美光科技 (MU) 2007 Q2 法說會逐字稿

At this time, I would like to welcome everyone to the Micron Technologies second 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.

And I'd like to welcome everyone to Micron Technology's second quarter 2007 financial release conference call.

On the call today is 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 second quarter 2007 financial press release, it is available again 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 p.m.

Mountain time.

You may reach that by dialing 973-341-3080 with a confirmation code of 8533070.

This replay will run through Tuesday, April 10, 2007 at 5:30 p.m.

Mountain time.

A webcast replay will be available on the Company's website until April 10, 2008.

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.

Please note the following Safe Harbor statement.

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

We wish to caution you that such statements are predictions and that actual events or results may differ materially.

We refer you to the documents the Company files on a consolidated basis from time to time with the Securities and Exchange Commission.

Specifically the Company's most recent Form 10-K and Form 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 that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.

We are under no duty to update any of the forward-looking statements after the date of the presentation to conform these statements to actual results.

[End of recording] I'd now like to turn the call over to Bill Stover.

Thanks, Kipp.

I'll first summarize the financial results for the quarter and the six months ended March 1.

For the second quarter, net sales totaled $1.43 billion, approximately 16% above the same quarter a year ago, but down from the immediately preceding quarter.

For the quarter, the Company recorded a net loss of $52 million or $0.07 per diluted share.

For the six months the Company recorded net income of $0.08 per share on net sales of $2.96 billion.

The major factors affecting this quarter's results were significant average selling price erosion across DRAM and NAND memory, sales volumes in specialty DRAM and image sensors down largely as a result of the widely acknowledged slowdown in sales of handsets.

And the Company achieved noticeable cost reductions for its DRAM and NAND devices.

Gross margin for the quarter dropped to 25% as the magnitude of average selling price declines could not be offset by reductions and cost per part.

Research and development expense levels in the second quarter reflect the wafer processing charges through qualification of new NAND devices in our 300 millimeter operation in Virginia.

Particularly our 72 nanometer, 8 gig MLC device.

We have acknowledged that our ramp of the Utah 300 millimeter NAND operations on devices previously qualified in Virginia is on schedule and going well.

R&D expense for Q3 will likely run between 200 and $220 million.

Future quarters will vary depending upon quantities of preproduction wafers processed across our global fab network.

Selling, general, and administrative expenses were down approximately 15% compared to the prior quarter.

We previously communicated targeted reductions in overhead and are on track to accomplish those reductions in fiscal year '08.

For the next couple of quarters, we expect SG&A to run between 140 and $150 million.

There are a couple of changes on the balance sheet worth commenting on.

Total inventory dollars increased 179 million over the quarter with approximately half of that increase being in finished goods.

The growth in work in process inventories was commensurate with the production ramp at Manassas, Virginia.

Two-thirds of our forecast capital spending for '07 occurred in the first half of the year.

And with incremental equipment financing placed in the second quarter, our debt to equity ratio remains quite low at 10%.

I'll turn the commentary over to Mike.

Thanks, Bill.

The market presented us with challenges in fiscal Q2 as we managed through a variety of factors including slow demand attributed to seasonality, inventory overhang in mobile phones, and an oversupplied DRAM market spurred on by industry-wide output growth.

We've always felt the impact of demand seasonality in the computing market as the industry tends to experience seasonal demand spikes around the back to school and Christmas times both falling in the second half of the calendar year.

As Micron products have penetrated higher growth consumer markets such as mobile phones and personal audio players, exposure to seasonal demand has actually increased.

We felt the effect of this in our fiscal Q2.

In addition to seasonal impacts, a number of customers in the consumer electronic space, most specifically in mobile phones exited the holiday period with measurable amounts of finished goods in semiconductor component inventory.

The net effect was a reduced appetite from these conductors even beyond normal seasonal patterns for Micron products such as NAND flash, low power DRAM including pseudostatic RAM and image sensors.

As a result we accumulated some inventory in the mobile phone component space in fiscal Q2 and are making output levels in an effort to generally rebalance.

We are fortunate in having designed some flexibility into our manufacturing processes such that multiple products with different functionality can be manufactured utilizing a common toolset.

On the bright side with the inventory in place, we are in good shape to be able to support upside business from our customers as they work through their inventories and resume growth.

While the mobile phone component revenue level paused in fiscal Q2, our product development efforts haven't skipped a beat.

In the imaging area, we are continuing to hold position as a technology leader garnering key design wins in high end phones with our advanced 2, 3, and 5 megapixel sensors and in the digital store camera area with our new 8 megapixel chips.

We are introducing a series of cost reduced imagers and low density pseudostatic RAM chips to take advantage of one of the key growth segments for low bill of material cost mobile phones for growing markets in China and India.

We have moved our 72 nanometer, 8 gigabit MLC NAND chip to mass production and are confident that we've intercepted the competition technologically.

We've completed development of the 50 nanometer process, seen initial silicon on our first 16 gigabit, 50 nanometer MLC chip and we'll ramp this on the heels of the 72 nanometer process in the Boise, Virginia, and Utah factories.

About one month into the quarter and well past the holiday period, DRAM demand exceeded supply, market prices were increasing, and customers were generally in the mind set of supply acquisition and inventory accumulation.

In January, market dynamics shifted quite abruptly.

I believe this shift was primarily attributed to industry-wide supply expansion and secondarily to seasonal demand softness.

The end result was an immediate shift in customer behavior from DRAM inventory accumulation to DRAM inventory depletion, which in turn resulted in a DRAM market price reduction.

Prices steadily declined since January into and through the first month of fiscal Q3.

In the past several days, we have seen both DRAM and NAND prices stabilize.

We are quite bullish on demand prospects for the balance of this year as electronic equipment unit sales continue to be robust and a variety of factors are leading to strong content growth for both DRAM and NAND flash.

In particular, we believe 2007 PC DRAM content for system growth will exceed 50% and the move to solid state disks and flash based video players is being accelerated as elasticity kicks in from the NAND price declines of the past year or so.

On the DRAM technology front, Micron couldn't be in better shape.

Our 78 nanometer process has reached yield maturity in record time and coupled with 6F squared circuit design we believe we have a significant die size advantage relative to the competition.

This, in addition to our continued growth of 300 millimeter production translates to substantial cost per bit reductions and productivity increases.

The flagship product on the 78 nanometer process node, the 1 gigabit DDR 2 chip is being placed on a variety of high density module configurations for the server, desktop, and notebook markets.

We are rolling out an entire portfolio of new DRAM products for all market segments on this technology as we move forward.

The Company is executing well across a variety of fronts in all three of our product areas.

DRAM, NAND, and CMOS imagers.

We see significant intermediate and long-term demand drivers for all three of these product segments.

With just a bit of cooperation from the markets, we look forward to demonstrating this execution to our customers and shareholders.

I'll turn it back over to Kipp.

Thanks, Mike.

We'd now like to take questions from callers.

Just a reminder, if you are using a speaker phone, please pick up the handset when asking a question so we can hear you clearly.

With that, we'd like to open up the line.

Thank you.

[OPERATOR INSTRUCTIONS] Our first question is coming from Michael Masdea of Credit Suisse.

What do you think is driving this recent price move in both the NAND and DRAM side?

And is it sustainable, you think?

Well, that's the multibillion dollar question, Michael.

On the NAND side I think we're seeing basically that the demand strength which really hasn't dissipated at all, but we're seeing that, I believe catch up with supply and that's resulted in the price stability which has actually been in place a couple of weeks on the NAND side.

On the DRAM side, I think in combination, clearly we're seeing the content growth in the PC area.

There is no question about that.

And some of that's being driven on the consumer side by the new operating system and other content growth is just being driven by new applications.

But I think we're also seeing the effect of the inventory depletion by some of our customers and it's resulted in them getting back into the buying mode again.

And this is really only a week or so old.

So it's too early for us to tell whether it's sustainable, but we're quite encouraged that things appear, anyway for the time being, to have bottomed out and we've got everybody back in the taking mode again which is quite encouraging.

And then on both the DRAM and the NAND side, give us an idea of what you're expecting in the May quarter in terms of both production and shipment growth?

You bet.

And Michael, as you probably recall we don't try and guide you the shipment piece.

But manufacturing operations are running super right now and so our guidance on bit growth for DRAM will be high single digits to low double digits.

And we're staying consistent with our guidance on bit growth on, for manufacturing on NAND which will be north of 50%.

I guess the question, another way to ask it is are you going to need inventory to get there, that's pure production, right?

That's pure production, that's correct.

The last one for me real quick is just the CapEx side.

It doesn't look like you've changed it unless I missed it.

Any thoughts on the CapEx, any need to change that?

And then looking into next year, we've been up pretty high level of CapEx to sales, do you see that tend to trend down or any earlier thoughts on that?

Yes, Michael, our reference for fiscal year '07 had been 4 billion and that's still looking good for '07.

With the progression completion really at Manassas and the significant capacity additions that have already been underway at Lehigh, fiscal year '08 should see a noticeably reduced capital spending for '05.

We'll update you at the next conference call on an '08 number.

But you can anticipate that it's noticeably down from the 4 billion.

Thanks, everybody.

Thank you.

Our next question is coming from Glen Yeung of Citigroup.

Thanks.

We've got [Inaudible] a new notebook platform, I guess next month now.

Just wanted to get a sense from you all what you think the implications are for DRAM consumption?

I couldn't speak, this is Mike speaking, I couldn't speak specifically to the introduction of the new platform.

But in general, our view of PC demand is pretty strong and we see it getting stronger as kind of the seasonal demand periods kick in here as we move throughout the year.

Are there any inflection points in content per system?

You think it's a pretty linear trend throughout the course of the year?

I think it's probably going to be linear throughout the year until we start to see the effect of the corporate upgrades to the Vista operating system.

In our view that's really kind of a maybe an end of this year phenomenon if not a 2008 phenomenon.

And that's going to result in a pretty significant increase -- it probably get layered in over the course of the year.

That will result in a pretty significant increase.

I guess another way of saying that is that we have not seen any benefit in the corporate area from Vista upgrades yet on content per system.

And that's still to come.

Can I just follow-up on that statement you made.

Is there something that suggests to you it will be end of year or early next.

Is it just your speculation on how you think of the--?

To be perfectly honest with you, I'm just basing that on our own experience.

Assuming that we're a typical Fortune 500 company with pretty specific IT needs, we're looking at if I'm not mistaken end of this calendar year, if not early next year, and probably some of the contributing factors would be, of course budget, but also security.

Security of the platform itself.

That's probably the most significant factor.

Glen, one other comment there.

A lot of interrelated software elements that most corporations need to bundle together with that upgrade.

And I think it's just later this year before a number of those are available.

Right.

Makes sense.

The other question I had was on the ability to move wafers around between NAND and DRAM.

Whether or not you had any thoughts as to making any changes in your plans and secondarily if you expect to see any changes in the competition's plan.

As we've indicated before, we do have flexibility between NAND and DRAM.

Of course, we work through those changes with our partner Intel as we do share NAND capacity with them.

We've made adjustments between NAND AND DRAM already and I think we'll continue to do that as we see the various market strengthen or weaken relative to each other.

Maybe just one last quick one, which is your customers are on the tape now talking about price stability in the second half of the year for DRAM.

I know it's hard for you guys to try to forecast that, but I just wonder if you can comment on the reasonableness of an outlook based on what we've seen in terms of supply and demand?

Price stability as opposed to--?

Price stability is kind of an odd thing in DRAM, right.

But they're on the tape using that language.

Let's sort of put some quotes around that and just get your thoughts there.

Well, there's only two things that contribute to whether price going up, down, or stable, and that's relative balance of supply and demand.

I can really only speak with a lot of knowledge on the demand side.

And we continue to believe that 2007 is going to be a stronger than typical year for demand, primarily driven by content per system in the PC area.

But quite comfortable that we're looking at something north of 60, 65% in terms of bit growth and demand in 2007.

You guys are the best judge of supply and as far as if it's going to be less than 60 or 65, prices are going up, are going to be stable.

If it's going to be significantly more than 60 or 65 prices are going to probably keep coming down.

Okay.

Thanks.

Thank you.

Our next question is coming from Shawn Webster of JPMorgan.

Yes, thank you, good afternoon.

Can you talk a little bit -- you mentioned earlier that you thought that you saw depletion in the channel inventory.

Can you give us an update on what you're seeing maybe a little bit more detail there?

And then I have a couple other follow-ups.

Sure.

I can't speak to whether it's the price stability that we've seen in the last week let's say or actual inventory levels being depleted by our customers.

I don't see our customers inventory levels.

But the activity in terms of customers wanting to come in and place pretty significant buys has picked up tremendously just within the last several days.

We're actually looking at customers who have become accustomed to buying day by day now looking at layering in forward buys and locking in pricing and so forth.

And all that kind of anecdotal activity is a pretty good indication to me that our customers believe that things have kind of bottomed out here and they probably feel quite a bit better about the prospects of maybe establishing some inventory buffers today, as opposed to when I last spoke to you guys a couple months ago, which was an entirely different scenario.

Sounds like it improved.

Can you also tell us what your DRAM shipments did in your fiscal Q2?

Sure.

Yes.

Our shipments on a bit basis.

Let me make sure I'm correct.

I think they were up 10, 12% quarter-over-quarter if I'm not mistaken in Q2 verses Q1.

The bit demand -- global bit demand in calendar Q1 and Q2?

My assessment would be and this is directly from polling our customers that when all is said and done bit demand in terms of purchases is going to be down in Q1 versus Q4.

And in Q2 we're probably looking at growth of I'm going to give you a pretty wide range 5 to 15%.

That's fresh data right from our customers within the last couple of days.

Okay.

Thanks.

And then finally can you tell us what your -- give us an update on your sensor business and tell us what it did sequentially or what percentage of sales it is now?

In terms of percentage of sales it's in double digits, between 10 and 15% of total sales.

We had negative growth quarter-over-quarter in both unit shipments and revenues.

And I would attribute that to probably three factors and I'll list them in order of significance.

Number one would be the impact of the seasonal slowness in demand, if you will, as well as some inventory accumulation that some of our customers occurred both with mobile phone units themselves as well as semiconductor components.

The second would be the increased competitive environment in the CMOS image sensor area, I believe we have lost a bit of market share as we've seen some pretty aggressive competition from a variety of different players.

And number three would be this phenomenon of very low end mobile phones kind of encroaching on the camera embedded portion of the mobile phone business.

We're basically seeing a near term retrenchment in camera phone penetration as a result of the growth of the market specifically in India and China.

Phones without cameras.

Do you feel like you're seeing a bottom in terms of orders and excess inventory out there?

How should we think about your sensor business looking forward?

It's going to be -- it's going to be tough for us to replicate the kind of growth that we had in place for the last couple of years.

No question about that.

As a result of two of those factors that I mentioned earlier the competitive environment as well as the low-end phones.

We are seeing our camera module integrators.

We believe now they're flush on inventory, in other words they've worked off the inventory that they accumulated through Q4 and the first part of Q1.

In terms of whether we can get -- how quickly we can get back to the levels we were going out of 2006, difficult to say.

Thank you very much.

Thank you, our next question is coming from Nicolas Gaudois of Deutsche Bank.

Yes.

First question to Phillip on the image sensors.

If you could give us a bit of granularity on the live profitability revenues during the quarter and how should we look at this going into the May quarter and I will follow-up thank you.

I'm going to repeat your question just so we get it right.

I think the question was based on can we give you some trend as to what revenues did from Q1 to Q2 and our expectation for that going forward, is that correct?

No, that was a question on profitability on margins in the last quarter and to the next quarter for the imaging business.

On imaging we ran low 40% last quarter and we were low 30s this quarter.

Great.

And what else should we think about rates for the business?

[Inaudible - highly accented language] of flash revenues in the May quarter?

Is that question relative to sales or gross margin?

Gross margins.

We're going to stay away from guiding gross margins.

It's not something we've historically done for any of our segment.

Fair enough.

And on the [Inaudible - highly accented language] as expected in prior your quarter.

[Inaudible] and maybe revisit the targets you gave us a quarter ago on MOC versus SOC mix by the end of this year?

Yes, I think we have said before, Nick, that we'd be maybe 50% by the end of the year.

At this point, we've transitioned a little bit faster than we've indicated previously.

And while it's tough to predict exactly where that washes out, it's going to be primarily a market decision going forward.

We're fully technologically capable and product portfolio capable to just dial that mix between SOC and MOC.

Okay.

Thank you very much.

Thank you.

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

Hi, guys.

Thanks for taking my question.

ASPs, if we could.

Looks like DRAM ASPs were down about 15% in the given quarter.

If they're flat from here, can you tell us where you'd end for the third quarter?

Okay.

Doug, Mike speaking.

If they are flat -- if DRAM prices were flat from here through the end of the quarter, they would end up being down 20 to 25% quarter-over-quarter.

We baked in something more aggressive than that in terms of reductions quarter-over-quarter into our own projections.

But again, flat from this point forward, they'd be down 20 to 25% quarter-over-quarter.

And same question on the NAND side.

What are you expecting to see there?

Closer to in the 5 to 10% down range.

If they remain flat.

And in fact, NAND flash prices have been up over the last week or so, they're continuing to trend up.

And that's a real difficult one to gauge.

Anyway the direct answer to your question if they were flat from this point forward they would be down 5 to 10% quarter-over-quarter.

Terrific.

And then at the winter analyst meeting I remember seeing an R&D number closer to 250, we're 6 to 8 weeks from from there.

Now it's in the 200 to 220 range.

What has changed there.

It really is a function of the qualification of devices.

We had a good call in Virginia on the MLC device.

And it's just a function of the wafer processing on prequal devices which now looks like will be noticeably down in the current quarter.

Okay.

And then lastly, you had a great quarter on the execution side holding the cash cost of revenues down.

What was your utilization in the quarter?

Basically, Doug, we run 100% all the time.

Okay.

I'll leave it there, thank you.

Thank you.

Our next question is coming from Daniel Amir from WR Hambrecht.

Thanks a lot.

A couple questions here on the image sensor side.

What was the percentage of your one megapixel and above revenue in unit and kind of what the VGA mix is right now?

Okay.

On the mix by pixel density.

In the quarter we completed about two-thirds one megapixel and above and that would be split roughly 50/50 at one megapixel one-third and two and above about one-third.

And of course that leaves VGA at about one-third, as well.

In the quarter we're in, by the way I'm not sure if you asked the question, but in the quarter that we're in I would anticipate the mix is probably going to be roughly in line with that.

You did ask a second question, I didn't catch it.

Yes.

And then the -- you answered both my questions.

Then the other question is related to the inventory situation here a bit on the image sensor, how long do you feel that this is going to take until you're back to a more of a normal ordering pattern?

Well, I think you're asking two questions.

The inventory position, we're heavy as we mentioned in the opening comments.

We're at about a quarter slightly more than a quarter's worth of finished goods inventory.

We have made adjustments in terms of our wafer inputs to get those back in balance.

And our assumptions are we're going to be roughly in balance going out of our current fiscal year.

That's another quarter and a half until we're where we want to be in terms of inventory mix.

Now, having said that, lots can change.

We've proven that we're not experts at predicting how quickly the business is going to expand or how quickly it may contract due to inventory problems.

That could change.

But given the scenario that we're looking at right now looks like it's going to be the end of the fiscal year before we have inventories back in balance of where we would like them to be.

Okay.

A final question on the NAND side.

I guess you commented a bit about some of the demand drivers that you see for the second half of the year and some stuff like solid state drive.

What is kind of your prediction right now kind of the industry NAND bit growth for the year?

And how much -- what's the NAND bit growth of Micron [Inaudible]?

Sure the industry right now is sizing up to be somewhere on the supply side somewhere in the neighborhood of 120 to 140% and I'll let Mike address what we believe to be perhaps potential demand.

Well, the demand is going to match what supply growth is going to be.

So if it's 140% it's going to be 140%.

The industry can absorb what the output is.

So it's going to be in line with the what the supply growth is.

And for Micron, we'd assume that our bit growth going forward is going to be 50% quarter-over-quarter as it has been for the previous few quarters.

Okay.

Thanks a lot.

Thank you.

Our next question is coming from Aaron Husock from Morgan Stanley.

Great.

Thanks for taking my question.

I was wondering if you could comment on how much image sensor pricing was down sequentially in the February quarter.

And then also, you mentioned that you felt like your customers had finished working through their excess inventory image sensors.

Do you think that business can actually be up sequentially in the May quarter?

Or are we actually seeing the weakness in end demand for handsets that your largest customer now impacting that?

From a pricing standpoint, we were relatively flat quarter-over-quarter.

I don't want to misrepresent that.

We are reducing prices as we need to in order to remain competitive, but we're continuing to migrate up in terms of pixel density and those higher fixed node chips typically sell at a higher average selling price.

In terms of sequential growth in Q3 versus Q2, it's difficult to say we still have roughly 60 days left in Q3.

So it's really difficult for me to say what's going to happen.

Great.

Thank you.

Thank you.

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

Hey, guys.

A couple questions.

I guess the -- the pricing stability you're talking about recently is that contract or spot pricing?

It is, Jim, on the spot pricing it ticked up a little bit.

You guys can see all the stuff on the web about everybody that monitors spot pricing.

It ticked up a little bit and the contract pricing last time around was relatively flat.

So you think the next round of contract negotiations would be flat or up?

Well, we still got 11 days to go, so a lot can happen in the next 11 days.

Based on the activity of the last few days, I would think flat to up.

Now, can I ask you a question about that?

Because you guys said that the problem was driven by supply not demand.

You said inventory still a little bit out of balance.

There's a lot more supply coming online for the remainder of this year than there has been up until now.

First of all because you got all the NAND to DRAM.

And second of all because especially your time lease competitors are just bringing on a tremendous amount of supply for the rest of the year.

How would that lead to price stability over the next few quarters?

Again, it's a relative balance of supply and demand.

As I said earlier, you guys are presumably in a lot better position to assess the supply situation than we are.

All I can really speak to is the demand side and I feel great about the demand profile going forward particularly in the PC area for DRAM.

Again, I'll throw those numbers out.

If you think supply growth is going to be greater than 60, 65%, we're probably looking at price pressure.

If you don't, then I think we're looking at a pretty good pricing environment.

I don't want to push on it too much, but if demand has been good in the grand scheme of things so far this year and that's not going to change and the supply is going to get greater, I don't understand how the pricing doesn't keep coming down.

Sure, what happened in the last two months is that inventory shifted from the buyer basically to the seller, at least in our case it did.

In January when prices were still -- were just stable heading up, all of my customers were glad to get their hands on as much products as they possibly could.

I don't know whether they had two or three or four weeks worth of inventory.

But in effect, what's happened over the last 60 days as prices started to come down is they shifted that inventory burden back to me.

And they presumably did that to the other GM suppliers as well.

Now we're seeing early, granted, but the early signs of a shift back in the other direction, where they are willing to take, get their hands on more inventory now as opposed to be concerned about depleting it.

All right.

On the cost structure side.

You guys said that you believe you had the smallest die size.

If I look at your margins relative to your competitive margins, your margins are a lot lower.

So what's the delta between your smaller die size and the lower margins?

What you're going to see.

As we've talked about we're on now a significant cost reduction path to where we've been in the low double digits now.

And I would challenge you to find somebody who is out executing that.

But in the past what you've seen is really lack of scale and additional costs from ramping new fabs.

I mean even in, especially on the DRAM side.

Yes.

Same holds true.

For example, Jim, MTV essentially ran inefficient as we were ramping it up through the last year and a half.

And that's now topped off, for example.

Tech [Inaudible] migration to 300 millimeter speaks as well to the opportunity out ahead on the DRAM side.

I'm sorry, I'm missing something.

Is it where you want it to be now?

No, we're going to continue to get better at a faster pace.

But I mean, is the -- I understand that there were inefficiencies or lack of scale in the past, but if that's behind us and the die size is as small as it needs to be, there's a big delta in margins.

The other thing I think you need to realize is there's an ongoing technology mix migration as we move more of the manufacturing capacity between technology nodes.

So while we believe from a technology perspective we have the most advanced technology, we don't necessarily have 100% of our capacity there.

We'll see an increased surge in productivity as we continue that transition.

Wouldn't your competitors have that issue too, though?

Competitors are in the same environment as us.

Okay.

All right.

Thank you.

Thank you.

Our next question is coming from Kevin Rottinghaus from Cleveland Research.

Thank you.

Do you have a PC unit number for year-over-year growth?

Your customers communicate to you that you try to target?

They don't.

So all I do is use the same data that you guys do.

I think we're looking at 8 to 10% PC unit growth rate '07 versus '06.

Something like that.

Okay.

Did you anticipate kind of coming into the year that maybe the enterprise might not deploy until late in the year?

I guess with enterprise being over half a PC, do you think there's any risk there to that number based upon maybe a slower migration to Vista?

Of course there's risk.

Frankly speaking, though, for us what's a lot more relevant in terms of DRAM demand is the amount of memory that's going into a system as opposed to the number of systems that are actually being sold.

But of course there's risk.

We're still looking at 9 months of the year being forecast and absolutely there's risk.

Okay.

Do you have a number now for where you think blended DRAM per PC is?

Sure.

It's in the neighborhood if I'm not mistaken.

We had a slide pulled up earlier that showed it, but I think it's about one gigabyte if I'm not mistaken.

So one gig.

That's up how much so far this year?

Where do you think it ends at the end of 2007?

Oh, I think we're up pushing to 2 gigabytes by the end of 2007, maybe 1.7, 1.8, something like that.

Okay.

All right.

And are there any I guess sort of price assumptions behind the 60 to 65% bit growth for this year?

Is there a certain price level or amount of price decline that you have to hit in order to get to that number?

I think the expectations from our customer base were somewhere in the neighborhood of a 30 or 40% annual price decline.

Fortunately for them, unfortunately for us we took that already in the first three months of the year.

We'll see going forward.

Okay.

Great.

Thank you.

Thank you.

Our next question is coming from Hans Mosesmann from Nollenberger Capital.

Thanks.

Most of my questions have been answered.

But a question on inventories on your balance sheet, where do you expect them to be if the bit demand does materialize as you expect?

Well, one thing to keep in mind.

There's two components here.

On the finished goods side if in fact the scenario you talk about unfolds, then inventory can move down, obviously.

But on the other hand, keep in mind, we are ramping a brand new facility.

You should expect width to continue to move up, commensurate with the increased wafer loading in the Lehigh fab.

Okay.

Fair enough.

Thank you.

Thank you.

Our next question is coming from John Lau from Jefferies and Company.

Yes, thanks.

Kipp, we spoke a lot about topics, but I just wanted to summarize.

In terms of the incremental changes in order that you've seen recently, you had mentioned that the DRAM was getting stronger, demand had continued to be strong in terms of the demand side, and what did you say about CMOS again?

Demand for CMOS image sensors for us and I believe for the entire industry was down in the calendar Q1 which would have been roughly in line with our fiscal Q2.

And then going forward you mentioned that the cost reductions had been quite significant but were not able at this current quarter to stay ahead of the ASP declines.

In terms of how we should think about continued cost reductions in the next couple quarters, would that be in the 30 to 50% range quarter-over-quarter or has that changed?

I didn't quite hear the question, could you repeat that?

Yes.

I'm sorry if I have a problem with my headset, but in terms of cost reduction in the NAND flash as the ASPs continue to go down, what do you project your cost reductions should be even on a year-over-year basis?

Sure.

We've been guiding to 20% sequentially quarter-over-quarter, which obviously accumulated would put you down 80% year-over-year.

Now this particular quarter Q3 that we're in, you're going to see something closer to flattish and then a reacceleration in Q4.

The reason for the flattish cost per bit reduction in Q3 is relative to the Lehigh fab ramping up.

We're moving as you mentioned -- I think there was an earlier question as to where the R&D cost went from going from 250 down to our guidance of 200 to 220, that starts to show up relatively rolling through the cost of goods sold model.

Great.

So we can think about in terms of your bit growth in like the 50% quarter-over-quarter rate.

You mentioned that the cost is probably going to be down flat.

And if NAND was to stay flat, you would be down 5 to 10%.

Is that just a quick take away from the NAND situation?

Yes.

Great.

And then one final follow-up is how long does it take to shift from NAND to DRAM and back to NAND again if you were -- if that was an operation that you wanted to execute on your fab side?

How long would that typically take to move that around?

Would that be months, quarters?

How does that work out?

It depends on the details how you configure.

For Micron, and at least a couple of other fabs today, it's probably on the order of 3 to 4 months.

Great.

Thank you.

Thank you.

Our next question is coming from Mark Fitzgerald from Banc of America Securities.

Just quickly I was curious of where you are in terms of the 300 millimeter mix for your memory products and where you expect to be by the end of the year, percent?

Yes, basically we've got in terms of core DRAM, we have two facilities that run the bulk of that and that's MTV in Virginia and it's our Singapore fab.

And Virginia basically is it's been 100% converted.

And I think Mark told me earlier today it's 100% converted to 78 nanometer technology, as well.

And then we're also in the process of moving our Tech joint venture from 200 millimeter to 300 millimeter with a process shrink in it as well.

And that will be largely finished over about the next year.

So in 12 months you'll basically have 100% or close to 100% of memory on 300 millimeter?

For the core DRAM, I think it's fair to say that we'll be pushing that kind of number.

Obviously some of the specialty and legacy products will stay behind on some of the older technologies.

And is that what drives the CapEx declines next year, basically you're through the 300 millimeter transition?

Partly, yes.

Okay.

Thank you.

Thank you.

Our next question is coming from Manish Goyal of CREF Investments.

Yes, my questions have been asked.

It will be helpful if you can give some sense for what depreciation may look like for fiscal '08?

First, Manish, '07 probably runs 1.9 billion and '08 with the incremental capital we've deployed should be at 2.2.

Okay.

Thank you.

Thank you.

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

Thanks.

I was wondering if you could give some color on how you perceive the cost reductions in the DRAM area going forward?

If we look at just core DRAM, we'll be low double digits.

If you average everything, it will be high single digits to low double digits quarter to quarter.

Thank you.

And also, I was just wondering if you can recap your comments with respect to the NAND road map in terms of 70 and 50 and how you perceive that to be positioning you guys versus your competitor?

Well, as we look at our production today, we're really essentially 100% transitioned to the 70 nanometer node with again [Inaudible].

The 50 nanometer transition will occur throughout the second half of 2007 and into 2008.

And on a relative competitive positioning on that, we feel we're -- our timing is approximately equivalent to the two leading competitors in the space, but we think we're going to have somewhat of a die size advantage relative to that.

We believe their node is 56 nanometers versus 50 for us.

Thank you, guys.

Thank you.

Our next question is coming from Alex Gauna of UBS.

You had a follow through on that comment on the NAND side.

We've been hearing that maybe there are some yield issues with some of your competitors at that 56 nanometer node.

Are you hearing the same thing?

And does it make you nervous with even your own 5 nanometer process in terms of hitting your yield targets on that?

No, really not at all.

I don't have much insight into how they're doing from a yield perspective.

I can tell you we're very very comfortable with how our 50 nanometer node is going.

What we have heard is that some of the competitors are having trouble with the immersion tool set and the productivity of that and defects associated with it.

And I can tell you we're not suffering from those problems, we're pretty comfortable with how we're going to progress.

Okay.

And is there any concern that we should have with the market that your competitors, if they are having problems with this immersion tool set they solve it and suddenly we find ourselves seeing NAND ASPs reversed, is that type of worry out there?

It'd be speculation, I can't answer it for you.

Okay.

And then you made one comment in the prepared remarks about seeing the device market respond to some elasticity demand and accelerated acceptance of NAND into mobile video devices.

Can you give us some examples about what exactly you're seeing, what you were referring to, or maybe what timetables you're referring to?

Yes, I I referred to two application areas in particular.

One is in the personal video player space in terms of deploying flash as a storage medium.

And I believe we're going to see meaningful market impact in the second half of the calendar year.

On the solid state disk drive area, I believe that is still a 2008 type of product, maybe even the second half of 2008 until we see a meaningful impact.

Several months ago we were looking at in 2009, 2010 in terms of that being real significant demand driver.

Very good, thank you.

Thank you.

Our next question is coming from of Krishna Shankar of JMP Securities.

Yes, what is your revenue mix by product line, CMOS, NAND, PC, and specialty DRAM?

Yes, we ran approximately 50% in core DRAM, approximately high teens or high teens I should say in specialty DRAM, high teens in flash, and as Mike mentioned earlier about 11% in image sensors.

And can you comment on whether you had positive gross margins in the NAND flash area this quarter?

No we do not.

Do you expect to get there in Q3?

We're not going to guide to that.

Sorry, but what we're trying to do is provide you some market intelligence and then you can couple that with your own ASP assumptions along with our guidance.

The cost reductions will continue to average 20% a quarter.

We'll continue to average 20% a quarter.

Okay.

And my final question is what do you see the initial for the demand profile and customer acceptance on Windows Vista in the [Inaudible - highly accented language] channel where it has been marketed?

It's great.

If I'm not mistaken I just saw some data out from Microsoft a couple days ago that the take rate on Vista in the consumer market anyway is faster than any other OS introduction.

On the consumer side it's great, we just haven't seen any meaningful penetration on the corporate side which as you know is the biggest single piece of the PC market.

I think we're going to see that start to layer in later this year, if not then in 2008.

So all systems go with respect to the new OS.

Thank you.

Thank you.

Our next question is coming from Bill Dezellem of Tieton Capital Management.

Sir, your line is live.

My apologies.

Relative to your comments about the recent demand that you're experiencing both in NAND and DRAM, has that been strong enough that you're actually now pulling from inventory and actually selling more than you're able to produce at this point?

And then the second question is relative to cost reduction discussion, you talked a fair amount about the next quarter, the fiscal Q3.

But beyond fiscal Q3, could you provide us a bit of a road map in terms of both the manufacturing front and the financial aspect the cost reductions?

Bill, first of all on the NAND side with respect to the price stabilization even the strengthening the last couple of weeks, we have -- we went into that with virtually no NAND flash, finished goods inventory, today we're sitting with virtually no NAND flash finished goods inventory.

No meaningful impact.

I've not had any problems selling NAND flash.

When the prices are half what they are today, it was still pretty easy to sell and today it's still a fact.

Not really a significant change in the profile of our finished goods inventory on NAND flash.

In DRAM, this price stabilization is really literally just days old now.

And we've not seen a meaningful impact on our finished goods inventory.

Hey, Bill, this is Steve.

I'm not sure I understand what you were asking in that second question.

Could you maybe phrase it slightly different?

Sure.

You discussed that DRAM cost reductions on the core DRAM front here in fiscal Q3, we can look for low double digits and the NAND due to OE higher ramp is essentially going to be flat from a financial perspective.

Actually we'd like to move beyond this quarter and get perspective into the Q4 and fiscal Q1 in terms of what you will be doing in the manufacturing plants that will be bringing cost down and what the financial impact is anticipated to be in those quarters.

You gave us a little further vision rather than what's just going to be happening immediately in front of us.

Yes.

To the extent that I can comment on what happens downstream after the quarter we're in has already been noted.

We're in a good slot because we're in that period we've got to shift the products and R&D expense so to speak over to COGS number.

You should expect us to get back on that curve in fact, in NAND probably reaccelerate as the 50 nanometer takes hold as Mark described.

So on the DRAM side, we'll certainly start coming back down that curve in the quarter after the one that we're in.

And then on the NAND side, we think it'll probably accelerate.

So your comments are noted in terms of what happens beyond that.

It's hard for us to know exactly what that reduction will be, but again I think it's going to be pretty significant given the profile that we're on for, not only by the way the advantage that we think we have now with the fixed square device on 78 nanometer, but also with the success that we've had, in fact let me just note early success on the 50 nanometer on the NAND.

I think it looks pretty good after that.

And not sure how to ask this next question, but if you compare the current cost production cost versus the costs that flow through the P&L in the fiscal Q2, what's the delta there?

And basically we're trying to understand the impact what will happen as time progresses and product gets out of inventory.

Bill, that's a little bit too detailed for us to get into.

We try to answer that for you by giving you comps quarter to quarter.

And so your answer is partly in light of the fact that we're talking about double digit cost declines for DRAM and over 20% quarter to quarter on NAND.

That's helpful.

Thank you all.

Okay.

You bet.

Thank you.

Our next question is coming from Gus Richard of First Albany Capital.

Yes.

Quickly on the 50 nanometer NAND process, how many critical layers do you need in advance of lithography?

And I have a follow-up.

I think we're going to try and keep that one to ourselves for now, let our competition guess.

Okay.

And then the follow-up is given that you're not having problems with the margin, is it safe to assume you're not using?

I wouldn't say that's safe to assume.

And again we're going to keep our technology pretty close to the vest and let everyone else figure that out.

Okay.

Thanks.

Thank you.

Our next question is coming from Edwin Mok of Needham and Company.

Just a question on the DRAM side.

You guys mentioned that DRAM looks like demand is stabilizing, or customers taking more orders.

Are you seeing them more for desktop notebooks or are you seeing them more on the server side?

Server side has actually been pretty stable throughout kind of the turmoil if you will over the last couple of months.

The revival, if you will, or the willingness to take on more deliveries has been on both the desktop and the notebook side and it's difficult for me to distinguish between the two.

That's why I asked, thanks.

Is that it?

There appear to be no further questions, sir.

Okay.

Great.

Thank you very much.

We'd like to thank everyone for participating on the call today.

If you 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 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 very much for joining us.

Thank you.

This concludes Micron Technologies first quarter 2007 financial release conference call.

You may disconnect your lines at this time.