll let Mike speak to the more retail part of that and I can speak to perhaps some of the more operational aspect.

Tim, the obvious issue with the Lexar business which is primarily retail is managing the inventory we have in the channel.

In a period of rapid market price reductions, obviously the more inventory exposure we have with respect to channel inventory, the more potential risk we have, so we're watching it very, very closely.

And I'm going to generalize here, but our focus on the retail side of the business, the Lexar side of the business is definitely going to be more aimed at the operating margins as opposed to growing top-line revenue, particularly in this kind of environment, where we are looking to be in an oversupplied market situation.

And in terms Tim, of any guidance relative to gross margins going forward, we just religiously don't do that I can share you that Lexar has positive gross margin to it.

Okay.

Thank you, Kipp.

Okay.

You bet.

And with that we would like to thank everyone for participating on the call today.

If you will 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.

This does conclude today's Micron Technology first quarter 2007 financial release conference call.

You may now disconnect.