美光科技 (MU) 2008 Q1 法說會逐字稿

Good afternoon.

My name is Jason, and I will be your conference facilitator today.

At this time, I would like to welcome everyone to the Micron Technology's first quarter 2008 financial release conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer period.

(OPERATOR INSTRUCTIONS).

Thank you.

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'd like to also add my welcome to everyone joining Micron Technology's first quarter 2008 financial release conference call.

On the call with me today is Mr.

Steve Appleton, Chairman and CEO.

And of course, Mike Sadler, Vice President Worldwide Sales.

The 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 2008 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 p.m.

mountain time.

You can reach that by dialing 706-645-9291, with the confirmation code of 27073959.

This replay will run through Thursday, December 27th, 2007, at 5:30 p.m.

Mountain Time.

Webcast replay will be available on the company's website until December 20th, 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.

With that we'd please like you to 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.

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.

I'd like to now turn the call over to Mr.

Steve Appleton.

Steve?

Thanks, Kipp.

Let me give a quick update on the CFO scenario.

I think most people know that a month ago we announced that Bill Stover would be leaving the company.

And in fact, he did leave at the end of last month which coincided with the end of our quarter, and I am interim CFO at this time.

However, I fully expect that this will be the only conference call that I'm the interim CFO, and that we have been in the process of reviewing both internal and external candidates and believe that we'll get that wrapped up this quarter.

So in the interim, I will cover some of the financial material for those that did not see the release we ended up with revenues of about $1.53 billion, and I'll note that was about 7% growth over last quarter.

Mike will cover it later, but, of course, both DRAM and NAND were under significant price pressure for the quarter.

We did report a loss of $262 million.

I'll also note that there was a $62 million NRV charge to COGS for finished goods in that number.

On the manufacturing cost side, we did have good news.

The 300-millimeter ramps at Lehigh and Singapore continue to make strong progress.

sir?

Yes?

Sir?

Are you still looking for [Litty Motors]?

Correct?

I think we have somebody on the call that's talking in some of the lines.

Not here -- not here with us in the room but on a different line.

Let me continue.

The manufacturing cost side, as I said, the 300-millimeter ramps that we had in Singapore made pretty good progress.

Just to note that the DRAM costs were down about 10% and the NAND costs were down really kind of mid double digits, quarter over quarter, and we think we'll be able to continue that trend as we've stated before.

Also good news, the on the operating expense side, we have noted that we've been working on that pretty diligently and, in fact, if you look at the data, in 2007, we averaged about 25% for operating expenses as a percent of revenue.

In fact, in Q1, we got that down just below 18%, 17.9%.

If you break that out between SG&A and R&D, our Q1 dropped to $120 million from $143 million, and our R&D dropped in Q1 to $162 million from $184 million.

Now, a couple of notes on this.

The SG&A, just because of some litigation costs and so forth, we think will probably be in the mid 120's for this quarter coming up.

And on the R&D, you should expect for it to be about the same as it was this quarter.

As we move through the holidays and obviously we've got a few other activities that are going on in the quarter.

So we think net-net pretty good, obviously the market has been under a lot of pressure from pricing, but in terms of the objectives that we set out to accomplish on the operating expense line and the cost line, we feel pretty good about it.

Switching over to the -- really the CapEx and the balance sheet, our capital expenditures are still consistent with what we've said before.

We expect it to be about $2.5 billion for fiscal '08.

It's also probably worth noting that that capital is pretty front end loaded.

We had about $900 million that we spent in this first quarter.

Obviously the vast majority of our CapEx continues to go to 300-millimeter.

I'll also note we still have over $2 billion in cash, and just -- I think to help people understand the cash position of the company, as I said, we have over 2 billion in cash.

We've spent about $900 million of the $2.5 billion that we expect to spend already in this quarter, and it looks like cash flow from operations for fiscal '08 will be between $1.5 billion and $2 billion as well.

I think that can give you a pretty good idea what we said on cash.

We think we're in good shape.

So with that I'm going to turn it over to Mike Sadler to make some commentary on sales in the market.

Thanks, Steve.

We had another solid sequential growth quarter with megabit shipments of DRAM and NAND up approximately 25% and 60% respectively.

And imaging units up about 15% quarter over quarter.

In fact, despite the unprecedented market price pressure, we managed to achieve fiscal Q1 revenue growth of about 7% on a sequential basis.

We can look primarily to the diversified DRAM product portfolio for insulating us somewhat from the ASP declines observed in the pure commodity markets.

As an illustration, the DDR2 spot market price declined 45% from the midpoint of our fiscal Q4 to the midpoint of fiscal Q1, while the aggregate average selling price per megabit for our basket of DRAM products declined by only 20% in that same period.

This tough market environment is supply driven and primarily a result of capacity expansions occurring industry wide from 2005 through 2007.

Demand for our products continues to be quite strong.

In fact, the primary markets driving demand for our memory and imaging devices, the PC and mobile phone markets, are experiencing extraordinary growth.

Each of these markets will grow units between 12% to 15% in 2007 and most market researchers are pegging compound annual growth rates in the range of 12% to 15% for each of these markets over next five years.

Independent of the market environment, our technology development and deployment moved ahead and we recently rolled out some exciting new technologies and products.

We showed initial silicon of the 1-gigabit DDR2 DRAM device on our advanced 68-nanometer process.

This is an approximate 25% die size reduction from our already industry-leading 1-gigabit chip on a 78 nanometer process.

We anticipate this process moving to volume production at our Singapore fabrication facility sometime in mid-2008 and it will serve as a platform for continued aggressive cost reduction on a variety of other DRAM products.

In the NAND space, rollout of our 50-nanometer process in the Virginia and Utah fabs is tracking ahead of schedule.

The vast majority of our NAND shipments in the current quarter are MLC chips on this 50-nanometer node.

On the product front, we are now in volume production of DDR3 devices for next-generation computing applications and recently announced our entry into the solid state drive market with a variety of SLC and MLC-based serial interface drives.

These are our big demand drivers today, although we believe that these memory product families will help ensure our themes of growth and product differentiation heading into 2009 and beyond.

In fiscal Q1, our imaging business experienced healthy unit and revenue growth.

We are certainly getting a boost from a seasonal mobile phone and PC demand and realizing the benefits of a broadened and more balanced customer base.

By no means is the image sensor business immune from market price pressures, particularly at one megapixel density and below.

We have managed, however, to keep our own average selling prices relatively flat as we migrate the business towards higher pixel densities.

Our plan is to continue leveraging technological advantages to deliver superior image quality and better cost performance to our customers in the mobile phone, PC, automotive and security spaces.

The combination of image sensors and more specialized memory products such as SLC NAND, low power, and legacy DRAM are making good use of our 200 millimeter capacity.

We believe the economic viability of this model for somewhat specialized products should continue in the foreseeable future.

No question that the market environment is challenging, to say the least.

The market challenges, however, present various opportunities for advancement and intermediate to long-term value creation.

Micron is not fully insulated from market price pressures although we believe that on a relative basis, our strong balance sheet, as Steve referenced, our diversified product portfolio, advanced technology platform and growing economies of scale have us in position to come out of this cycle a much stronger company.

I'll turn it back to Kipp and we'll take questions.

Thanks, Mike.

As Mike alluded to, we'd like to now take questions from callers.

And just a reminder, if you are using a speakerphone 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.

Our first question comes from the line of Jim Covello.

Appreciate you taking the time today.

The question is really, on the supply side, how concerned are you that Samsung just seems so intent on keeping this market in excess supply to try and hurt some of the marginal players in Taiwan, let's say, that it could be a long time before this thing gets a lot better when you have maybe somebody acting a little irrationally like that?

This is Steve.

Probably hard for us to comment on Samsung's motivation and what they're trying to do, but if you look at the data in aggregate in terms of the investment going into the sector, in particular in DRAM, I think you look at it, and we think that the output as well is probably peaking in this time frame.

Whether it's plus or minus a quarter is always hard for us to know but the equipment guys will tell you the same thing that the CapEx is coming down in aggregate for the industry and that, in fact, we're feeling the effects of I think what everybody would acknowledge was a pretty big expansion year in capacity in '07.

So I think there will be weaker players that are probably vulnerable to something happening in the industry, but we'll just have to see how it plays out as we move through '08.

Then in terms of what you guys can do, there's things you can control and things you can't, and some of the things that you had sort of roughly alluded to, maybe a couple calls ago, and you didn't say this.

I don't want to put words in your mouth, but partnerships or joint venture kind of arrangements that might help to combine some people's best deigns with some other people's capacities.

Any update on thoughts around that?

Any luck making progress on that with your discussions with others in the industry?

Yeah, first of all, we did that in the NAND business, so I assume you're talking about the DRAM business.

Correct.

In the DRAM front, clearly Micron has been a company that's taken advantage of opportunities when the market has been extremely weak.

This is really the first collapse that you've seen in the industry, really, probably since we took Toshiba out of the mainstream DRAM business.

So we are continuing to look at what opportunities might be out there and if they surface, then, of course, we're interested.

In addition to that, I think you made reference to it, we're trying to look at our model.

If you back up five years ago, only one of the five primary developers of the technology actually partnered with anybody to have their product produced, and now there are really three out of the five doing it, primarily Samsung and Micron not doing it.

So we've got to look at that model and see if there's some benefit for us to extract out of that.

But really we don't have anything to announce today.

We're just continuing to look at it to see if the makes sense for us.

Thank you and good luck.

Thank you.

Our next question comes from the line of John Pitzer.

Thanks.

This is Amit Saraf calling in for John.

First, I was just wondering if you could clarify your CapEx.

I think I read in the press release it said $2.5 billion to $3 billion.

I recall earlier you talking more about $2.5 billion.

Has there been any change to your CapEx guidance for the next fiscal year?

How would it break down between NAND and DRAM?

We haven't really changed any guidance.

If you go back up, quarter or two ago, we really said we thought it would be between $2 billion and $3 billion.

I think in the press release we're just trying to narrow the range for you.

Let me say the caveat.

We'll look at this market as we go throughout the year.

Our best guess right now is in this $2.5 billion range and realistically it could move around a few hundred million on either side depending on what we decide to do as we move toward the end of '08.

can you break that down between NAND and DRAM?

How do you see that split, and how does that compare to fiscal year '08?

Well, fiscal year --

For '07, sorry.

Fiscal year '07, I think you will -- I don't have the numbers in front of me.

Maybe Kipp can get them.

Clearly '07 was dominated by NAND because we had the 300-millimeter equipment install in Utah.

I think you'll see that mitigated somewhat in '08, although just keep in mind we are finishing out the ramp, if you will, of Utah, and so there's some carry over from there.

And then the new fab is IMFS, which is really under construction for shell now, so as we -- and we have been optimizing the output at a couple of the facilities.

In particular, look at Virginia.

We've been look at CapEx there for additional DRAM to come out of that facility.

So you might see it trend back a little bit towards DRAM but frankly I think still the most of it that is showing up right now will be the finish out of Utah and some of the shell construction in Singapore.

Just on the demand side for DRAM you mentioned strength in the PC and mobile market.

Can you talk about the PC market specifically going into 1Q, then also comment a little on the Vista uptake?

Where are we that in cycle, and do you see that accelerating in the near term?

Before Mike answers that I did want to make one other note here.

Our tech facility -- Tech Semi in Singapore is in the middle of a 300-millimeter conversion.

So that's one of the reasons that you'll see it shift back, is because they're in their 300-millimeter ramp as we speak right now, and obviously installing CapEx and ramping.

Go ahead, Mike.

On the our views on the PC market, through dialoguing with our customers, as you're fully aware, notebook market continues to be on fire in terms of growth, and our customers are kind of -- are projecting this similar type of scenario unfolding as we roll through the holiday period and into the New Year.

That's going to be the primary growth driver from a unit standpoint.

In terms of the downstream demand that's creating for DRAM, sampling of some of our larger customers which are representative of the largest DRAM consumers in the world, indicating calendar Q1 DRAM demand up about 4% relative to calendar Q4.

That would be a range from 0% to about 8% or 9% depending on the particular customer.

So a pretty healthy calendar Q1 is what's being projected from a DRAM consumption standpoint.

You asked a question about Vista.

To date our view of Vista, and again, getting this from our customers is that it's primarily been a consumer product.

There's going to be a rollout of a service pack for Vista in the first quarter, which should make the product more attractive to corporations, and this is really beyond our area of expertise.

So I'd be hesitant to comment to editorialize too much on it, but we should expect to see some kind of demand kicker in the corporate area for Vista as we roll through calendar Q 1.

Generally speaking, on the content side, somewhat surprisingly, if you just follow the statistics, the memory content per box on the PC side has expanded, but not extraordinarily.

And there has been not a tremendous amount of demand elasticity based on the pricing environment.

Some of our customers have experienced some concern about the direction of DRAM pricing going forward, and the predictability of it.

I would share those same kind of concerns and questions.

And that's why I think they've been a little bit gun shy in terms of cranking up DRAM content significantly.

So I think as soon as they get a feeling that pricing is going to be relatively predictable, if they get that feeling, I think they'll feel a little bit more bullish about cranking up the content.

As it is today we're hanging around 1.5 gigabytes per system, and haven't seen anything extraordinary in terms of big content moves up that you would naturally expect, given the price degradation that we've seen.

Sounds good.

Thank you.

Our next question comes from the line of David Wong.

Thank you very much.

Can you give us some idea with your current CapEx plans what sort of bit production growth you expect fiscal '08 over fiscal '07 for NAND and for DRAM?

Yes, David.

This is Steve.

First of all, our bit production growth, we have been essentially on the DRAM side, I think we've been saying that it's going to be in the mid to low double digits, somewhere in that neighborhood, and then on the NAND side, we think it's quarter over quarter running this 40% range, but I need to make the caveat that both Tech and the 300-millimeter conversion and Utah and their ramp, they're always slightly unpredictable in the exact timing.

Sometimes they move higher through the yields and the ramps than others.

But in general I think you could expect that quarter over quarter through fiscal '08.

Right.

Thank you.

Our next question comes from the line of Kevin Vassily.

Yes, hi.

Thanks for taking my call.

Two quick questions.

One, did you have to write down any of your NAND inventory?

And then a second question on NAND, you grew bits about 60% in the quarter, and I think that was about 20 percentage points higher than what you alluded to on your last call.

Can you comment on what drove that delta?

Yeah, sure.

On the first question about NRV, we had an NRV on both NAND and DRAM.

We did not have one on imaging.

In terms of the bit growth, it's just gone, I think in general, we've been pleasantly surprised, and we've said that, for several quarters now, that both the ramp schedule on the 300-millimeter and the yield improvements have been ahead of plan, and that's primarily driving the greater bit growth.

Did yield or the ramp drive the greater proportion of the bit growth?

Yeah, I would say it's been yield that's driven the greater proportion to this point.

Great.

Thank you.

Yep.

Our next question comes from the line of [Bob Kohaverty].

Thanks, guys, for taking my call.

Can you hear me okay?

Yes, Bob, go ahead.

Your Lexar business, I know you don't give specific guidance, but I know you can take advantage of non-captive capacity, did it grow more than 60% or less than 60% of the overall NAND business?

I'm not sure I understand the question, Bob, but let me say that -- let me first give a response, and you can tell me if we didn't get to it or not.

The percentage of supply that is coming internally as opposed to externally into Lexar, first of all has been growing pretty steadily.

So I think that, first of all, you've got to ask it in that context.

We've been supplying more and more internally than we have externally into that business, for obvious reasons.

We're a bigger producer of it today, and their business is actually, from our perspective, doing pretty well.

It's probably worth saying that again, as I said in the last call, we've been pretty pleased with Lexar and it's meeting the objectives that we had.

Go ahead to break down your question if there's something further.

Just curious, you're obviously supplying more and more internally.

You get internal production.

But I'm pretty sure you have some supply arrangements for Lexar as well --

Absolutely.

-- so you can [juice] the growth a little bit by taking some noncaptive supply into Lexar as well.

Just kind of curious if Lexar is taking advantage of both your internal organic bit growth plus some noncaptive contracts as well.

I think the answer is yes, they are.

And I don't know the breakout between which one was greater.

That they are trying to taking advantage of.

They clearly still have supply from the outside which is substantial.

And I think they'll continue to do that.

That's the model that we want to run with them, is that they have dual supply sources, because obviously we have a customer base out of Lexar as well that we have to service, and we don't want that being too high of a percentage of what we do.

Fair enough.

I look at your DRAM ASPs, pretty good job in terms of avoiding some of the declines in the commodity space.

Do you think there's an opportunity to do that in NAND as well?

If you look at SLC, spot pricing might not be 100% accurate but it's held up reasonably well compared to MLC.

Is there an opportunity to mix more specialized NAND in there to keep your ASPs a little bit more stable?

Well, Mike can jump in here too.

I think you have to look at our NAND business in two different ways.

One is, the component supply business, which I don't think that NAND today has differentiated enough to allow us to get a premium over the other producers.

Remember, when you think about the NAND producers and their capabilities and their product portfolio, we're pretty similar, these are the big guys that we think about in the memory business like us.

They're not smaller companies that maybe don't have the resources to do the portfolio that we have, and I think that's, in general, pretty tough for us to differentiate today.

Having said that, by the way, the product mix itself, SLC versus MLC and there are differences in price and premiums along those lines, the fact that we're able to benefit from some of that I don't think is substantially different from the other players that we're competing against being able to benefit from that as well because they both have those portfolios.

The other part of our business, though, where I think we are seeing a benefit today maybe over a couple others, as you've already noted, Lexar for us, we're in the retail channel.

If you look at the reset pricing in the retail channel it doesn't really coincide with what happens in the component business, for a variety of reasons.

The fact that we're able to move a lot of product through that channel has actually been a positive for us as opposed to others that didn't have that channel directly.

So, you know, in fact, I think it's -- we said this last quarter, we can say it again.

The margin for Lexar has been positive for us.

We like the story that it's playing for us right now.

Thanks, guys.

Our next question comes from the line of Krishna Shankar.

What is your outlook for NAND demand going into the first quarter of 2008?

Can you talk about NAND bit demand trends going into Q1?

I don't have nearly as good a read on the NAND demand, primarily because it's just not nearly as mature a market, as I do on the DRAM demand, but my expectations are that NAND demand in aggregate in calendar Q1 will be down from calendar Q4 because it has a strong consumer tie to the MP3 market and the flash card market and the digital still camera market and so forth.

I would expect on an absolute basis demand is going to be down in calendar Q1 relative to calendar Q4.

And the numbers that Steve referred to low to mid single digit DRAM -- that's bit production on a quarterly basis for DRAM, and 40% or so for NAND.

Is that right?

Very similar to what we've been posting.

Around 10% ongoing in quarterly formats for DRAM and yes, we're going to average around 40% over the next several quarters in NAND.

Finally, can you give us an update on your restructuring and strategic effort?

You mentioned that in previous conference calls in terms of looking at options for CMOS imaging business?

I've already commented on the operating expense line and some of the restructuring there.

With respect to imaging, as I said last time we don't have any plans to change manufacturing the product.

We've been looking at ways really is there some other partnership that's a better way to take that product to market after it's been produced, so to speak, and we're just still in the middle of trying to work through that and figure out what the best path is.

Thank you.

Our next question comes from the line of Atif Malik.

Nice job on the operating expense side.

Your comments on CapEx, you mentioned your CapEx is going to be front end loaded.

If I hear the Korean guys, I think they're also postulating that their CapEx is going to be front end loaded.

It seems like all guys are behaving the same way.

They're trying to add capacity in first half for a better second half.

Wouldn't that imply that the supply will get worse from here?

Well, it's hard for us to know the supply number.

By the way, when they say front end loaded, that means it's a quarter that we already ended.

The $900 million that I referenced was in our Q1.

The others, as they move throughout '08, I don't know for sure although I've also heard a lot of commentary about push-outs and cut-backs.

So it's hard for us to know what they're doing.

For us, our front end loaded is already happened, or happening as we speak.

I understand.

Then a question on your -- at your shareholder meeting you mentioned that you're getting close to announcing the location of 300-millimeter DRAM fab, and going back to Jim Covello's question on partnerships and consolidation, wouldn't that imply that you're fought looking at partnerships too seriously if you're thinking about your next DRAM fab?

No, not at all.

In fact, if you think about the dynamics that we have before us, we -- I think that we could take advantage of both, actually, and have it work just fine for us.

The internal decision, of course, we have infrastructure in various places, and we can look at green fields and so forth, but in addition to that, if we do it in partnership, that partnership will obviously have some capacity associated with it, but it's also driven around trying to see if there's a better cost model on the development side, which obviously has a direct benefit back to us if we are able to distribute those costs over not only more capacity but among a couple of us in terms of the true development of it.

So there are both -- both of those are still in play, and we're still looking at them pretty hard.

Got it.

One last one on the specialized memory pricing environment.

Most memory makers are planning to use their obsolete 200-millimeter fabs for specialized memory products.

How would that impact the pricing environment in this market going forward?

An unnatural growth of supply would likely have the effect of putting some supply pressure in the marketplace, although frankly, we've been hearing a lot of this rhetoric over the last couple years about other DRAM suppliers trying to follow our model of having a more diversified product portfolio, and pricing has been relatively stable in the low power DRAM area, and in the legacy DRAM area.

I think that's primarily because the end products that these DRAMs are going into are the DRAM build and material cost is not tremendously significant in terms of an overall cost driver.

As a result, there's not nearly as much cost pressure, and there's quite a bit more sensitivity towards reliability and quality of the devices as opposed to trying to save a nickel here and there, and as a result, I feel like we're in a pretty secure position there.

Thank you.

Our next question comes from the line of Hans Mosesmann.

Thanks.

Clarification on the growth from the DRAM front of 0 to 8%, is that the overall PC DRAM markets, and how does that relate in terms of seasonality?

That takes into account the seasonality.

That is for the -- basically a sampling of our computing customers.

So that would encompass notebooks, desktops, workstations, and servers.

And it does take into account the seasonality so that's calendar Q1 over calendar Q4.

You're saying it's seasonal, that that is normal seasonality more or less?

Normal seasonality in terms of demand.

DRAM demand in a PC environment, I believe would be flat to down about 5%.

What I'm telling you it's slightly better than that, flat to up about 8%.

Okay.

And a follow-up.

If ASPs hold at current levels, whatever they may be, today here, 20th of December, what would they do quarter over quarter?

If DRAM ASPs -- keep in mind we're three weeks into our fiscal Q2, and if our average selling price for the balance of the quarter remains flat, our DRAM ASP quarter over quarter will be down about 10% to 15%.

NAND, by the way, you didn't ask, but I'll throw it out there anyway.

The NAND flash prices would be down -- this would be NAND on trade sales basis only, so our sales to directly to customers, they would be down about 40% quarter over quarter, if they stayed flat from here.

Thank you.

Our next question comes from the line of John Lau.

I may have missed it.

but I was wondering if you can give a quick break down on the revenues in the different product lines, and Steve, what do you think your long-term goal is for DRAM as a percentage of total sales?

Thank you.

I can do a little bit of that for you John up-front.

Core DRAM ran in the mid to high 30 range for part of revenues, specialty DRAM was up into the 20s.

Imaging was around 11%.

NAND for the first time cracked over 40%.

Great.

And when you said the 35% of revenues for the core DRAM what did you -- what was the commentary that you made for the 28%?

I'm sorry.

Mid-20s was specialty DRAM.

Mid-20s was specialty.

Longer term goal for DRAM?

Well, that's going to be more dependent on market considerations.

I think Steve and team has done a pretty good job of getting us in a situation where we can move capacity around to take advantage of certain market opportunities, like, for example, right now we're putting more wafers back into imaging and specialty DRAM, so specifically in Q2, you might see more of a flattish production bit number even though we're going to average more like 10.

So we're going to give you some general ranges here, and just expect us to move capacity to where it's most advantageous for us.

John, let me just add some commentary to what Kipp said.

The reason we don't have specific number is because we're going to move it around depending upon what the market is doing.

In general, by the time we get into probably late '08 we'll have the ability to dial back and forth but I think the way to think about is we could probably go 60/40 either way.

That's a very interesting comment.

Steve, I was wondering just as a follow-up to try to put a finer point on it, when you talk about your flexibility and your swing capacity, how long would it take for you to make those adjustments?

Is that something that can occur within six months, or would it take a year or shorter than that to kind of react to those market conditions?

Yes, what we're, at least our historical experience has been around four months.

Now, let me just add that on the flash side, of course, we have a partner, and typically we're motivated in the same direction, because one will be stronger versus the other, when that happens we both tend to want to move in the same direction.

But you've got to go through that process because they are our partners and we have to work through it.

It maybe takes slightly longer.

In general, I think you'd see it all happen within probably that four-month time frame.

Great.

Thank you very much.

Our next question comes from the line of Bill Dezellem.

Hey, Bill.

Please go ahead, sir, your line is open.

My apologies.

That was a mute faux pas.

We knew you were there.

Relative to the solid state drive business that you announced here recently, would you please discuss what you view to be your opportunities in that market and the hurdles specific to Micron being successful in that market?

Sure.

I'm going to generalize here, Bill, but we see two primary opportunities for us.

One would be in the server space, and kind of the key parameters there for our success are going to be performance and frankly just time.

It's going to take some time for our end customers in that space to -- servers and storage basically, but it's going to take time for our customers to understand the technology and ultimately integrate it into their systems to supplement hard disk drives and in some cases even replace hard disk drives.

So it's primarily time.

And the big motivator there for solid state drive penetration is primarily performance advantages relative to the current solution.

And the other end of the spectrum is going to be in the notebook computer area.

Of course, the primary advantage there, or variety of advantage there but it's performance, power consumption, weight, reliability and durability, and the primary inhibitor there, if you will, is going to be cost per gigabyte of storage, and as we move through 50 nanometer and 35 nanometer we are addressing that challenge as well.

Either of those markets realistically we're looking at the end of next year or 2009 before either of them become real significant in terms of revenue drivers for us.

With the decline in NAND pricing that we've experienced, what is the premium that's still in place relative to a traditional hard disk drive?

I'm sorry, the selling price premium today?

Yes.

Oh, it's -- that's a good question.

If I'm not mistaken, I'm not an expert on hard disk drives, by the way, but I believe they're selling for about $1 a gigabyte, ballpark, and I think solid state drives are probably today selling for about $5 to $6 per gigabyte.

So it's a pretty significant premium today.

And, if that $1 per gigabyte is the magical figure, it's going to take us quite awhile before we can get our cost down to be able to participate at that price level.

But at any rate, there's still a huge differential in terms of the retail selling price of a solid state drive versus a traditional hard drive.

Great.

Thank you.

Our next question comes from the line of Glen Yeung.

I understand you have the strategy of moving production to 200-millimeter for specialty and for image sensors but to what extent is decommissioning some of your 200 millimeter fabs part of your near to medium term strategy?

Decommissioning is a relative term, remember that the -- there's also a process that we go through where we might convert.

When you say decommission, it could be a conversion or it could be a shutdown, depending on the scenario.

A good example would be in Singapore right now we're actually converting from 200 to 300, and it's going pretty well.

The facilities that we have that are still running 200 millimeter, which are primarily Japan and Italy, which Italy is dominated by imaging, and then some in Boise, right now, we're using all that capacity, so the question is when do you think -- and we're not using that capacity for anything significant on the core memory piece.

All of our core memory and the NAND is all running on 300-millimeter, and we think is good technology and pretty cost effective.

So for us, it might be a slightly different scenario.

We have heard reports and we've read reports out there in the industry where there are several companies who have been running core DRAM on 200 millimeter, they're talking about shutting that down next here in the next 30 to 90 days.

And I would expect that to continue for those operations where they do run core memory on 200 millimeter.

For us it's a little different scenario.

I think the more important issue for us is trying to understand the demand profile for the specialty memory over a longer period of time, because obviously it has long legs on it, and I don't think, by the way, that you're talking about anything in the next year for us.

I think you're talking about something further out as to we either have to convert it or we will obviously take it off-line, but right now it's all being consumed with noncore memory.

I don't know if you can comment on this or not, but you did mention that you think some of your competitors may be taking 200-millimeter off-line.

What's your sense as to the impact on that on the supply-demand balance in '08?

Can it meaningfully help us -- is there enough there that it can help us out?

That's hard for me to know.

My instincts telling me it it's not that much.

I think it's worth noting that if you look at the wafer differential, or if you look at how the wafers break out today in silicon, not in bits, but if you look at it in silicon, about 75% of the worldwide DRAM market is made on 300 millimeter today, and about 25% is made on 200 millimeter.

So it's still a significant amount of capacity in silicon, but if you actually broke that down to bits, it probably would be something more like 85/15, and when you look at, you know, what's happening around the world on 300 millimeter and some of the expansion that's already been mentioned, I don't -- I think primarily the greatest impact will just be a pull-back on a 300-millimeter expansion as opposed to taking some of this more obsolete 200-millimeter off-line.

Then, Mike, you made a point that you thought DRAM demand in the first quarter was going to be above seasonal, and you also suggested that the content per box wouldn't meaningfully improve until there's some stabilization in price.

And suggesting that you either believe PC demand is going to be better or you think that content going to go higher, i.e.

price will stabilize.

Any thoughts as to what you're really pointing to?

Just to clarify, we've seen continued content growth through 2007 and we're expecting to see content growth grow through 2008 as more applications come to the PC and we get more Vista uptake and so forth.

My comment was that we didn't get a big demand price elasticity kicker that you would have expected with an 85% price decline over the course of the year.

I think that's primarily because the customers are aware that the current market price for DRAM is probably not going to be at that lower range for some time into the future so they can't really predict it.

We would expect to see strong PC unit growth next year in the range of 12% to 15% and continued content growth, but I do believe once prices become a little bit more predictable from a customer standpoint, they're going to feel comfortable about really cranking up DRAM content more significantly than they have in the past year.

What's your sense as to where inventories are today either at OEMs and the module makers?

What's your sense as to where we stand?

On the OEM side I don't believe, at least with the customers we're working with, there's virtually no inventory, and there would be no motivation for them to take on any inventory because we do such a good job of servicing their needs by storing product at their factory.

From an OEM standpoint, of course I can only speak to our own inventories.

On the DRAM side we've got about three to four weeks worth of sales in our own warehouses and our own customer hubs.

And in terms of the channel inventory, I really don't have tremendous visibility there, although we continue to move bits and pieces of our output into the channel every day.

So my perception would be there's probably not too much inventory in the channel, either.

Last question.

We've now just this past negotiation seen the contract price get down to about the level where spot prices are, and we've seen spot pricing the last couple weeks not look as volatile as it has been.

What's your sense here as to whether or not we may be, you know, at least seeing a stemming of the decline that we've seen over the course of the last 12 months?

Boy, that's really tough to predict.

I think as you mentioned, we've seen -- we did see prices decline.

Our contract prices declined mid-December slightly so that the rate of decline has slowed but we're getting so low here that you would naturally expect that anyway.

It's really difficult for me to predict what's going to happen over the course of the next couple of months with respect to pricing, but does it -- it does feel like things might be slowing down, at least in terms of the rate of decline.

Okay.

Our next question comes from the line of Doug Freedman.

Thanks, guys, for taking my question.

Steve, if you could temporarily put on your CFO hat for me, you made a comment in your preamble about operating cash flow for next year.

Can you offer some guidance on what you're looking for, for depreciation, an update there?

Just trying to do some calculations on how you get to your operating cash flow expectations.

Yes.

Depreciation we expect to be around $2.2 billion.

$2.2 billion.

Okay.

And is there any -- there's been some talk about turning off some of your 200 tools or transitioning.

Is there some cash that you're expecting to receive from 200-mil tools?

Actually, because of some technology we came up in the testing arena, and because we have ongoing equipment sales from 200-millimeter that isn't being used or being pulled out, in every corner we have typically a gain from the sale of some of that equipment.

And last quarter, I think it was probably in the neighborhood of something like $15 million.

And I think that's just kind of a continuum.

Now, the one caveat that I'll say to that, in the event that we decide to take a facility and sell the 200-millimeter tools in it, it turns out that the demand for 200-millimeter tools right now in the world is really pretty strong, especially for the lines which we have, which are considered pretty advanced for 200 millimeter.

So we could easily generate quite a bit of cash from selling 200-millimeter tools if we chose to do that.

Great.

Could you spend a little time talking about the early adoption of SSDs and what that's going to do?

I was at the event where you launched the products and most of them, I believe, were SLC-based products.

My understanding is your output of SLC right now is very low.

Is that something with the adoption of these drives we're going to see that mix start shifting again?

If you could offer a little commentary on profitability between the difference of MLC and SLC.

This is Mike speaking.

I'll try and address that.

First of all, with respect to the high-volume notebook market we believe that ultimately it's going to be MLC technology which really drives significant penetration in the notebook market, primarily because of the pricing demands, or the cost sensitivity of that market.

And we are planning to introduce -- I don't have the road map at my fingertips, but we are planning to introduce MLC-based drives fairly early in our ramp here as we move through next year and into 2009.

With respect to the SLC mix and our product portfolio, our early penetration in solid state drivers is going to be 100% SLC, so to the extent that we're able to drive some meaningful volumes heading out of next year into 2009, yes, it would be reasonable to expect that for that application alone, our mix of SLC products would increase somewhat.

It's probably also worth noting there are a variety of other applications, none of them as significant as solid state drives, but there are a variety of other applications that require SLC performance which we're currently supporting right now from our existing output.

In terms of margins, I don't have the specifics at my fingertips, but certainly our margins on SLC today are quite a bit higher than they are on MLC.

Again, that's primarily because the applications are somewhat niche in nature and require that increased performance from SLC.

All right, terrific.

Just two more real quick ones.

Wafer starts, what are we running as far as equivalents right now and what's the forecast going forward?

How much of the bit growth is coming from new starts?

Doug, we're running -- we [only] speak in terms of outs for us of course, in 200-millimeter equivalents, we were up this quarter pretty nicely.

In Q4 we ran around mid 90,000 outs a week.

And we're running 108,000, 109,000 outs a week for fiscal Q1.

That will grow a percent or so in fiscal Q2.

My last one for you guys, any idea what you're looking at?

We've seen some pretty rough road here as far as pricing is concerned.

But some of it has been driven by pretty good bit cost reductions by the leaders in the industry.

What are you looking at as far as next year as far as what potential do we have with the road maps that you have to reduce the costs going forward on both DDR and the MLC product lines?

Well, we actually think we probably have more runway ahead of us than some others.

But we're coming from a position in particular on NAND where we've been ramping and gaining scale and getting yield where we think it's advantageous for us.

So on that front, we've been doing pretty well.

On the DRAM front, we've said, I think for some time now, we think our technology has resulted in the smallest die in the industry by virtue of, we really are in really high volume production on 70-nanometer today, and we've had a success squared for a long, long time.

If you look at the data, it's pretty good for us so we don't see any reason we won't continue to drive pretty strong cost reductions throughout '08.

I think part of your question was also around, boy, this industry looks pretty tough right now, and what do you think people are doing.

I think we can improve our results for the things that we can control moving forward, and we're starting to demonstrate that on the operating expense line as well.

However, I do get this sense that the industry is difficult enough right now such that some of the players are starting to look at balance sheet preservation as opposed to any real expansion, and we just have to see how that plays out over the next quarter or two because it's -- it is a pretty difficult environment.

All right.

Great.

Good luck, guys.

Thanks so much for the time.

Our next question comes from the line of Betsy van Hees.

Going back to the image sensor business, if I heard correctly you mentioned you were not immune to pricing in 1.3-megapixel and VGA being aggressive.

I was wondering if you can give us an idea of what type of price declines that you saw?

In aggregate, our pricing, quarter over quarter, was flat.

It might have been up or down maybe 0.5% or something like that.

In aggregate, it was flat.

That was primarily the result of us continuing to climb up the pixel density curve somewhat.

I don't have the specifics by chip in terms of what our average selling price did, but in general it was flat quarter to quarter, and reasonable to expect that would probably be the case for the current quarter as well.

Okay.

Great.

Thank you.

And then I had had a question on your mix for SLC versus MLC NAND.

The vast majority is MLC.

Kipp, have you got that?

I think last time I looked we ran about 80/20

So ballpark 80/20.

80 MLC, 20 SLC.

Do you have any plans of increasing your SLC given the better mix margins that you're getting in that and your launch of solid state storage drives?

In the very near term, our mix of MLC versus SLC is going to shift even stronger in favor of MLC as the solid state drive initiative gets some traction, as I mentioned earlier, it would be logical to assume that we'll be ramping up SLC again, but again from a meaningful shipment standpoint, we don't expect that 2008 is going to be very significant in terms of SSD uptake.

Great.

Thank you very much.

Our next question comes from the line of Daniel Berenbaum.

If we can go back to the cash flow from operations guidance, the $1.5 to $2 billion for fiscal '08, you talked about where depreciation and amortization would be going.

Could you give us insight into what other variables you put into that equation?

I'm sure you have some -- you made some fairly tough assumptions to come out with that number.

Can you help us understand what some of your assumptions are to get to those numbers?

Well, maybe Kipp can comment on it more if he knows what you're really trying to get at, which I suspect is probably this price forecasting.

Clearly --

Not just price forecasting, but maybe give us some insight into where you see your revenue trends and what goes into that, and then what trends you're seeing on the cost side as well.

You were fairly specific about the guidance so I'm just trying to understand how you think about those numbers.

Well, let me give you some of my thoughts, then Kipp can add what he wants to.

We are clearly in a growth phase for the company.

If you look at the data, we -- most quarters we've had some flat periods because of significant price declines, but we have been ramping our capability, and you saw the growth that we had this quarter.

We had growth from the last quarter prior to that.

We obviously are adding more output, and whether or not that results in greater revenues or less revenues, your guess is as good as mine on what the selling price is going to do.

But having said that, we have, in our forecast, of course, something that we can't share, but we obviously have a continuing trend of ASP declines in the market built into our model for obvious reasons.

We're trying to be conservative in making sure that we understand the financials as we move throughout the year in an environment that's not favorable for us, although frankly we have no idea whether that's going to be the case or not.

So we have that built in, and even with that built in, those were the cash flow -- the cash flow range that I gave you is with that conservancy built in.

Kipp, did you have anything else?

Not much else to add to that, Steve.

Thanks.

Are there any more questions?

Our next question comes from the line of Tristan Gerra.

You mentioned on the call that at 68 nanometer you have about a 25% die size reduction versus 78 nanometer.

We know Samsung at 66 nanometer is a little bit behind.

[Hynix] is doing well.

How do you compare in terms of dye size at 68 nanometer?

What is its competition currently?

We compare pretty favorable.

Obviously we have been at 6F squared and we've been able to optimize that for our process.

I don't know if, Kipp, you want to add anything.

More specifically I think we have shown some slides, or Mark Durcan has, we're looking at 20% to 25% die size advantage, over competitors right now, partly due to where we are in process migration and partly due to the 6F squared technology we've had matured up for several years.

Quick follow-up in terms of mix in imaging, if you could give us some color on the mix of VGA versus 1.3 megapixel.

In our quarter we are reporting on now so in our fiscal Q1 just over half of our unit shipments were 2 megapixel and above.

So by definition, just under half were at 1 megapixel and below.

I would expect we're going to increase the higher pixel density units as a percentage of the overall going forward so it will be up slightly from that in the current quarter.

So you wouldn't expect VGA to pick up as a percentage of revenues sometime next year, or this fiscal year?

I don't want to look too far into the future but in the current quarter I think it's a pretty safe assumption that that would not be the case.

So it will be a richer mix of 2-megapixel and above in the current quarter as well.

Thanks, Tristan.

With that we'd like to thank everyone for participating on the call today.

If you would 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.

This concludes today's Micron Technologies first quarter 2008 financial release conference call.

You may now disconnect.