美光科技 (MU) 2015 Q4 法說會逐字稿

Good afternoon.

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

At this time I would like to welcome everyone to the Micron Technology's fourth-quarter 2015 financial release conference call.

(Operator Instructions)

Thank you.

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

Sir, you may begin your conference.

Thank you very much, Abigail.

I'd like to welcome you to Micron's Technology's fourth quarter 2015 financial release.

On the call today is Mark Durcan, CEO and Director; Mark Adams, President; and Ernie Maddock, Chief Financial Officer.

This conference call, including audio and slides, is also available on our website at micron.com.

In addition, our website has a file containing the quarterly operational and financial information and guidance, non-GAAP information with reconciliation, slides used during the conference call, and a convertible debt and cap call dilution table.

If you have not had an opportunity to review the fourth quarter 2015 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 the call by dialing 404-537-3406 with the confirmation code of 43149721.

This replay will run through Friday, October 19, at 11.30 PM Mountain Time.

A webcast replay will be available on the Company's website until October 2016.

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

You can also follow us on Twitter @Microntech.

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 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.

Thank you very much.

And before I turn the call over to Mark Durcan, we want to make a quick update.

There was some information posted on our website under the earnings call earnings slides which were posted to micron.com on page 21 -- excuse me, page 20, the summary key data slide does include some errors on the Q1 [2016] guidance.

That is being updated and will be replaced shortly.

Please note page 17 is accurate, which shows our Q1 FY16 non-GAAP guidance on that page.

With that, I'll turn it over to Mark Durcan.

Thank you, Ivan.

For Q4 FY15, Micron posted total revenue of $3.6 billion, within our revenue guidance of $3.45 billion to $3.7 billion.

Revenue was sequentially lower as expected in fiscal Q4 due to near-term market headwinds driven primarily by weakness in the PC sector.

Micron posted overall growth margins of 27% while generating operating cash flow of over $1 billion.

Non-GAAP net income was $399 million and non-GAAP earnings per share were $0.37.

We are pleased with the execution that delivered these results.

We continue to invest in our business with capital expenditures of $1.85 billion in Q4 as well as ongoing investments in technology and product development.

For FY15 we achieved revenue of $16.2 billion, $2.72 per share in non-GAAP earnings, $5.2 billion in cash from operations and $2.3 billion in dilution management activities including convert retirements and over $800 million in share repurchases.

While fourth-quarter results were impacted by continued weakness in the PC sector, we believe that memory industry fundamentals remain favorable over the long-term and we're focused on improving our competitive position through deployment of advanced technologies and system-level solutions.

Reflecting on market conditions, despite the recent softness in the PC market, we continue to see healthy end-market demand in other segments.

Within the context of that variability, we will continue to manage product mix and allocate our capacity to maximize our opportunities over time.

Demand for NAND is relatively stable.

We were encouraged by customer response to early samples of our 16 nanometer TLC products as well as a significant customer interest in our early 3D NAND product.

We expect the majority of our NAND production on 3D by late calendar 2016 which should put us in a stronger competitive position.

We expect the demand environment to stabilize and improve as we move through calendar 2016.

In general we expect industry supply and demand for both DRAM and NAND to be relatively balanced in 2016.

Stepping back for a minute, Micron produces technologically advanced subsystems and systems for global marketplace and today's customers are looking for value-added memory solutions to drive innovation and efficiency in system design.

This creates a tremendous opportunity for Micron moving forward and we will continue to invest to enhance our competitive position.

Relative to those investments, Micron's capital investments are primarily focused towards the deployment of advanced technology to drive manufacturing efficiency and to enable innovative new products to support technology advancement in our NAND business.

We're also investing in an expansion of our cleanroom facility to enable cost-effective 3D NAND and are continuing to support R&D facilities in Boise.

These investments, in aggregate, will accelerate Micron's bit growth over the next 12 to 18 months.

For DRAM we expect to be above market for calendar year 2016 based on market growth assumption of low- to mid-20%s.

A majority of this growth will occur in the latter half of Micron's FY16 and then continuing to FY17.

For trade NAND, we expect our bit growth to be below the market in calendar 2015 and 2016, based on a market growth assumption of mid to high 30%s and as 3D conversion reduces wafer output in the near term.

For our Fab 10X expansion and 3D conversions, we expect will position us to significantly outgrow the market for NAND in FY17.

On the call today, Mark Adams will summarize our operational and [BU] results.

Ernie Maddock will cover Q4 financial results and I will conclude with a couple of thoughts prior to Q&A.

Mark?

Thank you, Mark.

I will begin by reviewing our performance in DRAM and Non-Volatile memory, which on a going-forward basis will include our NAND and 3D Crosspoint product.

I will follow an update on each of our four business units before closing with commentary on our operational performance and focus.

Let's begin with DRAM, which represented 60% of our total revenue in FYQ4.

PC DRAM ASPs remained under pressure in Q4.

As a result, gross margins were down sequentially in line with our expectations.

While we did see some mild spillover effect to pricing in other DRAM segments, overall gross margin in these other segments and demand remained relatively healthy.

As a percentage of DRAM revenue in fiscal Q4, mobile was in the low 30%, up from the high 20% in Q3.

The PC segment was in the low 20 percentile, down from about 30% in the prior quarter.

The server business was in the low to mid 20%, up from the low 20% in Q3 and our specialty DRAM business, which includes networking and graphics, automotive and other embedded markets, was in the low 20 percentile in aggregate.

Moving on to our Non-Volatile memory business, trade revenue represented 32% of total revenue in FYQ4.

Performance was consistent with our guidance, highlighted by stable gross margins.

As a percent of trade, Non-Volatile memory revenues in fiscal Q4, consumer represented about 40%.

That includes our cards, USB and components.

Mobile, included in multi-chip packages, was in the low 20 percentile.

SSDs were in the mid-teens and automotive and industrial mid-markets and other embedded segments were mid-teens as well, while 3D Crosspoint technology was immaterial.

These percentages were generally consistent with the prior quarter.

Positive mix effects, including growth in enterprise SSDs and a reduction of our spot market more transactional-type businesses led to stable ASPs in gross margins for our Non-Volatile memory business.

Moving on to our business units.

Our compute and networking business unit posted revenue of $1.3 billion in fiscal Q4, down 14% versus the prior quarter with operating income of $99 million or 7.6%.

When looking at the fourth fiscal quarter, CNBU was impacted by lower ASPs driven by continued softness in demand from the PC segment.

In response to the softness, we reduced our bit shipments into the PC segment by approximately 20% and shifted bits toward other more stable segments.

We anticipate additional reduction in PC DRAM production in the Q1 of FY16.

CNBU had a very strong quarter in the enterprise segment.

We were able to drive additional qualifications of our 8 gigabit DDR4 solutions resulting in shipments of DDR4 increasing by more than double of Q3's volume.

The performance-driven workloads and compute-intensive applications in the enterprise space should drive additional demand growth in the future.

We are confident that the migration of our product portfolio to our 20 nanometer technology will put us in a great position to support this growth in the future.

The networking segment continued to be stable and over time we expect to see demand in this space increase as buildout of LTE deployment in emerging markets continues.

Revenues in Micron's storage business unit were $848 million in fiscal Q4, down 6% sequentially.

SBU's gross margins were flat quarter over quarter.

Operating margins were negative, reflecting our continued investment in development of next-generation flash storage technologies.

SBU continues to focus on optimizing the mix of our products to mitigate transactional market exposure while serving higher value segments.

One good example is in the enterprise segment.

We continue to gain traction in the deployment of Micron branded SSDs in the hyper scale segment with our M500 SSD family-based products focused on high-reliable, high-performance 20 nanometer MLC product.

While in entry-level client segments, TLC NAND flash has been deployed due to cost benefits, we have had many customers come in with upside requests for our MLC-based technology to truly meet the demands of the end-market needs.

We continue to make progress in TLC as well during Q4, which will help us better serve the lower end value segments in NAND.

Our 16 nanometer planar TLC NAND was qualified with several customers.

We began shipping components in the quarter and will begin shipping consumer SSDs based on TLC in the current quarter.

Revenue in mobile was $958 million in fiscal Q4, up slightly sequentially.

Operating income was $262 million.

Micron's mobile business unit continues to benefit from evolving mobile system architectures that steadily increase memory density requirements at all product levels.

Our broad and diverse product portfolio, including eMCPs, PoP DRAM and [KGD], which is commonly known for known good die, allows us to maximize our operating results by rapidly adjusting to changing customer requirements and marketing conditions.

Despite slower growth in China, revenue in the overall [AMCD] product category was flat when compared to Q3.

As eMCP densities continue to increase, our combined DRAM and NAND portfolio only strengthens our competitive position.

Micron has ramped production in low-power DDR4 with shipment increasing from 4% to 24% of total mobile DRAM volume and expects LP4 volumes to surpass LP3 by the end of our first half of the FY16.

The embedded business unit posted revenue of $474 million, down approximately 2% from prior quarter.

Gross margins for EBU were 35%, up 2 percentage points when compared to Q3.

Operating margins were 22%, also up 2 percentage points when compared to the prior quarter.

It was worthy to note EBU's revenue reached $2 billion in FY15, which is a big milestone for our business unit that has historically been our most stable profitable business.

Fiscal Q4 results were driven by record revenue in our automotive segment and continued strength in our industrial multimarket business.

Growth in automotive supporting applications including Infotainment, instrument cluster and ADAS, which stands for advanced driver assistance systems, drove record sales of DDR3 in eMMC.

Japanese regulatory changes have been a catalyst for strong demand in our amusement business, driving shipments of NOR- and NAND-based multichip products that support machine-to-machine communication modules.

I wanted to close with some updates on technology development and deployment activities.

At our summer analyst conference, we described our FY15 and FY16 strategic investment priority focus.

We continue to be pleased with our progress across our focus areas of DRAM, Non-Volatile and emerging memory.

We're ahead of our previously communicated schedule on both the 20 nanometer DRAM and 3D NAND conversions.

We expect 20 nanometer to represent more than half of our DRAM output in FY16 and our 3D NAND is on track to be a majority of our NAND to output by the end of the calendar year 2016.

An important milestone for our 3D NAND progress is beginning tool installation in the Singapore Fab by the spring of 2016 and we're on track to meet that time line.

In the quarter, we announced 3D Crosspoint technology and are on track for commercial shipments in calendar year 2016.

This is an exciting new memory technology which has the potential to drive innovative new memory-intensive applications.

We also continue to expand our strategic customer and partner relationships, exemplified by our recently announced 3D Crosspoint technology and 3D NAND supply agreements with Intel.

As we continue to execute our technology conversion and Fab expansion plans, these types of strategic relationships can offer another path to enable our technology in the market as well as they can provide additional capital to support technology transitions.

With this successful execution and technology development, we are confident that our relative competitiveness will improve during FY16.

We believe that the ongoing growth in customer demand for memory products will provide healthier market conditions going forward.

Now to continue our commentary on fiscal Q4 results and Q1 guidance, I will turn the call over to Ernie.

Thanks, Mark.

Our GAAP net income for the fourth quarter was $471 million or $0.42 per diluted share on net sales of $3.6 billion.

Compared to the third quarter, margins declined primarily as a result of pricing in the DRAM space.

Non-GAAP income for the fourth quarter reflects adjustment for the following: Recurring adjustments for the amortization of debt discounts primarily relating to the imputed interest on the convertible notes on the MMJ creditor debt and nominal amounts from the loss of our debt restructuring activities and the effects of changes in currency exchange rates for the quarter.

Technology acquisitions -- or technology-related acquisitions in the quarter resulted in a $21 million gain from the remeasurement from a previous equity method investment held in the acquired entity as well as $21 million in tax benefits recognized in the purchase accounting.

Non-cash taxes relating to the MMJ and MMT operations reflected a benefit in the quarter primarily as the result of increased estimated utilization of operating loss carryforwards in Japan.

As a result, our non-GAAP income was $399 million or $0.37 per share.

As a reminder, Micron includes both amortization of acquisition intangibles and stock-based compensation expense in our non-GAAP reporting.

Taken together these two items represent approximately $0.04 per share for the recently completed quarter.

Now let's look at our results by product line.

Historically we've referred to our product classifications as DRAM and NAND.

As Mark Adams just noted, rather than NAND, we will refer to Non-Volatile, which includes NAND and 3D Crosspoint, but will continue to exclude NOR.

DRAM revenue decreased approximately 8% compared to the third quarter, primarily as the result of lower selling prices.

DRAM gross margin was in the 30% range, lower than the previous quarter.

On the trade NAND Non-Volatile side, revenue decreased approximately 7% in the fourth quarter, primarily as a result of lower bit sales volume.

Gross margin was relatively flat compared to the prior quarter in the low to mid 20% range; both bit costs and selling prices decreased slightly for the quarter.

In the quarter, the Company generated operating cash flow of $1 billion and ended the quarter with $5.6 billion in cash and marketable investments.

Expenditures for property, plant and equipment during the quarter were approximately $1.85 billion.

During the fourth quarter we repurchased $63 million in face value of convertible notes for $112 million and approximately 36 million shares of common stock for $638 million for a total of $750 million.

Operating expense was less than anticipated in the fourth quarter, primarily as a result of lower variable compensation expense and lower volumes of wafers used for development of new products and technologies.

For the full year FY15 ended September 3, net sales were $16.2 billion with GAAP net income of $2.9 billion, or $2.47 per diluted share, while non-GAAP net income was $3.1 billion or $2.72 per diluted share.

The impact of acquisition intangibles and stock-based compensation on our full-year non-GAAP results was approximately $0.13 per share.

As Mark Durcan noted, during FY15 we used approximately $2.3 billion for dilution management activities.

Of this total, $832 million was spent on share repurchase and the remainder on convert retirements.

Cash expenditures for property, plant and equipment during FY15 were $4.1 billion and we continue to expect FY16 capital expenditures to be in the $5.3 billion to $5.8 billion range.

We also continue to expect third-party investments of between $700 million and $900 million, as well as a [$600 million] to $800 million expense for our 3D NAND Fab 10X expansion in Singapore.

As mentioned in our summer analyst conference, we're simplifying the guidance that we provide.

For Micron's first quarter FY16, our non-GAAP guidance is as follows.

Consolidated revenue in the range of $3.35 billion to $3.6 billion.

Gross margin in the range of 24.5% to 27%.

Operating expenses between $580 million and $620 million and operating income between $260 million and $320 million, with EPS between $0.20 and $0.26 per diluted share based on an estimate of 1.1 billion diluted shares and a tax rate in the mid-teens.

This EPS range includes expenses related to acquisition intangibles and stock-based compensation which together represent approximately $0.05 per share.

Although we continue to expect some challenges in the pricing environment during the current fiscal quarter, our guidance, particularly at the gross margin line, also reflects the early capture of operational improvements that we have been sharing with you for some time.

In the materials posted on our website we have included a dilution table that reflects the anti-dilutive effects of our Cap calls at various stock prices.

Now I'll turn it back over to Mark Durcan.

Thank you, Ernie.

Let me just conclude our prepared remarks by summarizing our major focus areas for the coming year.

There are three such focus areas.

First is technology deployment and manufacturing efficiency.

Second is delivering value-added solutions for a growing set of customers and market segments.

And third is investing in our long-term customer and partner relationships.

As we embark on our new fiscal year, I'd like to take a moment to thank our customers, partners, shareholders and team members for their continued support.

Let me stop here and, operator, I think we're ready for Q& A.

We'll now take questions from callers.

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

Operator?

Thank you.

Kevin Cassidy, Stifel.

Thank you for taking my question.

On the guidance for gross margins, can you give us some of the moving parts on that, where it's coming down?

You know, as always, it's a combination of mix and pricing and both of those move around within ranges that are quite similar to one another.

So part of the reason why we wanted to talk to you about an aggregate gross margin was, in fact, that both of those factors are things in some cases that we don't control and in other cases that we do in response to the changing pricing environment.

So we can't really provide too much color on that or else it would negate why we chose to go to this more broad-based guidance across the Company's revenue stream.

Okay.

Maybe if I could ask one detail around that then.

With the TLC NAND products ramping or becoming a larger percentage of revenue, should we expect gross margins can move up with that ramp?

I think the ramp through FY16 will generally lead to that trend, certainly from a cost basis, not trying to forecast where the ASPs go from here from a competitive cost position yet.

Okay, great.

Thank you.

Vijay Rakesh with Mizuho.

Thanks, just a question here.

If you look at the first half 2016, what do you think your mix will be on 16 nanometer TLC NAND?

And I have a follow-up.

Thanks.

We are early in the ramp of the TLC NAND.

We're shipping products this quarter to customers.

But as we move through the first half of the year, it will be into the 20% range and we will see where it goes from there.

If I could add one more comment, what we are hearing and seeing from the market is that by segment TLC is [interested] in some segments but not all segments.

As a matter of fact, in the last part of Q4 and early into Q1, we've seen significant interest for our higher performing, more reliable MLC, both 20- and 25-nanometer products where they are designed in and even new customers in the hyperscale environment.

And so while [20%] might not sound as high as one with a forecasted six months ago, we're getting significant interest again in enterprise-type applications for better margins and so we're going to dial that in around market opportunity and customer needs.

Got it.

If I may, on the DRAM side, as you look at -- you mentioned introduced improved regarding [2016], but any thoughts on how you see inventory and yields playing out here through the end of the year?

Thanks.

Were you saying yields?

Yes, yields and just channel inventory on the DRAM side.

Thanks

Let me handle the channel inventory in the market.

Then Mark can -- interestingly enough, in terms of DRAM market, except for one large channel player, the channel itself is pretty low inventory in the two to three weeks.

One larger channel player who, in fact, services a lot of the OEMs has more than that from a fulfillment standpoint.

That's the roll that they play with these customers, so it's not a significant inventory problem in the channel today.

I think to extend the question a little bit, the PC demand, the PC ecosystem is also not as much of an inventory program.

It's more of a demand problem, and I think with new chipsets, and new operating systems and what have you, I think the buying side of the market has been a little conservative in terms of how they procured PC parts over the last three to six months.

And I think at this point it's going to be interesting to watch how the next three or four months plays out in terms of the consumer and corporate behavior because at some point they're going to start to replenish.

Let me handle the yield question.

I think the thing we can say about yields is we're clearly ahead of our plan and running at least as good as or probably slightly better than we have on previous similar conversions, so we're very happy with the way that's going and we look for significant bit generation and bit crossover in our third fiscal quarter.

Thank you very much.

Timothy Arcuri, Cowen and Company.

Thanks a lot.

I had two.

Ernie, I know you don't want to talk too much about costs going forward, but that's obviously been an issue.

You know, DRAM costs were up this quarter and the guide seems to imply DRAM cost per bit is going to go down just a touch in fiscal Q1.

Is that right?

You know, if you go back to the chart that we showed at our Analyst Day, it shows you what we are expecting in general relative to output and costs move in an inverse way with output, so as output moves up, costs decline a little bit.

In addition to that, as we move down the technology curve, we also get the benefit of that.

Without being overly specific, I think the best thing I can do is refer you back to that curve and the gross margin guidance we provided and you can draw the picture from there.

Okay, thanks.

And then I guess, Ernie, also there's a lot of debate about when gross margins will bottom and where they will bottom.

You are beginning to see some benefit of the investments in the operational things you are doing.

So can you give us some sense that (technical difficulty) you think that November might be the bottoming in gross margin?

I can't really comment on that.

And again I'd refer you back to some of the major levers that we have, which is output that we can control, whatnot, but the biggest lever of all is pricing which is something that we can't fully anticipate.

So I can't really give you any indication that November would be the bottom because I just don't know at this point, although we continue to make progress on our operational improvements.

Okay, Ernie, thanks so much.

Rajvindra Gill, Needham & Company.

Thanks for taking my question.

I guess a follow-up on the gross margin.

I am trying to get a sense of why gross margins are coming down if some of these things that you talked about are stabilizing; for instance, more rational environment, ramping more on 20 nanometer, some stabilization in the pricing.

I think it's really important to parse cost and pricing.

If you look at what's happening in the market, it still is a significant amount of data that suggest DRAM pricing continues to come down a bit.

And so that has an offsetting impact to the improvements in the operational execution.

So we're really focused on driving the operational execution and getting cost where -- as well as we can effectively manage cost to get those to that level and then the pricing environment we have to deal with.

I'm just trying to square with what you are saying in your outlook in your slide deck.

You basically are saying despite recent softness in the PC DRAM market you continue to see healthy end-market demand and the demand environment to stabilize as we move into calendar 2016.

So it just seems like while there is some hint that demand is stabilizing or some stabilization across the board, the margins continue to drift fairly lower.

So I'm not very clear on why that's happening.

Okay.

Let's just step back a little bit and think about the marketplace has been weakened in PCs.

We've seen pricing erosion there.

It doesn't take much of a shift in the supply and demand balance where you are moving big numbers up and down and subtracting them to get a difference for the supply-demand balance to swing from slightly over to slightly undersupplied.

And at the end of the day, that's the tough question that we've all got to try to figure out what the answer is.

As we think about what our end markets look like in 2016, the product we have and the customer interest we have, we think that the market's generally going to be relatively balanced and we think we have significant operational improvements coming down the pipeline.

That underlines the commentary we are giving you and we're trying to give you a view as to how we think that's going to balance out in the quarter ahead and it's close to flattish gross margins quarter over quarter based on our guidance.

We'll just have to go from there and see.

We're all trying to figure this out together.

Great.

Last question on the cost side, some of the cost headwinds that you experienced this year in theory should become tailwinds in 2016.

And I was wondering if you could talk about some of those potential tailwinds and any thoughts on the shift to DDR4 in server, the shift to mobile overall and within mobile the shift to LPDDR4.

These are all things that could potentially be tailwinds once costs are normalized.

So if you can maybe talk about some of those specific things, that would be helpful.

Thank you.

Sure, this is Mark Adams, just responding to the last part of your question.

I think if you break all of that down, certainly DDR4 and LP4 in their early ramp don't lend themselves to the cost benefits right away like any of the semiconductor ramps that you deal with in terms of the market.

We will see that shift from early ramp headwind to advanced process tailwind in the midpart of our fiscal year.

That's also true with our 20-nanometer product coming out in the -- by the time -- I said second half in my script, second half at the end of the first half going into the second half will be a bit crossover, more than 50% of our production will be on the 20 nanometer and we'll be in an improved position there as well.

So, all in all, I think what you were asking about, we can confirm is the direction we see our cost position in the marketplace.

Thank you.

Doug Freedman, Sterne, Agee

Great, thanks for taking my question, guys.

Mark, in the past you've offered commentary in terms of the impact of the new contract with Inotera.

Given the present pricing dynamics in the market and the DRAM market, can you offer us some insights into how much impact that will have on gross margins when it kicks in, in the February quarter?

Yes, Doug, we commented on this last quarter.

It's still mid to high single digits impact in fiscal Q3 as we realize the transition to the updated 20-nanometer technology coming out with Inotera.

Okay.

And that's just on -- just to make sure I understand that correctly, that is just on the DRAM side of the business, so if we aggregate that into corporate --

That's right.

It is just DRAM and that's just on the Inotera output.

The fiscal Q3 is the relevant time, because the contract kicks in at the beginning of the year, but there's a lag effect in terms of when it flows through our financials and that's the best time to look at it because that also happens to be when the 20-nanometer output is coming.

So we'll see that impact in the May quarter then, not in the February quarter.

Great, that's very helpful.

If I could move on, my next one is really in looking at the NAND market and your NAND output.

I know you mentioned not moving as quickly to TLC because in market demands there really are two different products that you are ramping right now, if I'm correct.

You've got the TLC at 15 nanometer, but you also have your 3D product.

I know you gave us an endpoint that you'll be at a majority of 3D by the end of 2016.

Can we get any interim points for the November and February quarter?

What percentage of your output will be 3D NAND and how much of that will be MLC versus TLC?

Let me take that one, Doug.

So you're right, we're going to play this by ear in terms of the planar TLC.

As Mark mentioned, there is a resurgence in interest in our high-quality MLC offerings for enterprise and high-end client applications and so we're just going to have to see how we dial that piece.

You're also right that we've said our plan is to have the majority of our 3D NAND on TLC in short order.

It is still a new technology; it is still ramping.

And I think it is probably a little premature to try and predict what that looks like in the 3D TLC, what that mix looks like in the first half of the year.

How about total output for the November or February quarters?

Of TLC?

I can't --

Of 3D NAND in any quarter.

Oh, of 3D NAND.

It's going to be relatively small until we get to that crossover point.

All right.

Thanks for taking my questions.

Monika Garg, Pacific Crest Securities

Hi, thanks for taking my question.

The first question I have is on the SBU business unit.

We have seen negative op margins for two or three quarters now.

You have talked about 3D NAND is more end-of-calendar-2016 weighted.

So is it fair to think that your NAND -- so when do you expect your NAND margins to improve?

When 3D picks up or sometime even before that?

I think it's important, Monika -- again this is Mark Adams -- I think it's important to make a distinction here.

Directionally your categorization of our SBU margins are correct, but I would also suggest on a relative basis to our competitors, our SBU business has held up quite nicely relative to where we were 12 months ago.

And I mean that because there's a number of different market segments that the team has developed and cultivated that we feel will continue to benefit us as we get some of the tailwinds in place that we described in the back half of 2016.

So that's a long-winded way of saying I expect that on a relative basis we get more competitive in 2016 and that our overall performance in SBU will improve based on a number of the elements we've talked about, whether it be TLC or vertical and some of the higher-end enterprise-type products we've described.

Keep in mind, when you look at SBU numbers, you're also looking at a blended trade and zero gross margin business [reporting].

Right.

This last one, the DRAM side, Mark, you talked about you expect relatively balanced supply demand in DRAM in 2016.

The Micron's DM margins have come down quite a bit this year.

[Since] the balanced [environment] next year, should we expect the margins to improve next year then?

Again, Monika, we can't predict the ASPs or the margins for you.

We're just telling you what we generally see and then you have got to layer in the -- obviously we're pretty bullish on what we're doing internally in our operational improvements that will play out through the year.

Okay.

Thank you.

Chris Hemmelgarn, Barclays.

Thanks very much for taking the question.

I guess take a little different tact.

Could you talk a bit about the factors that would get you to the high-end, low-end of your gross margin guidance?

Well, you know, ASPs are a big one.

We always reserve the right to dial mix and we'll take advantage of any opportunities we see there.

I think we have a pretty good bead on what our output is going to be absent some dramatic mix changes, so I don't think that's as big a lever this particular quarter.

Okay, thanks very much.

I guess different direction.

Talk a bit about 3D Crosspoint.

Intel's clearly going to be pushing the technology, but in terms of monetizing it from the Micron end, where specifically are you seeing strong customer interest?

I'll see your different tact with my different tact, how's that?

(laughter) More broadly the technology, we see in a number of different end-market segments, both in current application environments and some innovative new areas that might drive some neat development on solutions and technologies to address markets.

The type of markets that we see 3D Crosspoint benefit from are either super high-end gaming applications, which could be for more real environment 8K type applications and provide the exact gaming performance that doesn't have to flush out to a different type of storage media.

It all can be done in 3D Crosspoint.

Another good one would be super high-end reliable system storage enterprise storage applications.

We think, as far as merging application development, we think the technology lends really well to medical diagnostics, for example, where the instantaneous response time of symptoms going in and research data analysis coming out with what that might be is a real-world application that could benefit from Crosspoint.

So these are the type of markets that the technology fits, and I think it's a quick summary of a few that are of interest to where the market can try this technology.

Think in terms of anywhere where you want a large in-memory database or anywhere where you want ultrahigh performance storage systems.

That's very helpful.

Thanks much.

Steven Fox, Cross Research.

Thanks.

Good afternoon.

Just one question from me.

You mentioned there was some spillover effect in the DRAM market into some of your better mix markets in the last quarter.

I guess I was curious, do you expect to see that in this quarter?

How much could compute seasonality lead to some more spillover effect later on in the fiscal year and what are you guys doing to firewall against that?

Thanks.

You said something there, how much can compute seasonality affect it, and it depends on how you see the compute market.

What I mentioned earlier was some of the environments that consume similar capacity, like the very low-end part of the server business, had some pricing pressure.

Notwithstanding all that, margins held up pretty well.

So my interpretation to your question is if PCs rebound somewhat, and we're not talking about a wild rebound, but they rebound somewhat going into the holiday season, that could be a positive -- that could have a positive impact on the overall pricing in the market.

But we think the diversification of the end markets lends well to relatively stable pricing and margins, as Ernie highlighted.

Just a quick follow-up on what you just said, is there any kind of tactics you are willing to share in terms of what you are most focused on in shaping demand to your benefit when you see some of these excesses the next couple quarters?

Not more than what we've talked about in the past, which is we have these end markets that we have developed product strategies and by shifting some of the capacity away, it relieves some of the pressure in one area.

And the interesting thing overall about DRAM which we haven't really talked a lot about is some of these newer categories, LP4, DDR4, some of these categories actually take -- or have a limiting effect or reducing effect on overall wafer production in the industry.

And so as these categories take off and grow, we are of the opinion that, that can have a stabilizing effect too.

Great.

Thank you very much.

Steven Chin, UBS

Hi.

Thanks for taking my questions.

First one, Mark, if I could, on the demand side, both on PC and smartphones, could you provide a little color on what you are hearing from your customers in those two end markets in terms of their sentiment and how the seasonality, quote, unquote, for the back half, how that's shaping up so far relative to expectations?

Well, I think the PC is about where it's been.

I can't advertise there's been a major uptick in PC demand.

The only data point that I would say that is new for us is that as we sit today the relative channel inventory on PCs is not a huge burden to a recovery.

I think that it's too early to tell what consumers and even the corporate environment are going to be doing through the holiday and through the rest of the year.

I can't give you a great sense of what's going to play out other than the inventory validation of what we see in the channel.

That's true not only for end units and PCs, but also overall true for PC memory relative to where the pricing pressure has been.

I don't think it's going to take a wild shift in behavior for PC environment to stabilize.

It's just probably too early for the holidays to see that.

On the mobile side, despite what we've read in the media about a slowdown in China which, in fact, is somewhat true, there seems to be an offset in two areas, one of which is that memory content in phones continues to move upwards, which is more broadly positive, as well as, despite the high-end and mid-range smartphones in China, the entry-level smartphone, which are really configured to be pretty good density configurations, are still in pretty good shape, coupled with other emerging markets.

So we continue to be bullish on the mobile market and the team's performance has been pretty good.

When you think about some of the areas that we have shifted to, mobile networking and automotive, the net of it all has been that we've been able to keep our margin in a relatively healthy place and continue to monitor that.

Great.

Thanks for that color, Mark.

And follow-up for Ernie, in terms of the [share] repurchases, if I have my math correct, it seems you have about $170 million left in share repurchase capacity for this quarter.

Just given how much you bought back in this last quarter with the stock under $20, any thoughts on potential expansion in the repurchase program?

The amount is actually a little closer to $130 million versus $170 million.

And we're certainly going to continue to be opportunistic and as we think about the market during the fourth quarter, we'll be making decisions as we think is appropriate.

Great.

Thank you.

Daniel Amir, Ladenburg.

Thanks a lot.

Another way -- following up with your previous question, how should we look at, in FY16, in the mix that you are aiming to in terms of the DRAM business, mobile, PC server?

Should we expect, in general terms, PC to decline a little bit more, mobile to a little bit increase, and server and networking to stay about the same?

You know, it's difficult to necessarily forecast because we'll keep adopting our overall approach as market conditions warrant.

But if I were to categorize how we see it today, we think mobile -- and generally we are concerned more than where we sit today.

We see PC on the consumption side of memory flat to down somewhat just based on the overall market demand trends that we see.

In general, we think other embedded markets will only increase, given automotive gaining and the launch in growth of the IoT end segments.

Networking and server are very interesting because what we've seen in the trend in those two markets are as much memory as they can get in they will put in.

And as technology and configurations allow us, DDR4 will drive pretty high growth in terms of memory consumption.

So when you hear us bullish on the overall demand of the end markets, it's with good reason.

Memory consumption is rally driving either reliability, performance, or really new market applications.

And on the DRAM segment, we continue, notwithstanding on the PC business, continue to see growth across the board.

Okay.

Just one follow-up question on the Non-Volatile memory side.

Your SSD business is around mid-teens.

I guess if we stood here a year ago, I think some of us would have thought that would be a higher number of your overall sales.

What do you need to do in order to make that a bigger focus given the opportunity in SSDs?

Is it really related to the progress of TLC and 3D NAND or is there something else that you can drive that business forward?

I think that's true.

I think a year ago we might have said that.

As things have played out, the low end of the SSD market where a lot of volume units go, that's starting to be a bit of a bloodbath in the NAND environment.

And the TLC pricing, it was just not something we were going to go fight with our MLC product when we can go shift that to other market segments.

Secondly as we think about the mobile business, the mobile business at Micron had a great year in NAND, tremendous growth, 2015 over 2014.

So we're going to continue to optimize around returns and market attractiveness and between some of the competitive pricing as well as the growth in mobile.

We altered our strategy mildly.

And I think with TLC and with our entrance in the vertical, I think you will see SSDs be more and more prominent because we think we are going to be in a better position to compete with the rest of the market.

Okay.

Thanks.

C.J. Muse, Evercore.

Good afternoon; thank you for taking my question.

I guess first question, you sound a little bit more upbeat on your ramp of 20 nanometer and talked about more than half of your output in the latter half of FY16.

But I'm just curious if we could talk a little bit about not production but revenues and what that number would look like and what kind of contribution, if at all, we could see in the February quarter?

Hi, C.J., this is Mark Adams.

Unfortunately, we're going to probably punt on the revenue qualification.

I would just validate what you started with, which is we're generally very pleased with the ramp and the yield terms we're at today and we see, as we communicated, very consistently, we see a crossover by the end of our first half fiscal year, so we're very excited about that.

Not just from a raw cost perspective, that's great, but also from a product enablement on 8-gigabit configurations and it's going to open some doors for us.

So without qualifying the revenue number, it's a real positive tailwind for us.

That's helpful.

And, Ernie, a broader question, looking out to the February quarter.

And I know you don't want to talk about bits and mix and all that, but curious, what should be thinking of as the most material drivers of up or down impact to gross margins?

And there, I guess, thinking about startup costs, 20 [nanometer] mix shift, given seasonal demand trends for DRAM, any other kind of investments that you are thinking about?

How should we think about those moving parts and headwind/tailwind looking out into the February quarter?

So obviously the biggest one -- we can't tell you whether it's a headwind or tailwind -- which is market pricing.

As we think about the cost side, we should continue to see some improvement as we go further down the curve with 20 nanometer and 16 nanometer TLC NAND.

And then obviously it's going to be the mix between end markets.

And as we've talked about before, we do have the ability, certainly in the February quarter, at this point to think about where we want to direct that mix.

So those are the three big levers and they're going to move in ways that we can't fully predict right now.

On the market pricing side, the other two things we're actually thinking about quite carefully right now.

Very helpful.

Thank you.

And, operator, I think we have time for one more question.

Mark Newman, Bernstein

Hi, thanks for squeezing me in.

Just a question on DRAM pricing.

PC DRAM was extremely weak during -- PC DRAM pricing was extremely weak during July and August.

But since then there's been some significant mix changes including Micron [both] and including Samsung as well, away from PC DRAM.

And I think some of the statements recently from Samsung have indicated that they are not lowering their PC DRAM pricing any more.

So I'm wondering if you were starting to see a stabilization in PC DRAM prices already?

And also following up to that, on the other parts of DRAM, server and mobile, with all this mix change, is there going to be more weakness in these other parts of the markets as we go forward to the rest of the year and into next year?

And I have one follow-up as well.

Well, that was a pretty good question in of itself.

There's a lot there.

I think we followed the media, we saw the quotes in the press and all that stuff.

We did see some very short-term improvement on pricing at the mid to end of August and even early September, but it kind of has since -- we've seen some softness again, some mild softness off of the high.

And so we're just tracking that as we look at it and see where it goes from a demand standpoint, if there's any improvement in the holidays.

But when you talk about the other markets, and I think the question you are asking is what happens when you continue to shift?

Is there a danger of oversupplying the other market segments?

And while it's hard to predict with the data set, it hasn't happened today and we don't sense it, we don't see it in the market at this point.

Mobile has been pretty stable, despite the mix move.

And I think a lot of that is because the market probably didn't have an appreciation six to nine months ago on what mobile densities would be doing.

And, in fact, you've seen tremendous growth, not just in the low-end but across the smartphone segment on DRAM content.

We don't think it's dramatic.

We have heard positive signs on industry supply potentially slowing over the next year or so, but we have got to wait and see how that comes out and shakes out in terms of the market.

But as far as demand, we're very upbeat, as you've heard on the call today, about some of the end market trends we are seeing and our ability to drive our technology there.

It's really a byproduct of this PC environment and can that rebound and then create more balance in the overall end markets?

Thanks.

And then on the cost side for DRAM, you obviously brought in -- you pulled in your 20-nanometer ramp guidance during your Analyst Day.

There wasn't very much further comments in today's call about it.

I'm just wondering if there's any latest and greatest comments about how that's going and when we're going to actually start seeing cost declines from 20 nanometer shrink?

Mark, still tracking pretty well with what we indicated at the Analyst Day, ahead of original plan, and we like the way it's going.

We think you may start to see small impact in fiscal Q2, but really it's a fiscal Q3 story.

Thanks very much.

All right.

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

If you please bear with me, I just 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 the call that are not historical facts are subject to a number of risks and uncertainties and actual results may differ materially.

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

Thank you.

This concludes today's Micron Technology fourth-quarter 2015 financial release conference call.

You may now disconnect.