Q1 2020 Earnings Call
Right.
Thank you, ladies and gentlemen, and thank you for standing by.
Welcome to Micron technologies first quarter 2020 financial conference call.
At this time all participants are in in listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that todays conference is being recorded if you require any further assistance. Please press star zero I would now like that.
And the conference over to your host head of Investor Relations for Han Ahmad Sir. Please go ahead.
Thank you and welcome to Micron technologies first fiscal quarter 2020 Financial conference call on the call with me today, our Sanjay Mendota, President and CEO and gazing No Chief Financial Officer, today's call will be approximately 60 minutes in.
This call, including the audio and slides is also being webcast from our Investor Relations website at investors talked Micron dotcom.
In addition, our website contains the earnings press release and the prepared remarks filed a sharp light vehicle.
Today's discussion of financial results will be presented on a non-GAAP financial basis, unless otherwise specified.
I'd cancellation of GAAP to non-GAAP financial measures can be found on our website along with of convertible debt and capped call dilution table.
I was that in mind, though a webcast replay will be available on our website later today.
We encourage you to monitor our website at <unk> micron dotcom 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 Grito micron deck.
As a reminder, the matters we will be discussing today includes forward looking statements. These forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made today.
We refer you to the documents we filed with the FCC.
Specifically, our most recent Form 10-K in Q for a discussion of risks that may affect our future results.
Although we believe that expectations reflected in forward looking statements are reasonable.
Not guarantee future results level of profitability performance or achievements.
We're under no duty to update any of the forward looking statements. After todays date to conform these statements to actual results.
I'll now turn the call over to Sanjay. Thank you for on good afternoon Micron is off to a solid start in our fiscal 2020 .
Despite the challenging industry environment, we delivered good profitability maintained positive free cash flow and strengthened our product portfolio.
Industry supply demand balance continues to improve in both DRAM and NAND leasing trends and our business gives us optimism that our fiscal second quarter been marked the bottom for our financial performance, which we expect to start improving in our fiscal third quarter with continued recovery in the second half of calendar.
2020 .
Our strategy to increase high value solutions enhance customer engagement and improve our cost structure is producing reserves.
We have materially improved our competitive position structurally strengthened our profitability and at boys to drive long term shareholder value as industry conditions improve.
Hi value solutions in fiscal 2019 accounted for approximately 50% of NAND bit.
We expect this figure to grow to over two thirds of our NAND bits sold for fiscal 2020 and we remain on track to drive 18% of our NAND best into high value solutions in fiscal 2021.
This mix improvement is an important tailwind for us as it improves our profitability and reduces the volatility in our margins.
And our micron insight event in October we articulated a vision for microns transformation through greater vertical integration and differentiated products for the new data economy.
I would highlight two of these and encourage you to view Sumit Savannah us insight keynote available on our website for more detail.
First we announced the acquisition of a small company called forward next.
The forward next deep learning accelerator hardware and software technology, when combined with advanced Micron memory makes it possible to deploy neural network models from any framework into edge devices what inference.
Forward next unique technology is an important capability in our portfolio that will help us learn and better address customers needs and evolving AI ecosystem.
At insight, we also launched our first CD cost point product.
They X 100, which is the voice fastest storage device.
The Micron X 100, SSD is dramatically faster than any other SSD, including those barrels with NAND RCD corresponding technology and we are proud that it was showcased at Microsoft Ignite conference by did as your team.
In October we closed our acquisition of Intels stake in the IMF the joint venture.
We plan on relocating equipment and certain manufacturing employees to others Micron sites as we right size the Lehigh fab.
Redeploying equipment will also help us optimize microns front end equipment capex.
As with any innovative technology. It will take time to scale up our CD costs money product portfolio ramped revenues and achieve healthy margins and we're excited about the long term potential our Threed cross point for both memory and storage applications.
As the only company in the world with a portfolio of DRAM NAND NCD Crosspoint technologies, we are in a unique position to develop differentiated products what other customers.
I'll now turn to technology and manufacturing operations.
Indeed, our industry, leading ones the LP for DRAM based you Emcp had the fastest revenue ramp of any product and the history of our mobile business.
Our production mix on Wednesday will increase throughout 2020 .
And DRAM cost reductions will be skewed toward the second half of fiscal 2020 .
Our previously announced clean room expansion in Taiwan is on track and we expect output and calendar 2021.
This clean room expansion is equally capable.
While we continue to evaluate easy technology for deployment in DRAM production.
Our current assessment shows superior economics through one gamma note utilizing advanced immersion technology, along with microns proprietary multi patterning technologies.
We are encouraged by recent industry progress on easy productivity and we'll be prepared to deploy you leave and it becomes cost effective to do so.
And now and we're continuing to make progress on our replacement gauge transition and expect to begin production on our Onetwenty clear first generation RG node in the second half of fiscal 2020 .
As a reminder, this nord will be deployed for the limited set of products and we expect minimal NAND cost reduction in fiscal 2020 .
It will be followed by an introduction of our higher layer count second generation RG note in fiscal 2020 , one targeted for the broader implementation, which will begin to provide more robust cost reduction as it ramps.
The second generation RG Nord will leverage our NAND technology leadership in Cmos under the rate as well SQL C.
Now turning to highlights by products and markets in Ssds demand from datacenter customers was strong in fiscal first quarter.
Attach rates and capacities for client and consumers as these have continued to increase across our customers.
There are supply shortages, what ssds across the industry and pricing trends are improving.
We are making strong progress on our transition to Nvme me.
As a fiscal second quarter, we will have nvme, SSD sort all market segments, which positions us to gain share in fiscal 2020 .
And we meet client SSD vet shipments represented almost three quarters of our client SSD beds in fiscal Q1 versus virtually none a year ago.
In the datacenter market sales of our previously announced high performance and we EMEA SSD nearly tripled quarter over quarter, and we announced a 96 Lear mainstream data center Nvme SSD.
While growing our presence in and we I mean, we continue to manic maximize our value propositions for the Santa market by ramping 96 Lear NAND products.
We achieved qualifications with multiple Oems on our 96 Lear Sater datacenter SSD.
I'd like you will see technology continues to gain traction we ask you will see us as these in volume production for set ssds in the data center and consumer markets as well as Nvme SSD is for the consumer market.
We became the first company to ship a 96 Lear second generation QFC set our consumer SSD.
In mobile fiscal first quarter, Emcp, DRAM and NAND base grew approximately 50% quarter over quarter.
And our Emcp market share increased approximately 50% year over year.
In fiscal Q1, our leading edge one we LP for DRAM base, you Emcp achieved qualification at multiple Oems driving the fastest mobile products revenue ramp I mentioned earlier.
We are confident that fiveg will be positive for both memory and storage content growth as well as smartphone unit sales and are encouraged to see the launch of affordable fiveg phones with price points as lower $300 that featured a minimum of six gigabyte or be them.
The Fiveg phones launched to date average eight gigabyte of Vietnam, and 200 gigabyte of NAND significantly higher than the average content in smartphones today.
Our leadership on DRAM power efficiency continues to drive customer preference for our products and we remain well positioned in this market.
We have the lowest power and the highest bandwidth LP five product that begins volume production this quarter, which we expect will become more important in 2020 , one as fiveg adoption accelerates.
Datacenter strong server DRAM demand in the second half of calendar 2019 is creating an industry wide short page of high quality high density modules for which we are seeing incremental demand from our customers.
New CPQ architectures supporting higher density chips and increased number of channels are driving strong DRAM content growth and servers.
In fiscal Q1, we saw strong demand growth from enterprise and cloud customers.
In graphics vet shipments remained stable with GDR six PC graphics cards, showing strong growth offset by seasonal weakness in gaming consoles.
In fiscal Q1, we began shipments of our new 14 gigabit per second GDR specs and are well positioned to benefit from the launch of next generation gaming consoles in calendar 2020 .
The launch of these new gaming consoles will drive robust multiyear demand in graphics memory, and these consoles, which will deploy ssds in place of hard drives for the first time.
This continues a trend of ssds, replacing hard drives across more high volume applications.
In the PC market, which segments in the fiscal first quarter continued the growth trend from last quarter.
Nevertheless, we are cautious on our near term outlook for the PC segment due to reported CPQ shortages, which seem likely to continue at least into early calendar 2020 .
In automotive despite sluggish worldwide auto sales, we saw quarter over quarter revenue growth driven by secular memory and storage content growth.
Our leadership in low power DRAM is also driving growth for us in this market.
In the fiscal first quarter, we qualified and share the industry's first BG nvme SSD for automotive applications, which offers industry, leading performance and capacity in a small form factor and is well suited to service the storage needs of increasing autonomous features.
Now turning to our market outlook, our base case assumption on which all our projections are based assumes that there are no perturbations to the demand environment due to macroeconomic conditions or trade related developments.
Indeed, and there has been a strong recovery in the second half of calendar 2009 team and our view of calendar 2019 industry bed demand growth has increased to approximately 20%.
The stronger than expected demand has resulted in pockets of shortages for us.
We continue to exercise price discipline and walk away from price equip us that do not meet our objectives.
While these actions may impact short term revenue improving our business mix will enhance our long term profitability.
We are encouraged by recent DRAM pricing trends and are optimistic about improving supply demand balance throughout calendar 2020 .
As we discussed on our last call a portion of the strength and demand in the second half of calendar 2019 may be attributable to inventory builds in China, and we expect some of this customer inventory to normalize sometime in calendar 2020 .
As a result, we expect calendar 2020 industry DRAM bit demand growth to be in the mid teens percent range year over year.
Which is somewhat lower than our prior outlook due to stronger demand in calendar 2009 team.
We expect industry bit supply growth for calendar 2020 to be somewhat less than the demand as industry bed supply growth.
Decelerates due to industry Capex reductions.
We continue to target our long term bit supply growth CAGR to be close to the industry is long term demand growth CAGR of mid to high teens.
In calendar 2019, our big supply growth will be less than the industry supply growth of mid teens, and then 2020 . Our best supply growth is expected to be slightly above industry, but supply growth.
Turning to NAND, our industry bid demand growth expectation is in the mid Fortys percent range in calendar 2019, and high Twentys too low 30 percents range in calendar 2020 .
We expect calendar 2020 industry best supply to be lower than industry bit demand as a result of industry capex reductions and consequently, we expect the industry environment to improve through calendar 2020.
Microns NAND bit supply growth in calendar 2019 is likely to be slightly below industry bit demand growth and then calendar 2020 will be meaningfully below that of the industry.
However, we expect our NAND bit shipments growth in calendar 2022, we closed two industry bit demand growth as we ship our inventory during the first generation of our RG transition.
As we go through the transition to replacement gate, we expect our multi year supply growth CAGR to be in line with the industry's demand CAGR of approximately 30%.
Before I turn it over to Dave I wanted to provide an update on our business with Wachovia.
As previously disclosed we are continuing to ship some products to validate that are not subject to explore demonstration regulations and entity list restrictions.
We applied for and recently received all requested licenses that enable us to provide support for these products as well as qualified new products for guavas mobile and server businesses.
Additionally, these licenses allow us to ship previously restricted products that we manufactured in the United States, which represent a very small portion of our sales.
However, there are still some products outside of the mobile and server markets that we are unable to sell to other.
Receiving the licenses is a positive development and we're thankful to the U.S. administration for approving these licenses.
Prior to receiving these licenses entity less restrictions severely limited our ability to qualify new products that while there.
Although we are now able to qualify new products with Ravi is mobile and server businesses. It will take some time before the qualifications are completed and contribute to revenue.
Consequently, we do not expect these licenses to have a material impact on our revenue in the next couple of quarters.
I'll now turn it over to Dave to provide our financial results and guidance.
Thanks, Sanjay Microns Q1 results were largely consistent with our expectations as market conditions continue to stabilize.
During the quarter DRAM price declines decelerated from recent quarters, and we saw pricing improvements in NAND.
Total company revenues grew sequentially and our total inventory declined in absolute terms.
We generated positive free cash flow during the quarter made progress on our share repurchase program.
And further strengthened our balance sheet.
The result onto the result on todays call reflect our previously announced changes in NAND depreciable life to seven years from five years.
And the change in reporting from our previous Discloser disclosures, which classified all emcp and SSD revenues as NAND revenue.
To review now that this aggregates these revenues into DRAM and NAND.
The following DRAM and NAND growth figures use restated historical revenues for an apples to apples comparison.
Total F Q1 revenue was approximately $5.1 billion.
Revenue was up 6% sequentially and down 35% year over year.
FQ, one DRAM revenue was $3.5 billion, representing 67% of total revenue.
DRAM revenue increased 2% sequentially and declined 41% year on year.
Pit shipments grew approximately 10% sequentially and on a year on year basis, we're up in the mid 20% range.
ASP declined in the upper single digit percent range sequentially.
DRAM revenues included $435 million of revenues from Emcps and Ssds.
F Q1, NAND revenue with approximately $1.4 billion or 28% of total revenue.
Revenue was up 18% sequentially and declined 14% year on year.
That shipments grew in the mid teen percent range sequentially and in the mid 30% range year on year.
And Asps increased in the low single digit sequentially.
Now turning to our revenue trends by business unit.
Revenue for the compute and networking business unit was approximately $2 billion, an increase of 4% sequentially and down 45% year over year.
The sequential increase was driven by higher volumes and moderating ASP declines.
Revenue for the mobile business unit was $1.5 billion up 4% sequentially and down 34% year over year.
MCP revenues grew strongly during the quarter driven by approximately 50% sequential growth in DRAM and NAND bit.
Revenue for the storage business unit in Q1 was $968 million, an increase of 14% from Q4 and down 15% year over year.
Sequential revenue growth was driven by SSD volume growth and ASP increases.
Finally revenue for the embedded business unit with $734 million up 4% from Q4 and down 21% from the prior year.
Sequential revenue growth was mostly driven by the automotive market due to content growth.
The consolidated gross margin for F Q1 was 27.3%.
Slightly above the midpoint of our guidance.
At Q1 gross margins included approximately a 240 basis point negative impact were approximately $125 million.
Due to under utilization charges at the Lehigh Fab.
This came in slightly better than we guided to on last quarter's call, but underutilization charges are expected to ramp higher in Q2 as production volumes decline.
We still expect the underutilization charges to averaged $150 million per quarter in the first half of fiscal 2020.
We have taken action to reduce our spending in the Lehigh fab, which should begin to reduce under utilization charges in fiscal 2021 at these actions are implemented.
Ultimately these charges will be mitigated as our own Threed cross point products ramp into production over the coming years.
Operating expenses were $811 million as we incurred higher than usual R&D expenses to qualify new products.
We expect to operate at higher levels of qualification expenses for the remainder of fiscal 2020, as we continue to expand our product portfolio.
As a result, we now expect operating expenses to be approximately $3.3 billion for the fiscal year.
We continue to prudently control all other operating expenses and remain flexible should business conditions warrant.
F Q1, operating income was $594 million, representing 12% of revenue.
Operating margin was down 38 percentage points year over year and down three percentage points from Q4.
Our F Q1 effective tax rate was 6.9%.
We expect our tax rate to be approximately 5% for the remainder of the fiscal year.
non-GAAP earnings per share in FQ, one were 48 cents down from 56 cents in Q4 and $2 a 97 cents in the year ago quarter.
Turning to cash flows and capital spending we generated $2 billion in cash from operations in Q1, representing 40% of revenue.
During the quarter net capital spending was approximately $1.9 billion.
Down from approximately $2 billion in the prior quarter.
We are continuing to target why 20, capex in the range of $7 billion to $8 billion.
We generated adjusted free cash flow of approximately $80 million in FQ, one compared to $260 million last quarter and approximately $2.3 billion in the year ago quarter.
Q1, we repurchased 1.1 million shares for $50 million.
In addition, we deployed approximately $200 million of cash to settle convertible note redemptions in the quarter, removing approximately 3 million shares from our fully diluted share count.
We will continue to target deploying at least 50% of our annual free cash flow towards repurchases.
Days of inventory was 121 down from 131 days in Q4.
Inventory ended the quarter at $4.9 billion down slightly from $5.1 billion at the end of Q4.
Over the last two quarters, our inventory days have declined by approximately 15%.
We expect inventory days to increase in fiscal Q2 due to seasonality and then begin to reduce again for the remainder of the year.
We ended the quarter with total cash of $8.3 billion and total liquidity of nearly $11 billion.
We deployed approximately $1.3 billion of liquidity in FQ, one to fund the closing of our acquisition of Intel stake in the IMF tea joint venture.
At Q1, ending total debt was $5.7 billion down slightly from the prior quarter.
In addition to the retirement of IMF Ts member debt.
We used cash on hand to retire approximately $520 million in principle of high yield debt.
This was partially offset by the drawdown of our term loan facility to fund the identity acquisition.
Our balance sheet is very strong with net cash of $2.7 billion and we remain committed to maintaining a net cash position.
Last month, S&P upgraded microns credit rating to investment grade and now all three rating agencies rate microns credit as investment grade.
Now turning to our financial outlook as Sanjay mentioned, our outlook throughout our earnings commentary assumes that the macroeconomic environment and trade related issues will not impact demand.
Microns fiscal second quarter is the seasonally weakest quarter for the industry.
I continue to exercise pricing discipline and reduced business, a customers where pricing does not meet our objectives and this limits our business opportunity within the quarter.
Additionally, in F Q2 pockets of supply tightness are limiting our bit shipments Lehigh under utilization costs are going to step up and our cost reductions are likely to remain modest.
However, we are encouraged by recent market trends and expected Q2 will be the bottom for our gross margins.
As pricing increasing mix of high value solutions and cost reductions drive better gross margins throughout the rest of fiscal and calendar 2020.
We expect a gradual recovery to start in Q3.
And to continue into the seasonally stronger second half a calendar year.
With that in mind, our non-GAAP guidance for fiscal Q2 is as follows.
We expect revenue to be in the range of $4.5 billion to $4.8 billion.
Gross margin to be in the range of 27% plus or minus 150 basis points.
And operating expenses to be approximately $825 million plus or minus $25 million.
Interest and other income is expected to be approximately zero.
Based on a share count of approximately 1.14 billion fully diluted shares we expect EPS to be 35 cents plus or minus six cents.
As we approach the trough in this cycle at the midpoint of our guidance fiscal Q2 revenue will be 60% higher and gross margins nine percentage points higher than in the prior trough, which occurred in the fiscal third quarter 2016.
Micron solid financial performance and investment grade balance sheet demonstrate that the new micron is indeed, structurally stronger with higher lows and better cross cycle revenue growth and profitability.
I'll now turn the call over to Sanjay for closing remarks. Thank you, Dave Micron is entering 2020 as a fundamentally stronger company in an industry that is structurally John spawned supply growth is moderating due to rising capital intensity and the slowing down of Morse law demand drivers have more diversified than ever.
Before both in end markets and in variety of memory and storage solutions.
This change in industry dynamics creates new opportunities for micron to innovate and provide differentiated value to customers.
Yes, and applications dramas to further accelerate this diversification.
Allowed growth continues at a best base driven by new use cases, and Fiveg networks are just beginning to proliferate and we'll ushered in and the age of true machine to machine communication with billions of connected devices.
And just a little further over the horizon.
Hi machine learning and economists technologies will expand this potential even more.
These trends are transforming every aspect of human life, and driving secular growth in memory and storage microns enhanced product portfolio improved cost structure and talented team put us in an outstanding position to capitalize on available for opportunities ahead, and create long term shareholder value.
We will now open for questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone again Thats Star one on your Touchstone telephone to ask a question to withdraw your question press the pound.
We ask that you. Please restrict yourself. So one question and then re queue.
Please standby, while we compile the Q and a roster.
Our first question comes from the line of Threed for jury.
SMBC Nikko.
Your line is open.
Thank you Sandy just a couple of questions I guess first on the.
Supply shortages that you talked about could you. Please elaborate because on one hand, you're talking about some shortages on the other hand, the inventories are going up as we head into the next quarter.
And I have a follow up.
So we said last time as well as in this earnings call that we have certain supply shortages and de them on the leading edge nodes.
And we have not down on inventory here overall inventory down fairly fast at as Dave pointed out.
And we have seen strong growth in demand in DRAM on.
Hi quality high density modules for servers as well as demand trends have continued to be pretty solid.
So.
Shortages on.
Leading edge nodes on DRAM and on the NAND side.
We have.
SSD demand growing up substantially and our 96 layer products as we expand the portfolio are being qualified by customers. We are seeing strong demand on our 64 layer Nord very out actually seeing some shortages and of course as you mentioned, we experienced some backend constraints as well.
We have invested in back and capacity Assembly and test capacity expansion and Thats.
Assembly and test issues impacting some of our multi die stacked on the mobile solutions as well as SSD solutions that assembly and test constraints will be eliminated largely by the end of fiscal second quarter. So these are some of the things that are impacting some of the shortages uniboss.
In DRAM and on the NAND side and again the demand trends continued to be solid of course in CQ, one BC seasonality and yes. Some of our inventory may go up at the end of.
Fiscal Q2, but overall our normal inventory days is around as we look ahead is around 110 days and unit Thats really a function of increasing complexity coming from the technology nodes.
As well as as we shift toward high value solutions.
More ssds more multi chip packages, you know they take longer lead assembly and test times as well. So those are the ones that contributing to some of the aspects of days of inventory that have been we foresee in the future. We look at it as approximately 110 days so industry environment in terms of.
Demand continues to be solid pockets of shortages building all across the industry, certainly we are experiencing that and pricing trends overall in the industry.
As you look ahead at 2020 .
We are optimistic about improving pricing trends in the industry as well.
Thank you again, ladies and gentlemen, we ask that you. Please limit yourself to one question. Our next question comes from a line of John Pitzer of Credit Suisse. Your line is open.
Hey, guys. Congratulations on solid results such I wanted to talk a little bit about studied the capex guidance for this fiscal year I think I understand the strategies around NAND to kind of can stream spending on the first generation of replacement gates. We're cost downs are de Minimis and kind of wait to version two dot.
But I'm kind of curious as you think about DRAM strategy, especially given that demand came in much stronger than expected. This year, 20% and there were some of us towards the beginning the year, we'd be lucky to get us to low double digit growth.
How do we think about DRAM capex from here and your ability to kind of keep up with industry Big growth and I guess, specifically my question is how much I certainly we do you have in moving more of your mix of DRAM towards a leading edge node as a way to grow bids rather than just shrinking.
You know certainly as we move R&D then production to leading Edge Award for example, through one Z, where we mentioned that we did very well with ramping ones. The DRAM node in our mobile.
Orders during the quarter. So of course, those give us a bed growth. It comes with the strength capability and technology transitions are the best way to achieve ROI as well. What's important is that we are being extremely disciplined and prudent in terms of managing our.
Apply a bit growth and we want to make sure that it's aligned with our a bit demand growth as well as our long term objective is to have our supply bit growth CAGR or to be aligned with the industry demand growth CAGR, we mentioned that in 2019, our DRAM supply.
Growth somewhat below the industry supply growth and entering fiscal year 22, NPV in calendar year 2020 , we see our supply growth to be somewhat above the industry supply growth, but all in all our strategy is to have our supply growth CAGR to be aligned with the industry demand growth CAGR.
We feel very good about you know when you look ahead at 2020 our.
Supply overall position and yes, I mean, we are experiencing 13 shortages on leading nodes and we believe that some of these shortages in the industry as well as for US will continue in calendar year, 2020 timeframe and frankly, that's a good place to be at in terms of running the business because it helps you manage the best match.
Of the business as well in terms of revenue and profitability.
Thank you. Your next question comes from CJ Muse Evercore. Your line is open.
Thanks for taking the question I guess a question on the DRAM demand side.
Morning.
Look for 15, or sorry, mid mid teens growth in 2020, and Im curious as you think about that number.
Hi, guys relates to potential pulling out of China demand.
Potential conservatism on your part and within that what kind of assumptions are you, making around fiveg handsets and continued cloud spending through 2020. Thank you.
So certainly fiveg will be a growth driver we expect fiveg.
Headset and the handset smartphones to be more weighted toward the second half of the calendar year.
Cloud Capex as you've seen that affords from various major cloud providers cloud Capex continues to be healthy a meaningful portion of the cloud capex goes into memory and storage and that continues to drive above average.
Industry.
Above average demand as a percentage because the average of the total Vietnam industry.
And Fiveg influence I think it's important to note that you know content continues to grow as we mentioned in our script I mean of course Fourg phones content continues we will but fiveg phones are driving a step level function increase in the average content of both the DRAM as well as NAND and our estimation as.
In calendar year, 2020 , approximately 200 million of Fiveg smartphones to be sold on a global bases.
So overall.
We look at the demand.
Industry demands of mid teens that year projected for calendar year 2020 keep in mind that is building upon calendar year 2019, where.
Industry demand in the second half came in quite strong and in fact, we upped our estimate of industry demand growth to approximately 20% Fourtwenty 19. So you are working off a large demand larger than previously expected total bet shipments and 2019 and obviously.
That has an impact on the person page that we look at four 2020 , but in terms of aggregate of bed demand that continues to be.
Pretty solid in 2020 , as well and as we said.
2019 was a headwind in terms of demand and supply for the industry and 2020 , we look at demand and supply balance as a tailwind for the industry.
Thank you. Our next question comes from Aaron Rakers of Wells Fargo Securities. Your line is open.
Yes, thanks for taking the question I guess just on the capital expenditure fraud.
Obviously, you guys talked about reiterated your capex, but you're also.
The Tightwad fab, you're noting that that fab is capable of you'd be I know you've talked about.
That you don't need that through the one GABAA node, but.
It's hard to suggest that you are looking at you be as potentially something that you're evaluating have you pulled it at all your thoughts on how do we think about that the comps extra capex not necessarily this year, but looking out into the the subsequent years. Thank you.
So at this point, you're not providing guidance for any timeframe beyond our fiscal year 2020 in terms of Capex, but as we've always said we have been evaluating you Ve technology, we have carefully evaluated to you we technology in terms of determining our roadmap for de Nam and.
As you noted through what we've said that through volume Gamma anode today, we are in production with now once the Nord starting production that one the and of course volume production also of and wide known so from one why to one the as we look ahead at the next few generations through.
Now filed one beta and one gamma generations, we see that.
Multi patterning techniques along with.
Immersion technology will serve us well in terms of achieving other cost objectives, and having a highly cost competitive roadmap for us.
So we have also said that we continue to evaluate easy and when we see it appropriate for deployment in R&D them production in terms of cost and efficiency of production.
We'll certainly be deploying it at a future diamond that but at this point you see our.
Technology roadmap through one game onwards to be in strong position, while we remain encouraged seeing the improvement in ERP productivity tool as well, but you're right in Capex will for future years will obviously always manage it as a function of.
Supply growth expectations, as well as as a function of technology and cost competitiveness and keeping our supply growth as I said previously aligned with demand CAGR and Thats, how we will manage it can be shared those details with you at appropriate time in the future.
Thank you. Our next question comes from Mark Delaney of Goldman Sachs. Your line is open.
Yes, good afternoon, and thanks for taking the question, let me to better understand the company's commentary on its own on inventory, which you and I see that come down in dollars and days and then just completed quarter.
You think about your inventory as you move through the year I understand some of the aggregate commentary, but can you get more specific because I think.
You probably haven't carry an extra inventory of some of these older DRAM note. When do you think that gets used up and when you talk about 110 days on Jay as that being on a more normal level of inventory just given because the companies would be carrying extra money and inventory for the replacement gate now should we be thinking about your inventory running above one tend to allow for that that this year or.
There's no is the 110 real earlier this year comment as you curious about extra replacement gate inventory and.
Longer term it is something more than that thanks.
Yes, good question, when I try and take a crack at that first and.
So yes, the comment around 110 days is kind of an optimal level of inventory when we have worked off.
The excess inventory associated with.
Replacement gate transition and as inventories normalize obviously in 121 days of inventory that we have today.
DRAM is a bit below that really what pulls it up to 121 is that NAND is quite a bit higher than that.
By virtue of the fact that we are executing on this strategy to hold a lot of inventory as we go into our replacement key transition to augment what will be robust growth from that that first node.
Sorry, I mentioned, we do expect days of inventory to go up a bit based on mix and so forth in the second quarter because of seasonality, but we would expect it then to start trending down.
Over the next few quarters, partly as we start to utilize.
This excess.
NAND inventory for the replacement to transition and also as we start to digest them.
Through this the mix challenges that that have created a little bit of excess still on the DRAM front assess that we should be pretty healthy place on DRAM.
Within a couple of quarters.
Thank you. Our next question comes from Ambrish.
Sure the Saba of BMO capital markets. Your line is okay.
As the.
Good to see power through this downturn with positive free cash flow I just wanted to get back to the comment that since you are making about fiscal second quarter, marking the bottom.
For fundamentals and.
Capex seems to be a little bit front end loaded so is.
Free cash flow going to be positive in the fiscal second quarter as well.
So I'll take a crack at that went to I would say maybe to start with that the first priority or the company has to make the appropriate level investments. Both in terms of R&D and which is why we we have had a little bit of an increase in operating expenses, because we do want to put the right level of investment in new products, particularly.
High value solution products.
That will ultimately be.
The big factor in terms of our performance over the coming years.
And in addition, we obviously would make the appropriate level and in terms of Capex investments to make sure that we are assigned Jay mentioned investing right level to manage supply growth and to make these these node transitions.
Secondarily of course, our our goal is to generate good free cash flow and ideally it was it would be to generate pretty consistent free cash flow over.
Over.
Multiple or over every quarter.
I would say in the second quarter, what we feel really confident about is that cash flow from operations is going to be very strong.
And.
You know, we will again make appropriate level of Capex investment that could drive the the free cash flow to be slightly negative or roughly around zero potentially even a little bit more positive.
But we're going to make the capital investment be what's appropriate and lead free cash flow.
So where it goes I would say, though just to put this in perspective.
The trough quarter of 2016 in terms of free cash flow was negative $1.3 billion I believe and so if you compare that to whatever we end up doing for the second quarter.
This will be massively better in terms of cash flow generation and of course, that's an indication of or an example of how we have structurally improve the business from a cost competitive perspective and from a from a cash flow perspective.
Indeed, if this does turn out to be the bottoms as Sanjay indicated.
Is our expectation barring any sort of macro event or trade event.
We would expect free cash flow.
To track more positively.
Through the remainder of the fiscal year and into the and into the next fiscal year. So this year will be actually a pretty good year in terms of free cash flow that will be four consecutive years.
Of positive significantly positive free cash flow for the company, which of course has never been done in microns history. So.
Again, ideally we'd like to have every quarter be positive that may or may not happen this quarter, but clearly we're on the right track in terms of bought generating positive free cash flow for the company.
Thank you. Our next question comes from Harlan sur of JP Morgan Your line is open.
Good afternoon. Thanks for taking my question, we've seen a strong acceleration in cloud and Hyperscale spending also seen some near term strong server builds by the Asia Oems and it appears that the excess DRAM channel inventories in this segment have been worked down but wanted to get your views here and typically the cloud spinning upcycle duration is.
About three to four quarters, so even in a seasonally weaker period for Pcs smartphones in the first part of next year do you see the server and data center demand remaining fairly strong.
Yes, as we look ahead, we do see server in data center demand.
Particularly within clout to be strong.
We had as we mentioned in our F Q1 .
Strong growth from cloud and we certainly see that happening through 2020 as well.
As you mentioned you know high density actually in shortage in the industry and it really is about all that trend off more AI workloads more need for their need for memory and storage as use get introduced that can work with higher density.
Family as well as have more channels, which is increasing the attach rate of DRAM content or sort of what an increasing it. So these are all of that trend that actually point to continuing.
Hi, higher than industry average level of growth.
For the names in the cloud and server and same thing on the NAND on the SSD front average density as well as average usage of flash.
In cloud and datacenter applications continues to increase.
And if you have always said that this is the long term demand driver for memory and storage industry and memory and storage is critical in terms of driving greater value in these cloud applications and these enterprise applications and hence you are seeing continuing strong growth in the.
These end market segments, and I was just like to point out that even in 2019.
While the demand through the suppliers was weaker in the first half of the year because the customers, particularly in this space. We're using of the inventory that they had to meet and consumption, but it's important to understand that the end consumption or DRAM and NAND even into a challenging 2019.
Periods continued to be healthy and as we look ahead this will be.
Strong driver of growth in the industry, but I just wanted to point out that.
As we previously discussed smartphones content growth there automotive applications continuing to drive greater content.
Graphics gaming consoles, new gaming consoles are also driving in HDD replacement with ssds as well as a greater RDM content and those applications. So I think the demand drivers and our pieces that has always been there that the industry has strong demand.
Diverse has very much mean intact and we look forward to.
Good environment for our industry in 2020 .
Thank you. Our next question comes from David Wong of estimate your line is open.
Thanks very much.
You tell us what proportion of DRAM bit currently on one fee technology on what you expect will be on once you technology and by the end of calendar 2020 .
And what's the difference is between cost per barrel Monte compared to one why.
So we don't provide cost details with respect to ones the versus one way or from one or two the other node, but as we've said before that we expect our been why plus one the combined based production to crossover our total bit production.
Bye bye.
By summer.
2020 that means bet crossover of IV, and why and ones. The combined by somewhat of 2020 and as we mentioned, if you're doing well without ones the and in fact and mobile products as I mentioned in my prepared remarks.
So the fastest ramp of.
Once the node.
In the history of our mobile presence.
Great. Thanks.
Thank you. Your next question comes from Joe Moore with Morgan Stanley . Your question. Please.
Great. Thank you I wanted to ask a bit more about the China inventory build that you talked about.
Can you kind of talk about the reasons it.
Ill.
Concern about ability to procure as it tariff related what's the reason for the pull in and any way you can help us kind of understand the magnitude would be helpful. Thank you.
As we've mentioned before we saw some China buying pattern that was.
Above normal compared to the best that we had seen and we attribute that to some of the U.S., China trade tensions and perhaps some of their customers.
In China.
You know procuring and shifting to us.
Perhaps a longer term strategy of getting more inventory.
Because in terms of the U.S., China trade aspects.
While the phase one deal is definitely encouraging to see that it's happening.
But lag there is still ongoing for longer term lack of clarity. So perhaps you know some of the China customers have.
Shifted their strategy toward getting higher levels of inventory I would say that you know that perhaps.
Is.
An important reason.
There is of course, Chinese new year as well that can play a role in the China demand Chinese new year is earlier this year compared to the typical years, but there's no question that most important thing is that the underlying demand drivers are strong and.
And you look at smartphone content growth thats happening in all smartphones across the globe, including the one sold by.
The China manufacturers the content, both on DRAM and NAND site continues to increase and certainly as we have talked about fiveg is.
In the significant driver it and certainly Fiveg phones are.
Planned to be sold.
Perhaps in the largest quantities in China first so all of these underlying demand trends I think are the most important thing here as well.
Yes.
Thank you. Your next question comes from Blayne Curtis Barclays. Your question. Please hey, guys. Thanks thing a question maybe sundry just a follow on Joe's question, just kind of curious you said take couple of quarters through our way to get back in the numbers are you veight betting embedding anything in the calendar 20 outlook you have and I'm just kind of curious following.
On that point in terms of you're expecting some moderation from China have you seen any signs of that yet.
I'm, sorry, I didn't quite get the last part of the question expecting following on Joe's question, you're expecting some moderation after an inventory build have you seen it yet or is that just something you expect will happen at some point.
What we said is that in terms of our estimation of the industry.
Demand growth in calendar year, 2020 , we have big Dan that some of the.
Inventory that we may have seen China was built we have big then that some of that will be consumed and United mentally low inventory levels will be lower than what you may be thinking at this point with those customers over the course of calendar year 2020 .
And with respect you are first piece of the question on.
I've already mentioned that you know now that we have received the licenses we are able to work with them on new product qualifications and as you know Vale new product qualifications do take.
A few months couple of quarters before they get qualified and into new platforms and then we can.
Potentially look at additional opportunities.
At this point I mean, our focus is to resume that product qualification work both for server as well as mobile applications.
Thank you. Our next question comes from Roggio of Needham and company. Please go ahead.
Yes, thanks, and congrats as well.
This cycle.
Question on on mix shift for NAND, specifically on Sunday or you had mentioned that.
Next year, you'll will be ramping.
At a higher rate and the ssds as well as you assess controllers in the in the China handset market could you talk a little bit about the trajectory of those products and how that positive mix shift.
And we'll.
Potentially affect overall margins.
Okay.
On that have Dave you don't comment on the margin piece of it.
But you know certainly as we expand our portfolio of Nvme solutions for from clients to data center and of course, certainly on the consumer side as well.
We we have done well as we reported for our F Q1 in terms of.
Expanding the portfolio and capitalizing on increased sales of Ssds, and we certainly look at gaining share throughout calendar two it 2020 as we expand our portfolio. There I think what's important to notice that our share. There is today on that is it presented so as we shift toward these.
Higher value solutions weighted expanded portfolio I mean, we are basically trying to bring our shared in line with what it should be given our share of the 2000 and bids and this is a part of the strategy that we talked about in terms of shifting the mix of off on high value solutions, which now lot at about 50% in terms of bids.
Toward higher number in the future and of course part of that ongoing shift is toward multi chip packages as well as discrete Manish NAND solutions for mobile applications, maybe pointed out that on a year over year basis, we've increased our shared by 50% yet we remain under represented.
Therein lies further opportunity for us to be increasing our shared in these markets. So high value solutions is very important part of our strategy. It enables us.
To gain greater stability greater margin unfortunately through the cycles.
As well as brings us closer to understanding the application landscape.
The customer and I'm very pleased that micron is executing quite well with respect to achieving our objectives.
In this area so obviously.
Hi Battery solutions. The reason one of the major reason for shifting the strategy to hybrid solutions is because they carry higher margins that I'll just give you a data point. If you look back at fiscal 19 and look at these high value solutions relative to consumer components.
You'll find the margins were about 30 points 30 percentage points higher so significantly higher operating or opportunity to get higher margins and of course that obviously helps the overall margins of the company.
Thank you our last question comes from the line of Hans Mosesmann.
Alan Black's Securities Your line is open.
Thank you congratulations to the team for the execution Sanjay on the.
The server and datacenter module dynamic, where you're seeing a higher mix of quality or higher density. What was the density on average a year ago, just to get a reference and how that has improved and what exactly is driving this move is it didnt processor architecture is it.
Our market share gains and that would be helpful. Thanks.
Yeah, you know in cloud service as well as enterprise server average densities I don't see Giga 300 gigabyte no for server average.
Consumption of DRAM.
And this trend is expected when you look at the CAGR over the next few years.
Expected to continue to go grow in double digit.
Range anywhere when you look at 19 to 22 kind of CAGR around 20% CAGR.
On average content growth.
In third worth in cloud and enterprise applications. So this is definitely a high growth area for the market and the you know when you look at than you do see views.
Like Gasquet Lake and other new CPQ, starting in 2019 as I mentioned earlier they support the usage of higher density chips that means they support usage of 16 gigabyte chips.
As well as more channels in the new CP was and that is definitely driving.
You know greater ability to use more content or server for DRAM and of course at the end of the day. It's about the work towards that applications are running and those workloads are requiring in you know increasing requirement for speed to end, that's translating into increasing requirement for memory as more and more real time data analytics kind of.
Applications and.
Obligations are being.
Run in enterprise and datacenter and cloud applications.
Great and as a quick follow up there can you give us a commentary regarding.
Threed Cross point used in Maine memory, if Theres a road map for that.
This year this coming year.
So clearly crosswinds you know certainly as we said exciting Fortunately for us longer term.
It definitely gives us a differentiated fortunately that as the only company in the world, having NAND DRAM NCD Crosspoint. We have just introduced our first storage product with CD cost point, the world's fastest SSD and as you noted I mean, CD Crosspoint certainly has opportunities on the memory site.
The business as well and you know as we look at engaging with the ecosystem as we look at developing other products. These are the kind of opportunities both on the memory semantic applications as well as storage.
As side of applications will be addressing over the course of next few years as we expand our product portfolio in this area, but certainly CD crosspoint.
Yes, again, these kind of things breakthrough technologies take multiple years and light it acquired lot of ecosystem work to get the full use of the technology and we had our well on our way as we discussed at Micron insight and let me put the plug here again that if you have not lost it leaves do watch summit.
The presentation I think it gives you a pretty good perspective on the capabilities of CD Crosspoint technology, and our vision of the future with it.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
Thank you, ladies and gentlemen, and thank you for standing by welcome.
Welcome to Micron technologies first quarter 2020 financial conference call.
At this time, all participants I didn't listen only mode.
After the speaker presentation, there will be a question and answer session.
To ask a question during the session you will need to press star one on your telephone.
Please be advised that todays conference is being recorded if you're acquiring any further assistance. Please press star zero.
I would now like that and the conference over to your host head of Investor Relations for Hot Ahmad Sir. Please go ahead.
Thank you and welcome to my Counterparties well, that's good color 2020 financial conference call on the call with me today, our son get Mad <unk>, President and CEO and gave didn't know Chief financial Officer today's call it wouldn't be approximately 60 minutes and.
That's called including the audio and slides is also being webcast from our Investor Relations website investors Dot Micron Dot com.
In addition, our peptide containing the earnings press release, and the prepared remarks fighting a sharp life cycle.
Today's discussion of financial results would have been presented on a non-GAAP financial basis, unless otherwise specified.
Have you gotten <unk> GAAP to non-GAAP financial measures can be found on our website, along with a convertible debt and got caught dilution table.
I was I didn't mind, Oh that cast replay will be available on our website later today.
We encourage you to monetize website at <unk> dot com throughout the quarter, but the most current information on the company, including information on the beat if I'm not sure conferences that we will be attending you can follow us on Guido micron deck.
I've heard of mine to D'amato's, we will be discussing today includes forward looking statement.
These forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made today.
Before you did the documents we filed with the FCC.
Specifically, our most recent Form 10-K , and you bought a discussion of risks that may affect our future results.
Although we believe that expectations reflected in forward looking statements about results.
Cannot guarantee future results level of activity performance or achievements.
We are under no duty to update any of the forward looking statements. After two days due to conform these statements do after that.
Now I'll turn the call into what decided yet. Thank you put on good afternoon. My phone is off to a fund it starts in our fiscal 2020 .
Despite the challenging industry environment, we delivered good profitability maintain positive free cash flow and strengthened our product portfolio.
[noise] industry supply demand balance continues to improve in both DRAM and NAND leasing trends in our business gives us optimism that out fiscal second quarter been marked the bottom for our financial performance, which we expect to start improving in our fiscal third quarter, but continued recovery in the second half of calendar.
2020.
Oh, sorry did you doing seems high value solutions and ask us one engagement and improve our cost structure, it's producing with us.
We have materially improved our competitive position structurally lease 10th and our profitability and that boys to drive long term shareholder value as industry conditions improve.
Hi battery solutions in fiscal 2019, I thought they bought approximately 50% of men bets.
We expect this figure to go to over two thirds of our NAND bets. So one for fiscal 2020 and remain on track your Jive, 18% of our NAND Beth into high value solutions in fiscal 2021.
This mix improvement is an important data even for us as it improves our profitability and did you said the volatility in our margins.
And our micron insight event in October we articulated a vision for microns transformation through greater vertical integration and differentiated products for the new dichotomy.
I would highlight two of these and then could you do have you submit Savannah insight keynote available on our website for more detail.
First we announced acquisition of a small company going forward next.
The forward next deep learning accelerator hardware and software technology, when combined with that vast micron memory makes it possible deploying unit network models from any framework into edge devices what incidents.
Forward next unique technology is an important capability not portfolio that will help us learn and better address customers needs and they involving ecosystem.
At insight, we also launched our first CD costs buying product.
The next 100, which is the voice fastest storage device.
The Micron X 100, SSD is dramatically faster than any of that SSD, including doors built with NAND RCD Crosspoint technology and be a drought that it doesnt showcased at Microsoft Nikon, France, My dad as your team.
In October we lost our acquisition of intense stake in divesting joint venture.
We plan on relocating equipment and certain manufacturing employees to others Micron sites as we right size the Lehigh fab.
Redeploying equipment will also help us optimize microns front end equipment capex.
As with any innovative technology. It will take time to scale up RCD crosspoint product portfolio ramped revenues and achieve healthy margins and get excited about the long term potential CD cost point for both memory and storage applications.
The only company in the world with a portfolio of DRAM NAND NCD Crosspoint technologies, we are in a unique position to develop differentiated products what our customers.
I'll now turn to technology and manufacturing location.
Indeed, our industry, leading ones the LP for de them based you Emcp had the fastest revenue ramp off any product and the history of public mobile business.
I'll, let production mix on Wamsi will increase throughout 2020 .
And de them cost reductions will be skewed toward the second half of fiscal 2020 .
Our previously announced schemes room expansion in Taiwan is on track and we expect output and calendar 2021.
This gains on expansion is E capable.
Why do we continue to evaluate easy technology for deployment in DRAM production.
The current assessment shows superior economics, so one gamma note utilizing advanced immersion technology, along with microns proprietary multi patterning technologies.
We are encouraged why do you sent industry progress on the easy productivity and we'll be prepared to deploy you leave and it becomes cost effective to do so.
And now and we're continuing to make progress on our replacement gauge transition and expect to begin production on our Onetwenty clear first generation RG node and the second half of fiscal 2020 .
As a reminder, this north will be deployed for the limited set of products and do you expect minimal land cost reduction in fiscal 2020 .
It will be followed by an introduction of our higher layer count second generation RG not in fiscal 2021 targeted for the broader implementation just trying to begin to provide more robust cost reduction as it jumps.
The second generation RG node will leverage our NAND technology leadership and Cmos under the today as well SQL C.
Now turning to highlights my products and markets in Ssds demands from datacenter customers was strong in fiscal first quarter.
Actually it's then capacities for client and consumer this as these have continued to increase across our customers.
They're not supply shortages, what ssds across the industry and pricing trends are improving.
We are making strong progress on our transition to envy I mean.
As a fiscal second quarter, we would have nvme SSD is what all market segments, which positions us to gain share in fiscal 2020.
And we any client SSD bed shipments represented almost three quarters of our client SSD beds in fiscal Q1, what's there's virtually none are yet to vote.
In the datacenter market sales of our previously announced high performance Nvme, SSD nearly tripled quarter over quarter, and we announced a 96 live mainstream data center Nvme SSD.
While drilling dollars presence in envy I mean, we continue to manage maximize our value propositions for the sat down market by ramping 96 Lear NAND products.
We achieved qualifications with multiple Oems on our 96 near Santa datacenter SSD.
I'd like you will see technology continues to gain traction. We ask you will see ssds and volume production for set I Ssds in that data center and consumer markets as well as envy any ssds for the consumer markets.
We became the first company to ship a 96 their second generation QFC SEPTA consumer SSD.
In mobile fiscal first quarter, the Emcp DRAM and NAND bets grew approximately 50% quarter over quarter.
Nobody emcp market share increased approximately 50% year over year.
In fiscal Q1, our leading edge one we LP for de them back to you Emcp achieved qualification at multiple Oems driving the fastest mobile product revenue them I mentioned earlier.
We are confident that fiveg will be positive for both memory and storage content growth as well as smartphone unit sales and are encouraged to see the launch of affordable fiveg phones with price points as low at $300 that feature at a minimum of six gigabyte of be them.
The Fiveg phones launched to date average eight gigabyte of Vietnam, and 200 gigabyte of NAND.
Significantly higher than the average content in smartphones today.
Our leadership on dealer Mpower efficiency continues to drive customer preference, what our products and we remain well positioned in this market.
We have the lowest power and the highest bandwidth LP five product that begins volume production this quarter, which we expect will become more important and 2020 run as fiveg adoption accelerates.
And datacenter strong server DRAM demand in the second half of calendar 2019 is creating an industry wide chart page of high quality high density modules for which we are seeing incremental demand from our customers.
You will see if you architectures supporting higher density chips and increased number of channels are driving strong de them content growth and servers.
In fiscal Q1, we saw strong demand growth from enterprise and cloud customers.
In graphics vet shipments remained stable with GDR six BC graphics cards, showing strong growth offset by seasonal weakness in gaming consoles.
In fiscal Q1, we began shipments of our new 14 gigabit per second GDR Capex and are well positioned to benefit from the launch of next generation gaming consoles and calendar 2020 .
The launch of these new gaming console submitted drive robust multiyear demand in graphics memory and these console. So it will deploy ssds in place of hard drives for the first time.
This continues our trend off ssds, replacing hard drives across more high volume applications.
And the PC market good shipments in the fiscal first quarter continued the growth trends from last quarter.
Nevertheless, we are cautious on our near term outlook for the PC segment due to an important CPQ shortages, which seem likely to continue at least into early calendar 2020 .
In automotive despite sluggish worldwide auto sales, we saw quarter over quarter revenue growth driven by secular memory and storage content growth.
Our leadership in low power de them is also driving growth put us in this market.
In the fiscal first quarter, we quantified and ship the industry's first BJ nvme SSD for automotive applications, which offers industry, leading performance and capacity in a small form factor and is well suited to service the storage needs of increasing autonomous features.
Now turning to other market outlook, our base case assumption on which all our projections are based assumes that there are no perturbations to the demand environment due to macroeconomic conditions or change the latest developments.
Okay.
Indeed, and there has been a strong recovery in the second half of calendar 2019, and our view of calendar 2019 industry bed demand growth has increased to approximately 20%.
The stronger than expected demand has resulted in pockets of short to just bought us.
We continue to exercise price discipline and walk away from pricing requests that do not meet our objectives.
While these actions may impact short term revenue improving our business mix will enhance our long term profitability.
We are encouraged by these send DRAM pricing trends and optimistic about improving supply demand balance throughout calendar 2020 .
As we discussed on our last call a portion of the strengthened demand in the second half of calendar 2019, maybe attributable to inventory build in China, and we expect some of this customer inventory to normalize sometime in calendar 2020 .
As I did note, we expect calendar 2020 industry DRAM bit demand growth to be in the mid teens sports cents range year over year.
Which is somewhat lower than our prior outlook due to stronger demand in calendar 2009 team.
We expect industry bit supply growth for calendar 2020 to be somewhat less than that demand as the industry bed supply growth.
Decelerates due to industry Capex reductions.
We continue to target our long term bit supply growth CAGR there to be close to the industry is long term demand growth CAGR of mid to high teens.
In calendar 2019, outbid supply growth will be less than the industry supply growth of mid teens, and then 2020 . Our best supply growth is expected to be slightly above industry based supply growth.
Turning to enhance our indefinitely bit demand growth expectation is in the mid Fortys Percentrange in calendar 2019, and high Twentys to lower courteous Percentrange in calendar 2020 .
We expect calendar 2020 industry bit supply to be lower than industry bit demand as it is tough industry capex reductions and consequently, we expect the industry environment to improve through calendar 2020 .
Microns man bit supply growth in calendar 2019 is likely to be slightly below industry bed demand growth and then calendar 2020 will be meaningfully below that of the industry.
However, we expect our NAND bit shipments growth in calendar 2020 to be closed two industry bid demand growth as we ship our inventory during the first generation followed RG transition.
As we go through the transition to replacement gate, we expect our multi year supply growth CAGR to be in line with the industry is demand CAGR of approximately 30%.
Before I turn it over to Dave I wanted to provide an update on our business with while there.
As previously disclosed we are continuing to ship some products. So while there that are not subject to explore demonstration regulations and entity less jurisdictions.
We applied for and recently received all requested licenses that enable us to provide support for these products as well as qualified new products Whitewave as mobile and several other businesses.
Additionally, these licenses allow us to ship previously restricted products that we manufactured in the United States mission to present, a very small portion of our sales.
However, there are still some products outside of the mobile and server markets.
We are unable to sell to all of it.
So receiving the licenses is a positive development and we're thankful to the U.S. administration for approving these licenses.
Prior to receiving these licenses entity less distinctions severely limited our ability to qualify new product set while there.
Although we are now able to qualify new products with Ravi as mobile and server businesses. It will take some time before the qualifications that are completed and contribute to revenue.
Consequently, we do not expect these licenses to have a material impact on our revenue and the next couple of quarters.
I'll now turn it over to Dave to provide our financial results and guidance.
Thanks, Sanjay microns at Q1 results were largely consistent with our expectations as market conditions continue to stabilize.
During the quarter DRAM price declines decelerated from recent quarters, and we saw pricing improvements in NAND.
Total company revenues grew sequentially and our total inventory declined in absolute terms.
We generated positive free cash flow during the quarter made progress on our share repurchase program.
And further strengthened our balance sheet.
The result onto the result on today's call reflect our previously announced changes the NAND depreciable life to seven years from five years.
And the change in reporting from our previous Discloser disclosures, which classified all emcp and SSD revenues as NAND revenue.
To review now that this aggregates these revenues into DRAM and NAND.
The following DRAM and NAND growth figures use restated historical revenues for an apples to apples comparison.
Total F Q1 revenue was approximately $5.1 billion.
Revenue was up 6% sequentially and down 35% year over year.
FQ, one DRAM revenue was $3.5 billion, representing 67% of total revenue.
DRAM revenue increased 2% sequentially and declined 41% year on year.
Pit shipments grew approximately 10% sequentially and on a year on year basis, we're up in the mid 20% range.
ASP declined in the upper single digit percent range sequentially.
DRAM revenues included $435 million of revenues from Emcps and Ssds.
FQ, one NAND revenue with approximately $1.4 billion were 28% of total revenue.
Revenue was up 18% sequentially and declined 14% year on year.
Mitch shipments grew in the mid teen percent range sequentially and in the mid 30% range year on year.
And ASP has increased in the low single digit sequentially.
Now turning to our revenue trends by business unit.
Revenue for the compute and networking business unit was approximately $2 billion, an increase of 4% sequentially and down 45% year over year.
The sequential increase was driven by higher volumes and moderating ASP declines.
Revenue for the mobile business unit was $1.5 billion 40.
Sequentially and down 34% year over year.
MCP revenues grew strongly during the quarter driven by approximately 50% sequential growth in DRAM and NAND bit.
Revenue for the storage business unit net Q1 was $968 million, an increase of 14% permit Q4 and down 15% year over year.
Sequential revenue growth was driven by SSD volume growth and ASP increases.
Finally revenue for the embedded business unit was $734 million up 4% from FQ, four and down 21% from the prior year.
Sequential revenue growth was mostly driven by the automotive market due to content growth.
The consolidated gross margin for F Q1 was 27.3%.
Slightly above the midpoint of our guidance.
Q1 gross margins included approximately a 240 basis point negative impact.
Were approximately $125 million.
Due to under utilization charges at the Lehigh Fab.
This came in slightly better than we guided to on last quarter's call, but under utilization charges are expected to ramp higher in Q2 as production volumes decline.
We still expect the underutilization charges to averaged $150 million per quarter in the first half of fiscal 2020.
We have taken action to reduce our spending in the Lehigh fab, which should begin to reduce under utilization charges in fiscal 2021 at these actions are implemented.
Ultimately these charges will be mitigated as our own Threed cross point products ramp into production over the coming years.
Operating expenses were $811 million as we incurred higher than usual R&D expenses to qualify new products.
We expect to operate at higher levels of qualification expenses for the remainder of fiscal 2020.
We continue to expand our product portfolio.
As a result, we now expect operating expenses to be approximately $3.3 billion for the fiscal year.
We continue to prudently control all other operating expenses and remain flexible should business conditions warrant.
F Q1, operating income was $594 million, representing 12% of revenue.
Operating margin was down 38 percentage points year over year and down three percentage points from Q4.
Our F Q1 effective tax rate was 6.9%.
We expect our tax rate to be approximately 5% for the remainder of the fiscal year.
non-GAAP earnings per share in FQ, one were 48 cents down from 56 cents in FQ, four and $2.97 in the year ago quarter.
Turning to cash flows and capital spending we generated $2 billion in cash from operations in Q1, representing 40% of revenue.
During the quarter net capital spending was approximately $1.9 billion down from approximately $2 billion in the prior quarter.
We are continuing to target slide 20, capex in the range of $7 billion to $8 billion.
We generated adjusted free cash flow of approximately $80 million in FQ, one compared to $260 million last quarter and approximately $2.3 billion in the year ago quarter.
Q1, we repurchased 1.1 million shares for $50 million.
In addition, we deployed approximately $200 million of cash to settle convertible note redemptions in the quarter, removing approximately 3 million shares from our fully diluted share count.
We will continue to target deploying at least 50% of our annual free cash flow towards repurchases.
Days of inventory was 121 down from 131 days in F Q4 .
Inventory ended the quarter at $4.9 billion down slightly from $5.1 billion at the end of Q4.
Over the last two quarters, our inventory days have declined by approximately 15%.
We expect inventory days to increase in fiscal Q2 due to seasonality and then begin to reduce again for the remainder of the year.
We ended the quarter with total cash of $8.3 billion and total liquidity of nearly $11 billion.
We deployed approximately $1.3 billion of liquidity in FQ, one to fund the closing of our acquisition of Intel stake in the IMF tea joint venture.
At Q1, ending total debt was $5.7 billion down slightly from the prior quarter.
In addition to the retirement of IMF Ts member debt.
We used cash on hand to retire approximately $520 million in principle of high yield debt.
This was partially offset by the drawdown of our term loan facility to fund the T. acquisition.
Our balance sheet is very strong with net cash of $2.7 billion and we remain committed to maintaining a net cash position.
Last month, S&P upgraded microns credit rating to investment grade and now all three rating agencies rate microns credit as investment grade.
Now turning to our financial outlook as Sanjay mentioned, our outlook throughout our earnings commentary assumes that the macroeconomic environment and trade related issues will not impact demand.
Microns fiscal second quarter is the seasonally weakest quarter for the industry.
I continue to exercise pricing discipline and reduced business, a customers where pricing does not meet our objectives and this limits our business opportunity within the quarter.
Additionally, in F Q2 pockets of supply tightness are limiting our bit shipments Lehigh under utilization costs are going to step up and our cost reductions are likely to remain modest.
However, we are encouraged by recent market trends and expect that up Q2 will be the bottom for our gross margins.
As pricing increasing mix of high value solutions and cost reductions drive better gross margins throughout the rest of fiscal and calendar 2020.
We expect a gradual recovery to start in Q3.
And to continue into the seasonally stronger second half a calendar year.
With that mind, our non-GAAP guidance for fiscal Q2 is as follows.
Expect revenue to be in the range of $4.5 billion to $4.8 billion.
Gross margin to be in the range of 27% plus or minus 150 basis points.
And operating expenses to be approximately $825 million plus or minus $25 million.
Interest and other income is expected to be approximately zero.
Based on a share count of approximately 1.14 billion fully diluted shares we expect EPS to be 35 cents plus or minus six cents.
As we approach the trough in this cycle at the midpoint of our guidance fiscal Q2 revenue will be 60% higher and gross margins nine percentage points higher than in the prior trough, which occurred in the fiscal third quarter 2016.
Micron solid financial performance and investment grade balance sheet demonstrate that the new micron is indeed, structurally stronger with higher lows and better cross cycle revenue growth and profitability.
I'll now turn the call over to Sanjay for closing remarks.
Thank you Dave Micron is entering 2020 as a fundamentally stronger company in an industry that just structurally John spawned supply growth is moderating due to rising capital intensity and the slowing down enough Morse law.
Demand drivers have more diversified than ever before Morton end markets and in variety of memory and storage solutions.
This change in industry dynamics creates new apportion do you sort of micron to innovate and provide differentiated value to customers.
This is applications promise to further accelerate this diversification.
Growth continues at a best base driven by new use cases, and Fiveg networks are just beginning to proliferate and will shut in and the age of true machine to machine communication with billions of connected devices.
And just a little further over the horizon.
Hi machine learning and the tandem as technologies will expand this but then show even more.
These trends are transforming every aspect of human life, and driving secular growth in memory and storage microns enhanced product portfolio improved cost structure and talented team put us in an outstanding position to capitalize on available for opportunities ahead, and create long term shareholder value.
We will now open for questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone again Thats Star one on your Touchstone telephone to ask a question to withdraw your question press. The pound can we asked would you. Please restrict yourself. So one question.
And then re queue.
Please standby, while we compile the Q in a roster.
Our first question comes from the line Srini Pajjuri.
SMBC Nikko your line is open.
Thank you sorry, just a couple of questions I guess first on the.
Supply shortages that you talked about could you. Please elaborate because on one hand youre talking about some shortages on the other hand, how the inventories are going up.
Moving to the next quarter.
Then I have a follow up.
So as we said last time as well as in this earnings call that we have certain supply shortages and de them on the leading edge nodes.
And we have brought down not inventory here overall inventory down fairly fast as Dave pointed out.
And you have seen strong growth in demand indeed, I am on.
High quality high density modules for servers as well as demand trends have continued to be pretty solid.
So.
Shortages on.
Leading edge nodes anytime and on the NAND side.
We have.
SSD demand going up substantially and.
Our 96 led products as we expand the portfolio are being qualified by customers. We are seeing strong demand on our 64 layer Nord very out actually seeing some shortages and of course as we mentioned we experienced some backend constraints as well we have invested in Bakken capacity Assembly and test capacity.
Expansion and that's.
Assembly and test issues impacting some of our multi die stacked on the mobile solutions as well as SSD solutions, The assembly and test constraints will be eliminated largely by the end of fiscal second quarter. So these are some of the thing that that impacting some of the shortages uniboss.
Indeed man on the NAND side, and again that demand trends continued to be solid of course in CQ, one VC seasonality and yes. Some of our inventory may go up at the end of.
Fiscal Q2, but overall our normal inventory days is the down as we look ahead is around 110 days and unit Thats really a function of infusing complexity coming from the technology nodes.
As well as as we shift toward high value solutions.
More to ssds more multi chip package is no they take longer lead assembly and test times as well. So those are the ones that the contributing to some of the aspects of days of inventory that event, we foresee in the future. If you look at it as approximately 110 days so industry environment in terms of.
Oh man continues to be solid buckets of shortages building all across the industry, certainly we are experiencing that and pricing trends overall in the industry.
As you look ahead at 2020 .
Yet optimistic about improving pricing trends in the industry as well.
Thank you again, ladies and gentlemen, we ask that you. Please limit yourself to one question. Our next question comes from a line of John Pitzer of Credit Suisse. Your line is open.
Hey, guys. Congratulations on the solid results such I wanted to talk little about the Capex guidance for this fiscal year I think I understand the strategy around NAND to kind of can stream spending on the first generation of replacement gauge where cost downs are de minimis and kind of wait to version two.
But I'm kind of curious as you think about DRAM strategy, especially given that demand came in much stronger than expected. This year, 20%. There were some of us that thought at the beginning the year, we'd be lucky to get us to low double digit growth.
How do we think about DRAM capex from here on your ability to try to keep up with industry Big growth and I guess, specifically my question is how much I certainly would you have in moving more of your mix of DRAM towards a leading edge node as a way to grow bits rather than just shrinking.
You know certainly as we move already then production to leading as noted for example through one Z. We have you mentioned that you did very well with ramping on the DRAM node in our mobile.
During the quarter so of course, though it give us a bit growth. It comes with the strength capability and technology transitions are the best way to achieve ROI as well, what's important is being extremely disciplined and prudent in terms of managing our.
Apply a bit growth and we want to make sure that it's aligned with our bit demand growth as well and with our long term objective is to have our supply bit growth CAGR or to be aligned with the industry demand growth CAGR you mentioned that in 2019, our DRAM supply.
Growth somewhat below the industry supply growth and entering fiscal year 2020 in calendar year, 2020 , we see our supply growth to be somewhat above the industry supply growth, but all in all our strategy is to have our supply growth CAGR to be aligned with the industry demand growth CAGR.
We feel very good about you know when you look ahead of 2020 our.
Supply overall position and yes, I mean, we had experiencing starting shortages on leading nodes and we believe that some of these shortages in the industry as well as for US will continue in calendar year, 2020 timeframe and frankly, that's a good place to be at in terms of running the business because it helps you manage the best.
Of the business as well in terms of revenue and profitability.
Thank you. Your next question comes from CJ Muse Evercore. Your line is open.
Alright, Thanks for taking the question I guess a question on the DRAM demand side.
Mining.
Look for 15, or sorry, mid mid teens growth in 2020, and Im curious as you think about that number.
Hi, guys relates to potential Poland of China demand.
Potential conservatism on your part and within that what kind of assumptions are you, making around fiveg handsets and continued cloud spending through 2020. Thank you.
So certainly fiveg will be a growth driver we expect fiveg.
Headset.
Said smartphones to be more weighted toward the second half of the calendar year.
Cloud Capex as you have seen that affords from various major cloud providers cloud Capex continues to be healthy meaningful portion of that cloud capex goes into memory and storage and that continues to drive above average.
Industry.
Above average demand as a percentage versus the average of the total Vietnam industry.
And Fiveg influence I think it's important to note that you know.
Continues to grow as we mentioned in our script I mean of course Fourg phones content continues we will but fiveg phones are driving a step level function increase in the average content of bullet to DRAM as well as NAND and our estimation as that in calendar year 2020 approximately 200 million.
Off a fiveg smartphones to be sold on a global bases.
So overall.
Look at the demand.
Industry demands of mid teens that year projected for calendar year 2020 keep in mind that is building upon calendar year 2019, where.
Industry demand in the second half came in quite strong and in fact, we upped our estimate of industry demand growth due to approximately 20% for 2019. So you are working off a large demand larger than previously expected hotel bet shipments and 2019 and obviously.
That has an impact on the person page that we look at four 2020 , but in terms of aggregate of bed demand that continues to be.
Pretty solid in 2020 , as well and as we said.
2019 was a headwind in terms of demand and supply for the industry and 2020 , we look at demand and supply balance as a tailwind for the industry.
Thank you. Your next question comes from Aaron Rakers of Wells Fargo Securities. Your line is open.
Yes, thanks for taking the question I guess just on the capital expenditure fraud.
Obviously, you guys talked about reiterated the capex, but you're also.
The Taiwan fab, you're noting that that fab is capable of UBI I know you've talked about.
That you don't need that through the one GABAA node, but.
It kind of suggest that you are looking at you'd be as potentially something that you're evaluating have you pulled it at all your thoughts on the you'd how do we think about that macoms extra capex not necessarily this year, but looking out into the the subsequent years. Thank you.
So at this point, you're not providing.
First quarter 2020 financial conference call.
At this time all participants are in in listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that todays conference is being recorded if you acquire any further assistance. Please press star zero I would now like that.
And the conference over to your host head of Investor Relations for Han Ahmad Sir. Please go ahead.
Thank you and welcome to Micron technologies first fiscal quarter 2020 Financial conference call on the call with me today, our son game editor, President and CEO and Dave I didn't know Chief Financial Officer, today's call will be approximately 60 minutes and.
This call, including the audio and slides is also being webcast from an investor relations website at investors Dark Micron dotcom.
In addition, our website contains the earnings press release and the prepared remarks filed a sharp light vehicle.
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 can be found on our website, along with a convertible debt and capped call dilution table.
As a reminder of webcast replay will be available on our website later today.
We encourage you to monitor our web site at the Micron dotcom 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 Grito micron deck.
As a reminder, d'amato's, we will be discussing today includes forward looking statements. These forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made today.
Refer you to the documents we filed with the FCC.
Specifically, our most recent Form 10-K in Q for a discussion of risks that may affect our future results.
Although we believe that expectations reflected in forward looking statements are reasonable cannot guarantee future results level of activity performance or achievements.
We are under no duty to update any of the forward looking statements. After todays date to conform these statements to actual results.
I'll now turn the call over to Sanjay. Thank you for Han Good afternoon, Micron is off to a solid start in our fiscal 2020 .
Despite the challenging industry environment, we delivered good profitability maintain positive free cash flow and strengthened our product portfolio.
Industry supply demand balance continues to improve in both DRAM and NAND leasing trends in our business gives us optimism that our fiscal second quarter been marked the bottom for our financial performance, which we expect to start improving in our fiscal third quarter with continued recovery in the second half of calendar.
2020 .
Our strategy to increase high value solutions enhance customer engagement and improve our cost structure is producing reserves.
We have materially improved our competitive position structurally strengthened our profitability and at boys to drive long term shareholder value as industry conditions improve.
Hi value solutions in fiscal 2019 accounted for approximately 50% of NAND beds.
We expect this figure to grow to over two thirds of our NAND beds sold for fiscal 2020 and we remain on track to drive 18% of our NAND best into high value solutions in fiscal 2021.
This mix improvement is an important tailwind for us as it improves our profitability and reduces the volatility in our margins.
And our micron insight event in October we articulated a vision for microns transformation through greater vertical integration and differentiated products for the new data economy.
I would highlight two of these and encourage you to view Sumit Savannah us insight keynote available on our website for more detail.
First we announced acquisition of a small company called forward next.
The forward next deep learning accelerator hardware and software technology, when combined with advanced Micron memory makes it possible to deploy neural network models from any framework into edge devices for inference.
Forward next unique technology is an important capability in our portfolio that will help us learn and better address customers needs involving AI ecosystem.
At insight, we also launched our first CD cost point product.
They X 100, which is the voice fastest storage device.
The Micron X 100, SSD is dramatically faster than any other SSD, including doors built with NAND RCD Crosspoint technology, and we are proud that it was showcased at Microsoft Ignite conference by their as your team.
In October we closed our acquisition of Intels stake in the IMF the joint venture.
We plan on relocating equipment and certain manufacturing employees to others Micron sites as we right size the Lehigh fab.
Redeploying equipment will also help us optimize microns frontend equipment capex.
As with any innovative technology. It will take time to scale up our CD cost line product portfolio ramped revenues and achieved healthy margins and we're excited about the long term potential our Threed cross point for both memory and storage applications.
As the only company in the world with a portfolio of DRAM NAND NCD Crosspoint technologies, we are in a unique position to develop differentiated products what our customers.
I'll now turn to technology and manufacturing operations.
Indeed them, our industry, leading ones the LP for DRAM based you Emcp had the fastest revenue ramp of any product in the history of our mobile business.
Our production mix on Wednesday will increase throughout 2020 , and DRAM cost reductions will be skewed toward the second half of fiscal 2020 .
Our previously announced clean room extension and Taiwan is on track and we expect output and calendar 2021.
This clean room expansion is easy capable.
While we continue to evaluate easy technology for deployment in DRAM production. Our current assessment shows superior economics through one gamma note utilizing advanced immersion technology, along with microns proprietary multi patterning technologies.
We are encouraged by these sent industry progress on easy productivity and we'll be prepared to deploy you leave and it becomes cost effective to do so.
And now and we're continuing to make progress on our replacement gauge transition and expect to begin production on our Onetwenty clear first generation RG node in the second half of fiscal 2020 .
As a reminder, this nord will be deployed for the limited set of products and we expect minimal NAND cost reduction in fiscal 2020 .
It will be followed by an introduction of our higher layer count second generation RG note in fiscal 2021 targeted for the broader implementation, which will begin to provide more robust cost reduction as it ramps.
The second generation RG node will leverage our NAND technology leadership in Cmos under the rate as well SQL C.
Now turning to highlights by products and markets in Ssds demands from datacenter customers was strong in fiscal first quarter.
Attach rates and capacities for client and consumers as these have continued to increase across our customers.
There are supply shortages, what ssds across the industry and pricing trends are improving.
We are making strong progress on our transition to Nvme me.
As a fiscal second quarter, we will have nvme, SSD sort all market segments, which positions us to gain share in fiscal 2020.
And we meet client SSD bed shipments represented almost three quarters of our client SSD beds in fiscal Q1 versus virtually none a year ago.
In the datacenter market sales of our previously announced high performance and we EMEA says the nearly tripled quarter over quarter, and we announced a 96 Lear mainstream data center Nvme SSD.
While growing our presence in EMEA me, we continue to manic maximize our value propositions for the Santa market by ramping 96 layered NAND products.
We achieved qualifications with multiple Oems on our 96 layer sater datacenter SSD.
Other key we'll see technology continues to gain traction. We if you will see us as these in volume production for satire Ssds Inter data center and consumer markets as well as nvme SSD is for the consumer markets.
We became the first company to ship a 96 Lear second generation QFC set our consumer SSD.
In mobile fiscal first quarter, Emcp, DRAM and NAND base grew approximately 50% quarter over quarter.
And our Emcp market share increased approximately 50% year over year.
In fiscal Q1, our leading edge one we LP for DRAM base to you Emcp achieved qualification at multiple Oems driving the fastest mobile product revenue ramp I mentioned earlier.
We are confident that fiveg will be positive for both memory and storage content growth as well as smartphone unit sales and are encouraged to see the launch of affordable fiveg phones with price points as lower $300 that featured a minimum of six gigabyte of the them.
The Fiveg phones launched to date average eight gigabyte of Vietnam, and 200 gigabyte of NAND.
Significantly higher than the average content in smartphones today.
Our leadership on DRAM poverty efficiency continues to drive customer preference, where our products and we remain well positioned in this market.
We have the lowest power and the highest bandwidth LP five product that begins volume production this quarter, which we expect will become more important in 2020 , one as fiveg adoption accelerates.
And data center strong server DRAM demand in the second half of calendar 2019 is creating an industry wide shortage of high quality high density modules for which we are seeing incremental demand from our customers.
New CPQ architectures supporting higher density chips and increased number of channels are driving strong DRAM content growth and servers.
In fiscal Q1, we saw strong demand growth from enterprise and cloud customers.
In graphics vet shipments remained stable with GDR six PC graphics cards, showing strong growth offset by seasonal weakness in gaming consoles.
In fiscal Q1, we began shipments of our new 14 gigabit per second GDR sex and are well positioned to benefit from the launch of next generation gaming consoles in calendar 2020.
The launch of these new gaming consoles will drive robust multiyear demand in graphics memory, and these consoles, which will deploy ssds in place of hard drives for the first time.
This continues a trend of ssds, replacing hard drives across more high volume applications.
In the PC market, which deployments in the fiscal first quarter continued the growth trend from last quarter.
Nevertheless, we are cautious on our near term outlook for the PC segment due to reported CPQ shortages, which seem likely to continue at least into early calendar 2020 .
In automotive despite sluggish worldwide auto sales, we saw quarter over quarter revenue growth driven by secular memory and storage content growth.
Our leadership in low power DRAM is also driving growth for us in this market.
In the fiscal first quarter, we qualified and share the industry's first BG nvme SSD for automotive applications, which offers industry, leading performance and capacity in a small form factor and is well suited to service the storage needs of increasing autonomous features.
Now turning to our market outlook, our base case assumption on which all our projections are based assumes that there are no perturbations to the demand environment due to macroeconomic conditions or trade related developments.
Indeed, and there has been a strong recovery in the second half of calendar 2019, and our view of calendar 2019 industry bed demand growth has increased to approximately 20%.
The stronger than expected demand has resulted in pockets of shortages for us.
We continue to exercise price discipline and walk away from price Equus that do not meet our objectives.
While these actions may impact short term revenue improving our business mix will enhance our long term profitability.
We are encouraged by recent DRAM pricing trends and are optimistic about improving supply demand balance throughout calendar 2020 .
As we discussed on our last call a portion of the strengthened demand in the second half of calendar 2019 may be attributable to inventory barrels in China, and we expect some of this customer inventory to normalize sometime in calendar 2020 .
As a result, we expect calendar 2020 industry DRAM bit demand growth to be in the mid teens percent range year over year.
Which is somewhat lower than our client outlook due to stronger demand in calendar 2009 team.
We expect industry bit supply growth for calendar 2020 to be somewhat less than that demand as industry bed supply growth.
Decelerates due to industry Capex reductions.
We continue to target our long term bit supply growth CAGR to be close to the industry is long term demand growth CAGR of mid to high teens.
In calendar 2019, our big supply growth will be less than the industry supply growth of mid teens, and then 2020 . Our best supply growth is expected to be slightly above industry, but supply growth.
Turning to NAND, our industry bit demand growth expectation is in the mid Fortys Percentrange in calendar 2019, and high Twentys too low 30 percents range in calendar 2020 .
We expect calendar 2020 industry best supply to be lower than industry bit demand as a result of industry capex reductions and consequently, we expect the industry environment to improve through calendar 2020.
Microns NAND bit supply growth in calendar 2019 is likely to be slightly below industry bed demand growth and then calendar 2020 will be meaningfully below that of the industry.
However, we expect our NAND bit shipments growth in calendar 2022, we closed two industry bid demand growth as we ship our inventory during the first generation of our with RG transition.
As we go through the transition to replacement gate, we expect our multi year supply growth CAGR to be in line with the industry's demand CAGR of approximately 30%.
Before I turn it over to Dave I wanted to provide an update on our business with Wally.
As previously disclosed we are continuing to ship some products to validate that are not subject to explore the administration regulations and entity less restrictions.
We applied for and recently received all requested licenses that enable us to provide support for these products as well as qualified new products for guavas mobile and server businesses.
Additionally, these licenses allow us to ship previously restricted products that we manufactured in the United States, which represent a very small portion of our sales.
However, there are still some products outside of the mobile and server markets that we are unable to sell to Ravi.
Receiving the licenses is a positive development and we're thankful to the U.S. administration for approving these licenses.
Prior to receiving these licenses entity less restrictions severely limited our ability to qualify new product set while there.
Although we are now able to qualify new products with Ravi as mobile and server businesses. It will take some time before the qualifications are completed and contribute to revenue.
Consequently, we do not expect these licenses to have a material impact on our revenue in the next couple of quarters.
I'll now turn it over to Dave to provide our financial results and guidance.
Thanks, Sanjay microns at Q1 results were largely consistent with our expectations as market conditions continue to stabilize.
During the quarter DRAM price declines decelerated from recent quarters, and we saw pricing improvements in NAND.
Total company revenues grew sequentially and our total inventory declined in absolute terms.
We generated positive free cash flow during the quarter made progress on our share repurchase program.
And further strengthened our balance sheet.
The result onto the results on today's call reflect our previously announced changes in NAND depreciable life to seven years from five years.
And the change in reporting from our previous Discloser disclosures, which classified all emcp and SSD revenues as NAND revenue.
To review now that this aggregates these revenues into DRAM and NAND.
The following DRAM and NAND growth figures use restated historical revenues for an apples to apples comparison.
Total F Q1 revenue was approximately $5.1 billion.
Revenue was up 6% sequentially and down 35% year over year.
FQ, one DRAM revenue was $3.5 billion, representing 67% of total revenue.
DRAM revenue increased 2% sequentially and declined 41% year on year.
Pit shipments grew approximately 10% sequentially and on a year on year basis, we're up in the mid 20% range.
ASP declined in the upper single digit percent range sequentially.
DRAM revenues included $435 million of revenues from Emcps and Ssds.
FQ, one NAND revenue with approximately $1.4 billion were 28% of total revenue.
Revenue was up 18% sequentially and declined 14% year on year.
That shipments grew in the mid teen percent range sequentially and in the mid 30% range year on year.
And Asps increased in the low single digit sequentially.
Now turning to our revenue trends by business unit.
Revenue for the compute and networking business unit was approximately $2 billion, an increase of 4% sequentially and down 45% year over year.
The sequential increase was driven by higher volumes and moderating ASP declines.
Revenue for the mobile business unit was $1.5 billion up 4% sequentially down 34% year over year.
MCP revenues grew strongly during the quarter driven by approximately 50% sequential growth in DRAM and NAND bit.
Revenue for the storage business unit net Q1 was $968 million, an increase of 14% from Q4 and down 15% year over year.
Sequential revenue growth was driven by SSD volume growth and ASP increases.
Finally revenue for the embedded business unit with $734 million up 4% from Q4 and down 21% from the prior year.
Sequential revenue growth was mostly driven by the automotive market due to content growth.
The consolidated gross margin for F Q1 was 27.3%.
Slightly above the midpoint of our guidance.
At Q1 gross margins included approximately a 240 basis point negative impact were approximately $125 million.
Due to under utilization charges at the Lehigh Fab.
This came in slightly better than we guided to on last quarter's call.
But underutilization charges are expected to ramp higher in Q2 as production volumes decline.
We still expect the underutilization charges to averaged $150 million per quarter in the first half of fiscal 2020.
We have taken action to reduce our spending in the Lehigh fab, which should begin to reduce underutilization charges in fiscal 2021 at these actions are implemented.
Ultimately these charges will be mitigated as our own Threed cross point products ramp into production over the coming years.
Operating expenses were $811 million as we incurred higher than usual R&D expenses to qualify new products.
We expect to operate at higher levels of qualification expenses for the remainder of fiscal 2020, as we continue to expand our product portfolio.
As a result, we now expect operating expenses to be approximately $3.3 billion for the fiscal year.
We continue to prudently control all other operating expenses and remain flexible should business conditions warrant.
F Q1, operating income was $594 million, representing 12% of revenue.
Operating margin was down 38 percentage points year over year and down three percentage points from Q4.
Our F Q1 effective tax rate was 6.9%.
We expect our tax rate to be approximately 5% for the remainder of the fiscal year.
non-GAAP earnings per share in FQ, one were 48 cents down from 56 cents in FQ, four and $2.97 in the year ago quarter.
Turning to cash flows and capital spending we generated $2 billion in cash from operations in Q1.
Representing 40% of revenue.
During the quarter net capital spending was approximately $1.9 billion down from approximately $2 billion in the prior quarter.
We are continuing to target why 20, capex in the range of $7 billion to $8 billion.
We generated adjusted free cash flow of approximately $80 million in FQ, one compared to $260 million last quarter and approximately $2.3 billion in a year ago quarter.
In our Q1, we repurchased 1.1 million shares for $50 million.
In addition, we deployed approximately $200 million of cash to settle convertible note redemptions in the quarter, removing approximately 3 million shares from our fully diluted share count.
We will continue to target deploying at least 50% of our annual free cash flow towards repurchases.
Days of inventory was 121 down from 131 days in Q4.
Inventory ended the quarter at $4.9 billion.
Around slightly from $5.1 billion at the end of Q4.
Over the last two quarters, our inventory days have declined by approximately 15%.
We expect inventory days to increase in fiscal Q2 due to seasonality and then begin to reduce again for the remainder of the year.
We ended the quarter with total cash of $8.3 billion and total liquidity of nearly $11 billion.
We deployed approximately $1.3 billion of liquidity in FQ, one to fund the closing of our acquisition of Intel stake in the IMF tea joint venture.
At Q1, ending total debt was $5.7 billion down slightly from the prior quarter.
In addition to the retirement of IMF Ts member debt.
We used cash on hand to retire approximately $520 million in principle of high yield debt.
This was partially offset by the drawdown of our term loan facility to fund the T. acquisition.
Our balance sheet is very strong with net cash of $2.7 billion.
And we remain committed to maintaining a net cash position.
Last month, S&P upgraded microns credit rating to investment grade and now all three rating agencies rate microns credit as investment grade.
Now turning to our financial outlook as Sanjay mentioned, our outlook throughout our earnings commentary assumes that the macroeconomic environment and trade related issues will not impact demand.
Microns fiscal second quarter is the seasonally weakest quarter for the industry.
Continue to exercise pricing discipline and reduced business, a customers where pricing does not meet our objectives and this limits our business opportunity within the quarter.
Additionally, in F Q2 pockets of supply tightness are limiting our pets shipments Lehigh under utilization costs are going to step up and our cost reductions are likely to remain modest.
However, we are encouraged by recent market trends and expected Q2 will be the bottom for our gross margins.
As pricing increasing mix of high value solutions and cost reductions drive better gross margins throughout the rest of fiscal and calendar 2020.
We expect a gradual recovery to start in Q3.
And to continue into the seasonally stronger second half a calendar year.
With that in mind, our non-GAAP guidance for fiscal Q2 is as follows.
We expect revenue to be in the range of $4.5 billion to $4.8 billion.
Gross margin to be in the range of 27% plus or minus 150 basis points.
And operating expenses to be approximately $825 million plus or minus $25 million.
Interest and other income is expected to be approximately zero.
Based on a share count of approximately 1.14 billion fully diluted shares we expect EPS to be 35 cents plus or minus six cents.
As we approach the trough in this cycle at the midpoint of our guidance fiscal Q2 revenue will be 60% higher and gross margins nine percentage points higher than in the prior trough, which occurred in the fiscal third quarter of 2016.
Micron solid financial performance and investment grade balance sheet demonstrate that the new micron is indeed, structurally stronger with higher lows and better cross cycle revenue growth and profitability.
I'll now turn the call over to Sanjay for closing remarks. Thank you, Dave Micron is entering 2020 as a fundamentally stronger company in an industry that is structurally transformed supply growth is moderating due to rising capital intensity and the slowing down of more slower demand drivers have more diversified than ever.
Before both in end markets and in variety of memory and storage solutions.
This change in industry dynamics creates new opportunities for micron to innovate and provide differentiated value to customers.
Yes, and applications dramas to further accelerate this diversification.
Allowed growth continues at a best base driven by new use cases, and Fiveg networks are just beginning to proliferate and will assure them and the age of true machine to machine communication with billions of connected devices.
And just a little further over the horizon.
Hi machine learning and the tandem as technologies will expand this potential even more.
These trends are transforming every aspect of human life, and driving secular growth in memory and storage microns enhanced product portfolio improved cost structure and talented team put us in an outstanding position to capitalize on available for opportunities ahead, and create long term shareholder value.
We will now open for questions.
Thank you as a reminder to ask the question you will need to press star one on your telephone again Thats Star one on your Touchstone telephone to ask a question to withdraw your question press the pound.
We ask that you. Please restrict yourself. So one question and then re queue.
Please standby, while we compile the Q and a roster.
Our first question comes from the line of Threed for jury.
SMBC Nikko.
Your line is open.
Thank you so wonder just a couple of questions I guess first on the.
Supply shortages that you talked about could you. Please elaborate because on one hand, you're talking about some shortages on the other hand, the inventories are going up as we head into the next quarter.
And I have a follow up.
So as we said last time as well as in this earnings call that we have certain supply shortages in the them on the leading edge nodes.
And we have not down on inventory here overall inventory down fairly fast at as Dave pointed out.
And we have seen strong growth in demand indeed, I am on.
Hi quality high density modules for servers as well as demand trends have continued to be pretty solid.
So.
Shortages on.
Leading edge nodes on DRAM and on the NAND side.
We have.
SSD demand growing up substantially and our 96 layer products as we expand the portfolio are being qualified by customers. We are seeing strong demand on our 64 layer Nord very out actually seeing some shortages and of course as we mentioned we experienced some backend constraints as well.
We have invested in back and capacity Assembly and test capacity expansion and Thats Ville Assembly and test issues impacting some of our multi die stacked on the mobile solutions as well as SSD solutions, The assembly and test constraints will be eliminated largely.
By the end of fiscal second quarter. So these are some of the things that are impacting some of the shortages both in DRAM and on demand side and again that demand trends continued to be solid of course in CQ lung BC seasonality and yes. Some of our inventory may go up at the end of.
Fiscal Q2, but overall our normal inventory days is around as we look ahead is around 110 days and unit Thats really a function of increasing complexity coming from the technology nodes.
As well as as we shift toward high value solutions.
More ssds more multi chip packages, you know they take longer lead assembly and test times as well. So those are the ones that are contributing to some of the aspects of days of inventory that have been we foresee in the future. We look at it as approximately 110 days so industry environment in terms of.
Demand continues to be solid pockets of shortages building all across the industry, certainly we are experiencing that and pricing trends overall in the industry.
As you look ahead that 2020 .
We are optimistic about improving pricing trends in the industry as well.
Thank you again, ladies and gentlemen, we ask that you. Please limit yourself to one question. Our next question comes from a line of John Pitzer of Credit Suisse. Your line is open.
Hey, guys. Congratulations on a solid results such I wanted to talk little about studied the capex guidance for this fiscal year I think I understand the strategies around NAND to kind of can stream spending on the first generation of replacement gates, we're cost downs or de Minimis and kind of wait to version two dot.
But I'm kind of curious as you think about the DRAM strategy, especially given that demand came in much stronger than expected. This year, 20%. There were some of us that thought at the beginning the year would be lucky to get us to low double digit growth.
Let me think about DRAM capex from here and your ability to kind of keep up with industry Big growth and I guess, specifically my question is how much I certainly would you have in moving more of your mix of DRAM towards a leading edge node as a way to grow bids rather than just shrinking.
You know certainly as we move R&D, then production to leading as Nord for example through ones. The better you mentioned that we did very well with ramping ones the DRAM nor in our mobile.
Products during the quarter. So of course, those give us a bit growth. It comes with the shrink capability and technology transitions are the best way to achieve ROI as well. What's important is that we are being extremely disciplined and prudent in terms of managing our.
Supply bit growth and we want to make sure that it's aligned with our base demand growth as well as our long term objective is to have our supply bit growth CAGR or to be aligned where the industry demand growth CAGR, we mentioned that in 2019, our DRAM supply.
Hi growth somewhat below the industry supply growth and entering fiscal year 22, NPV in calendar year 2020 , we see our supply growth to be somewhat above the industry supply growth, but all in all our strategy is to have our supply growth CAGR to be aligned with the industry demand growth CAGR.
We feel very good about you know when you look ahead at 2020 hour.
Supply overall position and yes, I mean, we are experiencing 13 shortages on leading nodes and we believe that some of these shortages in the industry as well as for US will continue in calendar year, 2020 timeframe and frankly, that's a good place to be at in terms of running the business because it helps you manage the best men.
Six of the business as well in terms of revenue and profitability.
Thank you. Your next question comes from CJ Muse Evercore. Your line is open.
Thanks for taking the question I guess question on the DRAM demand side.
Mining.
Look for 15 or sorry, mid mid teens growth in 2020 Im curious as you think about that number.
Sure.
I guess relates to potential pulling out of China demand.
Potential conservatism on your part and within that what kind of assumptions are you, making around fiveg handsets and continued cloud spending through 2020. Thank you.
So certainly fiveg will be a growth driver we expect fiveg.
Headset and the handset smartphones to be more weighted toward the second half of the calendar year.
Cloud Capex as you've seen that imports from various major cloud providers cloud Capex continues to be healthy a meaningful portion of their cloud capex goes into memory and storage and that continues to drive above average.
Industry.
Above average demand as a percentage what does the average of the total Vietnam industry.
And Fiveg influence I think it's important to note that you know content continues to grow as we mentioned in our script I mean of course Fourg phones content continues we will but fiveg phones are driving a step level function increase in the average content of both the DRAM as well as NAND and our estimation as there.
In calendar year, 2020 , approximately 200 million off of Fiveg smartphones to be sold on a global bases.
So overall it when we look at the demand.
Thats three demands of mid teens that year projected for calendar year 2020 keep in mind decorative building upon calendar year 2019, where.
Industry demand in the second half came in quite strong and in fact, we upped our estimate of industry demand growth to approximately 20% for 2019. So you are working off a large demand larger than previously expected rotel bet shipments into NT 19, and obviously.
That has an impact on the percentage that we look at four 2020 , but in terms of aggregate of bid demand that continues to be.
Pretty solid in 2020 , as well and as we said.
2019 was a headwind in terms of demand and supply for the industry and 2020 , we look at demand and supply balance as a tailwind for the industry.
Thank you. Your next question comes from Aaron Rakers of Wells Fargo Securities. Your line is open.
Yes, thanks for taking the question I guess just on the capital expenditure front. Obviously, you guys have talked about reiterated the capex, but you're also.
The Tightwad fab, you're noting that that fab is capable of you'd be I know you've talked about.
That you don't need that through the what GABAA node, but.
It kind of suggest that you are looking at you vs potentially something that you're evaluating have you pulled it at all your thoughts on how do we think about that in the comps extra capex not necessarily this year, but looking out into the the subsequent years. Thank you.
So at this point, you're not providing guidance for any timeframe beyond our fiscal year 2020 in terms of Capex, but as we've always said we have been evaluating you Ve technology, we have carefully evaluated to you we technology in terms of determining our roadmap for de Nam and.
As you noted through via said that through volume Gamma anode today, we are in production with now one xenon starting production that one the and of course volume production also of online known so from one wide ones. The as you look ahead at the next few generations through.
One alpha beta and one gamma generations, we see that.
Multi patterning techniques along with.
Immersion technology will serve us well in terms of achieving our cost objectives, and having a highly cost competitive roadmap for us.
So we have also said that we continue to evaluate easy and when we see it appropriate for deployment in R&D then production in terms of cost and efficiency of production, we will certainly be deploying it at a future diamond that.
But at this point you see our.
Technology roadmap through one game onwards to be in strong position, while we remain encouraged seeing the improvement in ERP productivity tool as well, but dividing capex. We lived for future years will obviously always manage it as a function of.
Supply growth expectations, as well as as a function of technology and cost competitiveness and keeping our supply growth as I said previously aligned with demand CAGR and Thats, how we will manage it and we've shared those details with you at appropriate time in the future.
Thank you. Our next question comes from Mark Delaney of Goldman Sachs. Your line is open.
Yes, good afternoon, and thanks for taking the question I'm going to better understand the company's commentary on its own that inventory, which you and I see that come down in dollars and days and then just completed quarter.
You think about your inventory as you move through the year I understand some of the aggregate commentary, but can you get more specific because I think.
You probably haven't carry an extra inventory of some of these older DRAM note. When do you think that gets used up and when you talk about a 110 days Andre is that being on a more normal level of inventory just given because the companies would be carrying the extra money and inventory for the replacement gate note should we be thinking about inventory running above one tend to allow for that that this year or.
So is the 110 real earlier this year comment as you carry some extra replacement gate inventory and.
Longer term it is something more than that thanks.
Yes, good question, when I try and take a crack at that first and so yes. The comment around 110 days is kind of an optimal level of inventory. When we have worked off all of the excess inventory associated with the replacement gate transition and as inventories normalize obviously in 121 days of them.
And Tory that we have today.
DRAM is a bit below that really what pull that up to 121 is that NAND is quite a bit higher than that.
By virtue of the fact that we are executing on this strategy to hold a lot of inventory as we go into our replacement gate transition to augment what will be robust bit growth from that that first node.
Sorry, I mentioned, we do expect days of inventory to go up a bit.
Based on mix and so forth in the second quarter because of seasonality, but we would expect it then to start trending down.
Over the next few quarters, partly as we start to utilize.
This excess.
NAND inventory.
For the replacement transition and also as we start to digest and managed through this that mix challenges that that have created a little bit of excess still on the DRAM front, such that we should be in pretty healthy place on DRAM.
Within a couple of quarters.
Thank you. Our next question comes from Amber's.
The Saba.
Well capital markets. Your line is okay.
Yes.
Good to see power through this downturn with positive free cash flow I just wanted to get back to the comment that since you are making about fiscal second quarter, marking the bottom.
For fundamentals and.
Capex seems to be a little bit front end loaded so is.
Free cash flow going to be positive in the fiscal second quarter as well.
So I'll take a crack at that went to I would say maybe to start with that the first priority or the company has to make the appropriate level investments. Both in terms of R&D and which is why we we have had a little bit of an increase in operating expenses, because we do want to put the right level of investment in new products, particularly high value.
Solution products.
That will ultimately be.
The big factor in terms of our performance over the coming years.
And in addition, we obviously would make the appropriate level and in terms of Capex investments to make sure that we are assigned Jay mentioned investing the right level to manage supply growth and to make these these node transitions.
Secondarily of course, our our goal is to generate good free cash flow and ideally it was it would be to generate pretty consistent free cash flow.
Over.
Multiple or over every quarter.
I would say in the second quarter, what we feel really confident about is that cash flow from operations is going to be very strong.
And.
You know, we will again make appropriate level of Capex investment that could drive the the free cash flow to be slightly negative or roughly around zero potentially even a little bit more positive.
But we're going to make the capital investment be what's appropriate and lead free cash flow.
Go work goes I would say, though.
To put this in perspective.
The trough quarter of 2016 in terms of free cash flow was negative $1.3 billion I believe and so if you compare that to whatever we end up doing for the second quarter. This will be massively better in terms of cash flow generation and of course, that's an indication of our an example of how.
While we have structurally improve the business from a cost competitive perspective and from a from a cash flow perspective.
Indeed, if this does turn out to be the bottom as Sanjay indicated.
As our expectation barring any sort of macro of Intertrade event.
We would expect free cash flow test.
To track more positively.
Through the remainder of the fiscal year and into the and into the next fiscal year. So this year will be actually a pretty good year in terms of free cash flow that will be four consecutive years.
Of positive significantly positive free cash flow for the company, which of course has never been done in microns history. So.
Again, ideally we'd like to have every quarter be positive that may or may not happen this quarter, but clearly we're on the right track in terms of bought generating positive free cash flow for the company.
Yes.
Thank you. Our next question comes from Harlan sur of JP Morgan Your line is open.
Good afternoon. Thanks for taking my question, we've seen a strong acceleration and cloud and Hyperscale spending also seen some near term strong server builds by the Asia Oems and it appears that the excess DRAM channel inventories in this segment have been worked down but wanted to get your views here and typically the cloud spending upcycle duration.
It's about three to four quarters, so even in a ceiling weaker period for Pcs smartphones in the first part of next year do you see the server and datacenter demand remaining fairly strong.
Yes, as we look ahead, we do see server in data center demand.
Particularly within clout to be strong.
We had as we mentioned in our F Q1 .
Strong growth from clouds, and we certainly see that happening through 2020 as well.
As you mentioned you know high density actually in shortage in the industry and it really is about all that trend off more AI workloads more need for their need for memory and storage as use get introduced that can work with higher density.
Memory as well as have more channels, which is increasing the attach rate of bienaime content or survived and increasing it. So these are all that trend that actually point to continuing.
Hi, higher than industry average level of growth.
Our denoms in the cloud and server and same thing on the NAND on the SSD front average density as well as average usage of flash.
In cloud and datacenter applications continues to increase.
And if you have always said that this is the long term demand driver for memory and storage industry and memory and storage is critical in terms of driving greater value in these cloud applications and these enterprise applications and hence you are seeing continuing strong growth in.
These end market segments, and I was just like to point out that even in 2019.
While the demand through the suppliers was weaker in the first half of the year because the customers, particularly in the space were using of the inventory that they had to meet and consumption, but it's important to understand that the end consumption or DRAM and NAND, even in 2000 challenging 2019.
Periods continue to be healthy and as we look ahead this will be.
The strong driver of growth in the industry, but I just wanted to point out that as we previously discussed smartphones content growth there automotive applications continuing to drive greater content.
Graphics gaming consoles, new gaming consoles are also driving in HDD replacement with ssds as well as a greater DM content in those applications. So I think the demand drivers and our pieces that has always been there that the industry has strong demands.
Diverse has very much being.
Intact, and we look forward to.
Good environment for our industry in 2020 .
Thank you. Our next question comes from David Wong of Instinet. Your line is open.
Thanks, very much I'm could you tell us what proportion of DRAM bit currently on one fee technology on what you expect will be on once you technology and by the end of calendar 2020 on what's the difference is between cost per barrel Monte compared to one why.
So we don't provide cost details with respect to ones the versus one way or from one or two the other node, but as we've said before that we expect our bond why plus one the combined based production to crossover our total bid production.
Bye bye.
By summer.
2020 .
That means bet crossover of and why and once the combined by summer of 2020 and as we mentioned we are doing well without ones the and in fact and mobile products as I mentioned in my prepared remarks.
So the fastest ramp of.
Once the node.
In the history of our mobile presence.
Great. Thanks.
Thank you. Your next question comes from Joe Moore Morgan Stanley Your question. Please.
Great. Thank you I wanted to ask a bit more about the China inventory build that you talked about.
Can you kind of talk about the reasons it.
Ill.
Concern about ability to procure as it tariff related what's the reason for the pull in and any way you can help us kind I understand the magnitude would be helpful. Thank you.
As we've mentioned before we saw some China buying pattern that was.
Above normal compared to the past that we've seen and we attribute that to some of the U.S., China trade tensions and perhaps some of the customers.
In China.
You know procuring and shifting to us.
But have said longer term strategy of getting more inventory.
Because in terms of the U.S., China trade aspects.
While phase one deal is definitely encouraging to see that it's happening.
But.
There is still ongoing for longer term lack of clarity. So perhaps you know some of the China customers have.
Shifted their strategy toward getting higher levels of inventory I would say that you know that perhaps.
Is.
An important reason.
There is of course, Chinese new year as well that can play a role in the China demand Chinese new year is earlier this year compared to the typical years, but there's no question that most important thing is that the underlying demand drivers are strong and.
And you look at smartphone content growth that's happening in all smartphones across the globe, including the one sold by.
The China manufacturers the content, both on DRAM and NAND site continues to increase and certainly as we've talked about Fiveg is.
In the significant driver and certainly Fiveg phones are.
Planned to be sold.
Perhaps in the largest quantities in China first so all of these underlying demand trends I think are the most important thing here as well.
Okay.
Thank you. Your next question comes from Blayne Curtis Barclays. Your question. Please.
Thanks for your question, maybe somebody just a follow on Joe's question I'm, just kind of curious you said take couple of quarters through our way to get back in the numbers are betting embedding anything in the calendar 20 outlook you have and I'm just kind of curious following on that point in terms of you're expecting some moderation from trying to have you seen any signs of that yet.
I'm, sorry, I didn't quite get the last part of the question expecting following on Joe's question, you're expecting some moderation after an inventory build have you seen it yet or is that just something you expect will happen at some point.
What we said is that in terms of our estimation of the industry.
Demand growth in calendar year, 2020 , we have big Dan that some of the inventory that we may have seen China must build we have baked into that some of that will be consumed and mentally inventory levels will be lower than what you may be thinking at this point with those customers over the course.
As of calendar year 2020 .
And with respect to your first piece of the question on I've already mentioned that you know now that we have received the licenses we are able to work with them on new product qualifications and as you know Vale new product qualifications do take.
A few months couple of quarters before they get qualified and into new platforms and then we can.
Potentially look at additional opportunities.
At this point I mean, our focus is to resume that product qualification work both for server as well as mobile applications.
Thank you. Our next question comes from Roger Gil of Needham and company. Please go ahead.
Yes, thanks, and congrats as well.
At this cycle.
Question on on mix shift for NAND, specifically on Sunday or you had mentioned that.
Next year, you will be ramping.
At a higher rate and the ssds as well as you assess controllers in the China mentioned market could you talk a little bit about the trajectory of those products and how that positive mix shift and will.
Potentially affect overall margins.
Okay.
I wanted to have Dave you don't comment on the margin piece of it.
But you know certainly as we expand our portfolio of Nvme solutions for from clients to data center and of course, certainly on the consumer side as well.
We we have done well as we reported for our F Q1 in terms of.
Expanding the portfolio and capitalizing on increased sales of Ssds, and we certainly look at gaining share throughout calendar two it 2020 as we expand our portfolio. There I think what's important to note is that our share there is today on that it presented so as we shift toward these.
High value solutions with expanded portfolio I mean, we are basically trying to bring our shared in line with what it should be given our share of the 2000 and bids and this is the part of the strategy that we talked about in terms of shifting the mix of off on high value solutions, which now lot at about 50% in terms of bids.
Toward higher number in the future and of course part of that ongoing shift is toward multi chip packages as well as discrete Manish NAND solutions for mobile applications, where we pointed out that on a year over year basis, we've increased our share by 50% yet we remain under represented.
Therein lies further opportunity for us to be increasing our shared in these markets. So high value solutions is very important part of our strategy. It enables us.
To gain greater stability greater margin unfortunately through the cycles.
As well as brings us closer to understanding the application landscape.
With the customer and I'm very pleased that micron is executing quite well with respect to achieving our objectives.
In this area so obviously.
Hi Battery solutions. The reason one of the major reason for shifting the strategy to hybrid solutions is because they carry higher margins that I'll just give you a data point. If you look back at fiscal 19 and look at these high value solutions relative to consumer components.
You'll find the margins were about 30 points 30 percentage points higher so significantly higher operating opportunity to get higher margins and of course that obviously helps the overall margins of the company.
Thank you our last question comes from the line of Hans Mosesmann.
Yes, and Black Securities. Your line is open.
Thank you congratulations to the team for the execution Sanjay on the.
The server and datacenter module dynamic where you're seeing a higher.
Nixon quality or higher density what was the density on average a year ago, just to get a reference and how that is improved and what exactly is driving this move is it a new processor architecture is it.
Market share gains and that would be helpful. Thanks.
Yeah, you know in cloud service as well as enterprise server on average densities I don't see Giga 300, gigabyte no par server average.
Consumption of DRAM.
This trend is expected when you look at the CAGR over the next few years expected to continue to go grow in double digit.
Hi.
Anywhere when you look at 19 to 22 kind of CAGR around 20% CAGR for average content growth.
In servers in cloud and enterprise applications. So this is definitely a high growth area for the market.
And the you know when you look at than you do see views.
Like Gasquet Lake and other new CPQ, starting in 2019 as I mentioned earlier they support the usage of higher density chips that means they support usage of 16 gigabyte chips.
As well as more channels in the new CPQ is and that is definitely driving.
Greater ability to use more content per server for DRAM and of course at the end of the day. It's about the work towards that applications are running and those workloads are requiring you know if you think requirement for speed to end, that's translating into increasing requirement for memory as more and more real time data analytics kind of epic.
Patients and applications are being.
Run in enterprise.
Datacenter and cloud applications.
Great and it's a quick follow up there can you give us a commentary regarding.
Threed Cross point used in Maine memory, if Theres a road map for that.
This year this coming year.
So clearly crosspoint you know certainly as we said exciting Fortunately for us longer term.
Definitely give the differentiated opportunity that as the only company in the world, having NAND DRAM and Threed Cross point, we have just introduced our first storage product with Threed Cross point, the world's fastest SSD and as you noted I mean CD growth point, certainly has opportunities on the memory. So.
Out of the business as well and you know as we look at engaging with ecosystem as we look at developing novel products. These are the kind of opportunities both on the memory semantic applications as well as storage.
As side of the applications will be addressing over the course of.
Next few years as we expand our product portfolio in this area, but certainly CD crosspoint.
Yes, again, these kind of things breakthrough technologies take multiple years and light it acquired lot of ecosystem work to get the full use of the technology and we had our well on our way as we discussed.
At Micron insight and let me put the plug here again that if you have normalized it leaves do large summits presentation. I think it gives you a pretty good perspective on the capabilities of CD costs point technology, and our vision of the future with it.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.