Micron 4Q15 Earnings Call Notes

PC weak but industry fundamentals favorable

“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 are focused on improving our competitive”

Healthy end market demand in other segments

“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.”

Expect demand to improve throughout 2016

“We expect the demand environment to stabilize and improve as we move through calendar 2016. In general we expect the industry supply and demand for both DRAM and NAND to be relatively balanced in 2016.”

Not a significant inventory problem in DRAM

“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 and one larger channel player who in fact services a lot of the OEMs has more than that from the fulfillment standpoint, that’s the role that they play with these customers. So it’s not a significant inventory problem in the channel today.”

PC isn’t an inventory problem, it’s a demand problem. Buyers have been conservative and could start to replenish over next three to four months

“I think to extend the question a little bit, the PC demand, the PC ecosystem is also not as much of an inventory problem as more of a demand problem and I think with new chipsets and new operating assistance 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 it’s at this point, this could 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 are going to start to replenish.”

Applications for 3D crosspoint are high end gaming and enterprise storage

“The type of markets that we see, 3D Cross Point benefit from are either super high end gaming applications, which could be for just 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 could be done in 3D Cross Point. Another good one would be super high end and reliable system storage, enterprise storage applications.”

Can’t say there’s an improvement in PC demand but it’s not a high bar to recovery

“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 in PCs is not a huge burden to a recovery.

I think that it’s too early to tell what consumers and even in the corporate environment are going to be doing through the holiday and through the rest of the year. So 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 and that’s true not only for end units and PC. It is also overall true for PC memory relative to where the pricing pressure has been. So I don’t think it’s going to take a wild shift in behavior for PC environment to stabilize. It’s just, it’s probably too early for the holidays to see that.”

Despite slowdown in China memory content in phone is moving upwards

“On the mobile side, despite what we’ve read in the media about 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 you know 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.”

Did see some very short term improvement in DRAM pricing but then softened again

“We did see some very short term improvement on pricing at the end of mid to the end of August and even early this September. But it kind of has since, we’ve seen some softness again, some mild softness off of the high and so we are just tracking that as we look at it and see where it goes from a demand standpoint, if there is any improvement to holidays.’

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

Micron 3D X Point Conference Call

Since 1947 there have been seven classes of fundamental memory, each have brought different attributes to the way we process, store and retrieve data

“It’s really amazing to think that in the 50, 65 plus years since the invention of the transistor back in 1947, we have really only had seven different classes of fundamental different types of memory in the industry. And each of those memory classes has really brought different attributes for the compute hierarchy or to the way we process data and way we retrieve, store and retrieve data.”

You’ve had read only memories, SRAMs and DRAM

“If you go way back in the beginning, you had early read-only memories that were relatively dense, but could be written once and really didn’t have the ability to feed data at a high speed to a processing unit. Overtime, we had SRAMs that were much faster but volatile, so the data came and went, you had to restore the data overtime. We had, one of my favorite memories, DRAM, which is a system main memory today in many-many applications and has a nice combination of speed and density but not non-volatility.”

NOR and NAND flash were introduced 25-30 years ago

“And when I joined the industry over 30 years ago in 1984 we had the first NOR Flash product into the market and that was interesting because it brought reprogrammable non-volatile memory in a way that could interface directly with a processing unit. And then most recently a NAND Flash, way back 2.5 decades ago.”

This is a new class of memory that is truly revolutionary

“when we talk about what we’re doing today, introducing a new class of memory, it truly is a revolutionary and very-very exciting because it’s bringing not only a new set of characteristics to the marketplace, but it’s going to enable a whole new universe of applications and memory architectures and compute architectures that I think are really going to change the world and way we think about what’s possible in electronics.”

This is higher performance, very dense and non volatile

“What’s really exciting about the memory we are introducing today is that it’s higher performance, it can be very dense and it has non-volatile characteristics, data retention, endurance characteristics that Rob will illuminate in more detail here in a minute, that really allow us to do things that we haven’t been able to do before.”

This new technology is about getting the massive amount of data we’re collecting closer tot he processor

“So really a phenomenal amount of data being created in the world that’s really only useful if we can get it close to the processor and do something with it, either add it or subtract it or compare it to each other or use it in a way to really create useful knowledge as opposed to random information. And that’s what this new technology is all about, it’s about getting that data somewhere where we can get a lot of it, close to processing and into a useful format.”

This is something that many people thought was impossible

“This is something that many people thought, was impossible and many people gave up trying to accomplish. And it takes the power of companies like Micron and Intel and the sustained investment to work at something that other people thought was impossible.”

When you get this much memory close to the processor you can do things you couldn’t do before

“So as Rob points out the really exciting thing here is that when you can get this much memory close to a processor and you don’t have to refresh it because it’s non-volatile and it’s high performance and you can read it and write it many-many times, you really have the opportunity to do an amazing set of things that you couldn’t previously do”

Example: decrease loading time in video games

“every so often the character in the game might move to another scene and the game will stop and a little video runs — it reloads more data close to the processor. That is the fundamental bottleneck in terms of the amount of data you can get closer to the processor.”

If we had this technology when we created it we could have gotten to it faster

“I was joking with Rob in the back a little earlier about too bad we didn’t have this great technology when we were doing all the materials research to make these switches and memory elements work because had we had at it then we probably would have got there a little bit faster and so a really phenomenal high performance computing surge I think we’re going to see with this new memory as we get more memory close to the processor.”

This is a real technology, not a power point presentation

“What I was really trying to communicate to you is this is a real technology, it’s not a PowerPoint presentation. There is a real wafer here on the stage with us today. This is a manufacturable technology that Intel and Micron will be manufacturing first in our joint venture facility in Lehi, Utah. And beyond that, we will have to see where we go together. ”

The cost will be somewhere between NAND and DRAM

“you could put the cost somewhere between NAND and DRAM of course. So from a cost per bit, it’s likely to be in between those somewhere and a — but the actual costs will be resulting from the final products that we deliver to the marketplace in 2016 it is a very scalable technology”

It’s wicked fast storage

“this 3D XPoint technology is way faster, not a little bit faster it’s a 1,000 times faster than NAND technology and it’s writable in small amounts. So we can write words and so it can act more like memory as well as storage. But it’s like NAND and that is non-volatile and the data stays when the power goes off so you can use it as storage it’s just wicked fast storage.”

You have potential for innovation on the same level as when people moved from rotating hard disks to solid state drives

“the level of innovation that you saw there when folks moved from rotating hard disks to solid state drives in the enterprise and datacenters and cloud datacenters and in clients has the potential to happen again with a new technology.”

***It takes a tremendous amount of guts to work for an extended period of time to solve a problem that you don’t know is possible to solve***

“It’s one thing to pursue a problem that you know is solvable and whether that’s a next generation of something. It’s another thing to pursue a problem for an extended period of time that you don’t know is solvable, it might be impossible. And that — it requires commitment and investment, and vision and capability from these technology development teams that is hard to find. And I think that’s one of the unique things that has enabled this technology to come to life.”

You really can’t think of this as NAND or DRAM it will be used as both in different applications

” you shouldn’t think of this as NAND or DRAM, you should think of it as a whole new class of memory. It really does fill its own unique spot. Now it can be used in more of a storage type of application or it can be used more as a system main memory and we think it will be used as both for different applications and for different reasons, but it really kind of fits in that unique spot.”

Micron FY 3Q15 Earnings Call Notes

Revenue was lower because of weakness in the PC sector

“Thanks, Kipp. For our fiscal Q3 2015 Micron posted total revenue of $3.9 billion, within our revenue guidance of $3.8 billion to $4.05 billion. Revenue was sequentially lower as expected in fiscal Q3 due to near-term market headwinds, driven primarily by weakness in the PC sector.”

We expect DRAM ASPs to stabilize

“Turning to overall market conditions, we expect stabilizing DRAM ASPs across the broader market overtime, as we manage our product mix and distribute our capacity to a broad set of value added market segments. Consistent with prior expectations we are forecasting DRAM industry supply bit growth in the mid-20s in calendar 2015 and in the low to mid 20% in calendar 2016. We currently believe that DRAM demand in calendar 2015 in aggregate will be at or exceed supply.”

PC builds declined well below seasonally slow demand but other end markets were stable

“While PC builds declined well below seasonally slow demand in the first half of the year, we saw relative stability in other end markets and responded to these conditions by adjusting our production mix throughout the quarter.”

We think demand will be better in the back half of the year

” what I tried to indicate is that I think in aggregate for the year the demand is going to exceed the supply, which I think your takeaway from that would be that we believe that demand is going to be higher in the back half of the year as we said on the last call, and as we continue to believe.”

Even PCs should show small net growth

“Even PCs I think, our view is that by the time we get to the end of the year notwithstanding the decrease in unit sales, there will be a small net growth in bits into the PC segment.”

Nobody expected the PC segment to be this slow

“I think it’s fair to say that probably nobody expected the PC segment to be as slow as it’s been. And I think it’s also reasonable to expect that in an industry with a number of high growth segments balancing supply and demand is never going to be precise.”

Shift to other segments is an ASP headwind. Products have lower margin

“as companies like Micron and presumably our competitors over time readjust their supply to rebalance demand in different segments and pull supply out of that sector it creates an ASP headwind for us because we are moving to products that already have lower margin and it creates over the short-term more intense competition for those sockets in the high growth sectors.”

Mobile is more of a design to win business than PC

“Again we don’t want to — we don’t get into business of forecasting pricing too much. Generally what I would say characteristic of the mobile business is that it doesn’t exactly behave like PC business. That tends to be more of a design win type business, you design into a device or platform that has long lasting life cycles relative to interchangeability of PC modules. And in light of that it behaves a little bit more like a predictable pricing model where there is a sale price and a cost reduction target over through a longer period, maybe six months, maybe 12 months. And so the pricing behavior in mobile is somewhat different and we anticipate that to be similar going forward and it’s reflective of our current mobile performance.”

Micron at JP Morgan Tech Conference

Kipp Bedard – Vice President, Investor Relations

PC no longer dominant demand driver

“as I mentioned, PC for the entire, 30 years I’ve been in this business was the dominant demand driver. Today it’s not. It’s the second largest market and probably — and growing the slowest.”

Going to 20% of the market, and even lower

“PC is now about 30% of the DRAM business. It will only grow about 5% this year where the entire market in DRAM consumption will grow over 30%. So by nature, it’s going to be low 20s, if not, lower than that by this time we are sitting here next year. The third largest market that consumes DRAM as the server business”

Mobile and big data driving server demand

“the amount of data that the mobile handsets create and then want to move up through the cloud or they want to request to move back down from the cloud to the handset. So servers are growing relative to that need.”

Newtorking is another growing segment

“The fourth largest single individual segment, I think, this is nothing new, those of you who have heard me speak before is kind of networking…It’s around 10% of the consumption and growing up well over 25% a year. So, in summary, what we’ve got is more than 70% of the business growing at well over 25% upwards of 50% plus and you’ve got about 30% of the business today growing at about 5%.”

Worse PC demand

“I think, we have gone through a little bit worse than expected PC demand period that has reset I believe everybody’s expectations as the industry for the year to where the unit growth in PCs”

PC OEMs have become very conservative with inventory

“The PC OEMs themselves have become very conservative starting back in January, February. They’ve been lowering inventory. If we gave you a reference, kind of relative to what we said on the conference call the time we felt like the PC industry in general. That channel probably had four to six weeks of inventory, today that’s probably three to four.”

At some point the inventory reduction will stop

“There will be a point in time here for the reasons that you mentioned plus a couple of others where that reduction of inventory will stop. And that will feel like it’s been an immediate demand reversal because we will be shipping in at the same rate that they are shipping out, not lowering the inventory numbers.”

It’s sooner rather than later

“it’s sooner rather than later. I don’t get paid as much as you did to predict the exact date. So I’m going to let you kind of keep doing that but it is sooner than later. ”

Everyone is moving capacity to mobile

“we are all moving capacity towards a mobile handset space. Again, it just makes rational sense if you have a segment that’s now the largest segment growing at 50% plus and that’s 20% more than the entire market will grow on the supply side. All of us are moving capacity in that direction. I suspect based on what I’m hearing from customers today. There is still expectations of very tight market in mobile going into the back half of the year.”

We have better visibility in mobile

“shifting from PC at April’s pricing is a slight headwind moving to mobile. We are okay with that, because again strategically, we know mobile has a two, three, four year roadmap that’s easy to see where the demand profile is going to shape up around a certain band. And we know that the PC is going to be the most volatile.”

Micron FY 2Q15 Earnings Call Notes

Demand weakness in PC DRAM segment, but anticipate improvement in second half

” Our sales guidance anticipates taking strategic action to reduce PC DRAM sales this quarter given the recent demand and price weakness. Therefore we’re guiding bit sales to be flat for the quarter. We believe the PC DRAM segment will show improvement in the second half of the calendar year based on the stabilizing demand profile.”

Seasonal weakness but generally healthy

“Fiscal Q2 showed some seasonal weakness which is not uncommon coming out of the holidays considering the timing of Chinese New Year is within our quarter I was pleased with our operating performance. The strength of our diverse product portfolio contributed to relatively stable gross margins quarter-on-quarter. We saw some pricing pressure in the PC segment, but generally all other market demand remained healthy.”

Allocating less production to PC segment

“We are allocating less production to the PC segment and continuing to shift more bit stores towards the other faster growing segments. We also continue to move production from DDR-3 to DDR-4 as our customer demand grows. ‘

Server business still strong

“We saw continued growth in our server business driven by cloud computing and enterprise. Server DRAM bit growth is forecasted up roughly 40% year-on-year in 2015. The growth in server memory is based on increasing server workloads that require a high DRAM performance and density. We continue to invest in expansion of our server business, as this segment offers a growth demand profile that is less sensitive to price fluctuations.’

Second half should be better

“I think that we remain bullish in general on DRAM going forward for the following reasons. First of all, we think that the second half of the calendar year is going to be pretty strong in mobile and all signs are indicating to that. We do think that the PC capacity needs to be shifted over that to address that opportunity and that will balance out some of the current market conditions around PC.

Hopefully PCs better too

I am not sure how to call the PC market other than to say that we think it could improve from here because it is not doing so well and we think the back half of the year with Microsoft new OS and holiday and so on so forth we think it’s just got to be better and hopefully than that is today.

It’s a more rational industry than it has been in the past

“Beyond that when you look at our business we think as we have talked about in the past that it’s a more rational industry and with that is coming better behaviour and as Mark talked about earlier we’re going to do the right things to run our business and if that means not selling inventory below acceptable prices we’ll do it. ”

None of the other segments showed the weakness that PC did

“disruption here in not just the PC segment was really the demand side. And I think if you talk to other people in that business in the PC business the hard drive guys, the CPUs, the unit declined in the PC notebook segment kind of drove some of this and an interesting thing for us is that none of the other segments kind of showed that”

Micron Technologies FY 4Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Continue to expect strong growth in DRAM demand

“Our long-term outlook for the memory industry remains favorable. For DRAM, we are forecasting 2014 industry supply growth of around 30%. In 2015, we expect DRAM industry bit growth in the low to mid 20% range, and beyond 2015 we expect industry supply growth to slow somewhat ranging from the high teens to mid-20s.”

Strong demand from PC customer base

“On the client side, we continued to receive strong demand signals from our PC customer base.”

Server customers adding more DRAM per systemr

“Server DRAM growth is being driven by customers adding more memory per system..This growth in server based memory is based on increasing server workloads, continuing to require DRAM performance and density and is a great example of a high-growth segment with a demand profile that is not sensitive to price.”

More DRAM in more smartphones

“The low to mid range price smartphone market is driven additional memory content as well, meeting the entry-level segment is evolving from phones with virtually no DRAM to new products such as the Android 1, which is 1 gigabyte of low-power DRAM. This is $100 smartphone targeting 5 billion users in emerging markets.”

Automotive market as well

“The automotive segment continues to benefit from memory content growth fueled by both infotainment and advanced driver assistance systems. Our commitment to the unique needs of this market in areas such as quality, reliability, longevity and service has enabled us to strengthen our market leadership in Q4”

Breakdown of DRAM business by market

“When you look at our DRAM business, today, the best way to think about it is mobile is roughly about 25% of overall DRAM. And, compute is roughly around 30% of DRAM. And then if you look at the specialty business, you asked about servers. Server is roughly just below 20%.”

Stronger dollar does effect them but effect will lag

“Yes, John. In terms of the yen, which is moving a lot just very recently as we all know, and the comment was on operating spending or general spending — yen-based spending. Today, our calculus is that our operating spend is impacted about – which is not just OpEx, but all of our yen-based cost of sales activities, too. Our impact is about $3 million to $4 million per one yen per quarter. Most of the yen-based spending is in COGS, actually, so the impact is delayed about a quarter based on their inventory flow through. So, you need to keep that in mind.”

Memory growth in server driven by more memory per server, not huge unit growth right now

“I think we think it’s not – the argument that you just posed is that there’s more server units being sold and our proposition is that there is more density, more memory bits going into every server. So if in fact, you are right, you will see even faster memory growth in the server segment. But, we’re talking about people wanting to put more capacity in a relatively modest single digit growth server business today.’

PC market is strong right now

“Given the strength of the PC market, we’ve optimized around the PC market on a relative basis, remember we want to be in all three businesses for the long-term…But PC strength clearly today is helping lift mobile pricing and server pricing and which led to pretty favorable results in the quarter.”