美光科技 (MU) 2011 Q3 法說會逐字稿

Good afternoon.

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

At this time, I would like to welcome everyone to Micron Technology's third quarter 2011 financial release conference call.

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

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

(Operator Instructions) Thank you.

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

Kipp Bedard.

Sir, you may begin.

Thank you, good afternoon, and welcome to Micron Technology's third quarter 2011 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 www.micron.com.

If you have not had an opportunity to review the third quarter 2011 financial press release, this is available on our website, again, 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 76907886.

This replay will run through Thursday, June 30, 2011, at 5.30 PM Mountain time.

A webcast replay will be available on the Company 's website until June of 2012.

We encourage you to monitor our website at micron.com throughout the quarter for the most current information on the Company including information on the various financial conferences that we will be attending.

Please note the following Safe Harbor statement.

I think what I will do is go ahead and read it for you.

During the course of this call, 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 on the Company'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.

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

What I would like to do now is turn the call over to Mr.

Steve Appleton.

Thanks, Kipp.

And I also want to thank everybody for joining us today.

I thought I would start with a very brief update on Japan.

On the supply side, in other words, silicon and other materials like specialty gases and targets, I just want to confirm that there were no interruptions and I think we are past the difficult period.

I think it's worthwhile to comment on how good the Japanese companies were in executing the recovery strategy and we really don't see any issues with it moving forward.

On the customer side, I think, similar for the most part, but we do see some fallout from the challenges the country is facing in recovering.

In particular, this impacted our ESG revenues and it was about 5% for the quarter.

On operations and technology, I think we had a number of achievements that were worth noting.

Clearly, from the media you would have seen that we sold the Micron Japan wafer fab to TowerJazz and Ron's going to have some more comments on that in a little bit of the detail during his segment.

IMFS continues to perform very well.

Again, Ron will also add some color on that but, let me just say that we are shipping to customers, qualified product from the facility.

I will note that as is typical with us in the past when we bring on a new facility it's focused on pretty much a singular process, known a singular product and all that coming out of that facility is MLC.

Our 20-nanometer NAND still looks good for a ramp in the second half of the calendar year, so we're pretty pleased with that.

And then let me add that we are sampling 30-nanometer DRAM from our Virginia facility and that technology will spread to another DRAM facility in the fall.

And then finally, on the SSD side, I mention it under technology because, obviously, that is required to have success in that space.

Our revenues continue to rise, we are up about just under 40% quarter over quarter, so we feel pretty good about that.

Now, in terms of a couple of market and product segment comments, the DRAM, I think on our last earnings call I noted that we thought that the markets were bottoming at that point.

I think overall this might turn out to be true, but we all know from the reports that at least for us in the memory world that it's stayed at these lower levels.

Fortunately, it is also true that in terms of the DRAM supply that it has been relatively muted compared to last cycle, so that's obviously helpful, although I will note that we've had some inventory accumulation in the channel, in other words, channel and customer base, probably about five weeks.

So, not dramatic, but more than -- a little bit more than we would normally see and more specifically, desktop and notebooks continue to be weak, and I will just say that I don't think we really have a good feel for how that's going to play out over the next quarter or two.

I think we could also add wireless to the list of weak markets with respect to the lower value segments.

But, fortunately, most of the other markets actually look pretty good.

They look better.

Corporate and enterprise actually looks strong through the second half of the year, in particular the server network in a name all look pretty positive.

On the NAND front I think the story is a little bit different.

Pricing has moved around a little but were for the most part it has been in line with what we expected.

Wireless, particularly smartphones, in terms of memory consumption continues to look okay.

I mentioned, on the SSD shipments, I will note that we were up quarter two over quarter one and we are up again quarter two over quarter two, as I just said in the 40%.

So that's obviously very positive.

But I think, as opposed to the DRAM inventory levels, for both Micron and our customers, we remain relatively tight in NAND inventory with the big consumption by the SSDs and tablets.

On the NOR front, as you might expect, other than the hiccup in Japan, it's all pretty steady and normal.

All this leads me to make a few final comments.

Our business units and the associated structure with those business units in the Company is working well.

The structure allows us to strategically focus on customer markets and applications.

I think it's really starting to help drive the diversification of our product line, while at the same time we are able to leverage our advanced technology and manufacturing scale.

Ron is going to add a little color later on about the financials, but when you take a closer look at our financials, keep in mind that essentially what occurred during the quarter was that we shipped less product into the commodity markets, we shipped more product in the higher margin markets, and that shifted up our cost structure somewhat, but it also, more so, lifted our margins.

So in summary, I think we are in relatively good shape as compared to some others, but we still have to deal with the continued pricing pressure in the DRAM, in particular in the commodity markets and make sure that we are in the best position we can for whatever happens in these variety of markets moving forward.

But, I think, at the end of the day, we feel pretty good about our position.

And with that, I will hand it over to Ron.

Thanks, Steve.

The Company's third quarter of fiscal 2011 ended on June 2.

As usual, we provide a schedule containing certain key results for the quarter as well as guidance for certain metrics for the next quarter.

That material is presented on a few slides that follow as well as on our website.

As was previously announced, we sold our Japan fab operation to TowerJazz, as Steve mentioned, in the third quarter.

We will continue to source waivers from that operation through a wafer supply agreement which extends over approximately the next three years.

The sales transaction resulted in a gain in other operating income of $54 million in the third quarter.

In addition, there was a tax provision of $74 million stemming from the gain and the write-off of deferred tax assets netting to a $20 million loss for the total transaction in the quarter.

Other operating income also includes a gain of $35 million from the final installment from Samsung under the cross-license agreement we entered into earlier this year.

For the whole fiscal year, we've recognized all of the $275 million gain from the cross-license.

Recall that there is withholding tax on these payments that is reflected in income tax provision of $6 million in the third quarter, and $45 million year-to-date.

The total tax provision of $104 million in the third quarter includes the effects of the sale to TowerJazz and the Samsung cross-license fee in addition to our regional taxes in other jurisdictions.

As you see from the chart, we expect the tax provision in the fourth quarter to be back to more normal levels.

IMFS continues to ramp ahead of schedule.

As Steve mentioned, we began to charge most of the manufacturing costs in the inventory as we have qualified the site's first products for sale to customers in the third quarter.

The Company's overall gross margin percentage improved in the third quarter compared to the previous quarter, primarily due to a favorable mix shift in DRAM, and decreases in DRAM production costs.

Total bit sales of NAND products were relatively the same level in the third quarter as in the previous quarter.

Micron's trade sales shifted toward lower bit density but higher margin SLC devices and client SSD applications, as Steve mentioned, which explains the increase in NAND average selling prices and costs you see in the chart.

Inventories of NAND product increased during the third quarter, primarily as a result of the timing of customer qualifications and the IMFS ramp.

The mix of product sales by architecture, DRAM, NAND and NOR, was relatively stable in the third quarter compared to the previous quarter.

With the ramp of IMFS in the fourth quarter, and where Micron has been providing all of the recent capital contributions, Micron's share of IMFS output in the fourth quarter, which is based on ownership share with a one-year lag, will be 57%, and is expected to increase to 83% in about a year based upon current ownership.

Last quarter, we reported operating results for the first time, along with newly established business units of DRAM solutions, NAND solutions and embedded in wireless solutions.

The third quarter results for DSG tracked closely with the DRAM product ASP, cost per bit and bit volumes presented earlier.

Although revenue declined, operating income grew through manufacturing cost reductions and increased mix sold to premium DRAM segments, while total average selling prices remained roughly flat.

NSG trade sales, that's the NAND solutions group, tracked closely to the NAND trends presented earlier with revenue down but operating income percentage up slightly from the second quarter.

NSG sales to Intel from our IM Flash joint venture were approximately $220 million in the third quarter, an 8% increase compared to the second quarter.

Recall these sales are at long-term negotiated prices approximating cost.

WSG sales of products by architecture in the third quarter were NOR, NAND and DRAM in decreasing order of revenue.

While NAND and DRAM sales were flat from the second quarter, NOR sales were slightly decreased on lower wireless OEM demand.

ESG sales of products by architecture in the third quarter were NOR, DRAM and NAND in decreasing order of revenue with rank order unchanged from the second quarter.

ESG revenue decreased 4% in the third quarter, notably in the amusement market which was impacted by the Japan earthquake and tsunami.

R&D expense for the third quarter of $211 million increased from the second quarter as expected due to higher pre-qualification costs, as we readied key new products for production.

R&D expense in the fourth quarter is expected to be at approximately the same level as in the third quarter, between $205 million and $215 million.

SG&A expense of $151 million increased compared to the previous quarter, partially as a result of a higher level of costs associated with the Numonyx integration and pending legal matters.

SG&A expense in the fourth quarter is expected to be between $140 million and $150 million.

The Company generated $589 million in cash flow from operating activities in the third quarter, and we remained free cash flow positive for the period.

At the end of the third quarter, we had cash and short-term investments of $2.4 billion.

Expenditures for property, plant and equipment were $534 million.

We anticipate capital spending in total for this fiscal year to be approximately $2.9 billion.

This amount can vary, however, based on the timing of year end tool receipts.

We estimate capital spending in the next fiscal year to be down with an initial estimate around $2 billion, plus or minus, as the payments for initial IMFS capacity are completed in the first half of the FY 2012 fiscal year.

Decisions on future IMFS capacity expansion, beyond the current target of 60,000 wafers per month by the end of the calendar year, will be made based on overall market demand and customer requirements as we go forward.

Primarily due to the additional production assets placed into service at IMFS, we are expecting depreciation and amortization to be between $580 million and $590 million in the fourth quarter, and approximately $2.2 billion for the 2012 fiscal year.

During the third quarter, we repaid the remaining balance of $250 million on a credit agreement with our former Tech Semiconductor joint venture.

At the same time, we were funded the associated restricted cash deposit of $60 million.

In total, during the third quarter, we repaid $327 million of debt, and borrowed $173 million through equipment financing.

The current debt-to-capital ratio is 14% after these repayments.

In the Numonyx acquisition, we assumed a guarantee related to debt in the Numonyx joint venture that included a restricted cash deposit as collateral for the guarantee.

During the third quarter, that joint venture repaid the debt and we were refunded our $250 million cash deposit.

As a consequence, $250 million in restricted cash shifted into our cash balance.

In the Numonyx purchase accounting, we recognized a liability for the fair value of that guarantee.

That liability was relieved with the termination of the guarantee, which resulted in a $15 million gain in other non-operating income in the third quarter.

And for now, I will close and turn it back to Kipp.

Thanks, Ron.

And with that, we would like to take questions from callers.

(Operator Instructions) With that, let's please open up the line.

Thank you.

(Operator Instructions) Our first question comes from Uche Orji from UBS.

Sure.

Thank you very much.

So let me start off by asking you about the DRAM expectation bits for the coming quarter?

So one of the observations we've made is your gross margins were (inaudible) your revenues fell short of your expectations.

Part of that is as we look into the mix for the coming quarter, what should drive the low- to mid-single-digits?

Should we expect that mix to also be positive for gross margin?

Yes, around specialty memory those obviously have a positive, more positive, impact to gross margin, was that your question?

That's correct, yes.

Yes.

Traditionally, memory continues to be our highest gross margin products.

Right.

So in terms of how we expect your expectation for the coming quarter, are we expecting -- within that guidance what is your view of what should happen within the PC market and how do you expect the PC market demand for DRAM to pan out?

Hey, this is Mark Adams responding to that.

I think in general, we've all seen a softening of the desktop/notebook PC climate partially offset by some growth around tablets, more hopeful on the NAND front obviously than on the DRAM front.

But it's been pretty hard to kind of see beyond Q3 calendar here in terms of what the demand picture looks like.

As some of bigger OEMs have kind of come out and made their forecast, the analysts certainly have made their forecasts, and overall, the PC environment is weak at this point, and hard for us to call too much further out in the future.

One more question.

In terms of servers and networking, that's an area where you see strength, especially your comments earlier.

How do you expect that to trend within your guidance for the rest of the year because we see strength from servers for the past few quarters and how much more do you think we could get from that?

Well, that's a good point because I should have qualified my comments.

The PC comments are primarily around the consumer environment.

The corporate refresh is still in process and going fairly well in terms of the demand side for our more enterprise corporate type products and servers certainly is one of the products that Kipp was just referring to as being a better opportunity for us and been more stable for us.

And we think that continues, not just around the servers but even our networking product portfolio and some of our embedded products, more on the commercial applications.

So the softening we are talking about is primarily around the consumer environment and desktop notebook.

Even Steve made reference to the value lines mobile market.

But the enterprise application, especially DRAM, continues to be pretty strong for us and we see no reason that's going to change in the coming quarter.

And just lastly, IMFS (inaudible) 4Q target, you talked about that ramping.

Is it possible for us to know what that will be for the 4Q?

We have given you the bogey of 60,000 wafers per month and the more current guidance is all baked into our bit growth guidance for Q to Q.

Great, thank you.

Thank you.

Our next question comes from James Schneider from Goldman Sachs.

Good afternoon, and thanks for taking my question.

Could you talk about the inventory levels that customers you mentioned with respect to DRAM and when you expect those to kind of be back at normal levels?

And within that, can you talk about what the linearity of your DRAM sales were to this quarter?

Sure.

I think, I'd break the inventory answer into two parts.

The OEM component to that and the channel.

The OEM component, I think, will probably be managed fairly well throughout this calendar quarter.

So, I think that, I'm sorry, what I really referred to is calendar quarter Q3, our Q4, I think the OEMs will get a good handle on that because I think that's already in process.

The channel piece, as Steve mentioned, is somewhere in the five-week range, four to five weeks.

And I think that really was a reaction to Japan and some early accumulation on concerns over supply to the spot market and the after-market module market.

So I think that is more of something that's going to see managed over time here, over the next coming 90 days or so.

But I feel that the OEMs are in better control of that and already actively working through that.

The channel folks are getting into it now and I think that's what's causing the differentiation between the spot market pricing and the OEM contract pricing.

Great, thanks, that's helpful.

And then, with respect to the mobile and server DRAM spaces, can you tell me what you see any of your competitors moving capacity to those areas what kind of impact do you expect on pricing?

Either what you saw last quarter or what you expect over the next couple?

Sure.

I think, server, so just to run over to the on a quarter-to-quarter basis is a lot of qualification and supply variables that go into actually getting into the server business.

I think on the mobile side, a lot of people have talked about that and we've seen one of our competitors talk about going back to the commodity business.

So that is a harder one to gauge but I also think that comes with the challenges of not just redirecting capacity but getting qualified at some of these bigger OEMs.

So it's not a perishable capacity choice, you have to be in the business and be committed to it over time.

I think the comments might be more fluff than reality in the short term.

Understand, and one last one for me.

Can you talk about where PC DRAM pricing is relative to your own cash costs today?

I'm not aware of anybody that gives out their cash costs, sorry.

Okay, fair enough.

Thanks very much.

Thank you.

Our next question comes from Vijay Rakesh from Sterne, Agee.

Hi, just on DRAM side it obviously looks like you had some issues (inaudible) do you think that should help you on the year end margin and (inaudible) side as you go out?

Vijay you're breaking up a little bit could you repeat the first part of your question?

Yes, in the [meet] quarter you guys probably had some impact on Inotera, is that -- issues, especially that should help you going forward into March and then the --?

Yes, this is Mark Durcan.

On Inotera, we continue to make progress there, not only on the 50-nanometer yields but also on the 42-nanometer ramp and we are looking for an improving situation as we move forward quarter-over-quarter.

And then, when you look at mix in DRAM now what is the mix for the PC, server and mobile and where do you see that end of the year?

Today, personal systems are about 18% and that looks like that will come in about where we will average for the year.

As Ron mentioned, we're getting awful close to having NAND surpass total DRAM revenues for the first time in our history as well.

Got it.

Okay, and it looks like you're CapEx goes down pretty nicely next year, what are the puts and takes like $2 billion that you are aware for next year?

Is there a chance that comes back more of the last two years kind of in the $600 million range CapEx?

Well, I think that our CapEx next year and the variability of it will really be based upon how we view the market.

So we -- our CapEx for our fiscal year, keep in mind that we still have IMFS we are paying for as the equipment has been delivered or under qualification, there's somewhat of a lag delay.

So a lot of that CapEx is associated with IMFS, of which we are already committed to and are ramping, and the rest of it is just sprinkled throughout the rest of the network.

That is not likely to change much unless for some reason we feel like we ought to try to get more production out of IMFS in which case, we would spend more to do that, but that's all market dependent at this point.

So all the CapEx is for NAND, and mostly all for NAND not for DRAM, right?

No, that's not true.

I didn't say that, I said a lot of it was for IMFS and NAND.

And the rest of it is sprinkled throughout the rest of the network.

But remember, we've got fabs and it doesn't take a whole lot per fab to add up to the total of $2 billion.

Got it, thanks.

Yes.

Thank you.

Our next question comes from Daniel Amir from Lazard.

Thanks a lot.

How could you view the NAND side here as you ramp up IMFS in terms of the impact on gross margins?

So how should we look at kind of the margin profile of that business here in the next six to nine months?

Daniel, in terms of the gross margin ranking, trade NAND is one of the better ones we have.

It's about our second highest gross margin.

So to the extent that we are shipping more of those bits then it will certainly help on the gross margin side.

And -- as IFMS, I'm assuming will just have a positive impact as the volume increases there?

There's a couple of moving pieces so you have to be a little bit careful.

Obviously, we're adding more bits, we get more of that output so that's good.

There's obviously an ASP component to it which we don't want to get into trying to predict today, but in a steady-state today, it is our second highest gross margin product.

Okay.

And then, the other question is kind of on the wireless side.

You made some commentary that it is a little weak right now.

What do you predict here in terms of kind of the next quarter?

I mean do you see seasonality starting to come back helping the wireless segment?

Or is this -- do you have the same visibility on the wireless side as you do on the PC side?

I think our visibility on the wireless side is pretty good.

I think, part of what's going on in the wireless space is a little bit of a shift in industry structure with market share shifting from company A to company B, and I think that's contributing a little bit to the fogginess in terms of that business.

Having said that, I would think with some newer models coming out and it is a bit of a seasonal uptick, is the reasonable to assume that there could be an improvement in terms of the market conditions around wireless coming into back-to-school and the holiday.

And, remember, our comments from on the segment of the wireless market.

The smartphone market continues to be very strong and I also think that might be something that contributes to some hiring growth for the back half of the year.

Good.

Thanks a lot.

Thank you.

Our next question comes from Kevin Cassidy from Stifel Nicolaus.

Thanks for taking my question.

Can you give some of the puts and takes on the trade NAND for next quarter being down low-double-digits, is it less demand in the SSDs or is that a steady-state or maybe just give a description of what's happening there?

I think, let may make sure you are reading the right lines there.

We look at bit production up double-digits and currently, the ASP is down low-doubles.

Is that what you're asking?

Yes, I was asking about the -- it was up 15% in the third quarter, and now you expect it to be down low-double-digits?

Yes, we do.

That's correct, Kevin.

As Ron mentioned in his comments, we are going to see, we are obviously executing pretty well at IMFS and those will be more discrete units here in the short term.

So we expect more OEM-type business during the short-term quarter.

So it's mix related.

Okay.

It is mix related.

And are you allowed to say, or do you know what Intel's mix is going to be?

No.

Okay.

And maybe on the DRAM side, could you say what your percentages of 2 gigabyte DRAM now?

Kevin, I don't have that break-out in front of me, but I'm happy to follow up with you.

It's something that we present from time to time, and so I will get it to you.

Okay, great.

Thanks.

Thank you.

Our next question comes from Daniel Berenbaum from MKM Partners.

Hi, guys.

Thanks for taking the question.

Can we come back to DRAM shipments in the quarter?

Just kind of running through the math, it looks like you DRAM bit shipments were actually down somewhere in the 10% range.

Is that somewhere in the right ballpark?

And can you help walk me through why they were down so much?

Yes, sure.

This is Mark Adams again.

The DRAM shipment was more of a carryover for us, especially around some of our OEM customers for Inotera output.

They've got us timely in the quarter but we could not convert it into modules in time to get to our OEM agreements.

Secondly, towards the end of our quarter, we saw a pretty wide gap between the spot market and the OEM contract market and certainly did not want to play into the game of end-of-quarter negotiations in the spot market driving price down further.

So we chose to keep some of that inventory for our larger OEMs going into the Q4 fiscal.

So then some of the increase in the inventory on your balance sheet was due to holding on to some of that NAND?

Or, I'm sorry, holding onto some of that DRAM, sorry.

Absolutely the case.

And, again, if you track the spot market pricing over the last two to three weeks of our quarter, it started to get pretty volatile and for us, given our OEM demand curve for Micron memory, it was a pretty logical choice not to play in the spot market game at the end of the quarter.

Okay.

And then, can you comment on gross margin in the wireless and embedded solutions business?

How did those trend?

Either if you're willing to give absolute numbers that would be great or if not how did those trend from last quarter?

We're not going to give you the actual numbers, but they did come down a little bit in those segments.

Sorry, gross margin came down in those segments?

Yes.

And are we past sort of all of the purchase accounting from the Numonyx acquisition in terms of gross margin?

No, there was an impact, a little larger than we expected actually, it was about a $20 million impact in this quarter that we just reported.

And that's about equal to what's left.

We do anticipate the rest of that will come in over the next couple of years.

You had a $20 million negative impact in the quarter, okay?

And then, the rest will come through and you would then expect all of the Numonyx accounting treatment to be done sort of by your fiscal Q1 in the next year?

It's all related to the certain parts that did get written up into inventory and so some of those are legacy parts that will sell out over the next year, even.

But it won't all clear up in one quarter.

Okay, and then while we are sort of on those kind of charges, were there any other inventory adjustments in the quarter?

No.

Okay.

Great.

Thanks very much.

Thank you.

Our next question comes from David Wong from Wells Fargo.

Thank you very much.

On your summary sheet, you talk about your trade NAND cost per bit being up approximately 12% in the quarter.

To what extent do stock-up charges play into that?

This is Ron.

We had start-up charges, as I mentioned, last quarter and we had some reduced level of start-up charges overall this quarter.

In total for the Company, it was about $36 million.

In the second quarter, it dropped to about $20 million.

In this most recent quarter, some of those costs are now being put into inventory and we'll go out with the shipments of IMFS product in the coming quarters.

So, -- but that wasn't the primary driver of the cost per bit for trade NAND being up?

Was there some other factor?

If you look at it, the ASPs were up about 15% and our costs were up about 12% in the quarter.

And the impact was related to mix, as Steve commented, specifically in the area of higher SLC mix.

SLC is a higher margin product, it is also higher cost, and so that affects the cost line but we end up with more margin, as Steve mentioned in his comments, going forward.

Also there was an SSD growth that he mentioned that helps drive up both the pricing and the cost a little bit.

Right.

I see.

And then, on the DRAM side, what was the pattern of your contract pricing through the quarter?

Was contract pricing rising or falling as you progressed through the May quarter?

I would say that early in the first half to two-thirds of the quarter, contract pricing was rising and I would say it kind of plateaued and flattened out towards the end of the quarter.

So, if it was rising through the quarter, why does your ASP estimate for the current quarter, the quarter today, why is it down so much?

Was there a huge plunge at the beginning of the current quarter?

Or was there some other factor that is playing into your expectation for DRAM ASPs looking like it's going to be down high-single-digits?

Well, there's two things, the guidance we're giving is quarter to date.

So I will come back to that in the second.

But, your question earlier was about Q3, and the trend during Q3.

And I stopped short by saying that it was flat during the last month, which was May.

Our June contract pricing is down slightly and then we also have some mix effects there as well causing the net impact of the quarter to date guidance we're giving you.

Great.

Thanks

Thank you.

Our next question comes from Doug Freedman from Gleacher.

Thank you for taking my question.

Can I question you on what you think the bit demand for the full year is now, looking like it's going to be, given where we are halfway through the year now on both DRAM and NAND?

Let me start, Doug, with the bit supply, and then Mark can talk you through maybe some of the different segments.

We look at DRAM somewhere in that 40% to 45% range.

We see NAND in that 70% to 80% supply range.

Duly noted that on the recent equipment conference calls they have referenced equipment push-outs.

So, it does, in our analysis, it does look like we've probably come through, or are in the highest sequential bit growth quarters now and that going through the rest of the year, especially in DRAM, they tend to tail off pretty good.

We're fairly, looking at the NAND numbers in terms of supply, it looks like you're going to run kind of low-double-digits here for the next couple of quarters.

And with that, I will let Mark maybe talk you through some of the segment demand things that he sees.

It's pretty consistent with earlier comments.

I think it's -- the consumer business overall tied to kind of the macroeconomic environment, it just seems a little bit hard to predict and a little bit softer than we might have thought going into July, but certainly, you've got some seasonality effect in there as well.

So around DRAM, for example, the PC business, to our earlier comments, is weaker than we had hoped and right now we don't have line of sight on anything in terms of a recovery back to an upward price environment in DRAM on the consumer side.

On the specialty DRAM, and our better margin product areas, we continue to remain pretty bullish because the demand there has remained strong.

And, I reference this earlier, but the server products, and the server business overall is pretty good.

The growth there on units is still in line with, I think, what the analysts kind of suggested we would be for 2011.

Networking, again, networking products remain strong for us as well.

And our [aim] business, which is part of the embedded business unit, is very stable also.

So it's not that we could make one conclusive comment about the overall memory landscape.

I think the commodity, consumer-oriented businesses are seeing some softness of demand side for DRAM and the specialty businesses around enterprise and corporate pretty good.

When you look at NAND, we're not seeing anything that would change our perspective on a pretty strong demand environment for NAND.

SSDs have been continuing a good story for us at Micron.

Steve referenced earlier, slightly below 40% quarter-over-quarter growth.

New technology launches, and good reviews from the press and customer qualifications on enterprise performance drives.

So SSD continues to be a strong place for us.

If you look at the smartphone piece of the business where a lot of that NAND is consumed in the mobile market, still very strong.

And the tablet business is, again, another good air environment for us for NAND.

So we think the drivers on NAND are pretty consistently strong through the back half of the year, especially in (inaudible.) And I don't think anything is going to change that going through the holidays, minus some significantly different environment as far as the economy.

If I could, for my follow-up, focusing on the mobile DRAM side of the business and your aspirations to ship Phase Change by the end of the year.

Can you give us an update on where you stand and what the mobile DRAM market is bringing to you guys in terms of an opportunity?

Yes, this is Mark Durcan.

We continue to make good technical progress on Phase Change, both from a reliability perspective as well as yield improvement.

The actual uptake in the market is going to be tough to call right now.

But we are definitely moving more resources towards those products to make sure we are in a position to deliver for that market space.

Great, thank you.

Thank you.

Our next question comes from Ryan Goodman from PLSA.

Hi, thank you.

Question on servers, we've started to hear some chatter that server ASPs were actually coming under more pressure than normal over the past quarter.

I know you sounded actually pretty bullish on looking out through the remainder of the year.

Just curious if you saw anything like that?

I mean, the premiums are still there but are you feeling any more pressure and any thoughts on the impact of [Bromley] coming on in the second half?

I don't think that pressure has manifested itself back down to us.

I do think, though, that when you look at what is driving applications around the server products itself in terms of the markets, in terms of cloud and some of the other applications, you are seeing a broader value line of servers take share in the market.

And thus, the unit volume shifting that way could potentially drive that.

We're not seen that implicate our server pricing so much on the memory side of the house, but I think that there seems to be a higher volume of distributive server technology in the market and I think to that extent, that you could see that being potentially commoditized downstream but we haven't seen impact internally.

Okay and then just one follow-up on the NAND side of the equation.

In the smartphone market, just curious about your thoughts on content trends at the high end of the market?

If you think -- how do you think the demand picture comes together if there isn't a lot of content growth at the high end of the market?

And also, just curious about for Micron specifically, how you guys are doing in terms of gaining some traction in the area (inaudible)?

I think, overall, we are pleased with that.

If your question was around if the content per smartphone on the high end doesn't materialize, is that the question?

Yes.

If there's not a lot of growth in content at the high end, are you still comfortable with the overall demand picture for 2011 and then going into 2012?

Yes.

I think, absolutely.

Just in terms of unit growth alone, we think there's an opportunity there for us as well as if you look at the evolution of what people are using the smartphones with, we feel pretty confident that the content piece will evolve favorably.

And then, any update you can just give on how Micron specifically is doing in terms of gaining traction in the high end?

It seems like a lot of the embedded progress historically has been more in the consumer area, just curious how you guys are doing in smartphone?

To the extent that, when we look at our NAND portfolio, to the extent that we are choosing to be engaged that market, which is pretty strategic to us, we feel pretty good about it.

We feel, needless to say, from a cost perspective and a technology perspective it is a good place for us to invest and our customer demand continues to remain strong.

Okay, thanks.

Thank you.

Our next question comes from Bill Dezellem from Titan Capital Management.

Thank you.

Relative to the SSD strength that you experiencing, would you please provide some more details and color behind what's taking place there?

Including who are you finding the primary adopters of SSD to be at this point in the adoption cycle?

Sure.

Our experience has been that the OEMs are really trying to adopt us to establish a separate class of notebook users, if you will, and trying to add some higher-margin opportunity for themselves in selling up to executives and consumer power users.

The volumes are pretty significant around that.

And you think about the sudden growth in terms of enterprise applications and actually manifested themselves up in terms of revenue and the category.

Those are still pretty much, the two drivers, I would say, are the OEMs driving power SKUs for the enterprise executive as well as consumer power users.

And then in the enterprise sector, I'd say the shipments basically have doubled quarter-over-quarter in that sector and we continue to see long-term growth there for us out through the next two to three years.

And then, following up, where are we at today with the cost differential versus the traditional hard drives?

I still think, from a cost per gigabyte, we're not quite close to yet equality.

I think, what you're seeing from the shipments, and both in the client space and the enterprise space would suggest that even though we're not at cost parity, we're not even really close yet on a dollar-per-gigabyte basis, the benefits of the SSD in total cost of ownership allow us to compete pretty favorably.

And one additional question, what is the rate of cost reduction that's taking place with SSDs versus hard drives?

Well, Bill, it's a different discussion point because we can, on the discrete device level, bring cost pretty down, but what you're really asking is the cost to our customers and that's more market driven.

So you will have to be a little more specific.

No, your point is well taken and I will ponder the question more off line.

Thank you.

Okay, thanks, bill.

Thank you.

Our next question comes from Glen Yeung from Citi.

Hi, thank you.

There's been some discussion about Micron's potential partnership with Elpida.

What are your thoughts around balancing consolidation and potential needs for additional capacity?

Well, first of all, we don't have any partnership with Elpida at this point, and I think, if you look at the entire industry picture, obviously, there are a few companies that are still struggling.

The Taiwanese are struggling a lot.

And then you throw Elpida into the mix, of course, in terms of total size they are also one of the smaller companies in the memory business.

And, I think, over time most of that will get resolved.

But in the short term, typically what we have to see is some kind of crisis in the industry and the more the crisis, the quicker the resolution of consolidation in the industry, and whether we are in that time period are not right now, I think it will depend on how long the market being down lasts.

But short of that, we'll just have to see how it plays out.

Okay, thank you, Steve.

And as you ramp IMFS, is there a preferred mix of captive versus non-captive?

As Micron's ownership and output ownership of (inaudible) from IMFS group?

Well, I -- is your question do we have a preferred use of the product in our own products downstream as opposed to selling them to the merchant market or was it something different?

I guess the proportion of captive versus non-captive.

As the ownership moves toward 80%, is there --

I see, I see.

Well, I think, you would -- you can correctly surmise that the ability to ship our NAND product and downstream products, in other words, id est, SSDs and other things, just has a better value proposition and more margin for us.

So to the extent that we can do that, we will be focused there.

But I would say that our objective, in particular, is our percentage of the total, as Ron mentioned, our percentage of the total output of the joint venture comes to Micron.

Our objective really is, though, to still serve all the markets in some form and, obviously, we'll direct that capacity to the best return for the Company.

Thank you.

And just one more for Ron, with the Samsung, the tax issue going away next quarter, what was the guidance for taxes beyond next quarter after the impact from Samsung?

Well, yes, it was more normal rates of $15 million to $25 million kind of range going forward on taxes.

That is our normal rate that we pay for the other regional jurisdictions.

Great.

Thank you.

Thank you.

Our next question comes from Bob Gujavarty from Deutsche Bank.

Hey, thanks for squeezing me in, guys.

I ask one question, maybe a little longer term, but as some of the notebook products kind of mimic more of the tablet functionality, I have talked to a few people that said they would have to use mobile DRAM instead of commodity DRAM in PC notebooks.

What do you guys think of that as a longer-term opportunity to kind of move the ASP up and potentially move your dollars per PC system up?

You know, it's funny, we tend to think lately the opposite of how you stated it which is that the tablet not only serves in a mobile application environment but starts to mimic some of the functions of a PC.

And I think there is a fair point that might be an opportunity for us, but it is on a kind of a partner-by-partner basis in terms of how they look at their architecture and their system.

Great.

Thank you.

Thank you.

Our next question comes from Shawn Webster from Macquarie.

Thanks for taking my question.

I just had a question about the impact of Japan.

So you mentioned that, was it 5% of the ESG or 5% of your overall revenues do you think were impacted?

And for the inventory in the channel that accumulated, does that all accumulate right after the earthquake?

Or was that something you think that was more, maybe there was a build up before and it just spiked up after the earthquake?

And has it come down a little bit after that?

Thank you.

Well, in terms of the Japanese impact on our revenue, I had mentioned that about 5% of our embedded grew -- was affected, and primarily the entertainment industry over there, as you might expect.

In terms of an inventory channel build-up, now, Mark can add commentary if he wants.

But essentially that happened after we had the Japanese event and I would say to the extent that some of it did build it was clearly trying to make sure that they were covered.

But in addition to that, I would just add that, as Mark already did, that a couple of the markets were weaker than maybe people were anticipating and so they had some inventory that they accumulated.

Great, thanks for that.

And also, if you could talk about your DRAM supply?

If you were to take Inotera's impact out of both Q2 and Q3, do you think that your supply, in terms of big growth was roughly in line with expectations or a little bit below or a little bit above?

It might have been a little bit below.

As we have discussed in the past, we've been trying to enrich the mix and generally those are lower density devices and so you don't get quite the bit efficiency per wafer, for example.

Okay, great.

Thanks a lot, guys.

Thank you our next question comes from John Pitzer from Credit Suisse.

Yes, guys, thanks.

A couple questions, sorry if I missed it, but server DRAM as a percent of overall DRAM.

Where did it stand in the quarter?

And, I guess, what kind of target could we think about as you exit the calendar year?

John, I've got it broken out to total revenues and we ran server about 20%, so ready good business for us.

And, I guess, Kipp, where do you think that could go as you guys continue to try to mix up that DRAM business?

I might have to get that went to Mark to do a little more in-depth discussion around how he sees demand.

We know that bit growth per system will be up about 60% to 65%.

We know units in general, when inclusive of all the OEMs that are building servers themselves, are up double-digits, and, Mark, if you'd like to add anything to that?

That's consistent with the demand picture that we get for our products and I'd say in the server business we are mildly constrained around the capacity of those parts that could go to there.

We're trying to ramp that up in the coming quarter.

And then, guys, in the core PC DRAM business, bits per box today, and as price elasticity in that market done or are we just dependent upon unit growth or how should we think about that?

Well, it's interesting.

If you went back a couple of years when the ASPs and DRAM were significantly higher, we went through this [despecking] period due to the supply and demand imbalance.

Since then, obviously, it has recovered pretty nicely and we were just short of 4 gigabytes per unit in the desktop and notebook environment and projected to go over that threshold, which I think is the first time that I can remember that there is ever been a 4 gigabyte per unit.

So our sense is that continues to remain progressively increasing and then favorable.

And then, guys, my last question, and I appreciate there's probably not a lot you can say around this, but with the RAM business trial now moving forward I'm kind of curious how we think about SG&A and are there any milestones that, or timelines we should think about relative to that event?

Well, clearly, the Rambus trial started.

It's a multi-month trial and will continue to accrue litigation costs as we have in the past.

And, actually, that's probably all we can say on the topic because it's in flight.

But, Steve, now that it could move to trial we shouldn't expect to step up in increments or it's already embedded in the guidance that you gave for the quarter?

Well, that's already embedded in the guidance we gave for the quarter.

The length of trials are unpredictable and as a result, that doesn't mean that we will have some additional accrued litigation costs the longer goes.

But we'll just have to deal with that real-time as it is happening.

Great, thanks, guys.

Thank you.

Our next question comes from Atif Malik from Morgan Stanley.

Hi, thanks for taking my questions.

If I look at your guidance for NAND trade cost reduction last quarter, low- to mid-single-digits and you ended up doing up 12%.

Are these decisions being made on the fly in the quarter to change the mix, and if you can give the percentage of SLC, MLC and PLC mix right now and what it will be by the end of year?

Well, I'll take the first part about decisions being made on the fly during the quarter to change mix.

The answer is, of course, we are trying to optimize the margins in the parts and, as we see opportunity, we will do that.

Now I'll also, I think in correlation, make the comment that sometimes it's easy to change the mix and sometimes it is more difficult to change the mix.

It depends on the product and the category and so forth.

And we also have customer commitments that we have to make sure that we make.

So all that goes into the hopper but, yes, we are [cautiously] looking at it.

And for the next part I will turn it back over to Kipp.

Yes, in terms of wafers probe we saw a 26% increase -- or 26% of our NAND wafers were processed in SLC in Q2.

And, of course, as those sell out that would be into fiscal Q3 and that is why you saw the pretty nice increase in cost per bit.

But, again, referencing both what Ron and Steve said before, that also gave us a very nice margin lift in ASP lift us well.

It's worth it for us to put as many wafers in that direction as possible.

Git it.

And I agree it's good for profitability.

And what should we think about the normalized SLC mix for the year?

Higher than this level or about 26% for the year?

This looks pretty flattish.

As we mentioned before, IMFS is primarily ramping right now on MLC.

So don't think that's -- that the wafers aren't growing in SLC, but as a percentage of the total then they are about flat in that 20% range.

Okay.

And for the second half of the year, are there any underutilization charges at Inotera that could come up if the demand remains low or do you think you can still use Inotera for server demand and other kind of non-PC DRAM demand?

This is Ron.

Your underutilization question was about IMFS in particular?

No, Inotera.

Are there any implications, I mean, can Inotera load up the factory?

Are there any 100% utilization right now in Inotera?

Yes, Inotera is ramped.

Yes, they are ramped on wafers.

They are still working on coming up the yield curve, et cetera, and getting more good bit yield output out of that production.

So, no, we don't get specific underutilization charges.

We did when it was shut down in 2009, but now we are just paying on a wafer cost basis, and as I've mentioned before, there is a cost basis and then there is a profit sharing component that gets spread back.

Got it.

Thanks.

Well, thank you and with that it looks like we're out of time.

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

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

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

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

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

Thank you.

Thank you.

This concludes today's Micron Technology's third quarter 2011 financial release conference call.

You may now disconnect.