美光科技 (MU) 2008 Q2 法說會逐字稿

Good afternoon.

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

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

Kipp Bedard.

Sir, you may begin your conference.

Thank you very much.

I'd also like to add my welcome to Micron Technology's second quarter 2008 financial release conference call.

On the call today is Steve Appleton, Chairman and CEO, Mark Durcan.

President and Chief Operating 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 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 an audio replay of this call.

You may reach that by accessing -- reach access by dialing 706-645-9291, with a confirmation code of 39996231.

This replay will run through Thursday, April 9, 2008 at 5:30 p.m.

mountain time.

A webcast replay will be available on the Company's website until April 9, 2009.

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: 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'll now turn the call over to Mr.

Mike Sadler.

Thanks, Kipp.

We continue to feel the effects of an over-supplied market in fiscal Q2 and saw average selling price declines for both our DRAM and NAND Flash memory product lines.

While we had another quarter of strong operational execution and associated costs of goods sold reductions, the unfavorable pricing environment overwhelmed operational efficiencies, resulting in the operating loss we are reporting today.

As I mentioned in last quarter's call and in the mid-quarter analyst conference, we have seen strong demand throughout this supply-driven cyclical downturn, which has now spanned about one year.

This continues to be the case, as the computing and mobile phone markets, in particular, are exhibiting both solid unit and content growth.

We have an industry-leading technology position with our 6F 78nm DRAM process and circuit designs, which are fully ramped on 300mm wafers in our Virginia facility.

We are in the early stages of ramping the 68nm process at the 300mm facility in Singapore.

This puts more distance between Micron and the competition in terms of manufacturing efficiency, with an effective 20% chip size reduction versus the 78nm process.

We now have our one gb DDR3 product in volume production and are firming up second half '08 supply programs with some key early adopting OEMs who value the performance and power savings with the DDR3 technology.

Motivated by a combination of operating system and application enhancements, as well as price elasticity, our computing customers are packing more and more memory into their systems.

This marries up well to our strategy and capability of running high density one gb and two gb chips as our primary volume drivers in the advanced process technology nodes.

On the other end of the spectrum, from a cash flow, operating income and market opportunity and customer satisfaction perspective, we are making good use of our remaining 200mm DRAM capacity.

Moving forward, we do not see this changing for the foreseeable future, with our diverse family of specialty DRAM products showing sustainable strong demand from a variety of market segments, including networking, telecom and a variety of consumer electronics product markets.

On the NAND Flash front we are in the middle of a seasonal lull for consumer electronics products, one the primary demand drivers for flash memory.

This, in conjunction with unprecedented industry supply growth, has resulted in the challenging pricing environment I referenced earlier.

We should see seasonally stronger demand in the second half of the year and over the long haul, we believe with conviction that this is a high-growth market leveraging Micron's core technological capabilities.

We are continuing with the rapid cadence of NAND process technology development and implementation.

Just two quarters after the introduction of our 50nm technology node we have started our sub-40nm production ramp and this will proceed throughout the balance of this year.

At this technology node we have accomplished our objective of being on par or better than the composition with respect to both dye size and operational efficiency.

Economies of scale and rounding out the product portfolio are the remaining hurdles and we are well on our way to closing the gap on both of those.

We will make initial production shipments of our first micro SD card compatible product, an eight gb chip on a 50nm technology in the current quarter.

This product is being made available to our traditional OEM customers for bundling in products such as mobile phones and digital cameras, as well as to retail channel customers through our Lexar brand.

We are rolling out a broad family of NAND plus DRAM multichip package products for the mobile handset market and have stacked up a number of design wins that will result in revenue contribution this fiscal year.

Finally, we have introduced our initial line of solid state drives, 32 and gigabit -- 32 and 64 gb drives with SLC NAND as a market entry and will roll out a low cost MLT drive and very high performance SLC follow-on products later this year.

We are demonstrating success with our CMOS image sensors in the high pixel density segment of the market at two megapixels plus as a result of the superior image quality associated with our pixel and image processing technology.

Customers have embraced and continue to embrace our sensors for use in high-end products, such as 3G mobile phones and digital cameras.

In fiscal Q2 we bolstered the product portfolio with the introduction of a nine megapixel sensor for the digital camera market and demonstration of our initial wafer level module, essentially a stand-alone camera for the value end of the mobile phone camera market.

To sum it up, we are both proud and pleased with our existing technology and product portfolio today, and with the trajectory for advancing both as we move forward.

With just a little cooperation from the markets on supply/demand balancing we are well positioned to deliver positive results.

We appreciate your continued interest, and I'll turn it over to Steve.

Thanks, Mike.

I said at the last earnings call that I intended not to be the interim CFO at this earnings call and I'm happy to announce that that's true.

I didn't beat it by much, but I just want to introduce Ron Foster, who's with us here today, and we had already put out a press release announcing his joining Micron.

We're excited to have him.

I didn't really put him in a position to answer questions today since he really only joined in the last couple days, but we're -- we're very excited to have him join the team.

I just want to make a couple of comments around the financials and then we'll move on to the Q&A.

I don't intend to go through the finances in any detail.

You can obviously look at the release and ask questions about it as we move through the conference call.

First, I do want to highlight that we had some significant cost reductions.

$We had indicated that we thought we would be able to achieve those at the last call and in fact, we did.

We had about a 15% reduction quarter over quarter on the DRAM and we also had about a 25% reduction quarter over quarter on the NAND, so we feel like the execution and the operation was pretty good, and in fact, our operating cash flow actually increased slightly over the last quarter to about $282 million.

Now, on the R&D, I think it's also worth pointing out, it was up from the guidance that we had given a little bit, and that was -- that was entirely due to really just the timing of some product qualifications.

It wasn't due to anything else, and that affects when a device moves from R&D into cost of goods sold and the difference was entirely due to that.

I also want to note that our overall DRAM gross margin actually remained positive as well for the quarter.

So I think those are some good data points to have.

With that, we'll open it up for questions.

Thanks, Steve.

With that we'd like to now take questions from callers.

(OPERATOR INSTRUCTIONS)

Certainly, sir.

(OPERATOR INSTRUCTIONS) And our first question comes from Daniel Amir from Lazard Capital.

Please go ahead, sir.

Thanks a lot and thank you for taking my call.

Couple questions here on the NAND and DRAM markets.

Obviously it's been a struggle here in terms of memory pricing this past quarter.

What's kind of the -- what do you see now in the market in terms of both DRAM and NAND in terms of demand/supply balance, and how do you manage your business here going forward in terms of cost reductions to accommodate that potential change here?

Yes, this is Mike.

I'll address the market piece and then Steve will address the cost reduction piece.

On the DRAM side my assessment is that the market is relatively balanced right now and that is evidenced by the flat pricing environment, essentially for the last couple of months.

I think we were successful in passing on a price increase to our OEM customers either late January or early February, and prices have essentially been flat since then and that continues to be steady state.

So generally speaking, a balanced supply/demand environment on the commodity DRAM.

Certain pockets of the specialty DRAM product portfolio are in tight supply and we're struggling to meet demand in certain pockets.

But generally speaking on the commodity side, balanced supply and demand.

My view of things on the NAND Flash side is not quite as positive from our perspective.

We're still seeing a continual oversupply in the NAND Flash market.

I think much of that can be attributed to the seasonal lull that I mentioned earlier, but certainly my view of things is that supply exceeds demand today and there continues to be price pressure.

Thanks, Mike.

On the -- really the reaction that we have, of course, to the pricing pressure in the marketplace -- and let me just point out that we had a -- as we noted in the press release we had a 15% decrease in the average selling price of DRAM and we were able to reduce our costs in DRAM about that amount.

So clearly we would like the pricing environment to be better, but I think we have been executing pretty well and those matched up.

Now, on the NAND, of course we had a 30% decrease and that's a pretty tough number to outrun in a given quarter.

But let me just say that we do think that the advances we're making in the technology will help.

Obviously our -- we continue to gain skill -- scale as we ramp our facilities, both in advanced process node and in more wafers, and we're doing a lot of work around the OpEx -- operating expenses, and materials, so we think we have runway in front of us.

But let me just also say that these are -- we've had some pretty big decreases sustained now for this downturn that Mike talked about really over the last year, and it just doesn't appear that, at least on average for these products, it would be sustainable and I think that you're starting to see a number of companies struggle with the environment we're in, which really -- and you can see the announcements just like we do, I think a lot of these companies have gone into balance sheet preservation and they're trying to figure out how to continue on, where we think actually we're pretty good.

You look at our cash balances.

We're still about $1.9 billion and you look at the execution we've been able to make on our cost reductions, we feel pretty good about where we're at.

Okay, and just one follow-up question.

Can you expand a bit about one of your announcements this quarter with Nanya and what the strategy is there in terms of going forward.

Is this going to be more than just a technology sharing agreement or what's your thought process there?

Yes, Daniel, this is Mark.

A couple of things on that, and then I can't say too much because we're still working through definitive agreements, but we have said there's really two major components to it.

There's a technology development component which really involves joint development of products as well as process technology on a go-forward basis, and we think that's a significant value to Micron as it drives down our operating expenses and drives a more efficient model for us.

The other major component is a joint venture, and the timing of that and the exact business plan we're still working through, but you can think of this in terms of a -- what we believe will be a capital-efficient model and a capital-efficient way for us to put leading edge and efficient production in place for the benefit of our business and there'll be more of that as we complete -- more on that as we complete tentative agreements.

Okay.

Thanks a lot.

And our next question comes from Tim Luke from Lehman Brothers.

Please go ahead, sir.

Thanks so much.

I was just wondering if you could give any color on your sense of how you think bit growth may proceed in the coming quarter and in DRAM, and in NAND?

And then separately, Mike, if you have a sense of how -- if pricing was to stabilize from here, what we would be thinking about in terms of quarter-over-quarter price declines for the, for the May period?

All right.

This is Mark.

Let me take the bit growth and then I'll hand it over to Mike for the other.

Thanks so much, Mark.

On the DRAM side we're looking at mid to high single-digits and we think that's a good number for this quarter and moving forward over the next few quarters.

Similarly, for NAND we think a good placeholder would be the 30% to 40% range quarter over quarter.

And both these -- both these numbers will be potentially a little bit lumpy, as production moves back and forth during these technology ramps.

Of the pricing, yes.

And on the pricing situation, Tim, again, under the assumption that prices are flat going forward for the rest of the quarter, which would be another eight weeks or so, on the DRAM side we would be down mid single-digits percentage wise, and on the NAND Flash side, we would be down about -- in the mid-20s from a percentage standpoint.

Again, the assumption on both is that pricing remains flat from where we are today.

If I may just to Steve as a follow up.

If you could give any color on how you perceive the OpEx going forward.

Should we assume fairly flattish levels from the $120 million in SG&A and $180 million in R&D?

And then also, if you have any color on how you perceive your cash balance going forward?

And then lastly, just coming out of the Intel analyst meeting it looked like some not total transparency or the visibility of their longer-term commitment to the NAND business.

If you could give any color on the, how you perceive the structure of the JV going forward or on the outlook for the -- for that, that would be very helpful?

Sure.

On the operating expenses, as I noted, the R&D I think was -- I don't want to say artificial, but somewhat impacted by the timing of some product qualifications, so we think that will come back down as we move forward and really come back into this $165 million, $175 million range.

On the SG&A, I don't think it's going to change a lot from where it is for this next quarter, but as I might note, both of those are down.

Remember, in fiscal year '08 we had just over $800 million in R&D and if you look the at numbers that we're forecasting right now, it's obviously going to be down something closer into the mid sixes.

So we've made progress on that and the SG&A is coming down as well.

So I think it will come down.

I don't think there's a lot of dramatic change from where it's at today, but that's primarily because we made a lot of progress on it so far.

On the cash balance we, as I noted, are in pretty good shape.

We really preserved our cash balance pretty good quarter over quarter and we had operating cash flow of about $282 million.

So I think the question a lot of people get at is -- or that you might be trying to get at is how do we see our need to go raise cash in the future and really we think we're in pretty good shape.

We don't see any near-term need to raise any money.

We've balanced it with where we think the CapEx is and we feel pretty good about where we're at, so I don't think that's an issue for us.

On the Intel joint venture, I noted a couple of times before, it's actually gone pretty well.

Despite the fact that we've had a pretty tough NAND market, the JV in terms of its operation has actually been ahead of schedule in terms of what it's accomplishing on the technology and the ramp so we feel pretty good about that.

I don't have any commentary that I know of coming from Intel leadership that they haven't -- that they are interested in getting out of this joint venture, so I guess I'd have to defer you back to Intel.

From our perspective it's gone pretty well.

Obviously the market's pretty tough, but I think we still both view it as a pretty strategic product area, not only for where it's at today, but for where it's going to move to in the future, with SSGs and so forth, so I think it's still pretty strategic.

With no change to the big growth plan this year?

No, nothing that would be significant.

Mark, do you want to make any comments?

Yes, let me jump in.

Relative to this year there's nothing, we're still full speed ahead.

We have made the decision with Intel relative to our IMFS fab that we will start in the first half of '09, so that is a slight slip from what we had originally projected coming late in '08, but we think that's just the right thing to do given the current market conditions in the NAND market.

Thank you so much.

Yes, just to add to to what Mark said, we were pretty aggressive on trying to drive that new facility schedule and given the market conditions, I think we just view it as we don't need to be so aggressive.

We could be less aggressive and a little more normalized about how we bring that on and as Mark said, that'll really be the first -- probably the first part of '09 now.

Thank you so much, guys.

Thanks, Tim.

Next question, please?

Our next question comes from Krishna Shankar from JMP Securities.

Please go ahead.

Yes, as you look at the DRAM market, what is your outlook for industry bit growth this year, and do you see -- you mentioned that the market was in relatively good balance.

Do you see that tightening as we go forward into the May and the August quarter with PC [burn] cycle Intel's [Montabena] ramping and just increased box loadings?

Krishna, are you talking about bit supply or are you talking about bit demand at the customer level?

Actually, if you give color on both, that would be helpful.

Okay, I'll -- this is Mike.

I'll comment on the demand side and then I think Kipp's going to provide some input on the supply side.

With respect to demand specifically from the computing community, from our PC customers, I've taken a cross section here that's pretty representative of the entire worldwide market.

And from a demand standpoint, in calendar Q2, we're looking at demand growth sequentially, so relative to calendar Q1, of about 12% on a bit basis.

And that ranges, by the way, from a low of -2% to a high of about 40% on sequential bit growth -- bit demand growth in calendar Q2.

For the year, the same data rounds out to about 65% in terms of bit demand growth and the range there would be a low of about 49 and a high of about 105, and again, that's a good cross section of our customers, which I think is a pretty fair representation of the overall market.

Now, what I believe is embedded in here -- although, again, you would have to get this directly from our customers -- but I believe a unit growth rate of somewhere in the neighborhood of 10% to 12% is what's embedded in here and the balance, of course, is driven by content growth.

Thanks, Mike.

It looks like on the industry side supply bit growth will come in -- again based on current public comments -- somewhere between 50% and 60% year over year.

Okay, and on the NAND Flash side, is there anything out there that could (inaudible) the excess supply situation here, whether it is the Apple 3G phone or other competitors coming out with 3G phones.

What'll be the couple of big factors tightening NAND supply out there?

Well, there is the announcement that Hynix made that they're going to take the 200mm offline, which I saw a number that said it accounted for about 5% of the world's supply.

That's actually pretty significant on the supply side.

Mike, I don't know if you have any on the demand side.

Well, on the demand side, we're certainly -- I shouldn't say certainly -- we believe that we'll get a strong demand growth in the near term when we head into the selling season for consumer electronics products, so essentially from back to school through the end of the year, Christmas and holidays, should be a much stronger demand profile for consumer electronics products, which do drive a significant piece of the overall NAND Flash demand.

We also believe that we're going to see -- continue to see pretty strong elasticity growth as a result of lower NAND prices, higher density flash cards in the marketplace and so forth, which is naturally going to drive demand.

We are going to see some -- some demand created from the introduction of solid state drives, it's actually today through the rest of the year, although I don't believe that one is going to be significant enough in 2008 to really swing things in favor of demand.

And over the long haul, just a more rational investment profile, which matches what the demand profile looks like, I believe, is going to ultimately balance things out and whoever is the most cost efficient and has the best operation is going to be the winner and we think we're in pretty good position with respect to that.

Thank you.

You bet.

Next question, please.

And our next question comes from Shawn Weber from JPMorgan.

Please go ahead, sir.

Yes, can you guys hear me okay?

Yes, we can hear great.

Okay.

Thanks for taking my questions.

Can you ground us a bit on some of the February quarter bit production and bit shipment information for DRAM and NAND?

Sure.

Bit growth on the DRAM side was roughly flat quarter to quarter, and NAND production bit growth was up nearly 30%.

So DRAM production was flat sequentially?

That's correct.

Okay.

Was there something that you guys changed in terms of your plan?

I thought you were intending to grow your production in your February quarter.

Yes, we actually changed the product mix and we moved wafers in favor of imagers.

Okay.

And in terms of the sensor business can you talk about what that did sequentially in terms of revenues or units or give us some color on what was happening there?

Revenues were down roughly 20% and we're looking -- our third quarter guidance would be up 5% to 10% in units.

In units?

Correct.

And then for your, your inventories, did I read that right, that it was $15 million in the quarter, in terms of the write-down this quarter?

Yes, we -- our NRV was about $15 million for the quarter?

Okay.

And then maybe stepping back a little bit, when you look at the landscape of your competitors and their relative cash positions, do you see any of the marginal players falling off sometime at this point -- sometime later this year or over the next year, given the cash burn situation, or do you see actual consolidation likely, or are any of those scenarios that could come to pass this year do you think?

I think that the -- well, I've said this before, Shawn.

I think that the industry needs -- still has some consolidation it needs to go through.

Clearly, some of our competitors on their cash burn, it's pretty high, and I don't know their ability to access the markets and continue on, so that's tough for me to judge.

But we've been looking at the landscape pretty closely and I think what you're saying is true, that there's a lot of pressure out there on these balance sheets and that they're trying to figure out in some of their cases how to survive or whether they ought to join up with somebody else to essentially consolidate the industry.

And I guess the only other caveat is the longer the industry is in a downturn the more probability and the more candidates there become to be part of a consolidation.

Okay, and then maybe finally, did your -- can you tell us what your wafer growth was sequentially in your February quarter and how you expect that to evolve maybe next quarter or over the course of the year?

Yes, same as last quarter.

Up a couple percent in Q2 and that's what we're getting to as well.

Let me make sure I stated something as well.

During the quarter the imaging units were down 19%, 20%, but remained approximately 10% of the total revenues.

Still 10% of total revenues?

Yes, I think I mentioned revenues were down 20%, but it's actually units were approximately 20%.

Okay, thank you for that.

Okay, thank you very much.

You bet.

Next question, please?

And our next question comes from John Pitzer from Credit Suisse.

Please go ahead.

Yes, good afternoon, guys.

Thanks for taking my questions.

Just a couple here.

On the CapEx front, we're halfway through this fiscal year.

You have spent about $1.5 billion.

You're still throwing out a range of $2.5 billion to $3 billion.

Can you just help me understand what gets you to the low end of that range and what gets you to the high end?

And then I have a follow up.

Yes, there's a couple things.

As you know, if you have followed our fiscal year end over the last several years, just simply timing of the equipment installs and qualification can have a $200 million to $300 million, even $400 million range, so that by itself is enough to be --drive us anywhere through that.

I think as Mark and Steve have alluded to, we keep a lot of flexibility in our CapEx budgets in a lot of different areas as well, so those two things would keep us in this range for now.

And of course we'll keep you updated on future calls.

Kipp, does the pushout of Singapore, albeit just a minor pushout, drive you to the lower end?

Is that what we should be thinking?

It's pretty minor, not really.

It's really this timing of a lot of the stuff that we're doing and whether it hits exactly at the end of the quarter or not.

If you look at us historically, lot of times we don't end up spending $200 million or $300 million of the money that was in the budget that we thought would happen in that time because qualifications or acceptance of tool deliveries get pushed a little bit.

And it --

And just on the follow-up front for Steve.

Steve, just given that you're still viewing consolidation as something that needs happen in the industry, can you help me understand your proposed joint venture with Nanya in light of that?

Are we supposed to assume that this joint venture helps the industry capacity and if it doesn't, would you be better off doing -- being a consolidator instead of going through this sort of joint venture route?

Well, I -- first of all, I don't think they're mutually exclusive.

The fact that we did a joint venture -- and by the way, I think it's worth pointing for a lot of that have heard me speak over the years, we don't think that these foundry arrangements work, but I think that true joint ventures work.

The one we have with Intel's working well and the joint venture that we will have with Nanya we think will work pretty well, but that's because we are truly codeveloping and cosharing, if you will, on trying to generate the most capital-efficient model.

In other words, I think the way to look at these are, we have consistently tried to make sure that we did not enable a competitor in a lower cost structure than our own in terms of how we structured these deals, and in fact, we haven't done that.

So while -- clearly the other thing that we're interested in is continuing to drive scale and OpEx efficiency and that's what we're driving towards in this joint venture, as well.

I don't think it's a good assumption that because we are doing the joint venture that we wouldn't also be interested in consolidation if the opportunity were to exist, so we continue to look at that as well.

All right.

Thanks, guys.

Thank you.

Next question, please?

And our next question comes from Glen Yeung from Citi.

Please go ahead, sir.

Hi, this is Jen for Glenn.

Can you talk about the channel inventories that you're seeing on the DRAM side?

Sure, happy to.

On the DRAM side, I -- two components of our customers.

One would be the OEM customer or the PT manufacturers and other hardware manufacturers, and the others would be the -- I'll call them the low value-add customers or the speculators that are -- they're buying and holding and speculating on price increases or are adding a relatively small amount of value in the form of a module, say, a PCB.

On the OEM side I don't believe that any of our customers have accumulated significant inventory, if they have at all.

Again, as I've stated in the past, the only reason they would do so is to speculate or to hedge on price increases.

We are -- make business too easy for them to force them to accumulate inventory.

We store the product right at their facilities.

So it's my observation that they are not accumulating any inventory.

On the channel side, the speculators, I believe there is a fair amount of buying in anticipation of price increases and trying to take advantage of that.

Having said that, I don't believe there is a significant amount of product in the channel.

So it'd really be difficult for me to quantify, but my sense is that it's not very significant.

On the NAND Flash side, however, I believe there is quite a bit of inventory in the channel among those kind of third-party speculators and that's kind of fueling my perspective that we are in a pretty significantly oversupply situation in the NAND Flash side.

Thanks.

And in your prepared comments you talked about some design wins with your DRAM and NAND products, your N2 wireless handset OEMs.

Can you talk a little bit about those design wins?

Thanks.

Sure.

I can't disclose who our customers are, but I think you're aware of who the large mobile handset makers are; there are only five of real significance.

And the market is -- as the market shifts from, from 2G to 2.5G to 3G, the memory subsystems are shifting from NOR-based multichip packages to NAND-based multichip packages and we have -- actually we are currently shipping in production and we are continuing to stack up a variety of design wins with our own silicons -- our own NAND Flash silicon and our own low-powered DRAM products in these MCPs.

And it's with multiple customers, it's certainly not just with one.

Not sure if that answered your question.

Yes, thank you.

Next question, please.

And our next question comes from Daniel Berenbaum from Caris & Company.

Please go ahead.

Hi, guys.

You guys did obviously a great job on cost reduction in the quarter.

Can you talk about the path for cost reduction for both NAND and DRAM over the next several quarters?

And then also if you could just break out by a percentage of revenue, what percent was DRAM and what percent was NAND?

And if you can maybe look out in the future, more importantly, and maybe give us a way to think about when will NAND become a larger percentage of your revenue than DRAM, given the pushout of the Singapore fab?

Okay, Dan, this is Mark.

Let me talk a little bit to where the cost reductions are coming from on a go-forward basis, and I'll let Mike handle the supply revenue breakdown piece.

First of all, as we've stated already, the cost reduction on a cost per bit basis was about 15% on the DRAM, about 25% on the NAND.

As we look to the future, the DRAM cost reductions are coming from incremental output in both NTV and TEC at 300mm, so incremental output at the leading edge.

Those would be 78nm and 68nm wafers respectively.

As we get into calendar Q3, we'll start introduction on our 58nm node in the Virginia fab and there'll be significant dye size reductions as that technology rolls in.

As we look to the NAND front, it's really a technology story.

We have pretty -- pretty solid approaching mature yields on the 50nm node, but in the third quarter you'll already start to see some output impact from the 30nm --, or the sub40nm node that Mike alluded to earlier in the call and that's really going to drive the significant cost reductions in the second half of the year and into calendar '09.

And I'll take the revenue breakout.

We during the quarter executed to about 30% core DRAM percent of revenues, about mid-20s in terms of specialty DRAM.

As I mentioned earlier, imaging was approximately 10%, and that leaves NAND at about the mid-30% range.

So any idea -- and I'm sorry, just to come back to the cost reduction, then, would you care to speculate on just sequential percentages of cost reduction that we could think about due to these very aggressive programs that you have?

And then also on -- back to the breakout side, when should we think about NAND becoming a larger percentage than total DRAM?

Sure.

On the cost reductions we've been guiding 15%-plus over the next few quarters and that'll continue to be the case.

And as Mark indicated earlier, there will be periods of time where production is up higher than a 30% to 40% range that he mentioned and of course that'll correlate to even a faster cost decline, similar to what we did this particular quarter.

On DRAM, same guidance as before.

Over the next few quarters we'll average in that high single to low double-digit range on cost reductions.

And in terms of when NAND can be higher than DRAM revenues, I'm going to defer that, because it's always difficult to predict the ASP impact relative to that.

Okay, fair enough.

Thanks very much.

You bet.

Next question, please.

And our next question comes from Jim Covello from Goldman Sachs.

Please go ahead, sir.

Hi, this is Kate Kotlarsky on behalf of Jim Covello.

A quick question on NAND CapEx.

Clearly the NAND environment has been pretty difficult.

I was just curious what your thoughts are about how bad it has to get before either you guys or some of your competitors might start thinking about potentially reducing some of their investments, sort of similar to what we're seeing in DRAM today?

Thank you.

The NAND CapE -- well, first of all I think there is some adjustment going on in the NAND production world today, in that anybody that was out there producing on 200mm is really thinking hard about getting out of producing NAND on 200mm.

I referenced earlier that Hynix had announced they were going to do that.

I think others will do that as well.

It's worth pointing out that for Micron, the percentage of NAND that we have on 300mm I think is the highest ,or one of the highest of any company out there in this, in the industry.

So for us, we are on -- primarily on the leading edge of 300mm technology node and so that alone wouldn't drive to us change our behavior.

But I will say that we've already mentioned what we see going on in IMFS and that was really -- that's essentially the Micron/Intel joint venture's next large expansion, and so that is going to occur later than we originally thought it would occur and I would imagine others are looking at the same thing.

But I will say that with respect to Micron's perspective moving forward, we're still a much smaller player in the NAND industry than a couple of the other much larger players, so it's probably a question that would be better to ask them and what they are thinking about doing to gauge what would happen with the industry on capacity expansion.

I've already described to you what we're doing.

Just a quick follow up.

In terms of the 200mm capacity retirements that you had referenced, is your expectation that that capacity will just be retired, or do you anticipate that capacity to be replaced with 300mm capacity in the industry?

Well I think you'll see a -- it's kind of an evolving scenario where it can't be replaced immediately because it's virtually impossible to do.

In Hynix's case they said that they could have it off line in the next 60 days.

All I can tell you is what these others are reporting in the -- in the media.

I will say this, though.

It would not be helpful to try to take that capacity and build DRAM with it.

I mean that is no solution for it either.

And so I don't think you're going to see a shifting of 200mm from NAND into DRAM.

Whether or not that capacity can build something else it's hard for me to know, depending on what the product portfolio is.

But I frankly don't think that the 200mm coming off at this point in time is really affecting too much decision around what companies are doing on 300mm, just because these things come on over long periods of time and it's a much more strategic thought process about adding 300mm fabs.

Okay, and just quick question on your depreciation.

Do you have an estimate for 2008 for D&A, any change?

Yes, about $2.2 billion, so same as last guidance.

Okay.

Thanks so much.

You bet.

Next question, please?

Our next question comes from Hans Mosesmann from Raymond James.

Please go ahead, sir.

Thanks.

Most of my questions have been answered, but I do want to get a sense of how you see the environment.

There's a sense that things should be slowing down in the world of PCs.

Are you seeing normal seasonal trends and behavior by your PC OEM customers and what's their outlook relative to the slowdown that could lead to slower-than-seasonal trends here entering the summer?

I don't -- Hans, this is Mike speaking.

I don't think the numbers -- the data that we're receiving from customers with respect to demand really exhibits any significant slowdown in absolute demand for their boxes.

I referenced that 12% quarter-over-quarter bit demand growth earlier and I don't have historical data at my fingertips, but my sense is that's representative of a typical seasonal calendar Q2.

So we're not -- I guess the short answer is our customers are not portraying to us any type of a slowdown in demand yet, certainly.

Thank you.

And next question, please?

Our next question comes from [Kamal Das] from Lehman Brothers.

Please go ahead.

Kamal Das, your line is live.

Please go ahead.

My questions have been answered.

Thank you.

And next question, then?

Our next question comes from Doug Freedman from Am Tec Research.

Please go ahead.

Hi, guys, thanks for taking my questions.

I guess if we could get a little bit of detail on Lexar and how Lexar is going, and if you can discuss what you're seeing as far as price trends in retail and average densities being bought there?

Lexar, interesting enough, in this time period, is -- has really been an advantage for us.

and I think probably the easiest way to describe it is that the price declines that occur in the retail channel are just simply not as steep as they have been in the component sales.

So we've been able to really take advantage of that, as that's been a channel for us.

Now, it's also worth pointing out that Lexar still buys from third parties as well, so we're not a 100% supplier into Lexar.

But they are buying more and more every quarter that goes by, as we qualify and develop new products to go into that channel, and so Lexar's actually done, I think quite well.

From a business model perspective, as I mentioned at the analyst meeting,they've really, I think, got on track and got more efficient and have started reexpanding, if you will, from where they were when they tried to retrench and get the business model into much better shape, so it's gone pretty well.

And I guess I'd leave it at there.

If you had a more specific question, I could try to answer it.

Do you happen to have the average density of -- that's being purchased and any changes there?

Are we seeing increased density in the retail channel for NAND?

Unfortunately, Doug, I don't have that data with me.

We'll make sure to have it with us for the next time around on this, with respect to the card density in retail.

I would add to what Steve said, I mentioned earlier that we've recently introduced our first Micron silicon that is compatible with a micro SD card and we're really bullish about this being a solid retail product for Lexar.

It's a one gb micro SD card and it should be available in retail in over the next 30 to 60 days or so, and quite bullish about adding that to the product portfolio.

One other thing to what Steve mentioned on Lexar, that the amount of revenue that we're generating from Lexar via the NAND Flash cards through retail is increasing every quarter we go forward.

So we're actually -- we're really happy to have this additional outlet if you will, or this additional means of getting products into the hands of the retailers and it's working out quite well for us.

All right.

And staying on the NAND business, if we were to look at a little bit of mix signals right now on NAND, your ASP delta or change is less than we heard from your other IMST partner, Intel, at their recent analyst day.

Can you help the investors understand why there is such a disparity?

Well, we do have separate sales channels, and actually we have several products that are different as well.

Yes, I think it's also -- it's also worth noting that Lexar is in the mix for us and there's also a transfer price mechanism that happens from the joint venture to the two of us, as well, and the differences there may explain some of it.

All right.

And I think a bunch of people have tried to ask and trying to understand your CapEx plans going forward and I'm a little surprised and having trouble reconciling why the push of the Singapore IMST NAND fab doesn't impact your spending plans, given that that was expected to come up at the end of this year and is now an '09 event?

Well, we're not really giving guidance on '09 at this point.

Remember, our fiscal '08, we're in the -- we're basically getting pretty close, so our fiscal '08 ends at the end of August and it just turns out that the timing of that really wasn't much in terms of its impact on our fiscal '08.

I see.

So--

It's just too late.

It just was coming too late in the year anyway.

The facility won't even be completed until this summer and as we look at trying to get it ready for equipping and installing equipment, there wasn't a whole lot that was going to happen by the end of August anyhow.

All right.

And switching gears and moving over to the DRAM business, percentage of one gb shipments and your share there in that market?

Yes, we're over 50% now in one gb and above.

I can't tell you what our percentage share is off the top of my head, but our shipments themselves are over 50%.

And then given the low pricing that we've seen in the DRAM market, what's the elasticity and what are you guys seeing as far as average box loading there?

Doug, I showed a slide earlier with average box loading and it's -- if I recall, it's in the neighborhood of 1.7, 1.8 gb per system today, and the elasticity is -- I sure sense that it's starting to kick in here pretty significantly, but we don't see an immediate impact.

But at today's price levels, which is essentially $18 per gigabyte, it certainly seems like a compelling -- a compelling value-add for our customers to put more -- more and more memory in their systems and I think that's represented by the demand data that I shared with you earlier.

All right.

Can you guys offer us some sort of insight into what type of memory we can expect to see going into some of these new ultra mobile devices that Intel is going to be pushing with their new low-cost processors?

Today -- the boxes that I'm aware of today are using our DDR2 memory and some of them are going to transition to DDR3, those that are trying to push high performance and/or power savings.

But it's DDR2 memory today and either a one gb or two one gb modules, so something in the range of one to two gb of DDR2 memory.

All right.

And my last question really, Steve, for you, are we seeing any impact on your gross margins from commodity prices?

Clearly we've seen some pretty healthy spikes in gold and copper and wondering if you're seeing any impacts from that?

Well, we haven't really seen too much on the materials side, so I haven't -- our cost reductions are continuing to come down as we execute to the model, and obviously anything that would be happening on the materials side would be included in that, so it's not significant enough to change our execution course.

All right, great.

Thanks so much.

Thanks, Doug.

Next question, please?

Our next question is from John Lau from Jefferies & Company.

Please go ahead.

Hello.

This is [Raul Comacher] calling in for John Lau.

My first question was, could you tell us the contribution from your branded businesses, like (inaudible), how much was that?

We don't break that out for you, I'm sorry.

Okay.

Okay.

My second question is about your SSD business.

I understand that for NAND prices, the prices have fallen almost 70% year over year, so SSDs must be getting (inaudible) in quite a few segments in the notebook market, so is it making -- has it started making significant contribution to your business, and what is your outlook for that?

Well, the -- it has not made a significant contribution to our business yet, primarily because we just introduced our first solid state drive to the marketplace less than 60 days ago, I think within the -- in the past -- certainly within the past quarter.

And it is a -- an SLC-based solid state drive, which we don't expect much significant revenue generation from at all.

In terms of penetration in the notebook market, that is going to require MLC flash, and we will have our first product in the market in the second half of this year, and actually we're quite bullish on that product becoming significant in terms of revenue generation, not perhaps in the second half of this year, because there will be in latency in terms of market uptake, but it should be a very strong revenue contributor for us in fiscal 2009.

We are dialoguing with virtually all of the PC OEMs today about working on placing that product in there, in their mobile computing platforms here, as we move through this year into next year.

So we're quite bullish on MLC NAND penetration in the mobile computer or -- for performance reasons and as well as referencing the cost reductions that you mentioned earlier.

It's also worth mentioning on the topic of solid state drives, the complete other end of the spectrum with respect to the market is the enterprise market and we're not really looking at dollars per gigabyte there as being a primary demand driver, but it's more dollars per transaction.

And in that area we are approaching it with SLC NAND and we have some significant end roads there with the enterprise customers about potentially introducing that product in their lineup later on this year and into 2009, as well.

So quite bullish on the solid state drive market with respect to our product offerings.

Okay.

And in terms of litigation, what is your annual run rate for legal expenses?

We don't break that out for you either.

Okay.

And could you just give us an update on where you think the litigation against Rambus is going to go and what your position is about it?

Well, the case that just finished was an antitrust fraud case against Rambus.

It was not a patent litigation -- it was not a patent infringement case.

We, as of this point in time, do not have a trial date set for the patent infringement case that's any time in the near future, so that, that'll happen, I don't know, sometime later this year, maybe sometime next year and we're just continuing on that course.

Of course we're going to appeal the decision that just occurred, but I think it's just worth noting that that, that that's not a patent infringement case.

That was an antitrust fraud case that was against Rambus.

Okay.

Thanks a lot.

Thank you very much.

Looks like we have time for one more question.

And the final question comes from Bill Dezellem from Titan Capital Management.

Please go ahead.

Thank you.

We had a couple of questions.

Relative to the Nanya relationship that you announced, in terms of us trying to understand how this helps lead to a structural change in the industry, when you were referencing before the sharing of R&D, essentially would we be looking at some of the -- taking this quarter, for example, $180 million of R&D that you --that you expensed, some of that would end up flowing -- flowing through Nanya's business and coming off of your income statement?

Is that correct, first of all, and also, are there other aspects of structural change to the industry that it would represent?

Yes.

Well, first of all, Bill, I weren't sure you were going to make it in.

You got right at the last moment for the questions.

Got lucky, thank you.

We don't view, I think, the joint venture with Nanya as a big structural change in the industry.

Obviously it may have implications on other players, but for us we just viewed it as very strategic in terms of scale and R&D efficiency.

And what you pointed out I think will in fact be the case, that right now we have a certain run rate on developing R&D for DRAM, and we don't expect that run rate to change significantly as a result of the joint venture with Nanya.

And as they cost share with us the development of leading-edge technology then obviously that will reduce the R&D bill that we have for it as a stand-alone entity.

By the way, this is very, very true with with respect to what happened with our joint venture with Intel.

We're both sharing that equally as well and that has just made us more efficient on the development of the technology and we would expect the same thing to occur with the joint venture with Nanya.

And then relative to the production issues taking place in the industry, you had referenced the Hynix 200mm NAND line that has -- it has or is planned to come down.

Are there other changes of note that you have seen that are significant like that?

Well, I don't have anything that's not already out in the -- that's been published in the media.

There are other companies talking about -- I think first of all, it's not -- we have seen other reports about 200mm DRAM coming offline and we're now seeing the reports about 200mm NAND coming offline.

The over thing that there have been a number of announcements of quite a few pushes in CapEx, either because the companies can't get access to money with which to buy the CapEx or because they're trying to preserve their balance sheet, and that's primarily, of course, been in the DRAM arena where we've seen that as well.

So I think there's real change going on right now in the industry around capacity, but as you know, from following the industry for a long time, there's a lag effect from when we see the benefit of that.

Okay, thank you.

Thank you, Bill, and with that, we'd like to thank everyone for participating on the call today.

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

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

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

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

Thank you.

This concludes today's Micron Technology second quarter 2008 financial release conference call.

You may now disconnect.

Please have a wonderful day.