美光科技 (MU) 2008 Q4 法說會逐字稿

Good afternoon.

I will be your conference facilitator today.

At this time I would like to welcome everyone to the Micron Technology's fourth quarter and fiscal year end 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, and I'd like to also welcome everyone to Micron Technology's fourth quarter and fiscal year 2008 financial release conference call.

On the call today is Steve Appleton, Chairman and CEO; Mark Durcan, President and Chief Operating Officer; Ron Foster, Chief Financial Officer and Vice President of Finance; and Mark Adams, 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 fourth quarter and fiscal year end 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 accessed by dialing 706-645-9291, with a confirmation code of 63955265.

This replay will run through Wednesday, October 8, 2008, at 5:30 p.m.

Mountain time.

The webcast replay will be available on the Company's website until October 1, 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 we will be attending.

Please note the following Safe Harbor Statement.

(Audio played) 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 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 reflect 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.

(Audio ended).

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

Ron Foster.

Thanks, Kipp.

For those listeners who haven't seen our press release which is available on our website and includes a reconciliation of the non-GAAP numbers discussed on this call, I will review the summary financial results for the fourth quarter which ended August 28.

Revenue decreased 3% and gross margin declined from 3% to -4 % in the fourth quarter compared to the prior quarter as megabit DRAM sales decreased and NAND ASP declines out paced cost reductions.

Both DRAM and NAND revenue declined sequentially while image sensor revenue increased.

The sharp decline in ASPs during the last half of the fourth quarter triggered a $205 million lower cost of market writedown in memory inventory to estimated market value.

Excluding the inventory writedown, DRAM margin improved again in the quarter as ASPs stayed relatively flat and cost reductions exceeded 5% in the quarter.

NAND margins continue to be negative despite megabit cost reductions of approximately 15% in the quarter and ASPs declined about 20% in the same period.

NAND gross margin benefited in the quarter from $70 million of contractual pricing adjustments from suppliers for products purchased in prior periods.

Excluding the inventory writedowns and favorable NAND supplier adjustments, the Company's total gross margin for the quarter improved to 5%.

The Company recorded a net loss of $344 million or $0.45 per diluted share for the quarter compared to a loss of $236 million or $0.30 in the prior quarter.

For fiscal year 2008 revenue totaled $5.8 billion and the Company reported a net loss of $1.6 billion or $2.10 per diluted share.

Gross margin was a negative $55 million in 2008 compared to $1.1 billion positive in 2007 as the memory product mix shifted significantly to NAND at a negative gross margin and memory cost reductions of about 65% did not keep pace with ASP declines of greater than 70% year-over-year.

Results for 2008 reflect the non-cash charge of $463 million in the second quarter to write-off goodwill associated with the memory segment.

Progress in reducing our operating cost structure continued in the fourth quarter.

SG&A declined 8% mainly due to adjustments for performance based compensation costs and legal fees.

R&D expenses reflected ongoing cost management efforts and progress moving key development products into production.

While controlling operating expenses will continue to be a high priority in fiscal 2009 the run rate will increase in the first quarter due primarily to the anomaly of a 14 week first quarter.

R&D expense of approximately 190 million to $200 million is expected for Q1 '09 with a run rate per quarter of 165 million to $175 million expected for the remainder of the year.

SG&A of between 125 million and $130 million is expected for Q1 '09, followed by a run rate of approximately 110 million to $120 million per quarter for the remainder of 2009.

Total headcount was 23,509 for the quarter.

Year to year, headcount declined 3% with SG&A headcount dropping 15%.

Operating cash flow was $243 million for the fourth quarter, an increase from $144 million in the prior years quarter.

Notably, it was $1.0 billion for fiscal year 2008 compared to $937 million operating cash flow in fiscal year 2007.

We ended the quarter with $1.4 billion in cash and short-term investments.

Inventories declined $162 million in Q4 compared to the prior quarter primarily as a result of the writedown of carrying value to estimated fair market value.

During the fourth quarter, TECH Semiconductor accessed $330 million of their credit line increasing the Company's long term debt to $2.5 billion from $2.2 billion in the previous quarter.

Capital expenditures totaled $759 million in the fourth quarter of 2008 with approximately half of that amount attributable to 300 millimeter expansion at TECH.

In addition the Company invested $84 million in its MeiYa partnership in the fourth quarter.

Capital expenditures for fiscal 2008 were $2.9 billion compared to $4.1 billion in 2007.

Partners contributions toward capital expenditures were approximately 20% of the 2008 total.

TECH accounted for about 34% of capital expenditures in 2008 as it completed its 300 millimeter conversion.

IMFT was 25%, IMFS 17% for their fab construction and 24% for all of the other Micron operations.

Anticipated capital expenditures for fiscal 2009 have been revised downward to approximately 1 billion to $1.3 billion for the year.

Partners are expected to contribute about 15% of this amount.

We have officially delayed the IMFS fab buildout and removed tool installs from our fiscal 2009 capital plan.

We will continue to evaluate market conditions to determine the exact timing and amount of capital commitments for IMFS.

Micron's projected CapEx in 2009 includes research and development costs and node transitions for the Menasis ramp to 54 nanometer DRAM technology.

TECH's expenditures include continued 300 millimeter conversion costs and the transition to 68 nanometer DRAM technology.

IM flash expenditures reflect the transition to 34 nanometer NAND technology at Lehi.

$466 million remains in capital contributions committed to our MeiYa JV through calendar year 2009.

The specific timing of this investment as well as the amounts and timing of projected capital expenditures for fiscal 2009 will be driven in part by market conditions and consultation with our partner.

Depreciation and amortization expense was $2.1 billion in fiscal 2008 and is expected to be about $2.25 billion for 2009.

With that I'll hold there and turn the commentary over to Mark Adams.

Thanks, Ron.

During Q4 we continued to see signs of industry oversupply in both the DRAM and NAND Flash memory markets.

As a result, we have been experiencing increasing ASP pressure in both our DRAM and NAND businesses.

Computing continues to be Micron's largest overall market segment.

While PC desktop systems have shown some signs of weakening demand going into the holidays, the notebook segment continues to be strong.

Although we do not have direct insight into the specific demand drivers, we continue to see an increase in memory content per system.

In addition, we are seeing a growing demand for our DDR 3 memory products and expect wide adoption throughout the end of the year and throughout 2009.

Despite tough market conditions we see additional opportunity at keeping customers giving our technology leadership and strong relative financial position.

Our special DRAM product offering remained strong in Q4.

We are leveraging our existing 200 millimeter fabs to write a majority of specialty DRM products.

Going forward we are selectively moving higher volume specialty DRAM products to 300 millimeter facilities to achieve further cost reduction and allow for supply growth.

Beyond the demand from our computing customers the mobile market experienced tremendous growth for us in Q4.

We saw increasing unit shipments in our lower powered DRAM products, we grew our sales of multi-chip to key handset partners, and additionally with the launch of our 50 nanometer, 8 gigabit MLC part we began shipment of Micron's first MicroSD memory card.

Clearly, Micron is very well positioned with a broad array of products that address the needs of our mobile customer base.

Overall, the NAND market continues to be an over supply condition.

Given the Flash memory market is driven largely by consumer application such as MP3, digital cameras, GPS systems, and mobile phones, the business is highly seasonal.

The forecast signals from our major OEMs and retailers suggest a softening demand heading into the holiday shopping season.

We are hopeful that price elasticity will help ease the current industry inventory situation as we exit the holidays and approach 2009 where we expect industry supply growth to slow substantially.

Our technology and scale advances in Flash memory highlighted by industry leading 34 nanometer technology will have a positive effect on cost reductions, however the over supply of market conditions have driven today's prices below fully loaded costs.

As we have successfully accomplished the development of our premium DRAM segments we are focused on strengthening our NAND product portfolio to improve ASPs and overall competitive position.

We are growing the shipment of Micron NAND output through the Lexar channel in an effort to achieve higher ASPs and margins by leveraging the Lexar brand and growing retail channel presence.

In fact, while many of our retail competitors are experiencing sharp declines in top line revenue, our Lexar channel grew their sales in the face of these dramatic NAND price drops.

On the product front, we continue our development of enterprise class solid state drives and have begun testing at key OEM customers.

Initial customer feedback has been positive.

Despite the over supply conditions in DRAM and NAND, we remain optimistic about our continued success in specialty DRAM product segments, about our ability to improve our cost and commodity DRAM as well as continued development into a diversified Flash memory product portfolio.

In the meantime, however, we are hopeful recently announced CapEx cuts in the industry will begin to improve the supply situation as we move forward.

We continue to lead the industry from the technology perspective and that's been our position to growing share and profitability as the industry reaches stability in terms of supply equilibrium and pricing.

With that I'll hand it back over to Kipp.

Thank you very much.

We would now like to take questions from callers.

(OPERATOR INSTRUCTIONS) With that we would like to open it up to questions.

Thank you.

(OPERATOR INSTRUCTIONS) Your first question is from the line of Tim Luke with Barclays Capital.

Excellent script.

Would be grateful if you could just give us some sense as you look forward of what sort of bit growth you might be envisioning going into the November period and DRAM and the NAND and just off the quarter to date level, how should we think about your assumptions on pricing?

Sure, I'll take the first part and that and then turn the pricing question over to Mark.

For DRAM we're looking at the next couple quarters being in the mid to high teens for production bit growth and NAND, although it will be somewhat lumpy from time to time we're going to be averaging around 15% growth quarter to quarter over the next couple quarters.

Mark?

Kipp, on the pricing front our DRAM ASPs are down about 15, 20% quarter-over-quarter, and on the NAND front, quarter-over-quarter down about 30, 35%.

I would like to clarify that coming out of Q4, where we saw dramatic price pressure on the NAND front, it has been relatively stable in most of September and ironically the DRAM piece, while down 15, 20% quarter-over-quarter we've seen pressure in that in the September time frame.

And could you give us some kind of framework for different inputs as to how we should think about your gross margin development going forward?

Thanks.

Well, though we won't try and predict pricing for you, on the cost guidance, we're looking at DRAM probably in the high single digits to low double digit cost reductions Q to Q, and we'll probably have a little stronger NAND bit cost reduction, so look more for the mid to high teens for this quarter.

And as you begin the full year, could you give some sense of how you're looking now at assumptions for the bit growth for the industry in DRAM and in NAND given different puts and takes in terms of basic consolidation as well as production sort of cutbacks by some of your peers?

Yes.

This is Steve.

Obviously, have to make commentary with the caveat that I don't know if we've yet seen the end of capital operations coming off line, but essentially, with what's been known so far, I think that most people think that the DRAM supplies that grow is only going to be somewhere in the 35 to 40% neighborhood.

So but that's the things that haven't been announced yet, and I still think that there will be more to be announced in the next probably two or three months, so I would say that I haven't seen CapEx or I haven't seen capacity come off line in this short a period of time at the rate that we're seeing these announcements right now and I think what we're likely to see in the next month or two maybe in my history of being in this business.

So there's some pretty dramatic changes going on.

So I think if what we know is in the market today is what it ends up being, I think that the bit growth will drop all the way at least what most people are forecasting will drop all the way to kind of a 35, 40% range and it could be less than that as I said, making the caveat that I still think there's more capacity coming off line.

Do you have percents to DRAM as well, Steve?

Well, that was for DRAM.

If you think about NAND, obviously there's been less impact there and of course there are less producers.

The NAND market CapEx as you already know is at least in '08 is going to be down sequentially which is essentially I think the first time that's happened since the inception of the market and the NAND supply at least that we see from a lot of the forecast is only going to grow around 100% and that's the lowest on record I think for the NAND market since its inception.

As you have that 1.1 billion to $1.3 billion of CapEx where is that going to be focused and what are the implications for your JV with Intel with the lower CapEx number?

Well, I think it's worth noting that first of all primarily that CapEx will be in the DRAM arena, but remember Ron just noted the IMFS we're finishing out the construction of the building but essentially we now plan on having that equipped during our fiscal '09, but the operations that we're currently running on NAND if you think about it both the Virginia operation and the Utah operation are pretty new and so I don't think that they're going to require a lot of CapEx in the next year going forward, and that's why most of it's skewed to the DRAM business.

Thank you, guys.

Your next question is from the line of Uche Orji with UBS New York.

Thank you very much.

Let me just ask you a couple questions about the litigation situation.

Can you just give us an update on a couple of issues, one is with (RAMBUS) and where do you stand and what is the upcoming (inaudible - highly accented language))?

And then another question I will ask you is regarding the equipment lead time, currently what are you seeing on the equipment market in terms of how much CapEx you plan to spend and how flexible will you be with that CapEx plan?

Sure.

On RAMBUS we don't have any comment around ongoing litigation and most of it is scheduled and what the trial schedule is that are public you can get that information so we don't really have anything to add-on that, other than it's ongoing.

With respect to the equipment lead times, obviously, they started contracting as CapEx is being cut around the industry.

I think that's expected and in most cases, most of us thought that they were somewhere in the six to nine month, or 12 months depending on what you were going to order and most of that is contracted in probably the three or four month time frame depending on what it is but having said that, I think it's also worth noting that the equipment industry has for the most part changed to a model of outsourcing and when we get into periods of time like we are right now, maybe cut back on the outsourcing and a lot of that capacity goes away and there's not replacement so to speak in a short period of time.

So that would obviously be one of the concerns for the industry if they were to try to bring it back up quickly, I think a lot of these equipment guys now that the downturn has been relatively sustained are making permanent adjustments in the supply base and most of them as I said converted over to moderate outsourcing.

So, it could very well be that even a slight uptick in CapEx will extend those lead times.

Perfect.

Another question, please, is with regards to what you'd see in terms of content, you see more and more of the PC market move toward lower end and things like notebooks taking off, what does that mean for you in terms of DRAM and content growth in the medium term and possibly the long term too?

Well, if you look at the data today, actually, it's continuing to go the opposite trend.

As a matter of fact this is the first quarter that both our desktop and notebook content in the industry is over 2 gigabyte per unit, and beyond that, we're kind of in a wait and see for the notebook count in terms of the actual overall impact on the industry.

Unit volumes are kind of barely starting out today.

Secondly, though, it's worth noting in addition to when you talk about a concept of notebook, we might look like a probable downside in DRAM, in terms of opportunity for solid state technology on the NAND side, so we're pretty excited about that category in general and if you don't think it's material right now in the next 12 or 24 months from a unit perspective on the overall unit.

So you do think it's material just yet in the next, pardon me, to the last part, did you say it would not be material for the next 12 to 18 months or?

Yes, I think that's probably about right.

Clearly right now it's not material.

We don't see that going through the, as far out as 12 to 24 months in terms of the overall capacity in the industry and as I said, there's an upside opportunity on the storage side of that because they are going out without, in many cases without hard drives which storage will be an internal SSD drive.

And just one last question, it's about consolidation of the marketplace.

We're seeing a lot of your competitors struggle and it's getting far more difficult.

Can you just talk to me as to how you view your role in terms of consolidating this marketplace and from your perspective what will it take to play a much more active role in addition to the joint ventures you've gone so far?

Well, I think you can, as you just noted, you can look at the numbers like we're looking at them.

Most of the Company in particular in the DRAM space have migrated to balance sheet preservation.

The margins, the numbers, the cash flows et cetera, for a couple of those in the industry are kind of just absolutely very very challenging I think for them, and I don't want to comment on consolidation of the industry other than to say that the market environment like it is right now is just putting huge pressure on some of the competitors in this space and I think they are trying to figure out what kind of course they really have in the future.

All right, thank you.

Your next question is from the line of John Pitzer with Credit Suisse.

Good afternoon, guys.

Couple clarifications first.

Relative to the $70 million recovery from NAND product purchased from other suppliers is that all Lexar related or can you help me understand a little bit?

Yes, that's Lexar related.

Secondly you talk about SSDs.

Have you guys recognized any revenue relative to SSD?

Help me understand how we should think about this market kind of developing over the next several quarters.

At what point do you think it might actually be 5 to 10% of your NAND sales?

Well, today, the revenues are fairly small in the category, for us, on the Micron side.

Mind you that our strategy has been to kind of develop a world class enterprise offering so we're in tests as I mentioned earlier with some of our key customers.

As it relates to kind of a forward-looking market projection, it's pretty tough although I'll tell you that given the trends and ASPs in NAND, it's starting to make curve on when this market might adopt quicker come in a little bit, because at the cost per gigabyte today, what we saw 12 months ago has certainly been a little more aggressive in terms of price adoption.

Then just relative to your CapEx budget for the current fiscal year, can you help me understand, you drew down lines of credit in the fiscal fourth quarter.

Can you walk through the existing lines of credit you have?

Do you expect that your cash flow generation over the next several quarters is going to be sufficient to support CapEx or do you think will continue to see cash balances come down and just help us understand the strength of the balance sheet here?

Yes, John, this is Ron.

If you look at our current operating cash flow generation around $240 million a quarter we generated $1 billion dollars in 2008 of operating cash flow.

That's probably top in the industry and if you look at our CapEx budget going forward just at our current operating cash flow generation rate, we can pretty well cover our CapEx budget.

The only thing I'd comment on is that our CapEx requirements are somewhat flexible in terms of time and we'll be monitoring the market as we go forward, so you can see our positioning in terms of investments and specifically CapEx moves being developed over time based upon the requirements that we see in the marketplace.

And then guys, my last question just relative to being opportunistic around consolidation, given the current state of the industry and your balance sheet, your capital requirement you're putting up, CapEx requirements that you're putting up for the fiscal year, how much flexibility do you have to be opportunistic and I guess the question mark in the marketplace is what happens to (inaudible) and I guess, to the extent you guys couldn't comment given that you have a joint venture with Nanya at the same time that Nanya is trying to figure out what to do with their joint venture with Kimondo, that might be helpful especially as far as figuring out when MeiYa might go ahead as far as equipment loading?

John, I wanted to back up real quick.

You asked a question about the lines of credit.

I just want to make sure that I clarify.

TECH Semi which is a majority owned by us and we have partners in Singapore, that is where the line of credit was drawn.

It wasn't at Micron at the parent level so to speak, and that was a line of credit that they had put in place in order to do the (inaudible) conversion.

We haven't done anything other than that in terms of drawing down the line of credit.

With respect to your question around what's our flexibility, I think what you're getting at is what's our flexibility on the M&A front.

Clearly we have some flexibility.

We're probably one of the best positions now in the industry with respect to our financials, and I said in the past that we'll continue to look at these opportunities as they surface, we don't have any comment today or anything to announced today but we're continuing to keep a pretty close eye on what's going on in the marketplace.

Last question from me.

If you look at the quarter just reported, DRAM bits were down sequentially.

If you look at the guidance for sort of bit production growth, you're looking for sort of mid to high teens I guess.

Given that all the data points relative to People PC vertical has probably gotten weaker since Labor Day, just help me understand why you're not more concerned about that DRAM portion?

I'm not sure quite what your question was.

Well, I guess in a quarter where the PC data points are actually relatively okay, you had DRAM bit growth that was actually negative Q on Q, and now you're talking about bit production.

I know it's two different things going up sort of midteens in an environment where the data points around PC seem to be getting weaker, not stronger so I'm just trying to understand that dynamic a little bit?

Well, I think that first of all, when you say bit growth, in terms of our production obviously the bit growth is we are advancing our technology and converting it if you tell TECH to 300 millimeter and that's resulting in the big growth and frankly that's going to be whatever it is because we are optimizing the operations to get the lowest cost per bit.

Now with respect to what we're seeing in the marketplace as Mark already noted, clearly, the PC business was plugging along pretty well and then also as noted really in the last, call it month, the demand profile has just really dropped off and I think that we don't know if that's going to be sustained but clearly, I think the PC OEMs felt like they had enough inventory risk that they want to carry more inventory as they move into the holiday season figuring it would probably likely be weak, but I think that what we're talking about in terms of bit growth that's based on an internal operation that we control and we try and optimize the cost per bit and we're talking about the bit demand growth that the current marketplace, I think most of us feel like the demand that will occur primarily will occur beyond the quarter one calendar of '09.

Great.

Thanks guys.

Your next question is from the line of Jim Covello with Goldman Sachs.

Good evening, guys.

Thanks so much for taking the question.

A couple things that have already been asked and spent a lot of time asking about DRAM consolidation.

Obviously there's a pretty important piece of NAND consolidation that's happened in terms of Samsung having announced n offer for Sanders.

Can you help us understand to the extent there was any consolidation in NAND that that's a specific piece of the consolidation?

How do you think that would affect the industry dynamics everything from market share to supply to royalty payments for various suppliers in the industry?

Well, I don't want to speak for other companies but first of all, I think the consolidation that's occurring in NAND, you have to look at it in two different levels.

SanDisk is not a producer of NAND components.

They are a partner in a Company and they're a minority partner in a Company that actually is a producer of NAND components and we all know that's Toshiba.

So in terms of Samsung potentially acquiring SanDisk obviously I don't have any insight as to whether that will or will not happen.

I can only say that that is a consolidation, if you will, of a channel.

It's not a consolidation of NAND component production.

And so I think you should think of it differently.

Having said that there's clearly been deferrals.

We've been part of those announcements, as well as some contraction around 8 inch NAND and I think you'll see additional contraction as we move forward, but in particular on the 8 inch front, so I think more likely, in the NAND space, there's really only four of us that produce it at component level, more likely in the NAND space at the component level it's really us and others either deferring expansion or taking off line the production capacity but in terms of the channel, I think that's where you will probably see consolidation as these companies try to position themselves or create better links to solve whatever their own particular issues are.

That's helpful, thank you.

One other follow-up question for me, just around the solid state drive adoption.

Where is the industry at this point in multi-level self-controllers and has that really been the gating factor in your mind from preventing further penetration of solid state drives, obviously prices need to come down and prices are coming down but that's been a little bit of a gating factor.

Where do you think Micron and the industry is on that?

Well, I think that if you divide the market segments up into enterprise and PC notebook, you get a different set of requirements to compete for the existing applications.

On the notebook side which will probably driving most of the MLC based solid state drives there actually has been some fairly good progress around controllers in that environment so as I said earlier, given the price trending and declines over the recent quarter, we're starting to get to a point where the solid state drive application in notebooks is increasingly becoming more attractive from an end-user perspective.

On the enterprise side, I don't think we're in a place where the MLC controller development is even in the position to compete for that space.

You've got a whole set of different requirements around reliability, performance, and so on and so forth where it's still to me an SoC market and that's where all of the controller development will kind of evolve in the short-term.

Great.

And then one final quick follow-up and I'll go ahead.

Just to reiterate what you said I think Steve talked about potentially 35 to 40% DRAM bit supply growth in 2009 but it could be lower if we see additional stuff come off line and maybe 100% NAND supply bit growth in 2009.

Did I get those figures right Steve?

That's right.

Great.

Okay, thank you very much.

Your next question is from the line of Shawn Webster with JPMorgan.

Yes, good afternoon.

Thanks for taking my question.

What was your DRAM production in Q4 sequentially as well as your NAND?

It was up midteens on DRAM and NAND was up low double digits.

So somewhere between 10 to 20?

Correct.

And then as far as production for next year, you couched it in terms of what you believe the industry will do.

Do you think -- or does Micron plan to outgrow the industry in either or both of DRAM and the NAND segments next year in terms of production?

Well, we stayed away from a year-over-year guidance for you because there is flexible and flexibility within our production plans, so we've given you a taste of what we think we'll do the next couple of quarters but there's too much flexibility for us to give you a year-over-year number for Micron.

Okay.

And what are the available lines of credit that your Company has both directly for the Micron as well as all of your subsidiaries in terms of how much credit you have available to tap?

Shawn, we historically as I already mentioned first of all the TECH is the entity that has used lines of credit historically and it used those prior to us being a majority owner back when we were a minority partner and also after we acquired the majority of the shares so they continue to do that.

They use lines of credit.

They draw, they pay back, they roll that over.

They've been doing that for the decade that we've been involved with them.

Other than that Micron doesn't actually draw on lines of credit and we have philosophically I think came to the conclusion a lot of people were experiencing right now that if you need the money you can't get it and when you don't need it you get all you want.

So we have relied upon our own cash balances and that's why you see us continue to have a strong cash balance because we don't have lines of credit that we've drawn on so we haven't drawn on any because we don't use that form of financing.

But do you have any that are available to you?

No.

We don't have any lines of credit that are in place.

In terms of what we've always looked at for available financing and just what you would think is either through strategic partnerships which we've done a fair amount of over the last 10, 15 years or by going to the market.

Okay.

And then in terms of the writedown can you break it out for us between the NAND and DRAM segments?

You're talking about the NRV writedown in the quarter?

The $205 million.

$205 million?

Yes.

We don't break down between the segments of those two segments.

There's actually a product by product analysis that's done and we relate that to our pricing forecast on a line item basis.

So I don't have the break down that way you can view it as just going through every one of our line items and comparing it to our forecast of near term future prices and obviously that's a judgment call based upon what we're seeing or anticipating in front of us on a line item basis.

Okay.

And then I think someone mentioned earlier an expectation for pricing.

Can I just check those numbers?

I think for November if pricing stays flat for DRAM you said down 15, 20; is that correct?

It's flat from here, that's correct.

And NAND 30 to 35?

Yes.

Again, flat from here.

Right, okay.

And then how much were your non-UL licensing royalties in the quarter?

I believe that was $34 million for the quarter.

$34 million?

And is that the kind of run rate you expect for the next several quarters?

Well, as we've explained in the past, there are two line items for that.

There's the licensing which is more straight line amortized through calendar 2010 and then there's the royalty as production ramps so as the production ramps and/or MeiYa ramps you'll see an increase in the royalty line based on the output that they receive.

Right and the 34 hits the revenue line though, right?

Correct.

Okay.

And what was your wafer growth sequentially in the August quarter?

It was about 1%.

Okay.

Thank you very much.

You bet.

Your next question is from the line of Gary Hsueh with Oppenheimer & Company.

Great.

Thank you for taking my question.

Just circling back to another question, you say that you grew bit production for DRAM in the fiscal fourth quarter by the mid to high teens yet you basically print a sales kind of bit number quarter-over-quarter of down 5%.

So at what point does it make sense even in fiscal Q1 to continue producing bits in the mid to high teens?

At what kind of DRAM contract or spot pricing level does it make sense to actually start cutting production given the discrepancy between bit production and bit sales?

Well, the way that we do our analysis is first of all, Gary, cash is king in this environment, so if we're able to generate cash from an operation, clearly that plays a primary role in how we look at it as opposed to the way you're describing it, so as long as we're generating positive cash flow and operation we're going to consider continuing to keep online.

Now, having said that the reverse is true as well.

As soon as an operation looks like it's no longer generating cash, it's actually consuming cash, we're going to look at should we remove that or take that off line, but remember, that is all these numbers as Ron just described, those were forecasts and historical looking data so we want to make sure that we're not making a short-term decision that can hurt us in the long term and I'll tell you, it's an ongoing evaluation right now given the market condition.

And one other point on that is that going into the end of August, we had some key customer requirements that forced us to take some of the inventory from our August quarter into early September for our holiday deliveries, and that put us in a position where the shipments were not in line with the output.

So there's a bit of a timing issue in terms of your bit production and actual bits shipped in the quarter?

That's right.

When you think about it and look at the volatility in the pricing the last two weeks of August, when we did our calculation from a financial model, it made a lot more sense to carry the inventory over for some opportunity we needed from a linearity perspective from Q1 of our fiscal year.

Just so I'm clear in terms of bit sales growth in the fiscal first quarter I should be expecting something above a down 5% quarter last quarter, right, given the lower pricing, down 15 to 20% presumably with elasticity you can start pushing through more bits.

Is that the thinking here?

That's our -- given where we are today, that's our plan.

Again, not knowing what the future holds on pricing and so on and so fourth.

Second question here is just on bit cost reduction.

I think you've been putting up some pretty disciplined numbers in terms of stepping down the cost of goods sold per bit.

Is there kind of an end of the line here or kind of plateau where you can't continue pushing bit cost reduction and where are we relative to that point?

This is Mark.

I don't think that's the case, as Kipp alluded earlier, our bit growth and our cost per bit will be a little bit lumpy on a going forward basis, but we continue to say, high single digits to low teens on DRAM and midteens on NAND on a go forward basis and we think that's good for a number of quarters going forward.

So Mark on average you still see the ability to kind of consistently push down along those kind of bit cost reduction numbers over the next four quarters?

Yes.

Absolutely.

We think we've got a great technology road map and we've got good capacity in place, and we're pretty comfortable with what we have technology and capital we made as we put that capacity in place.

Just last question here to help me frame 2009.

A lot of discussion about consolidation, production cuts but top level, which line of business DRAM, NAND, or specialty or image sensor, which line of business do you think you could see recovery first and which business has the highest kind of leverage to the upside in the event of any kind of recovery in the back half of 2009?

Well, if I were to try to rate that for you and I'll give it a shot, first of all, we've already seen the imaging business as we've reported have a pretty decent gross margin and they've actually been up quarter-over-quarter.

So I don't know if we want to characterize that as recovery but so far so good on that, as they move forward.

The specialty DRAM, I don't think we expect much of a recovery because it's already pretty good business but I do think that we expect that the volume will decline as we move through time over the next couple of years.

Now, having said that, about those two categories, my perspective giving what I'm seeing in the DRAM market versus the NAND market, I think that a lot of people feel like the DRAM business is going to recover sooner than the NAND business may recover and I think that would be reflected by the way of what you see in the CapEx, so when we look at the DRAM business today, it just doesn't feel like for many companies it's sustainable.

Many of them were below their cash costs and they move in the balance sheet preservation.

It's very very difficult environment and also, it's worth noting that there are weaker players that exist in the DRAM business compared to the NAND business because if you look at those that are really producing NAND, it's essentially Samsung, Micron, Toshiba, and Ynix, and obviously the major players in both spaces in terms of Samsung, and Micron and DRAM, so that's just how I see it playing.

Now on the NAND front it's hard for me to respond because I don't know how long it takes for a lot of the capital pushes or whether capacity has come off line to be a factor.

In particular, when you look at the demand growth rates, obviously NAND far exceeds DRAM so this is one of those periods of time where NAND has a lot of price elasticity.

I think more price elasticity than DRAM, and it's behaving a lot more like the DRAM business did in pre-1995 around that elasticity so it's much harder to predict when that market might turn as opposed to what we're seeing in the DRAM business.

Great.

Thanks forgiving that question a shot.

Yes.

Your next question is from the line of Daniel Amir with Lazard.

Just a question on the image sensor business.

Can you comment a bit on the visibility there, what you're seeing there in terms of growth here for the next couple of quarters if at all, and kind of what the strategy is now for that segment?

Yes.

Well, it looks like -- I wouldn't say there's a lot of growth.

I think it looked like they were pretty stable.

I'd say not a lot of growth.

Not a lot of decline.

There's some incremental improvement that they're making, if you would have noticed for image sensor companies they've made somewhat of a come back and gained market share in the last quarter or two but I think that business, a lot of it is in the mobile space and the technology space, well around PDAs and digital stream cameras and (inaudible), et cetera.

So I think that they have some similar challenges to what other segments do but it still looks like they're on a pretty good path.

In terms of what we'll continue to do in that space, there hasn't been any change of plans with respect to what's happening with that.

In fact on this Friday, they will start operating as a separate Company from Micron, although it will be a wholly owned subsidiary and they will have their own systems and so forth and we're still moving down the path of joining with a partner to likely take that Company private but yet have Micron continue to manufacture the product in the foreseeable future.

Okay, great.

And then on the Nanya partnership, can you just expand a bit what the plan is in terms of CapEx rollouts there for the next year, I guess with the partnership?

I mean, what quarters should we see, what's the road map right now?

Dan, this is Ron.

If you look at our MeiYa partnership, what we've decided at this point is that in light of current business conditions, we're deferring any near term capital purchases as we reassess our near term business plans with our partner.

It's important to note that that's affecting near term timing and we remain very committed to our partnership.

The only issue we're dealing with is the actual timing of our planned expansion vis-a-vis market demand and our judgment of that timing.

We still have a $466 million committment out there for the calendar year but we'll judge the timing of that based upon market needs.

Okay, great.

All right, thanks a lot.

Yes.

Your next question is from the line of David Wong also with Wachovia Securities.

Thank you very much.

First, a quick clarification.

You said that demand has dropped off in the last month.

Do you mean the last month of the quarter that's August or did you mean in September?

And are you expecting continued weakness in demand through the rest of this year to only pick up in the third quarter?

You made some comment about pick up potentially in the first quarter.

Well, what we saw primarily was ASP price pressure due to the demand in the August time frame and continued again more on the DRAM front through September on a going forward basis, it's hard to tell but again it looks like it's going to be a softer holiday than initially hoped.

And your 5% drop in DRAM bit shipments is that indicative of what PC makers as a whole bought from the DRAM industry or is there something special associated with Micron that you had a different characteristic from the market as a whole?

Again, as I commented earlier, the volatility in pricing the last couple of weeks of August had us kind of reflect on what was the best thing to do financially for the inventory to be sold and we looked at some key customer requirements and in the early part of September that we decided to hold over and support.

Great.

Thank you very much.

Your next question is from the line of Doug Friedman with AmTech Research.

Hi, guy, thanks for taking my question.

Can you comment on what you're expecting PC unit growth to look like in the last quarter of the year?

So, well, for us it's a little bit harder on the demand side given what I just commented on with the softening of demand but certainly from a unit standpoint, the growth is going to be, our current assumptions going into the quarter were somewhat modest, up 10% and at this point, again, given the economic and macroeconomic situation in the holiday projections that we now see, some were about flat to up or down a few percent.

All right, great.

Can you also comment as far as the bits that you shipped into the Lexar retail, the percentage of bits you've given that number in the past.

Sure.

So in terms of Flash components, Lexar ended up consuming about 60 to 65% of their overall need.

As it relates to Micron's overall supply on NAND, it continues to approach about 20% of the overall supply of Micron partners.

Okay, great.

One of the previous callers I guess touched on a little bit going back to sort of market dynamics out there.

Both in NAND and DRAM, we saw some pretty heavy promotions in the past two to three months regarding just box loading and trying to use DRAM to load up some boxes and make some unit moves and entice customers working towards price elasticity.

Can you comment on just what you're presently seeing and what sort of maybe the promotion plans are around the holidays and whether you still really have price elasticity both in the NAND market and in the DRAM market for general purpose PC marketing?

That's a pretty tough question given the situation from what we see today.

Historically, we go into the Black Friday season and retailers are trying to drive traffic and so on and so forth and they use the price to get people in the store and have them buy up sell margin opportunities while they're in store.

I think to your point, the pricing situation is so dramatic up until today that we see that the retail actually had a choice of keeping that margin and not driving the top line and we've seen that in years past in general in the market where retailers take the, where the economic climate is not so unfavorable and they take the margin as opposed to taking top line revenue growth, so I think I kind of compare with where you were heading with that I'm not sure that the price will be a useful tool or effective tool to drive additional unit sales and they may choose to play a margin game coming through the holiday.

Great.

Thank you.

Good luck with it.

Your next question is from the line of Krishna Shankar with JMP Securities.

Yes, are you seeing -- the weakness that you described I'm seeing both in desktops and notebooks and can you contrast what you see in terms of consumer versus (inaudible) PC demand?

Yes.

On the desktop side, we have seen a bit more of a decline.

The notebook side is relatively strong, even through the consumer channel but if I segment out as you've asked about consumer and commercial, the commercial business is still pretty good for us and we're just starting to see the consumer side of the desktop and some small decline overall in the PC space and consumer side, but again, the enterprise commercial side is fairly stable for us so far.

And then a follow-up question, can you give us an update on inventory of Flash memory cards in the channel and whether inventories (inaudible), what's the situation in terms of the inventory that we sell in Flash cards during Q2 and has that been worked off now?

Well, I think both of our public competitors have already stated their position and it's pretty significant, vis-a-vis Micron and through the Lexar channel I think we've got a pretty good handle as well as we want some additional share going into the holidays as well as offset any problems we have in the channel inventory of our business.

My sense is to the earlier question on what the retailer tools will be to drive unit and overall volume in the stores for the holiday, the question will be better answered coming out of the holiday into January.

Thank you.

Your next question is from the line of Manish Goyal with CREF Investments.

Two quick questions.

One, based on your new CapEx guidance, what is your depreciation for fiscal '09?

And can you give us some sense as to what percent of your production today is at 200 and then for DRAM and NAND, separately, and what period of time do you see that will be decommissioned?

This is Ron.

I'll take the first question, the depreciation for 2009 we're estimating to be about $2.25 billion.

On the 200 millimeter output, it's less than 10% on core DRAM and 5 to 10 on NAND.

And over what period do you see decommissioning that capacity?

Well, I think the specialty and image wafers are still very productive for us and we have some flexibility in terms of how we move wafers around.

Clearly, NAND and core DRAM production is challenged on 200 millimeter today.

It's not as efficient as the 300 millimeter but they are fully depreciated tool set and we can flex, so we'll just continue to look at market conditions and make adjustments as we go forward.

Thank you.

Thanks, Manish.

I think we have time for one more question.

Your next question is from the line of Bob Gujavarty with Deutsche Bank.

Great.

Thanks for squeezing me in.

I'll keep it quick.

Just what was your DDR 3 mix?

Was it appreciable in this quarter?

We did a couple of percent of DDR 3 this quarter.

Okay, so, maybe 1 to 3% something like that?

Correct.

Okay.

And are you still on track for your 34 nanometer transition for NAND?

I think the idea was 50% exiting this calendar year.

Is that still on track?

Yes.

That's still progressing well.

We're very happy with the yields at the Utah fab, those are approaching maturity on some of the wafers and we've begun the transition now in Virginia and have really good yield in that fab as well.

Okay, and just a quick follow-up on that, do you think once your 34 nanometers ramp that you'll have kind of industry leading costs on NAND?

Yes, we believe so.

Okay, great.

And sorry, final question.

A follow-up on the last question but within your memory mix, did you, how was your server business, your server memory business?

Was that as expected?

Any kind of trends in that business that were strange?

Yes.

Clearly, that remains a very strong part of our business today.

A lot of the downturn in demand and pricing pressure we've seen is more on the consumer space and it remains pretty strong.

Great.

Thanks guys.

Thank you very much for participating on the call today.

If you'll please bear with me I'll 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 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's fourth quarter and fiscal year end 2008 financial release conference call.

You may now disconnect.