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.”