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symbol MU

quarter 4

year 2021

date 2021-09-28 21:44:04

content Latif Masud: Good afternoon. My name is Latif, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Micron’s Fourth Quarter 2021 financial release conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer period.  If you would like to ask a question during this time . . Thanks. It is now my pleasure to turn the floor over to your host, Farhan Ahmad, Vice President of Investor Relations. You may begin your conference.

Farhan Ahmad: Thank you, And welcome to Micron Technology’s fiscal fourth-quarter 2021 financial conference call. On the call with me, today are Sanjay Mehrotra, President, and CEO, and Dave Zinsner, Chief Financial Officer. Today’s call will be approximately 60 minutes in length.  This call, including the audio and slides, is also being webcast from our Investor Relations website at investors.micron.com. In addition, our website contains the earnings press release, and the prepared remarks filed a short while ago. Today’s discussion of financial results will be presented on a non-GAAP financial basis unless otherwise specified.  A reconciliation of GAAP to non-GAAP financial measures may be found on our website. As a reminder, a webcast replay will be available on our website later today. We encourage you to monitor our website at micron.com throughout the quarter for the most current information on the Company, including information on the various financial conferences that we will be attending.  You can follow us on Twitter @MicronTech. As a reminder, the matters we will be discussing today include forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today. We refer you to the documents we filed with the SEC. Specifically, our most recent Form 10-K and 10-Q, for a discussion of the risks that may affect our future results.  Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievement. We are under no duty to update any of the forward-looking statements after today’s date to conform these statements to actual results. I will now turn the call over to Sanjay.

Sanjay Mehrotra: Thank you, Farhan. Good afternoon, everyone. We delivered outstanding results in Fiscal Q4, achieving robust profitability and the second-highest quarterly revenue in Micron’s history. Strong execution drove healthy results across segments, including record quarterly revenue in NAND, as well as in our embedded business. Fiscal 2021 was a year of many records for Micron.  We achieved our highest ever mobile revenue driven by all-time high managed NAND revenue and MCP mix. Our embedded business had a tremendous record-breaking year, with auto and industrial businesses both had substantial new highs. Another crucial advantage is consumer business and overall QLC mix and NAND, all hit records in fiscal 2021.  Through the year, we successfully navigated multiple obstacles brought on by the pandemic and reached several key milestones. For the first time in Micron’s history, we established technology leadership concurrently in both DRAM and NAND. Micron’s 1-alpha DRAM and 176-layer NAND are the industry’s most advanced nodes in high-volume production.  And we further strengthened our product leadership by becoming the first to introduce LP5x DRAM and uMCP5 managed NAND in mobile and the industry’s first functional safety capable LP5 for automotive applications.  The secular demand for memory and storage, combined with Micron’s focused execution and have a rock-solid balance sheet, position us well to deliver strong financial performance and create significant shareholder value in fiscal 2022 and beyond. Demonstrating our confidence in our business trajectory, we initiated a quarterly dividend that we aim to grow over time.  Memory is at the leading edge of semiconductor manufacturing, and Micron has leadership in both DRAM and NAND technology. This quarter released maturities in our ramp of 1-Alpha DRAM, 176-layer NAND, 20% to 30% faster than prior nodes, and delivered performance and featured improvements, that will help unleash customer innovation.  We believe we are several quarters ahead of the industry in the deployment of these process technologies. Additionally, through deeper customer collaboration, we have further accelerated the time-to-market for value-added solutions built using these nodes.  1-Alpha and 1-DRAM nodes combined now represent the majority of our DRAM bit production, driven by strong growth of 1-Alpha production. And by the end of the calendar year or 176-layer NAND will make up the majority of our NAND bit production. Looking beyond 1-Alpha DRAM and 176-layer NAND, we are investing to sustain scaling in both technologies for the next decade.  Adding momentum to our years of R&D and EUV, we recently took delivery of the industry’s latest E UV system, NXE 3600 at our Boise headquarters, where we operate one of the world’s most advanced centers for semiconductor research and development.  The delivery of this tool is an important milestone towards our previously disclosed plan of implementing EUV in high-volume manufacturing, in the 2024-time frame. We expect that the integration of EUV with our existing multi-patterning immersion lithography expertise will help us maintain DRAM technology leadership for many years to come.  In addition to being the technology leader and an innovation partner, we are uniquely positioned as a strategic supplier to our customers. Micron is the only U.S.-based memory Company, and our strong global manufacturing network provides us with a diversified source of supply, which has become increasingly critical to ensure that we continue to deliver products reliably to our customers.  The advantages of this unique position have been proven throughout the past 18 months, as we have successfully navigated the challenges of COVID-19 across our global manufacturing network while maintaining continuity of supply to our customers.  Now let us review our end markets. The demand for memory and storage has evolved dramatically from the PC – centric era. Today, demand for memory and storage is driven by diversified end markets that extend from the data center to the intelligent edge, and to a growing diversity of user devices.  As a result of growing memory and storage containers for devices DRAM and NAND now account for an ever-increasing portion of the bill applications for our customers. DRAM and NAND stem share of the semiconductor industry has steadily grown over the last two decades, from around 10% to approximately 30% today.  The AI and 5G revolution are only in their infancy. And as these secular growth drivers gain further traction, we expect new data-intensive applications to continue to fuel significant increases in DRAM and NAND stem. In the fiscal Fourth Quarter, data center revenue grew sequentially and year-over-year, fueled by secular drivers in cloud demand and the resurgence of enterprise IT investment linked to improving economic growth.  The data center has become the largest market for memory and storage, driven by the rapid growth in the cloud. With our broadening portfolio of differentiated products across memory and storage, we are in a strong position to drive strong growth and profitability in this important segment.  We have been engaged on DDR5 from initial specification development, and are very pleased to support customer transitions to DDR5-enabled platforms starting later this calendar year. We’re also enhancing our NVMe SSD portfolio and we’ll soon introduce PCIe Gen four datacenter SSDs with Micron-designed controllers and leveraging the full benefit of vertical integration.  These SSDs will strengthen our market position over the course of the coming quarters and years in the fast-growing data center, NVMe storage market. Work and learn from anywhere trends are driving the second consecutive year of double-digit PC unit sales growth in calendar 2021.  In the fiscal fourth quarter, PC DRAM revenue was up significantly year-over-year. We’re making strong progress transitioning our PC DRAM to our 1-alpha node, which represented a meaningful portion of our FQ4 PC big shipments. Client QLC SSD bit mix hit a new effort and made up the majority of our client SSD bit shipments in FQ4. Our QLC leadership enhances our bit supply capability and product profitability.  We also have continued momentum ramping 176-layer NAND products for the PC markets, and we qualified our 176-layer NAND-based Gen 4 NVMe client SSDs with several PC OEMs during the quarter. In graphics, revenue increased sequentially and year-over-year, driven by a continuation of last quarter’s strong next-generation game console and graphics card shipments.  Micron holds an excellent position in the fast-growing graphics market with a broad product portfolio featuring our proprietary GDR 6X product line, and deep partnerships with leading GPU suppliers. FQ4 mobile revenue increased more than 25% year-over-year, driven by continued unit sales and content growth. We expect overall smartphone unit sales to grow this year, with sales up over 500 million 5G mobile phones forecasted.  These contents 5G phones featured more than 50% higher DRAM and doubled the NAND content than 4G phones. We expect 5G and AI to drive new innovation in applications such as AI optimized video capture and editing, that will fuel DRAM and NAND content growth for years to come.  Our 1-alpha LP4 16 – gigabit design is now fully qualified and ramping at multiple OEMs. While our 176-layer NAND achieved its first UFS 3.1 qualifications at two OEMs. These wins demonstrate Micron’s leadership in the mobile market and our continued strength in managed NAND products where MCP sales surpassed $1 billion for the third straight quarter.  We are continuing to see strong demand in our edge markets, which includes automotive and industrial IOT. We expect our automotive and industrial markets to be the fastest-growing memory and storage markets over the next decade. As the number one player in these markets, Micron is exceptionally well-positioned to benefit from these secular growth trends.  Other automotive businesses delivered a fourth consecutive record quarter, driven by continued recovery in auto manufacturing and the growth of memory and storage content driven by in-vehicle-infotainment and driver assistance applications.  Industrial IOT revenues also set records in the Fiscal Fourth Quarter, benefiting from the continued growth of applications, such as point-of-sale devices, factory automation, and surveillance. We expect industrial demand trends to accelerate further, at 5G speeds, that adoption of data-intensive applications powered by Intelligent Edge infrastructure.  We’re also seeing an acceleration in other consumer IOT businesses driven by rapid growth in device sales such as VR headsets, smart exercise equipment, and smart speakers. Turning to market outlook calendar 2021 is shaping up to be a strong year. We expect calendar 2021 industry DRAM, bit demand growth to be in the low 20% range.  And industry NAND width demand growth to be in the high 30% range. Overall, our preliminary view is that calendar 2022 industry width demand growth will be consistent with long-term industry bit demand growth categories. In the mid to high teens for DRAM, and approximately 30% for NAND.  We anticipate underlying demand in calendar 2022 to be led by increasing datacenters, server deployments, 5G mobile shipments, and continued strength in automotive and industrial markets. Additionally, non-memory supply shortages that are constraining customer bills across various end market segments and that are pushing out some demand should ease throughout 2022 supporting demand growth during the year.  Given prudent industry CapEx and very lean supplier inventories, we expect healthy industry supply-demand balance and robust profitability for both DRAM and NAND in the year. In the near term, our FQ1 big shipments will decline modestly in both DRAM and NAND from very strong levels in FQ4.  Some PC customers are adjusting their memory and storage purchases due to shortages of non-memory components that are needed to complete PC bills. We expect this adjustment for our PC customers to be largely resolved in the coming months. We’re also seeing constraints within our supply chain for certain IC components, which will some work limit our big shipments in the near term.  Big shipping growth will resume in the second half of the fiscal year, and we’re planning to deliver record revenue with solid profitability in fiscal 2022. Our calendar year ‘22, big shipment growth for DRAM and NAND will be in line with the industry.  However, due to the strong shipments in fiscal year ‘21, and our below normal current inventory level, for fiscal year ‘22 our big shipment growth for DRAM and NAND will somewhat lag the long-term CAGR. In fiscal year ‘22, the continued ramp of 1-alpha and 176-layer NAND should provide us with good front-end cost reductions.  Our efforts to increase supply chain resilience and provide business continuity to our customers will cause headwinds to our assembly and packaging costs, consistent with the trend in the overall industry. Overall, we expect the annual cost-per-bit reductions to be competitive with the industry in fiscal year ‘22 and over the long term.  Turning to capital expenditures, we expect fiscal year ‘22 CapEx in the range of $11 billion to $12 billion. The year-on-year increase in CapEx is driven by our continued 176-layer NAND transition pilot line enablement for next-generation NAND and DRAM and continued infrastructure and prepayments to support the introduction of EUV.  Fiscal year ‘22 DRAM equipment CapEx for manufacturing will decline from fiscal year ‘21 as we benefit from the capital efficiency of our mature 1-alpha node. For fiscal year ‘22, our big supply growth will be achieved through node transitions alone, as we are a few years away from needing wafer start additions to keep up with the industry demand.  We also expect to increase fiscal year ‘22 R&D investment by approximately 15% from fiscal year ‘21 to deliver bold product and technology innovations designed to fuel the data economy, as well as to expand our portfolio to capitalize on opportunities such as high bandwidth memory and CXL solutions.  Our leadership portfolio,  quality, supply chain agility, and deep customer relationships make us a preferred partner in many of our markets. And we are confident in our ability to continue to create long-term, sustained profitability, and returns built on that leadership. I will now turn it over to Dave.

Dave Zinsner: Thank you, Sanjay. Micron delivered excellent FQ4 results, highlighted by our second highest quarterly revenues, strong gross and operating margins, and our substantial positive free cash flow. Total FQ4 revenue was approximately $8.3 billion, up 11% quarter-over-quarter, and up 37% year-over-year. As a reminder, FQ4 last year was a 14-week quarter and impacts our year-over-year comparisons. FQ4 revenue growth was broad-based with solid demand and price increases in both DRAM and NAND.  Our robust growth in FQ4 contributed to strong performance in FY-21, with revenue of $27.7 billion which was up 29% from the prior fiscal year. That Q4 DRAM revenue was $6.1 billion, representing 74% of total revenue. DRAM revenue increased 12% sequentially and was up 39% year-over-year.  Bit shipments increased in the low-single-digit percentage sequentially, and ASP s increased in the high-single-digit percent range, quarter-to-quarter. For the fiscal year, DRAM revenue increased 38% year-over-year to $20 billion, representing 72% of total fiscal year revenue.  FQ4 NAND revenue was approximately $2 billion, an all-time high, and representing 24% of the total revenue. NAND revenue increased 9% sequentially and was up 29% year-over-year. its shipments increased by low-single-digit percentage sequentially, while ASP s increased in the mid-single-digit percent range, quarter-over-quarter.  For the fiscal year, we achieved a new Company record for NAND revenue of $7 billion, an increase of 14% year-over-year. NAND revenue represented 25% of our total fiscal year revenue. Now, turning to our FQ4 revenue trends by business unit. Revenue for the compute and networking business unit was $3.8 billion up 15% sequentially, and up 26% year-over-year.  Growth was led by the data center and graphics markets. Revenue for the mobile business unit was $1.9 billion down 5% sequentially, and up 29% year-over-year. Mobile demand remained healthy in the quarter with continued momentum from the rollout of 5G. NBU revenue for fiscal ‘21 exceeded $7 billion and set a new record.  Revenue for the Storage Business Unit was $1.2 billion, up 19% from the prior quarter, and up 32% year-over-year. Datacenter SSDs had strong growth in the quarter driven by enterprise and cloud strength. QFC shipments set a new record in the fiscal year in terms of the percentage of our NAND shipments.  Finally, the embedded business unit generated record revenue of $1.4 billion, which was up 23% sequentially. And more than doubled year-over-year. We continued to experience strong demand across the automotive and industrial markets.  For the fiscal year, EVU revenue easily exceeded $4 billion, setting a new revenue record. The consolidated gross margin for FQ4 was 47.9% up 500 basis points from the prior quarter. Pricing increases across DRAM and NAND, as well as strong execution in our ongoing product portfolio transformation, drove margin expansion in the quarter.  Operating expenses in FQ4 were $891 million on the lower end of the range we provided in last quarter’s earnings call. F Q4 operating income was $3.1 billion, resulting in an operating margin of 37% up from 32% in F Q3, and up from 21% in the prior year.  FQ4 EBITDA was $4.7 billion, resulting in an EBITDA margin of 57.1% compared to 53.3% in the prior quarter, and 47.4% in the prior year. For the fiscal year, total EBITDA was $14 billion up from $9 billion in the prior fiscal year and represented 50.4% of revenues. Non-GAAP earnings-per-share in FQ4 were $2.42, up from $1.88 in FQ3, and up from $1.08 in the year-ago quarter.  EPS included approximately $0.02 of gains from investments in our venture arm, Micron Ventures. For the fiscal year, total EPS was $6.06, up more than 100% from the $2.83 achieved in the prior fiscal year.  Turning to cash flows and capital spending, we generated $3.9 billion in cash from operations in FQ4, representing 47% of revenue. For the fiscal year, cash from operations totaled $12.5 billion, up from $8.3 billion in the prior fiscal year. Net capital spending was $2 billion during the quarter and $9.7 billion in fiscal ‘21.  We generated a positive free cash flow of $1.9 billion in FQ4 and over $2.8 billion for the fiscal year. The increased cash flow was driven by strong revenue growth, increased profitability, and efficient work in capital management. As Sanjay mentioned, we expect our fiscal ‘22 capital spending to be between $11 billion and $12 billion.  Like fiscal ‘21, we expect our capital spending to be weighted more to the first half of the fiscal year, which will constrain free cash flow in FQ1 and FQ2. We do expect to generate healthy free cash flow in fiscal ‘22, but weighted towards the back half of the year.  We also expect to close our Lehi Fab sale within FQ1, and we will receive approximately $900 million in proceeds from the sale. We completed share repurchases of $1.1 billion or approximately 13.9 million shares in FQ4. For the fiscal year, we repurchased $1.2 billion, or approximately 15.6 million shares.  From Fiscal ‘17 to Fiscal ‘21, we generated over $20 billion of free cash flow. During this period, we used approximately $5 billion of that cash flow to retire debt, and $7 billion towards buying back stock and eliminating the dilution from convertible debt, reducing our share count by 148 million shares. We also improved our total cash and investment position by $5.5 billion.  We expect that we will continue to generate strong free cash flow in the future. And as we discussed on our capital return strategy call in early August, we are committed to returning more than 50% of cross-cycle free cash flow to shareholders, through a combination of buybacks and a quarterly dividend that we expect we can grow over time.  But first dividend payment of $0.10 per share will be paid on October 18th to shareholders of record as of October 1st. The initiation of a dividend is an important milestone that reflects the structural transformation, Micron has undergone over the last several years and it shows our confidence in the sustainability of our cash flow generation.  Our ending of Q4 inventory was $4.5 billion, and the average days of the quarter were 94 days, below our normal range of 95 to 105 days. FQ4 finished goods, dollar inventory ended at the lowest levels since the  acquisition in 2013. We ended the fiscal year with $10.5 billion of total cash and investments and $13 billion of total liquidity.  Our FQ4 total debt was $6.8 billion. Now turning to our outlook. In demand across our major markets remain strong. As Sanjay mentioned, our bit shipments are expected to decline modestly in FQ1, as we normalize our inventory position and work with PC customers as they manage through their supply chain challenges.  And on the gross margin side, our outlook is similar to how we viewed FQ4. While we will benefit from our no transitions on both DRAM and NAND, we will continue to see near-term headwinds from COVID-related expenses in assembly and packaging. As a result, we expect the gross margin in FQ1 to be largely a function of the mix. With all these factors in mind, our non-GAAP guidance for FQ1 is as follows.  We expect revenue to be $7.65 billion-plus or minus $200 million, gross margins to be in the range of 47%, plus or minus 100 basis points, and our operating expenses to be approximately $915 million, plus or minus $25 million. Excluding the impact of any potential new tax legislation, we expect our non-GAAP tax rate to be approximately 10% for FQ1.  Based on a share count of approximately 1.14 billion fully diluted shares, we expect EPS to be $2.10, plus or minus $0.10. In closing, fiscal 2021 was a year of considerable growth and success for Micron. Looking at four-year average metrics reveals the sustained cross-cycle performance of our business. Over the last four years, our gross margins have exceeded 40% and our operating cash flow margins have been approximately 50%.  Despite the challenges stemming from the ongoing pandemic, we have continued to generate significant positive free cash flow while making substantial investments to grow our business. Our technology, product, and financial position provide strong momentum as we enter the new fiscal year. I’ll now turn it back to Sanjay.

Sanjay Mehrotra: Thank you, Dave. I would like to share the recent accomplishments that make me especially proud of our Company. Our strong Micron culture has played a significant role in driving our results aligned to our broader vision to transform how the world uses the information to enrich life for all.  Our Company culture, community leadership, and business performance have been recognized globally, earning multiple industry awards and recognitions this year. This month, we were ranked by Fortune as one of the top 20 best places to work in manufacturing and production.  The only semiconductor Company to earn this recognition. Fiscal ‘21 was an excellent year for Micron. As our fourth-quarter results clearly demonstrate, we are delivering strong financial results. We are planning to deliver record revenues and solid profitability in fiscal year ‘22.  Demand for memory and storage is solid across market segments. Industry trends like the broad integration of artificial intelligence into all computing, proliferation of the Intelligent Edge, continued data center growth, and deployments of 5G networks create new and expanding opportunities for Micron.  The importance of semiconductors to these markets is underscored by government initiatives to invest in domestic semiconductor production, both here in the U.S. through the chipset and in other countries around the world.  We’re focused on building our technology leadership to deliver broad new solutions, that offer unique value to our customers. Our business is robust and we are energized to seize the opportunities ahead of us, as a truly exciting time in the semiconductor industry. We will now be open to questions.

Farhan Ahmad: Operator can you please open the line for questions?

Operator: At this time,  we have your first question from Harlan Sur with JP Morgan, your line is open.

Harlan Sur: Good afternoon. Thank you for taking my question. There are a lot of concerns on inventories in all of your end markets, especially PCs, just given the non-memory component shortages that are limiting notebook and desktop shipments in the second half of the year.  Can you guys just qualitatively describe customer and channel inventories in the PC, server, and smartphones segments of your business? And also, as you normalize your inventories through the first half of this fiscal year, do you guys anticipate a normal level of inventories on your Balance Sheet as you entered the second half of the fiscal year?

Sanjay Mehrotra: I will have Dave comment on the second part of your question, and on the overall inventory question, I would say that by and large, inventory among our customers is in decent shape. Of course, we talked about the PC market, where due to semi-conductor component shortages, our PC customers, some of them are not able to fulfill all of their end demand, and therefore they have made some adjustments in their purchases, impacting some of our demand in the near-term into the PC market.  And we think this is short-lived, and over the course of the next few months, this will work itself out. And on the smartphone side, of course, you know that new full-cycle, new full launches are coming up, and this tends to be a seasonally strong quarter for new smartphone shipments as well.  While some customers may because of geopolitical considerations or through the lessons learned during the pandemic, or their own supply chain considerations of supply chain shortages, maybe having a strategy of carrying more inventory than some other customers. Overall, the smartphone market continues to be driven by 5G transition smartphones over the course of calendar year ‘22 with 5G increasing by 50% from the 2021 levels.  And on the data center side, of course, the investment cycle is strong on the data center side, and of course, the pandemic has driven strong acceleration in digital transformation, and that certainty extending into the cloud, cloud services, video streaming, e-commerce, all of these trends, along with new architectures, new processors that are being introduced that actually enable greater AI capability into the workloads and greater usage of data attach of memory in the servers.  All of these also are creating new demand, so overall data center inventory levels are also in decent shape. So, what—inventory in our markets today is in much better shape than it was back in the 2018-time frame.  Again, some customers may have higher levels due to their strategic considerations and they may choose to continue to do so in the longer term as well. Given the challenges faced by the supply chains during the pandemic, as well as given geopolitical considerations. This is what I would like to share with you on inventory and Dave; you can add a second part of the question.

Dave Zinsner: So just as a reminder, we look at our optimal level of inventory, we like to see it be 100 plus in terms of days, we can operate slightly below that. We’re definitely below the optimal level, it’s at 94 days. I’d say the—for us we never like to see it go is below 95 days.  And so, we think we will make a little bit of improvement next quarter on—in terms of days, it will probably be up a few days. But I think it’s going to be still below that 100-day figure. As we look through the year its—assuming we can make some progress on inventory. We think we can get it more into, what we would call the optimal stage, which is 100 to 105 days of inventory.  Probably going to exit the year somewhere in the 100 days of inventory. As we already talked about, finished goods inventory is really where we’re particularly lean. And we do have to make some progress in that space to get ourselves into a better position. But overall, I would say the back half of the year will probably be in the optimal range.

Harlan Sur: Thank you for the insights, Daron. And you mentioned in your prepared remarks, seeing constraints within your supply chain for certain IC components, which is going to limit some of your bit shipments also here in the near term. Can you just give us some examples of some of these IC components both in DRAM and NAND? I assume, for example, you have some NAND controller constraints, but what about in DRAM?

Sanjay Mehrotra: So, the Harlan—you are right to note that some of the controller shortages are there with respect to FSD, and particularly impacting the data center FSD. We also have certain shortages of analog, ICs. And these shortages are impacting our ability to ship to the full demand level that we are seeing from the customers.  And if you look at controllers, some of the analog ICs as well as in general, the overall supply chain is running tight. And we have done a great job by our supply chain team in addressing these needs in the past and they continue to work on securing the supply for the future. And we would expect that over time, this will get better.

Harlan Sur: Thank you, Sanjay.

Latif Masud: Thank you. Our next question comes from the line of C.J. Muse of Evercore. Your question, please?

C.J. Muse: Yeah. Good afternoon. Thanks for taking the question. I was hoping to drill into your gross margin. Pretty impressive despite the topline guide. So, I guess a couple of parts here. First, in terms of the costs down within the November quarter, I’m assuming more DRAM than NAND.  Can you speak to that? Can you also speak to mix shifts in the quarter? And then, for all of fiscal ‘22, how should we be thinking about the type of cost downs across both DRAM and NAND? Should we think 10 plus percent is sustainable year-over-year for DRAM and similar type number, if not higher, on NAND, or how should we think about that? Thank you.

Dave Zinsner: Okay. Let me start with the near-term outlook. I would say the cost declines for the November quarter are going to be pretty minimal. We obviously are getting a benefit from both our 1-alpha node and our 176-layer node in NAND. But we are running into some cost headwinds as it relates to the back end mostly a function of the pandemic and the disruptions that are caused to the supply chain and so forth.  And actually, both NAND and DRAM comment quite honestly. So, no specific direction either way on DRAM and NAND. As it relates to mixing, we have a range, it can go a couple of different ways obviously. But there could be a little bit of a mix shift between DRAM and NAND that could impact where the gross margins end up.  Also, by business unit, we could see some mix shifts within the business units, which could impact our margins as well even down to the product level. So, it’s hard to call within a couple of 100 basis points, so that’s why we gave this range, as I’ve mentioned, in the prepared remarks. It’s pretty similar to the range we gave back as the same that we gave in the prior quarter.  So, we’re roughly seeing things pretty similar to what we saw in the fourth fiscal quarter. And I agree with you, these are great gross margins, we’re pretty happy with them. The operating margins that this generates are in the mid-to-high 30s, we’re expecting something similar for the First Fiscal Quarter.  So, I think we’re executing very well on the profitability side of the business. In fiscal ‘22, we do expect really good cost declines on the front-end side for both DRAM and NAND. Again, a function of 1-alpha in DRAM and 176-layer in NAND. When we look at kind of longer-term cost declines for DRAM, we see them as being with the high-single-digit percent cost declines for the industry.  We think from a front-end perspective for DRAM, we’ll do better than that next year. On the NAND front, we see cost declines over time being more in the mid-teens and we think the 176-layer next year will drive cost declines in that range next year as well.  Obviously, 21, 22 will likely have these cost headwinds as it relates to the pandemic and the supply challenges, so those things might impact us in the first couple of quarters, but hopefully, over time, that starts to go away and we’ll start to see the benefit also on the back-end.  We’ve made a lot of investment on the back-end to improve our cost structure and I think once we get behind this or get this behind us, I should say, as it relates to the pandemic, we’ll start to experience a lot of the cost benefits that we’ve put in place on the back end as well. I’d also note that when we look at our cost structure today, and as we’re looking into next year, all the way through the year, we think the cost reductions that we’re seeing are very competitive with the industry.  And the cost headwinds we’re seeing are very similar to the cost headwinds that others within the industry, not only in memory but also across the entire semi-conductor space are seeing. So, we think this sets us up for, as Sanjay mentioned, very good profitability for next year. And I think that pretty much covers it.

C.J. Muse: Thank you.

Latif Masud: Thank you. Our next question comes from Shannon Cross of Cross Research. Your line is open.

Shannon Cross: Thank you very much. The first question I have is with regard to pricing. Can you talk about some of the pricing dynamics, especially with the pullback in demand from the PC vendors? Are you expecting to see any more aggressive moves from your competitors? Although given your comments on gross margin, I’m guessing the answer, maybe no.  And then my second question is, just with regard to your PC OEM partners, how are you tracking confidence that they’re going to actually see the demand come through in the second half of the year. Because I get a lot of questions from people about double ordering, even just from their end customers. So, I’m just wondering if you’ve changed any methodology in how you’re tracking what your partners are seeing or how you’re providing guidance as you lookout. Thank you.

Sanjay Mehrotra: With respect to pricing, we do not provide comments on pricing, but you look at our FQ4 of those and of course, we reported that both for DRAM and NAND in FQ4, pricing increased. And you are right to note that our gross margin guidance for FQ1 is strong. In fact, same, as Dave earlier pointed out, as our FQ4 guidance was at the time of our June call.  And as you look at not only just FQ1 for fiscal year ‘22, we’re projecting a record year for the Company, with solid profitability for the full year as well. And just remember the pricing is always a function of the mix overall as well.  And with respect to your questions around PC, again, as I mentioned, the PC customers have been impacted by their own semiconductor shortages and their supply chain constraints. Their end demand—their end-user demand is very strong. In fact, they have an unfulfilled backlog. Generally, among these customers, which is quite extensive.  And you know that even in the PC industry, while prices have gone up if the customers are able to maintain a strong backlog that speaks to the end strong demand. It really is all driven by work from home, learn from home, that demand acceleration that has taken place through the pandemic will continue to support a healthy environment for PC in calendar year ‘22 as well.  Of course, in 2020 and 2021, PC has gone through a double-digit unit growth on a calendar year basis. We expect that to moderate in calendar year ‘22 to perhaps from flat to low-single-digit year-over-year growth in terms of PC units sold, yet it will be a healthy market.  Again, driven by the trends, such as the economy’s opening, businesses opening, workers coming back, that drives a greater mix of enterprise PCs, commercial PCs. While some of the consumer PC, such as Chromebox, maybe—compared to last year, maybe less than demand today. But the commercial PC demand is getting stronger as well.  So overall basically—continues to be a healthy market and we work closely with our customers and today they are really constrained by their supply chain shortages. And that’s what is adjusting their purchases. And as I’ve said before, we believe this is going to be short-lived.  And we look forward to continuing to support our customers with our products. And as we highlighted, our new technologies, new products,  for transitions, PC customers are qualifying them fast and we are focused on delivering those in calendar year ‘22, as well as fiscal year ‘22-time frame.

Shannon Cross: Thank you.

Latif Masud: Thank you. Our next question comes from Toshiya Hari of Goldman Sachs. Your line is open.

Toshiya Hari: Hi, good afternoon. Thanks so much for taking the question. I was hoping you could provide a little bit more context around your fiscal ‘22 CapEx guidance of 11 billion to 12 billion. If you can speak to WFE within that number for fiscal ‘22 and then differentiate between DRAM and NAND that would be super helpful. And then just to remind us what bit supply growth are you expecting purely from transitions in both DRAM and NAND as you think about calendar ‘22? Thank you.

Dave Zinsner:   I’ll go through the CapEx for you. So as Sanjay mentioned, and as I reiterated, we expect CapEx to be in the 11 to $12 billion range. We were roughly a little bit less than 10 billion, $9.7 billion in fiscal ‘21. If you look at it by the element of CapEx, we are going to invest more in pilot enablement this year.  Last year was a relatively low year for us in terms of pilot enablement. So that’s going to be a reasonable step-up in our CapEx spending. We feel CapEx equipment in DRAM will be down year-over-year. We think we’ve made a good investment in fiscal ‘21 and we don’t need to invest as much in fiscal ‘22, so that will be down.  NAND will actually step up pretty meaningfully in fiscal ‘22 versus ‘21, if you remember, we took CapEx, way down in fiscal ‘20, boost it up a little bit in 21. Now we’re up to kind of a full investment level in ‘22 to support 176-layer. And that was caused because of this transition from floating gate to replacement gate when we made a pause in terms of our CapEx investment to get the first line out at relatively minimal levels.  Back-end, we should be up a bit in back-end spend as we make—continue to make investments on the back-end to put that cost structure into better places I intimated before. We’ve been making investments to improve our cost structure there. The cleanroom will be down a little modestly.  And, of course, we have EUV spending that also will impact our CapEx in fiscal ‘22 as well. One other thing just to remind you, so we will be 60% of our CapEx weighted to the first half, probably 40% to the second half. So, this was similar to what we saw in fiscal ‘21. We’re likely to see in fiscal ‘22, which is our—haven’t—is been our typical pattern over the last couple of years.

Toshiya Hari: Okay and Dave, the transitions, you guys talked about calendar 22, a bit strong mid to high teens on the DRAM side and approximately 30% of the NAND side in line with the industry. What portion of that growth? Are you guys expecting purely from transitions to 1-alpha—

Dave Zinsner: Forget that again. It’s all from no transitions, we’re not adding wafers. We don’t see, for the foreseeable future, adding wafers in either DRAM or NAND. In the next few years, we might be adding wafers in DRAM as Sanjay mentioned. But NAND, we think we can continue with no transitions to support the growth.

Toshiya Hari: Thank you.

Latif Masud: Thank you. Our next question comes from Aaron Rakers of Wells Fargo. Your question, please.

Aaron Rakers: Yeah. Thanks for taking the question. I wanted to ask a little bit more about the end demand dynamics, particularly around the data center. I’m curious as we move forward, how you are thinking about the bit demand profile of the data center and the server market.  And what are you seeing as far as kind of the progression of memory to compute ratio as we move forward to next-generation CPUs? I’m just curious about how you’re rolling forward the expectations over the next year and that growth profile from a bit perspective.

Sanjay Mehrotra: Within the data center both for DRAM and NAND, demand trends would be strong. In fact, data center today has become the largest market for DRAM and NAND, and will continue to grow faster than the average of the industry, both for NAND and DRAM in the foreseeable future as well.  So, it’s really being driven at the trend of AI driving a greater need for memory in addressing data-intensive workloads. The BOM is going from about the memory and storage part of the BOM in the servers in data centers is going from about 30% a few years ago to around 40% now, and going to 50% in few years’ time frame as well.  And new architectures, new processors, are enabling more cores, and then more cores mean more memory attached per core, therefore, greater gigabytes per server for DRAM, as well as for NAND. DDR5, is a transition that will be occurring towards the course of the next couple of years, as well as new CPUs, get launched into production.  And DDR5 is a higher bandwidth solution. Of course, enable more value, higher performance in the applications. So that adoption will be going on, and over the course of the year is, of course, CXL and HBM, these ultra-bandwidth solutions. These will also be continuing to grow in the data center space.  So average content per server for both DRAM and SSD will also be growing over 20% on a CAGR basis in each of these applications. So, a strong opportunity ahead, and Micron is very well placed with respect to our own product portfolio in terms of SSDs displacing HDDs, in terms of us providing higher density memory modules for server and data center applications.  So as the cloud gets bigger, the data center market gets bigger for us, and we are very well-positioned. And this is an area we are focused on and continue to focus on expanding our product portfolio, particularly on the side of the data center SSDs. So, we look at this as a strong growth opportunity for the industry, as well as for Micron.  The value that memory and storage solutions providing in this space, is really critical for the services that our cloud customers are providing, and just keep in mind that enterprise as well while it grows at a slower rate compared to the cloud, we are seeing a resurgence in enterprise applications as well driving for overall healthy demand trends in data centers in Calendar year ‘22, Fiscal year ‘22, as well as beyond.

Aaron Rakers: And then as a quick follow-up, Dave, I’m just curious as you start the last quarter, implement some share repurchases. How do you think about the liquidity on the balance sheet or managing the Company from a cash-on-hand perspective versus continuing to learn more in on share repurchases? How much cash do you need operationally to comfortably run the Company?

Dave Zinsner: We roughly are holding about did the 30s as a percent of revenue in terms of liquidity, but $2.5 billion of that liquidity is our unused revolver, so cash is obviously less than that. We obviously have more liquidity than we need, which of course is a good opportunity as it relates to the buyback. As I mentioned, we’re also going to receive $900 million from the sale of our Lehi Fab that also can be utilized for returns to shareholders.  And we are expecting healthy free cash flow in fiscal ‘22 as well. And so, we’ll be able to leverage that. We’ve committed to return at least 50% of it in the form of dividends and buyback, mostly buyback.  And we could obviously go higher than that. Our authorized plan, we still have $6 billion left in our authorized plan for repurchases. And if we see the stock be weak, which of course is how we viewed it in the Fourth Quarter, we’ll be aggressive about buying back stock.

Aaron Rakers: Perfect. Thank you.

Latif Masud: Thank you. Our next question comes from Joe Moore of Morgan Stanley. Please go ahead.

Joe Moore: Great. Thank you. I wonder if you could address what transitions going on in both DRAM and NAND to 1-alpha and our G2. Are there any issues that that creates from a mix standpoint in terms of it seems like it’s quite a bit demand for the older products? Where are you in terms of getting qualified for the newer products? How is that affecting you guys?

Sanjay Mehrotra: Actually, we are doing very well with respect to ramping up these new nodes in production. Right on our plan in fact, in terms of yields ahead of our plans, I highlighted that the yields in these 176 layers NAND as well as 1-alpha DRAM, have ramped 20 to 30% faster than our prior 1Z generation node and the prior FG node, the last FG node.  And customer qualifications actually are going very well that these nodes, as well as I, mentioned earlier, that we are already shipping our 1-alpha in the PC space, as well as broadening its shipments to other parts of the markets as well. In fact, customers are working closely with us in qualifying these projects.  176-layer NAND-based mobile product went are from just introduction to 1-million-unit shipments in a record time. Fastest RAM in the history of the Company. So, with all these norms in production, as well as in terms of deployment in the marketplace are doing very well for ourselves. And, of course, this is all baked into the guidance that we have provided in terms of our revenue, as well as our cost expectations.

Joe Moore: Great. Thank you very much.

Latif Masud: Thank you. Our next question comes from John Pitzer of Credit Suisse. Your line is open.

John Pitzer: Thanks, guys. Thanks for letting me ask questions. Congratulations on the solid execution. Sanjay, you’re characterizing the current environment as relatively short-lived, are we supposed to read into that as we go into the February quarter, your business might normally buck normal seasonal headwinds and I guess importantly upturn to date, this memory cycle has been very different than prior memory cycles.  Typically, you have eight quarters at unabated ASP, growth, and margin expansion. The least plateaued in year three quarters into it. What’s different about this cycle? And I guess what makes you confident this is just a pause and not something more?

Sanjay Mehrotra: So with respect to the comment on the short-lived just to be clear what I was mentioning was that with respect to the PC part of the market where our customers, some of our customers in the PC market, have experienced semiconductor shortages impacting their decisions on purchases of memory, that’s what I was mentioning short-lived because their end-user demand on PCs is still very strong and lot of unmet demand that actually stretches the demand over time and make the demand longer, stronger for longer.  But my comment regarding short-lived and adjusting it in the next few months was related to the PC part of the market and outside of that, in other markets, as we discussed earlier, we see strong demand trends, strong end-user demand trends.  And of course, the supply chain shortages that are being experienced in PC, are also being experienced in other parts of our markets as well by our customers. Whereby, of course, different customers handing them an overall different fashion, but the underlying demand trends are driven by AI and 5G from the data center to the Intelligent Edge, to the user devices are strong, they are circular in nature.  COVID, further accelerated it, semi-conductor supply chain shortages are only stretching the demand out as—because some of the demand gets pushed out. So, as I said, making those demand growth drivers actually stronger for longer as well. So, you can call it pent-up demand, but that’s what I’m referring to.  So, on the demand side, things are here overall strong on the supply chain aspects. Of course, this is something that the lead time in the semiconductors is long, and this will take several quarters to continue to improve. Parts of the semiconductor supply chain have already seen improvements. Our expectation is that these will continue to improve as well over the course of the coming quarters.  Also keep in mind that our industry, the memory industry, over the course of the last couple of years has stepped into the inventory to ship beyond the supply growth. And this is a phenomenon that has occurred across the industry, certainly you’re seeing that how Micron has brought its inventory to the leanest level in many years, in fact, below our target inventory levels. So, this is something that is common to all suppliers in the memory industry.  And as we look ahead, the supply growth will not only have to meet the customer requirements, but it will also have to replenish the inventory that has been taken to such low levels, inventory has to be replenished in order to make sure that we are able to service our customers and meet their demand requirements, which from time-to-time change.  So, these are all factors as well, very lean levels of inventory by the suppliers, as well as need to replenish that inventory will drive for a healthy demand-supply balance in calendar year ‘22-time frame as well. So yes, some of this is in terms of our own supply chain shortages and some that are being experienced by our customers.  We expect to be addressed over the course of time and some of these shortages on the semi-conductor ecosystem may take through the ‘22-time frame. By the end of 22 maybe some of them will be .  However, we expect them to continue to be improving through the course of time all the way through calendar year ‘22. But the demand dynamics of the underlying strong drivers and the supply dynamics that I discussed including the prudent CapEx investments that have gone on in the industry and the lean supply, all of this will lead to a healthy supply-demand environment in the industry.  So, it’s really the combination of the demand drivers and their suppliers – supply capabilities and shipment capabilities, that combination, I think really sets us up well as an industry for revenue growth and strong profitability in ‘22, and of course, we have projected based on our expectations, that we will have record revenue in fiscal year ‘22 and solid profitability as well.

John Pitzer: Sanjay, those inventory comments were very helpful. I’m just curious as a quick follow-on, your guidance for bids to be down in the November quarter. How much is that a conscious decision by you to hold bits off the market to help me be pushing pricing, and how much of that is just being driven by there’s no demand for those bits and that’s why bits are down?

Sanjay Mehrotra: Again, keep in mind that our inventory is very lean. It is at the leanest level and below our target levels, and that is impacting some of our ability to meet the demand as well. And overall, our projection of this, the respect to FQ1, is really a function of our own supply chain capabilities in terms of where our inventories and what we can ship at this point to the customers certainly impacted by some of the component shortages, non-memory components shortages that we are seeing in the marketplace as well, and our assessment of overall demand.  And the main thing there is really is around the PC, where some of the demand is impacted. But overall, when you look at our guidance for FQ1, which takes into account any aspects of seasonality as well. But the guidance for FQ1 at this midpoint is about 32%, 33% higher than the same quarter last year. So, our inventory capability is also overall impacting some of the ability for our customers, in terms of what we can ship.

John Pitzer: Perfect. Thank you.

Latif Masud: Thank you. Our last question comes from the line of Timothy Arcuri of UBS. Your line is open.

Timothy Arcuri: Thanks a lot. I appreciate that. Dave, I guess I had a question on gross margin. I wanted to go back to a question asked earlier. It’s down on the 100 basis points on your guidance; I would like a deep percent down revenue quarter NAND it sounds like you’re only down modestly at both DRAM and NAND. So, it sounds like the delta is probably pricing.  I would think more on the DRAM side. And then somebody asked you about costs and you said, well, costs aren’t coming down very much. So, I guess I’m trying to figure out how gross margin is so good? Is this going back to some of the mixed comments that you made ASP quarter? It seems like a more sustainable trend that maybe people were missing. So, I’m wondering if you can flip that for us next.

Dave Zinsner: Yes, sure Tim. So cost declines are going to be relatively muted. Remember that. There will be some mix changes that might impact gross margin to bring it down somewhere within the range that we gave.  Obviously, the rest is a function of pricing, and you have to infer what you can’t out of pricing. Obviously, if the mix is the predominant factor in driving gross margin, pricing and cost will not be major factors in driving gross margins. Maybe that’s the best way to say it.

Timothy Arcuri: Got it. Okay. And then I guess just last thing. So just on the cost curve, so you reached—you said you’re reached production crossover on 176 and on 1-alpha and 1Z. So how much—like what’s the lag effect in terms of when that really starts to bend the cost curve in a favorable direction, given that you’ve had production crossover on those things. Thanks.

Dave Zinsner: Well, to be clear, 1-alpha and 1z, we’ve hit crossover 136, we hit at the end of the year. By the way, benefiting us from a cost perspective, it’s hard to see it may be as much just because we’re getting a little bit impacted obviously on the back end, which is impacting the cost declines.  But next year, we do anticipate that both of them will drive good cost reductions for us on the front-end side. So, they will be good. Good notes for us in terms of cost structure and I think we’ll see that from a front-end perspective every quarter.  Again, I think the first couple of quarters, may not be as noticeable in our cost per bit calculations because of this, more of a headwind on the back-end side of the cost structure. But after we get behind that, I think you’ll see that show up on the cost per bit basis as well. The only other factor will obviously be mix as well and we’re going to drive like heck, to get our mix to be more—to be a richer mix of higher-value products and—which is always our goal.  And of course, with higher-value products, you get higher costs, but higher profitability, higher gross margins. So that’s a good strategy, but that also kind of distorts the picture and will distort the picture over the course of the year as well.

Timothy Arcuri: Perfect. Awesome. Thank you.

Operator: Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect.

Eric Seto, CPA

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