美光科技 (MU) 2009 Q2 法說會逐字稿

Good afternoon.

My name is Melissa and I will be your conference operator today.

At this time, I would like to welcome everyone to the Micron Technology's second quarter 2009 financial release conference call.

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

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

(Operator Instructions).

Thank you.

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

Sir, you may begin your conference.

Thank you very much and welcome everyone to Micron Technology's second quarter 2009 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 of course 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 second quarter 2009 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 confirmation code of 90786047.

This replay will run through Thursday, April 9th, 2009 at 5:30 p.m.

mountain time.

A Webcast replay will be available on the Company's website until April 2nd, 2010.

We encourage you to monitor our website, again at Micron.com throughout the quarter for the most current information on the Company, including information of 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'm going to turn the call over to Mr.

Ron Foster.

Ron?

Thanks, Kipp.

I will briefly review the summary financial results for the second quarter, which ended March 5th, 2009.

Revenue for the second quarter decreased 29% compared to the prior quarter.

Memory revenues were down 26%, due to an unusually steep memory ASP decline of 20%, Driven by overall market weakness.

Memory revenues included $33 million in royalty and technology fees.

Imaging revenues were down 53% quarter-to-quarter, primarily due to weakness in the mobile phone market.

We ended the second quarter with $932 million in cash and short-term investments.

Operating cash flow was $339 million in the second quarter, including a one time benefit of $208 million related to a billing to Intel for the termination of the Boise supply agreement.

Financing cash flows for the quarter include an offsetting $208 million distribution to Intel for their share of the supply agreement.

Gross margin was minus 27% for the quarter, with declines in memory ASPs during the quarter triggered a $234 million non-cash write-down of memory inventories to estimated market value.

Also included in these results is a favorable NRB flow-through effect from prior period write-offs of $277 million.

Absent the NRB effects in both quarters, memory gross margin was 11% lower quarter-to-quarter.

Idle facility charges of approximately [$60] million at Inotera and IM Flash Singapore are included in the quarter results.

We anticipate that idle facility costs will be somewhat lower in fiscal Q3.

NAND Average Selling Prices declined 13% for the quarter, while NAND cost per gigabyte declined by 23%.

These cost declines exclude the NRB effects and idle facility costs associated with IM Flash Singapore.

The successful ramp of our industry leading 34-nanometer MLC NAND product was a substantial contributor to this cost reduction.

We expect to realize additional cost reductions in the second half of 2009, as 34-nanometer becomes the majority of our NAND wafer shipments.

Overall, NAND gross margins performance substantially improved quarter-over-quarter, albeit still negative.

NAND bit production in the third quarter is forecast to be in the high teens as a result of a 200-millimeter phase out, offset by rapidly accelerating process node migrations.

Continuing production efficiencies and a 34-nanometer node transition will lead to quarterly cost per gigabyte decline, averaging mid-to high teens for the second half of fiscal 2009.

Even though DRAM costs per gigabit declined by 12% quarter-over-quarter, DRAM ASPs declined by an unusually high 30% in the same period, due in part to a decrease in the mix of higher ASP specialty DRAM products that service the weak consumer markets.

These cost declines exclude NRB effects and idle capacity costs related to Micron's supply agreement with Inotera.

Qimonda has defaulted on its wafer purchase commitment to Inotera.

As a result, Inotera has significantly reduced wafer production, triggering the idle capacity charges per our supply agreement.

Due to the weak demand for consumer related products, we are phasing out 200-millimeter capacity in Boise, and are adjusting all global 200-millimeter capacity to balance with projected future demand.

Fiscal Q3 DRAM cost reductions are expected to be in the mid-to-high single digits and bit production is forecast to increase in the high single digit range, primarily due to 50-nanometer process node migrations and relative stability in wafer production.

These projections exclude charges associated with idle capacity at Inotera.

Imaging gross margins were down as we experienced a slowdown in unit sales and production.

driving up per unit costs.

Imaging gross margins did, however, remain positive at 2.8%.

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

Restructuring programs and spending controls reduced SG&A expense to $90 million.

This was below the guidance range of $100 million to $105 million, and 25% below the prior year period.

R&D expense of $168 million was in line with projections and resulted from ongoing cost management efforts and progress in transitioning products from development to production.

We anticipate SG&A expenses to be in the $85 million to $90 million range in fiscal Q3 '09 and R&D expenses to be in the $175 million to $180 million range.

The increase in R&D expenses is primarily related to product qualifications.

We expect the R&D spend to decrease in future quarters.

We will continue to proactively manage our cost structure to enable Micron to remain competitive in this environment.

Micron reported a net loss of $751 million or $0.97 per diluted share for the quarter, compared to a loss of $706 million or $0.91 per share in the prior quarter.

The net loss includes restructuring charges of $105 million, which incorporates two major items.

First, restructuring costs of $17 million, related to employee severance.

Second, an $87 million non-cash charge for asset write-downs related to the Boise fab phase-out.

Also, as a result of prevailing market conditions, the Company wrote off all of the $58 million of goodwill previously included in the imaging segment.

This eliminates all remaining goodwill on Micron's balance sheet.

Headcount declined by 5% in the quarter to 20,794 employees worldwide.

In financing activities, Micron utilized new loan proceeds to contribute $99 million to the Tech Singapore joint venture.

Total debt increased by $29 million, to $2.895 billion, as the normal amortization of existing loans partially offset the new loan.

Q2 cash expenditures for property, plant and equipment totaled $139 million, down significantly from $334 million in the first quarter of 2009.

Anticipated capital expenditures for fiscal 2009 have been refined to approximately $650 million to $700 million from last quarter's guidance of $650 million to $750 million.

It is important to note that nearly three quarters of the 2009 capital expenditures were already spent in the first half.

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

Thanks, Ron.

Shipments for Micron's memory products were down slightly when compared to our fiscal Q1.

The bit decline was driven by our strategic desire to optimize our production on more stable market segments and manage our overall inventory through relatively unpredictable demand cycle and depressed pricing in our holiday quarter.

Even so, due to our overall supply contraction in the market, our performance enabled us to grow share in both the DRAM and NAND segments.

At a time where both NAND and DRAM pricing is trending in a positive direction, we see Micron is well positioned to take advantage of more favorable market conditions.

Our core DRAM segment, which includes our PC and server business grew 5% in bits shipped quarter-over-quarter.

While market forecast adjusted the PC space to be down the 10 to 15% range in Q1 calendar year '09, we were able to drive market share growth from competition in this segment as well.

Server revenue as a percentage of our overall DRAM segment held steady at the 20% level.

We continue to see an increase in memory content per system.

Q2's per box was approximately 2.4 gigabytes and trending to 2.6 gigabytes in calendar Q2.

Although the industry migration from DDR2 to DDR3 has been slower than anticipated, Micron continues to lead in this transition with our 50-nanometer DDR3 product.

Shipment of Micron's technology leading DDR3 product increased 125% in bit growth quarter-over-quarter, and represented 20% of our overall DRAM sales.

Networking shipments were down 10% quarter-over-quarter as we saw corporate spending negatively impact overall bit growth in Q2.

The mobile segment saw a sharp decline in overall demand which resulted in a build-up in mobile inventory.

Bit shipments in mobile were down 57%.

Despite the challenge around the mobile business, Micron saw continued growth in shipments of MCPs, multi chip packages, where we experienced a 73% increase from previous quarter shipments.

Despite the reduced industry forecast for mobile in calendar year '09, we continue to feel Micron is in a unique position for growth to drive bits into mobile handsets with our portfolio of products including MCPs, DSRAM, and EMMC-NAND based technology and mobile memory cards.

During the quarter we saw a number of new OEM opportunities in mobile, largely driven by competitive suppliers unable to meet customer requirements.

We expect that this new business will materialize over the remainder of 2009.

DRAM pricing continues to be depressed in our fiscal Q2.

It is important to note that our fiscal Q2 included a December month where DRAM pricing was substantially lower than today's pricing.

Given the recent uptick in DRAM pricing during the last week, there appears to be market reaction to an ongoing reduction in DRAM supply.

We believe that Micron is well positioned to take advantage of a potentially healthier memory market, that has seen almost two years of capital expenditure reductions and significant capacity from older technology coming offline.

In Q2, '09 our NAND shipments were down 8% from the previous quarter, primarily due to our holiday production slowdown.

Micron began shipping our industry-leading 34-nanometer 32 gigabit flash memory drive in high volume production this past quarter.

In our current third quarter, we are forecasting that the vast majority of our NAND shipments will be based on our 34-nanometer based products.

We feel this puts us in a very strong position vis-a-vis our competition.

Due to a decline in production of lower density NAND components, we are projecting a substantial increase in gigabytes per unit in fiscal Q3.

As a point in fact, we anticipate that Lexar's average density per card will be approximately 3.5 gigabytes per card in fiscal '03, , an increase from under 3 gigabytes per unit during the holidays.

Overall, our NAND business experienced substantial improvement for the quarter.

At the year end we saw an uptick in NAND pricing which led to component price increases in the channel, such that quarter to date NAND ASPs are up around 10%.

In addition, high growth product segments such as SSDs, netbooks and NAND for mobile phones represent large bit consuming applications, which in combination with reduced supply growth we anticipate will lead us to improved opportunities in the NAND market.

Given the last few months of pricing and NAND increases and the recent increase in DRAM pricing, we are hopeful that the worst is behind us.

While our Q2 results reflect a very tough memory market driven by oversupply and the softening of demand, we are optimistic that improving demand picture, when coupled with the industry's supply contractions, can lead us to a more stable business environment.

With that, I'll hand it back

Thanks, Mark.

We would now like to take questions from callers.

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

(Operator Instructions).

Your first question comes from Jim Covello with Goldman Sachs.

Good afternoon, guys.

Thanks so much for taking the question.

Maybe a couple things.

The content for Bob's comment was interesting, because there's a lot of concern of the fact that content per box could be flattening out here.

What is driving the increase for content per box?

Jim, this is Mark.

The content per box for us I think a lot of the projections we're seeing that flatten that out, a percentage of bits going into netbooks and what have you, and the notebook set, and desktop arena, we're seeing that it continue to drives towards a 4 gigabyte standard for configurations coming out of the manufacturing base.

So while there is some growth, obviously in the 2009 for netbooks, kind of having an impact on that, we still see the overall configurations being driven to 4 gigabytes for both notebooks and desktop.

Terrific.

And then maybe just a follow-up question.

One of the other concerns that people have about the supply side argument is that there's a fair amount of latent or idled capacity that could come back online.

As we get into a little bit of a healthier period for DRAM and NAND, and that latent capacity coming back online would kind of stymie any price recovery.

Do you have any thoughts on that?

Jim, this is Steve.

I think a couple things to point out on that.

Some of it that you're mentioning, I guess not you're mentioning, but what's going on in the industry, the capacity that existed at let's use Qimonda as an example, the Richmond facility was running 30,000, 12-inch per month.

That is just down and gone.

We can't imagine a scenario where that recovers.

They also were running [40,000] and 8-inch per month on DRAM in the 8-inch facility, and 12-inch, that's down and gone.

They've obviously stopped producing stuff in Dresden.

We've said that.

I don't think that capacity is coming back at all.

I would also note our own selves, we should down our 200-millimeter, I should say we're in the process of shutting down our 200-millimeter here in Boise.

We wouldn't expect that to return.

There's a fair amount of capacity that will not come back on.

Now, the other part of the capacity that exists that I think you're most notably mentioning is some of that capacity in Taiwan and whether it's what we just mentioned around Inotera, we know [Proloft] has had substantial reductions, [Taichick] announced reductions, et cetera.

That capacity could come back on.

I think there is some truth that if it were to be in the short term, in other words, in the next few months, that maybe some of it would be brought back on line.

If you had such a substantial increase in the ASP that it would make sense from a cash cost basis.

But keep in mind that that capacity is going obsolete over time and it's getting old.

In fact, from our perspective, and the challenge is that the Taiwan industry has is that a lot of that capacity is old today by comparison to what Micron's doing.

So we're already in production of the next generation node and they haven't made any transition yet for a lot of that capacity.

So two things have to happen.

One, it has to be available pretty soon and it has to be upgraded, which would require I think a fair amount of money to do.

So the other thing that probably connection with that, I've seen some estimates where in order for that capacity to make any sense at all, even on a cash basis, that the DRAM ASPs would need to get up somewhere closer to $2.

And as Mark already mentioned, it's in the $1.05, $1.10 range today, which by the way, I'll note that The NAND pricing per gigabyte got down to about $0.70 and the DRAM pricing per gigabit got down to about $0.50.

That's one of the reasons I think people might be a little surprised that our quarter-over-quarter pricing was down so much.

Just as Mark noted, remember, that the December, the entire collapse in the ASP and that was essentially the first third of our quarter that we had to deal with.

As opposed to how other companies report, not being offset like we are.

That's just something to keep in mind, Jim.

That's terrifically helpful.

Thank you so much.

If I could sneak one more in and then I'll go away.

How much of a lag should we expect between the much better spot pricing we've been seeing, and hopefully an increase in contract pricing?

Thank you so much.

So the question being, Jim, the OEM contract pricing catching up to where the spot is?

Correct.

Well, I don't think it's a tremendous lag.

We're starting to see a lot of customer inquiry in terms of supply agreement and negotiations for not just the next quarter, but for back half so we're starting to see some upward movement there and I would suspect we don't really get too formal on the projection side of that, but I would say it's probably next quarter we'll start to see a tightening there in terms of the overall gap being closed.

What's interesting, Jim, is of course when the price is going up, the customer only wants to negotiate once every three months.

When it's going down, they negotiate every day.

That's the natural tension that exists.

Thank you so much again.

Good luck.

Your next question comes from Tim Luke with Barclays Capital.

Thanks so much.

I was wondering if you could maybe clarify as of today's pricing, how you would have expected the revenue off the bit growth to look as you move out for the May quarter?

Tim, I think maybe what you're asking for is a quarter to date ASP update.

Yeah.

If that's the case, we look at NAND being up about 10% over last quarter's average and in commodity DRAM we're looking at up mid-teens.

Up 15 in commodity?

Correct.

And specialty?

Specialty generally doesn't move its pricing all that much.

So to that end it's really more of a mix, how many specialty bits we ship compared to commodities in the quarter and of course that's always a tough one to predict.

So Steve, could you just update us and talk us through how you perceived opportunities with Inotera and in terms of migrating that from trench to stack and how that might be funded, and to what extent it appears that you're still in some discussions with the the Taiwanese Memory Corporation and how you view that landscape.

With respect to -- let me take Inotera first.

Mark is here with us.

He could probably chime in and answer something if you have a little bit more granular question around it.

Clearly they're still running trench.

There's a pilot line being put in place to be able to install our technology and prototype the stack conversion.

The timing of that conversion is obviously dependent upon the capital expenditures to finish out a conversion and I would just say that we're primarily focused right now on getting the pilot line running and getting the trench technology proven out in the facility before we lock down a schedule of conversion but obviously you could expect us to do that moving forward.

The financing of that is we're still looking at various considerations.

Inotera's a public company, and they have historically financed their own conversion and I know they're looking to that.

Of course NAND is a partner there, as well as Promote.

All of that is in the mix.

In terms of what is going on in Taiwan, obviously there were announcement the last couple of days that the Taiwan government had decided to choose Elpida for the technology partner.

I would just say that we're still in discussions with the Taiwan government but I do want to note that the deal that I think with Elpida that's okay Elpida with is not okay with us.

And we just haven't seen any compelling reason yet in terms of benefits for Micron to participate there and I would only note that I think there's been a lot of speculation around the consolidation of the Taiwan assets and I think others outside of Micron, we do at this point.

But there was some hope that there would probably be consolidation of those assets and how that would occur and obviously we had recommendations on how we think that that would be most effective as well as others.

And clearly, that's not going to happen right now and so we don't know what happens now.

As you know, the Taiwan companies are I would say very unstable in terms of debt and their cash structures and the good news is that when you look at really what exists in Taiwan, the two largest producers of -- the two largest companies that hold DRAM capacity are really Power Chip and Inotera.

And then Proloft is pretty close in capacity.

Windbottom was not that much, and Rex shipped that of course into Power Chip and Elpida .

Nanya is one of the smaller producers.

Nanya and Inotera are already part of a Micron camp, if you will.

And then what you really have is okay, what could happen with Termo, and Rex Chip and Power Chip are already part of Elpida , and I think Windbottom over time would probably decide to build other products.

So short of -- there's nothing really that's that negative for Micron in the event that we aren't able to come up with a formula that works for both us and I think what Taiwan government actually do.

Having said that, we're interested to the extent there's something that makes sense, we will pursue it.

We're still in discussions with them.

But what Elpida did, just didn't much interest to us, frankly and that's why

Just two things.

I think you guys had said that you were unlikely to put your own capital into the Inotera migration and then just more broadly, as you look at your cash balances through the end of the year, to what extent do you feel you might look to bolster it through the capital markets or equipment financing?

Yeah.

So on the Inotera piece, obviously we're participating there now and Ron had mentioned of course idle capacity charge we're taking, we're looking at that.

As I said, I think we're hopeful that Inotera will be able to finance its own needs going forward.

It has in the past and that's what we're working towards.

Ron do you want to --?

This is Ron.

In terms of Inotera, Steve already mentioned they're a public Company and typically work on their own financing constructs.

Your question about do we, Micron, have any plans to deal with capital requirements, and how to address them in the Company, first of all, they're a function of our overall business needs, as you know, and market performance has a big effect on our capital requirements.

We have a real good fix in the Company on our spending, on our CapEx, and on our working capital needs, and as I think you observed from our results, we're managing our cost structure very aggressively.

We'll continue to monitor market performance going forward.

Watch it closely, and our business needs relative to our capital requirements going forward.

One thing I can tell you is we are comfortable with our ability to raise funds opportunistically as required going forward.

Thank you so much, guys, good luck.

Thanks.

Your next question comes from [Gary Schiel] with Oppenheimer and Company.

One quick question first if you could disclose what royalty revenues were in the quarter.

And second question, just about the whole Taiwan infrastructure and potentially more of that capacity coming online, you guys mentioned that it's pretty lagging the extra capacity but I'm just wondering what kind of bit growth have you guys experienced for the same wafer capacity, going from the 60-X nanometer node to the 50-X nanometer node because I think most of those guys are many either at 60-x or some of the guys are predominantly at 70-x.

This is Ron.

The royalty revenue for the quarter was $33 million.

Toss it over to Mark.

On the Taiwanese capacity, I would say a significant percentage of it today is still what's already been referenced at 70-nanometer capacity.

The difference between that and our 50-nanometer node is roughly a factor of 85 to 90% as you go from that existing 70-nanometer capacity in Taiwan, to what we would experience on our 50-nanometer node.

Okay.

And great.

And just let me clarify that sort of discussion about the Taiwanese Memory Company.

It really sounds like there's no upside here to be gained in settling up side-by-side with Elpida , certainly not in terms of kicking in your IP for free or an exchange for capacity because you pretty much already have that agreement with Nanya and Inotera.

So if you're not involved in a discussion and don't expect to draw any kind of meaningful upside out of that negotiation, I mean, are we supposed to take away that any kind of participation in this memory holding Company from Micron's part is pretty much nil and that for you guys kind of strategy here in Taiwan and building out your infrastructure is really in conjunction with Nanya and Inotera and

Yeah, Gary, I think that's a good question.

The first response I have is clearly we're focused on the relationship that we have with Nanya and Inotera and will continue to be because we're in that relationship now.

Now, we're still talking to what they call TMC, what they call in Taiwan Memory Corp.

and we're interested in seeing how that evolves.

I think that everyone would admit, probably even those involved from the Taiwan government and those that are consulting the Taiwan government that this situation has changed a lot as it's moved through time the last few months, and it's still pretty fluid.

As you already noted, we didn't see much of an interest or advantage for us to do what Elpida did, because we're in I think different positions and the other thing I would note of course and you would expect us to say this is our technology is far better than Elpida .

So we're not -- we think we're in a pretty good position and it's not that we're not interested at all, it's that we're interested in finding something that really does make sense for us and as of yet, we haven't been able to do that.

But I wouldn't rule that out in the future.

We're still interested to the extent that something could

Okay.

Just let me just sneak in one last question.

You talked about DRAM.

I think it was bit shipment or bit production in the third quarter, up mid-to high single digits.

Basically talked to a lot of DRAM manufacturers and a lot of the PC OEMs at least two to three weeks ago were kind of quoting bit shipments kind of forecasts in the calendar Q2 period of up 15 to 20%.

Has anything changed at the margin specifically to commodity PC shipment expectations over the near term?

The answer to that is no but just keep in mind is our record is to production bits, not to shipment bits.

Okay.

Great.

Thank you.

You bet.

Our next question comes from Uche Orji with UBS.

Hello, can you hear me?

Yeah.

Go ahead.

Thank you very much.

Let me just start by asking you about your views on inventory.

I mean, in your case your inventory has gone up to 61 days from 43 and you talked about having enough inventory to take advantage of the market.

What is your sense of the inventory across the channel, including the module makers and the OEMs, are we in a situation where everybody has taken advantage of the lower prices to build inventory and therefore your expectation to take advantage doesn't come true?

So on the inventory side, we think the OEMs are probably in a healthier position at current state.

On the channel side, we see a lot of activity and we see -- as I mentioned in our last call, we think that they're pretty good control on the channel piece of the DRAM space.

So the OEMs are in a pretty healthy position.

I wouldn't say out of bounds.

I just think they're in a pretty good position as far as the current demand but the channel piece is pretty fluid.

We feel pretty good about that.

We don't see too much backup in the channel piece.

Just in terms of overall rate rights now, if can you give us a sense as to what it is within DRAM and NAND, couple of your competitors are, running below full capacity, 200-millimeters notwithstanding.

What is your sense of where you are and where the rest of your Company stays?

So on the 300-millimeter capacity we're running all the Micron fabs at 100% today.

As Ron mentioned, here is some idle capacity at the Inotera fab, given what happened with Qimonda there.

And on the 200-millimeter, there's -- we've been moving through a rough phase here as we engage in the holiday shutdown, and are rebalancing relative to demand.

So on the 200-millimeter side, we're taking actions in terms of taking capacity offline here in Boise and we think that the 200-millimeter situation is stabilized out in the late calendar Q3 and into calendar Q4 will be stable, essentially a good balance of remaining supply online and being able to run that essentially fully utilized.

And then just lastly, on the CapEx, the new guidance of 650 to 700, how much is going to come from your partners and while you explain that, can you just give me an idea of how much of the term loan you intend to draw, how you plan to use the term loan for the rest of the life of that?

Thank you.

This is Ron.

In terms of our CapEx, as I mentioned, nearly three quarters of it has already been spent for the fiscal year.

So we've got a really declining portion.

And a chunk of that is just related to payments as was mentioned earlier on some of our equipment that's already in place for our new technologies.

So a piece of it is coming from our partners.

I don't have the guidance in terms of exact breakdown but there's not a whole lot of -- not a whole lot in the pipe in the second half.

Can you give me again the question about term loan?

Term loan, you have a [SGD300] million term loan, you took out with the Singapore Development Board.

You drew down 150.

What is the plan for the remainder of the term loan?

Yes, we took a term loan out which needs to be drawn down within one year of the first draw and we took half of the 300 sing dollar, 150 million sing dollar in the first drawdown.

We have to get the second drawdown within 12 months of the first.

Okay.

And CapEx plan, my question is, you need to draw that down for what?

The application of the loan in Singapore specifically related to our tech joint venture, majority owned facility and our commitment to put capital in there for the new DRAM, 60-nanometer technology, 50-nanometer technology, excuse me.

That's helpful.

Thanks.

Your next question comes from John Pitzer with Credit Suisse.

I know there's a lot of moving parts but when you look at the full calendar year, can you just review your assumptions now for both Micron DRAM bit growth and industry bit growth for the calendar year and I'd kind of be curious how you think that might trend half on half sequentially.

We haven't given a year on year bit growth number for Micron.

We tend to keep you more quarterly focused for that.

What we're seeing out in the market is a range now of anywhere from 16, 17% for DRAM expectations.

For NAND, looks like the ranges are more in the 40 to 50% range for bit growth.

Any thoughts on DRAM and how industry might grow half on half sequentially.

We were talking a little bit about that today and it looks like if you start with, say, a wafer look, we think it's down about 20, 25% in calendar Q1, probably down 30, 35% per DRAM in Q2.

So obviously bits down both in the first half, with a little bit difficult refers now back to what kind of pricing scenario in the second half of the year and does any of the idle capacity come back on.

So it's really a pretty tough call right now, John, to get that far forward.

And then guys, you mentioned sort of SSDs, netbooks and mobile as being a demand driver on the handset front.

Can you talk a little bit about how you see the SSD market developing for this year and next.

We've seen unusually good pricing for NAND in what's typically a seasonally soft calendar first quarter.

What do you think is driving that?

This is Mark.

I think you hit on the demand side of this, certainly a supply side of this picture.

The main thing I think that's encouraging is that the current price levels, and the evolution of applications like SSDs, which between -- even combined with netbooks embedded in netbooks but also your notebook applications and a lot of work being done on the enterprise side, that after about two years of development and investment in Controller technology and firmware, I think we're seeing a lot of progress at the major OEM level from a roll-out of SSDs and pilots and really that category is maturing.

So really from a price equation and the application side of SSDs and the growth of netbooks and then when you parlay that onto the smart phone market ,which is still a pretty healthy market.

I realize that the overall mobile market has got a revised decline in terms of overall production but you're still talking bouts 1 billion units and on smart phones you're talking somewhere in the neighborhood of 16 to 20%, somewhere in there, so you have 150 to 200 million units.

They're going to have high demand of density NAND in there.

So when you combine all that, and you look at the last year and-a-half to two years in NAND CapEx and certainly over the last six to 12 months in terms of some of our competitors and their reduction in supply, it's combined obviously to a favorable situation today and as I said earlier, it was a good quarter for us in NAND and our growth in terms of our customer relationships and overall supply and they're really certainly endorsed and excited about the 34-nanometer.

Any guidelines as to when SSDs might be 10% of your NAND supply?

At this point, it's hard because a lot of our work in the SSD space has been in the enterprise space as we communicated in the past.

I would say that the development of the relationship side of our business for our key customers around enterprise SSDs has been pretty favorable and seems to be accelerating.

Hard for me to comment today on when that would take on the revenue level of 10%.

Okay.

Then one last question, just for Steve.

Steve, just given your penchant to want to buy assets on the cheap, just wondering if you could talk a little bit about whether or not you see any strategic synergies in the market.

Well, we look at the memory business holistically.

As you know, we were in the business at one time and obviously we're in the NAND and DRAM and those are all components of the memory business.

I would say that, you know, we continue to look at the entire landscape as to what makes sense.

And I guess I'll just leave it at that.

If there's something where we think we can generate synergies and overall be accretive for the Company, we'll take a look.

If that's not going to be the case, we'll probably pass on the opportunity.

We're pretty open, look at everything that's in the space.

Thanks, guys.

Your next question comes from Shawn Webster with JPMorgan.

Couple of quick February quarter questions and then I had some on demand.

For February I don't think I caught it but what did your DRAM production do sequentially in bits and your NAND production.

Down mid-to high single digits, Shawn.

DRAM was down?

That's correct.

Mid-to high single and NAND did what?

NAND was down about mid single digits.

Down mid.

So both down mid.

What did your wafer production do sequentially?

We were down about [40%] and we should be up a percent or two this quarter.

Okay.

And then for the demand landscape, what are your PC OEMs telling you to expect for DRAM bit bit demand in calendar Q2 and maybe even further out if they're giving you any visibility that far?

The visibility question I'll answer first.

They're hedging right now based on coming out of their holiday quarter and then reconciling kind of the new environment, if you will.

So I would say that's a little bit tougher longer term.

In the short term, the bit to NAND is up but again, it's up at reduced from our original plan, on some key OEMs.

As I mentioned during my opening comments, that has not been a bad thing for Micron, as we've been able to capture some share at these key OEMs.

So I think their bit demand is certainly down from where they might have called it going into the calendar year.

For Micron, we feel pretty bullish that we'll be able to continue to capture some key share, given the competitive landscape.

Your PC OEMs expect calendar Q2 to be up in terms of bit demand sequentially globally.

Yes.

And then can you rank for us I guess the strength you think that you will have in the May quarter for shipments by your various end markets that you ship to?

Sure, I guess I'll take a shot at that.

I would guess, listen to Mark, probably commodity memory has pretty good strength.

We are starting to see some early signs in the handset markets for a turn there, so specialty memory should -- could possibly take a tick up and I think it's pretty clear that NAND is on a pretty good trajectory based on his earlier comments about density growth in almost every quarter, cards, phones, cameras, going through pretty good density jump.

It looks like we're entering a period where several of the different segments have either settled out and starting to make a turn or there's at least early signs that they're starting to look better.

I would also add that we're seeing the same thing in the imaging arena too, that it's probably troughed and it looks like it's coming back.

Okay.

All right.

Thank you very much.

Your next question comes from David Wong with Wachovia.

Thank you very much.

Can you tell us whether you are expecting any payment from Nanya or Inotera for technology transfers any time in the near future?

David, this is Ron.

We have a technology agreement and get regular payments on a quarterly basis, and that's a significant percentage of the royalty payments I reported on this quarter at $33 million.

And we'll get those payments on a go forward basis.

So it would be a fairly constant rate.

That doesn't step up as the year progresses at all?

Yes, for the technology portion of the agreement.

There's also a portion that can be related with production or shipments, which we also collect a royalty on that has not initiated yet.

Any feeling for when that might begin to ramp?

Don't have a projection at this point.

Okay.

Great.

A second question.

Your cash balances were down something like $100 million in this last quarter.

Would we expect a number something like this or less going forward, or was there any special factors that reduced your cash burn in the current quarter that don't recur?

David, there's lots of puts and takes in our cash balance.

As I mentioned, capital requirements are a function of not only our operating requirements which we have a pretty good fix on and have been very carefully managing, but also the overall market movements, price, trends, et cetera.

So I don't have a forecast for you going forward on cash balance, but we're obviously watching it, and managing it carefully.

Great.

Thanks.

Your next question comes from Kevin Cassidy with Thomas Weisel Partners.

Thanks for taking my question.

In your licensing discussions with TMC, is Flash IP mentioned at all?

We -- well when you say mentioned, I think some parties in Taiwan would probably be desirous of some kind of flash technology.

But it hasn't been any part of what we've been talking about with them and to our knowledge, it's primarily all been focused on DRAM at this point.

Okay.

And on the DRAM, if were you to come to an agreement with them, when do you think the conversion to your technology would take?

Is it six months after the agreement or sooner than that, would you say?

Yeah, we don't have any idea, because I think the thing that's probably worth noting, if you looked at any of the recent media around what's happening in Taiwan, even with this most recent announcement in Elpida , is that they're talking about doing technology development in the next year as opposed to any technology deployment.

And so I think in that context, no matter who it is, whether it's or somebody else, I don't think you're talking about something of significance in the

Okay.

Thank you.

Your next question comes from Daniel Berenbaum with Everyday USA.

Thanks for taking my call.

You since you're on the topic of NAND IP, as you move beyond 34-nanometer and you look at charge trapping versus floating gate, is there any IP that you feel you'll need to go out and license or do you feel like you have everything in house to do what's required?

Dan, this is Mark.

We think we're in pretty good shape on the technology road map and the intellectual property associated with it.

Okay.

Thanks.

All my other questions were answered.

Your next question comes from Glen Yeung with Citi.

Hi.

Can you -- this is Jie for Glen Yeung.

Can you discuss your guidance for depreciation this quarter?

I'm sorry, for the May quarter.

Jie, this is Ron.

We had depreciation around $540 million in the current quarter and roughly speaking it will be in that sort of range, maybe up a little bit, going forward.

Okay.

Thank you.

And TMC has discussed their interest in mobile DRAM.

Does that also include commodity DRAM as well or -- ?

Well, it probably depends on what part of it you're talking about.

Just for clarification, by the the way N the mobile sector there's both NAND and DRAM that plays there.

In DRAM it's typically what we call low power.

And it's usually the combination -- there's a combination of low power DRAM with a NAND that is going to what we call MCP and multi chip package and that is clearly -- that part of the business is growing.

There's another part of the business that has to do with pseudo static DRAM and as you might know we're a producer of pseudo static RAM.

I would say the expectation is that will decline over time as part of the mobile segment.

We don't really characterize it, I think what you're calling it the commodity DRAM, although I'll just tell you that it's not that much different in terms of how it behaves on pricing.

It's just that it goes in a combined package before it gets to the wireless customer.

Thank you.

Your next question comes from Bob Gujavarty with Deutsche Bank.

Thank you for taking my question.

You mentioned a few kind of one time things that hit gross margin, the Inotera underutilization, also IM Flash Singapore.

You mentioned they would request down in Q3.

Could you kind of size how big the impact was and how much improvement you could see in the third quarter?

Yeah, Bob, this is Ron.

If you look at the underutilized capacity activities, the impact of Inotera is a function of resolving their capacity plan going forward, so at current level, our capacity on -- with Qimonda is not being utilized.

The trench capacity is not being produced.

It will be roughly the same dollar range for Inotera in the next quarter, and on IMFS it actually will come down in the third quarter compared to the second quarter, as a result of winding down activities there, and reducing our overall cost structure going forward.

So it will be a relatively small number in future quarters.

Just on a sizing side, is this tens of millions?

Could you try to get an idea of the magnitude of potential improvement.

It's $60 million range as I mentioned in Q2.

It's going to come down marginally in the third quarter, assuming that Inotera is still not running its idle capacity.

That's the majority of the total idle cost.

Great.

And just overall, just another question I had is just on Lexar, is that -- can you give some color on how Lexar is doing in the retail NAND Flash demand, what you're seeing there?

Well, overall that business through the holidays was down from a market perspective.

The other interesting part of that is that behaviorally, retail pricing doesn't ever tend to tick up.

What normally happens is there's more of a price protection move coming out of the holiday.

That was true this year.

In January and February there's normally a correction in pricing downward.

That didn't necessarily take place and so what you saw was rising component prices in the retail and a flat ASP.

So we were less aggressive on the rebate side and the price protection side of the industry was -- you could see SanDisk's quarterly results from the holiday period, Q4, you saw some substantial gross margin pressure, so we're being very select in terms of the growth opportunities and how we expand our channels right now.

It's a very tricky time in retail.

You've got manufacturing supply coming inbound, probably a little more than the market leader can deploy.

As a matter of fact I think they're using other outlets now than they used in the past, other channels.

As we see that, we're looking at the Lexar business continue to grow but grow in places we can control our operations to be profitable and not necessarily grow in markets that are really challenged in terms of emerging market today.

Thanks.

Your next question comes from Kevin Vassily with Pacific Crest Securities.

Thanks for taking my questions.

Just a couple.

First on 50-nanometer DRAM, can you talk about what percent of your DRAM output right now is running at 50-nanometer?

Sure.

This is Mark.

It's a relatively small piece of the output today.

Probably on a wafer start basis, I'd say we're in the less than 10% range today.

That will move to essentially 100% of the wafer starts in Virginia, which is on the order of 25 to 30% overall on Micron starts by the end of the calendar year.

Okay.

Let me take that back.

I apologize.

By the end of the calendar year we'll be running on the order of 50% on 50-nanometer mode, today less than 10%.

From 10 to 50.

Can you help reconcile that with your CapEx budget right now, the general consensus is that 50-nanometer requires emerging lithographies, those aren't exactly inexpensive tools, although I guess maybe in this environment there's probably some price leeway.

Given the number of emergent you might need to do this, it seems like your CapEx budget looks a little low.

Is there something else going on there or have you already done kind of the purchases there.

Are you using an alternative process?

Can you help there?

There's a number of different factors going on.

First of all there's a fiscal and calendar year transition that happens in there but most importantly, we are pretty conscious when we design our process transition, do them in a capital effective way and so a lot of the capital that other folks have associated with their transition to 50-nanometer, things like software metalization for instance, we've already taken care of that as we put the capacity in place in the first place.

For us, you're right, there's some amount of capacity required.

It's not that much and part of that is on the floor already.

And other than that we're in reasonable shape.

So I think the way to summarize it would be to say that the 50-nanometer node transition relative to Virginia is -- the cash flow associated with completing that transition by the end of the calendar year from a cash flow perspective, those tools will be in place near the end of the fiscal year and that's all contemplated in the forecast we've given you.

Okay.

Question about the 200-millimeter fab in Boise that's ramping down.

Were you running any specialty DRAM in that fab or is it all NAND?

It was -- well, it depends what time frame you're talking about, but initially it was about 50% -- if you go back nine months it was about 50% NAND and 50% DRAM.

More recently we took out a significant piece of the MLC NAND you'll remember and we were running some amount of SLC NAND and the remainder was specialty DRAM and some filler DRAM and that piece is now going away in its entirety here as we transition out of the fiscal year.

Okay.

And then maybe one last question for Steve because I think you were addressing these relative to Taiwan Memory Corp.

You mentioned that you're not interested in the deal that Elpida seemed to be willing to take.

Can you shed any light on what exactly that deal is and why it seems objectionable relative to kind of what you guys would hope to get out of some type of relationship.

I probably ought to let Elpida answer.

I guess let me try to characterize it such that, you know, let me just characterize it from Micron's perspective, not try to speak on behalf.

But simply getting an investment in Micron, in exchange for let's just call it equity or some other type of instrument, and then having to deploy all of our technology in exchange for that, doesn't really interest us because we -- we're not in a position today and I don't know about, but we're not in a position today where we need to get an equity investment from from a forward entity and then have to deliver our technology without any other considerations.

We just don't see what the advantage is for us to do that.

And there may be other arrangements that we could achieve that could make sense for us but that's not one of them.

Okay.

All right.

So it's more of the equity vested side and what you get in return for that.

Okay.

Okay.

That's helpful.

Thank you.

Thank you very much.

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

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.

Good day.

Thank you.

This concludes today's Micron Technology's second quarter 2009 financial release conference call.

You may now disconnect.