Micron FY 4Q17 Earnings Call Notes

Sanjay Mehrotra

Expect industry to be undersupplied in DRAM through 2018

“Moving on to the demand and supply fundamentals, we expect the industry to remain moderately undersupplied for the rest of 2017 for both DRAM and NAND. We see DRAM industry supply bit growth of about 20% in calendar 2017 and expect it to grow at relatively similar levels in calendar 2018. The DRAM industry supply demand balance is expected to stay healthy throughout calendar 2018, driven in part by ongoing strength in data center and cloud computing trends”

New CEO

“As I begin my first new fiscal year as CEO, I would like to outline our strategic priorities. First, we are focused on driving our cost competitiveness to best-in-class levels, primarily by accelerating the percentage of our output on leading edge technology, in both DRAM and NAND. Second, we will drive execution excellence, delivering solutions to customers quickly, predictably and in line with their product launch windows. Third, we will accelerate our transition to high value solutions.”

Demand trends remain strong

” we remain very bullish about the DRAM market environment through the 2017. We think it will be undersupplied. And given the demand trends, we think we will have healthy demand supply balance in DRAM throughout 2018 timeframe as well. And in terms of NAND as it’s well-known that average capacities are increasing certainly in mobile devices, but even more importantly, SSDs are displacing HDDs at the rapid pace with the attach rates continuing to be projected to be going up over the course of next several quarters. And of course, there is a strong value proposition for SSDs in the cloud and hyperscale data center environment as well given all the trends of artificial intelligence, machine learning, all of this is driving big data analytics. So, all these trends are related to artificial intelligence, bit growth in data customers wanting to offer differentiated value to their end customers, all of this is driving need for memory and storage solution and overall, we remain pretty bullish about the demand trends. I mean, if they look at DRAM as well as NAND even in autonomous vehicle, the demand requirements for flash, I mean data is being generated. So much data is being generated by autonomous vehicles that it requires fast processing both within the vehicle as well as on the cloud. So, I think demand trends for the foreseeable future continued to be strong and that bodes well for our industry.”

Secular trend of SSDs replacing HDDs in notebooks only 35% penetrated right now

” I mean it’s not that this demand is perishable, I mean this demand in terms of the trend of SSDs replacing HDDs in client notebook computers where the attach rate continues to increase in 2017 attach rate of SSDs to PCs is around 35%. That attach rate over the course of next few years continues to grow to around 50% in 2018 and by 2020 timeframe expect it to go to around 75%. So, these demand trends are secular in nature. ”

SSDs also taking share in server

“It’s the same thing on the enterprise side, again on the cloud side that the attach rate of SSDs as well as the average capacity requirements on our per-server basis continued to go up as well.”

Micron at Citi Conference Notes

Ernie Maddock – SVP & CFO

Future data use is DRAM intensive

“use of data is expanding and as you think about applications like autonomous driving and artificial intelligence, so every single thing we contemplate that’s driving the economy, the future is reliance on data.

And when you collect data, you have to sort it and you have to process it and as more and more data is processed that becomes more and more DRAM intensive. DRAM is an essential part of harvesting and collecting insights from the data that so many enterprises are collecting these days. And then obviously you have to store it and that speaks very heavily to the demand environment on the NAND side and the storage world.

China wants in to the memory market

“Sure. And there’s no doubt about China’s ambition to enter the memory market, whether it be NAND or DRAM. There’s no doubt that they are building fabs and certainly equipment suppliers will suggest that there is equipment being ordered, but at the end of the day, being able to effectively produce NAND or DRAM, so the answer is the same for either technology.”

“And we continue to see very strong demand from our customers, very willing to engage in those discussions. But in general, I would say the pricing environment continues to be — continues to be good.”

I think the big driver for server demand is that there has been a massive amount of data that people now want to use

“I think the big driver for server demand and I don’t discount that AI has been an important driver, but I think that a far bigger driver is simply there are massive amounts of data that have been collected that have sat unused for a long time and you now have people using more and more and more of that data to try to form business insights and business intelligence and that is what is driving both the content increase in servers as well as what we see in this hyperscale environment. So, AI is an important trend. I think I would actually think it will be more important on an ongoing basis than it is necessarily fully impacted at least to our 2017 view. So, this is a trend that will sustain demand we believe on a going forward basis.

NAND growth in 40% range, DRAM in 20% range

“I think given that we believe NAND bit growth CAGRs are in the 40% plus range and DRAM bit growth CAGRs are in the 20-ish percent range, NAND is obviously growing more quickly than DRAM and we will be making decisions about where to position the company from a market perspective relative to those growth rates.”

Micron at Needham Conference Notes

Ernie Maddock – CFO

Autonomous provides an opportunity for high growth in automobiles

“As we project forward and you think about realizing the vision of autonomous vehicles you are talking likely about four to five times increase in the current memory content on average per vehicle and then you start thinking about some of just the outright storage capabilities of having real-time maps and keeping them updated so that autonomous vehicle is equipped with the latest and greatest and you could be talking about up to a terabyte of storage in a car. So, it’s certainly over time represents one of the most significant growth opportunities from a percentage point of view and you obviously, there are fewer cars sold than there are phones or PC. So, that high growth rate is applied over a bit of a smaller base, but is a really promising area and I think it plays very nicely into the company’s strength because automotive customers are customers with whom you have to develop a much longer term relationship. They have to have assurance of supply; the entire supply chain of any company has to be fully qualified to automotive standards, which generally tend to be higher levels of scrutiny and care around the entirety of the supply chain.”

This is a cyclical industry

“The semiconductor industry went through a “cycle”. The cycle was shorter. It was less deep. Micron, although we lost money in a couple of quarters, we made money for the fiscal year so I think there’s really significant data that suggests that industry consolidation has delivered benefits relative to historical performance. I would be the last person to say this isn’t a cyclical business because the one thing that suppliers will never be able to control his the demand environment and as you know we’re in a very capital-intensive business.

We started with 25 players in this industry and now we’re down to three

“On the NAND side, you have four holders of IP, right. So, you have Micron Intel partnership, there’s Toshiba WD partnership, and then Samsung. So, I mean I think it’s important to remember in DRAM we started out with 25 players in we’ve gotten down to three and were starting out essentially four holders of IP and so whether or not — and by the way, DRAM is 30 odd years old and NAND technology is roughly half that age. So, whether or not there needs to be more consolidation you can make an argument either case I think it’s reasonable to think that any such consolidation is a way it’s coming simply because the industry starting from a very different place than the DRAM industry started from.”

Micron FY 2Q16 Earnings Call Notes

Mark Durcan

Automotive remains strong

“In our Embedded business unit, automotive design-in activity remains strong, particularly with 20-nanometer DDR3 and low power DDR4 products. We’re seeing growth with automotive customers in greater Asia and continuing to build upon success with European and U.S manufacturers.”

AUto is an attractive business

“Yes, the automotive business has been pretty strong for us. And its also we view it as an attractive business, because the sockets are pretty sticky, the life times of the products are longer and so from a total return its very positive market for us.”

Clearly the Chinese want to be in memory markets, and now focused on organic growth but that will be tough

“Well, its — I don’t think I’ve got anything really new to say about that. I think we’ve said before that we anticipated that clearly China was interested in being the memory market and that they would look for ways to find partners or to grow organically. We’ve now heard about significant investments in organic growth. But we would remind everyone a yes, that we believe that there are significant technology hurdles and intellectual property requirements in terms of being a major player in the memory space and we think its going to be a challenging road for the — for organic and will take sometime.”

3D X-Point update

“This year we’re short of an enablement mode, and we’re working with a number of different end market segments. Some customers then have significant interest in mobile, some customers in enterprise, or big data applications, I mean mobile for low power — from the low power benefits. Early on as we ramp this technology we expect cannibalization to be low to zero. Over time, as the technology matures and drive to significantly higher volumes. I’d expect some of that volume to come out of what otherwise would have been DRAM and maybe even eventually what otherwise have been other types of Non-Volatile memory. But generally speaking, this is a differentiated technology that will grow the size of the overall memory market at least over the next two, three, four years.”

Focus not on market share, it’s on deploying equivalent advanced tech to competitors

“Our focus isn’t on market share. Our focus is on making sure that we’ve deployed equivalent advanced technology, at least equivalent advanced technology to our competitor, so that we’re not incentivising others to play for market share. And we think that’s just really a prudent thing to do as managers of our business that we should make sure that we’re putting in place efficient manufacturing production capacity and that’s what we’re very, very focused on.”

PC weak but other segments should outstrip supply growth

“Relative to PCs, yes, it continues to be weak. We think maybe down mid single-digits for the year, DRAM content maybe up about 10% for the year. We’re not expecting any big things out of PC demand when we give you our view as the demand growth for the year across all the various segments. But once you get outside of PCs, growing obviously slower than overall market supply for DRAM, and mobile growing maybe right around the market supply for DRAM. You got all these other segments that we think will out script supply growth servers, automotive, etcetera, etcetera. So, generally speaking we do believe that in aggregate things are going to take care of themselves. ”

Micron at Citi Tech Conference

Micron at citi

CFO

I think as everybody knows the biggest challenge this year has been the PC segment of the market that has fundamentally been a little bit softer than any of us expected. And as a result of that you saw some steeper pricing declines in that cost of great business to become nearly a good business

We are certainly seeing signs that things maybe stabilizing there we’ve seen reductions in inventory throughout the network and the channel we are seeing stabilizations in the spot pricing market and that’s beginning to have some impacts on other discussions that we’re having.

don’t know that I can put a specific timeframe on it certainly we continue to be encouraged with each passing day so whether it’s two weeks or four weeks
…but whether or not the worst is behind us I think still remains to be seen

(On Mobile) We, like everyone else are seeing everything that’s being written and talking to our customers and believe that we may be in for a bit of moderation in that growth rate, but we do believe it will continue to be a good market for us

my sort of imprint of the memory business occurred probably back in 2003-2004 and it is a bit of a different business today, that being said still has some of the same fundamental challenges and dynamics. And so I think the biggest the most interesting thing for me is to sort of look at a relatively brief time period and figure out and understand that you truly can’t change the dynamic of a market and it’s really cool to think that Micron was a big part

(On new memory technology) I have been asked a lot of questions today about what do I think about 2017 or ’18 or ’19 and the reality is when you’re doing something that’s brand new and you have had the first point in the technology curve you don’t know a lot of the answers to this right, so we’re pretty happy and clearly understands sort of the uses for the products here in the short-term. We have to get more experience with the technology, figure out what can be done from a cost perspective, which in turn drives market penetration or market applicability. So this will be a story to unfold. But I can foresee in two or three years that representing a reasonably significant amount of our bit output if things go the way we might expect.

I think it’s too soon to tell but again we believe this has a chance to be an important part of our business here as we look out. But precisely how much and what really, and the interaction between that and the Company’s other product lines, it’s a little too soon to tell, I mean we are just now birthing the baby if you will and we have to give it a chance to be in the world and see how that shakes up.

At the end of the day I think to think that we should all pay attention to is irrespective of ownership or whatever scenario combination occurs, what’s happening to output capacity? And so you could have every single DRAM manufacturer be acquired by someone else and as long as the decision was made to restrain output capacity increases fundamentally nothing would change about those markets. If you have sovereign capital coming in and there is a decision made to fundamentally irrespective of the economic return expand the capacity of the industry, we have all seen that play before and it doesn’t have a great ending