Q3 2021 Micron Technology Inc Earnings Call

June 30, 2021

[music].

Good afternoon. My name is Josh and I will be your conference facilitator today at this time I would like to welcome everyone to Micron <unk> third quarter 2021 financial release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session.

If you would like to ask a question. During this time. Please press Star then the number 1 on your touch tone telephone keypad.

If you would like to withdraw your question press the pound key in order to allow as many analysts to ask a question as possible. Please limit yourself to 1 question. Thank you.

It is now my pleasure to turn the floor over to your host Farhan Ahmad.

President of Investor Relations you May begin your conference.

Thank you and welcome to Micron technologies fiscal third quarter of 2021 financial conference call.

On the call with me today are Sanjay Mehrotra, President and CEO, and Dave Scott Chief Financial Officer.

Today's call will be approximately 60 minutes in length.

This call, including the audio and slides is also being webcast from our Investor Relations website at investors Micron Dot com.

In addition, our website contains the earnings press release and the prepared remarks by shocked by nickel.

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, maybe found on our website.

As a reminder, a webcast replay will be available on our website later today.

We encourage you to monitor our website at micron dot com throughout the quarter for the most current information on the company, including information on the various financial conferences that we will be attending.

You can follow us at Twitter at Micron Tech.

Yes.

As a reminder, the.

The matters, we will be discussing today include forward looking statements.

These forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today.

We refer you to the form.

10-K, and 10-Q that we filed with the SEC for a discussion of risks that may affect our future results.

Although we believe that the expectations reflected in the forward looking statements are reasonable we cannot guarantee future results levels of activity performance or achievements.

We are under no duty to update any of the forward looking statements. After today's date to conform these statements to actual results.

I'll now turn the call over to Sanjay.

Thank you Karen and good afternoon, everyone. We delivered outstanding results in FQ3 our strong execution enabled us to achieve the largest sequential EPS improvement in our history and to set multiple revenue records.

NAND hit record revenue propelled by record mobile MCP consumer SSD and client SSD revenues.

Our embedded business exceeded $1 billion for the first time with record revenue across automotive and industrial markets.

We also achieved key technology and project milestones with our industry, leading 1 alpha DRAM and 176 layer NAND, reaching a meaningful portion of our production and.

<unk> NAND accounting for the majority of our client SSD bit shipments.

We expect DRAM and NAND supply to remain tight into calendar 2022, as the global economy rebounds.

The strong demand for memory and storage across the data center intelligent edge and user devices puts micron in the best position ever to fully capitalize on these exciting opportunities.

We continue to make solid progress on our goals to deliver industry, leading technology and improve our cost structure.

To bring differentiated products to market and improve our product mix and to grow our share of industry profits, while maintaining stable bit sure.

I will start with an update on our operations despite shortages across the semiconductor ecosystem and various assembly materials and assembly capacity Micron delivered record assembly output this quarter, which helped fuel our strong revenue performance.

Our assembly and test success was the result of a strategic decision we made several years ago.

Our captive footprint and strengthen relationships with suppliers and partners.

We successfully mitigated the impacts of the drought in Taiwan with no reduction in our production output.

Taiwan rainy season has begun and bringing whether it's sufficient water supply to support our manufacturing requirements.

While the drought in Taiwan is behind US the rise in COVID-19 cases in Malaysia, India, and Taiwan, and a risk to our manufacturing operations and R&D activities in these regions.

We are also working with local governments to facility.

<unk> facilitate onsite testing and vaccination for micron team members where possible.

Additionally, in order to protect micron team members at our more Malaysia backend facility.

We temporarily reduced our onsite workforce, our lean FQ4 Mr reduced output levels.

We have since started bringing back team members to the site as the situation has improved.

While we ramp back towards full production levels and more we will utilize our global supply chain, including subcontractor partners to meet our customer commitments and minimize any disruption to delivery schedules.

Earlier this year, we announced our decision to exit <unk> Cross point development and manufacturing and to re prioritize our R&D investments toward new CX sell enabled memory solutions.

<unk> sell our compute express link is the <unk>.

New industry standard interface that will significantly change datacenter architecture through high performance connectivity between compute memory and storage.

We are developing exciting CX sell enabled products and we'll have more to share on our roadmap in the future.

As part of holiday exit from the <unk> business, we announced our intent to sell our Lehigh Utah Fab.

Today I am pleased to report that Micron has reached an agreement to sell the fab to Texas instruments and a transaction that we expect to close later this calendar year.

We see this transaction is positive for our team members, the Lehigh community and our shareholders.

The Lehigh site has been an important part of the Micron network and responsible for many technology and manufacturing innovations across NAND and TD Cross point products.

Texas instruments will offered on Lehigh team members the opportunity to become TIAA employees at the Lehigh site upon closing.

After the sale closes we will be able to eliminate the remaining under loading costs, we were incurring at Lehigh enhancing our efficiency and strengthening our profitability.

Dave will provide additional details.

Now for an update on technology and products.

Our industry, leading 1 alpha DRAM and 176 layer NAND process technologies are now in production and ramping according to plan.

These nodes accounted for a meaningful portion of our bid production in Q3 and are on track to become a meaningful portion of our revenue in Q4.

We expect that by end of calendar 2021, the combination of 1 alpha and 1 Z DRAM nodes will represent the majority of our DRAM bit production and at the same time 176 layer NAND will be the majority of our NAND bit production.

In fiscal year 'twenty, 2 we expect these workhorse nodes to fuel that growth and provide us with good front end cost reduction on a like for like basis.

However, there are 2 factors that will create cost headwinds for us next fiscal year.

The first is driven by our strategic portfolio migration towards more advanced and higher value products, such as DDR 5 memory high.

High density server modules and ssds.

While this portfolio shift helps us increase profit share. It will also impact our cost next fiscal year.

The second cost headwind is driven by several actions we have taken in our supply chain to increase resilience and provide business continuity to our customers across all product lines.

While these actions will allow us to capitalize on robust market demand. They will also impact our costs.

We are on track to support customers as they begin to introduce DDR 5 enabled platforms in the second half of calendar 2021.

<unk> was designed to meet modern data center requirements, including improved performance throughput doubling of memory bandwidth and improved reliability and efficiency through integration of on di ECC.

D var <unk> features a larger die size compared to EDF for limiting DRAM industry supply growth and cost reduction as it ramps starting from the second half of calendar 2021.

In storage, we introduced the industry's first <unk> 1 solution for automotive applications this quarter.

We also announced volume production of client Pcie Gen..4 ssds built on the world's first 176 layer NAND and available in a variety of form factors.

We are delivering 176 layer NAND and volume to OEM and channel customers across multiple markets and have several products and customer qualifications.

We are also driving an increased mix of TLC, NAND, which brings down the cost of ssds accelerating the replacement of hard drive.

You will see SSD adoption continues to grow and we delivered record Q LC SSD revenue and better mix in FQ3.

Turning to end markets.

In the data center integration of AI into data centric workloads will drive long term growth with memory and storage, becoming an increasing portion of some of our bom cost.

Prepared by the transition to DDR 5 our strong capabilities in graphics memory, and the introduction of HBM and nvme SSD product offerings.

Micron's strong product roadmap across DRAM and NAND NAND solutions.

Positions us for success in the data center.

We will enhance our nvme SSD portfolio with the introduction of new products with internally designed controllers in the coming months.

In the fiscal third quarter data center DRAM revenue grew quarter over quarter, driven by strong demand from cloud customers and increases in module density.

Datacenter SSD bit shipments and revenue grew sequentially driven by both cloud and enterprise.

Data center demand is expected to be strong in the second half of the calendar year as cloud demand picks up and enterprise demand improves due to broad economic recovery.

In addition, we expect that the new Cpus, featuring more memory channels will accelerate cellular memory demand. Starting later this year and continuing into 2022.

The PC market continues to benefit from the trend toward greater mobility as people embrace of work are learned from anywhere culture.

Industry expectations for calendar 2021, PC unit demand growth have increased to the high teens, driven by robust notebook sales and a recovery in the desktop market.

In the fiscal third quarter, we achieved several customer qualifications for our 1 alpha based DDR floor products across various platforms.

Our client SSD bit shipments were up sharply quarter over quarter and year over year.

In graphics bit shipments increased sequentially and year over year, driven by strong next generation game console and graphics card shipments.

Micron has an excellent position in the graphics market with a broad product portfolio and deep customer partnerships.

Mobile business achieved record MCP quarterly revenue.

We made strong progress with our 1 Alpha LP DRAM products and 176 layer <unk> 3.1 enabled solutions.

We have already completed customer qualifications for some of these products.

While COVID-19 has softened mobile demand in parts of Asia supply shifts to address stronger demand in other regions are keeping the global market in tight supply demand balance.

Mobile unit sales are expected to show healthy growth this year with some variability across geographies driven by unexpected doubling of <unk> units in calendar 2021 to more than 500 million units.

These <unk> phones also feature rich content demanding significantly higher DRAM and NAND.

We are also encouraged to see bold OEM innovation and new devices like gaming smartphones, featuring 18 gigabyte of DRAM.

Our automotive business delivered a third consecutive record quarter, driven by continued manufacturing recovery and increased <unk> and MMC content for in vehicle infotainment and driver assistance applications.

Auto unit sales are expected to grow significantly from last year.

Auto memory and storage content growth trends remained strong, particularly as evs, which has significantly higher memory and storage content requirements grow much faster than the broader auto market we.

We are continuing to see record automotive and industrial segment demand yet despite our best efforts, we may be unable to meet all the demand from these customers over the next few months due to certain non memory semiconductor component shortage in our supply chain.

Turning to our market outlook, while the pandemic remains a risk factor calendar 2021 is shaping up to be a strong year fueled by the macroeconomic recovery combined with secular drivers such as AI and <unk> that are creating sustained demand increases across broad end.

<unk>.

As a result, our expectations for calendar 2021, DRAM and NAND bit growth have increased since our last earnings call and we now expect calendar 2021, DRAM bit demand growth to be somewhat above 20% and NAND bit demand growth in the mid 30% range.

That is currently unmet demand for DRAM and NAND due to end market strength.

This unmet demand would have been even larger had it not been for the non memory component shortages influencing our customers ability to manufacture the products, particularly in the PC automotive and industrial markets.

These shortages can cause variability in demand patterns as customers experienced challenges sourcing matched set of non memory components. We.

We are hopeful that foundry capacity coming online can begin to alleviate some of the component shortages in the second half of calendar 2021, and support robust memory and storage growth <unk>.

Additionally, as a result of strong end market demand trends the lessons of the pandemic and ongoing geopolitical uncertainty some customers will change their inventory management strategy from just in time to just in case and and keep the target level of what they consider normal inventory levels.

Long term, we see a DRAM bit demand growth CAGR of mid to high teens, and the NAND bit demand growth CAGR of approximately 30%.

Turning to micron supply, we are targeting to align our long term bit supply growth CAGR with industry bit demand growth CAGR across DRAM and NAND.

However, we expect year to year variability caused by a node transition timing.

In both DRAM and NAND, we expect our calendar 2021 bit supply growth to be below the industry bit demand growth and we have used inventory to add to our bit shipment growth. This year.

Before handing over to Dave I have 1 more important announcement to share regarding our DRAM technology and manufacturing strategy.

Based on our assessment of the progress <unk> has been making and aligned with our technology strategy and industry, leading DRAM scaling roadmap, we plan to insert <unk> into our DRAM roadmap starting in the 2024 timeframe.

Micron has placed purchase orders for multiple <unk> tools from ASML as part of our long term volume agreement.

The prepayments for these systems will contribute towards the fiscal year, 'twenty, 1 and fiscal year 'twenty 2 capex.

We have increased our fiscal year 'twenty, 1 capex to be somewhat above $9.5 billion, mostly from areas that do not impact calendar year, 'twenty, 1 and calendar year 'twenty 2 bed growth such as these prepayments construction spending and other R&D and corporate items.

I will now turn it over to Dave.

Thanks, Sanjay Micron delivered outstanding Q3 results revenue and EPS grew by a record amount sequentially on an organic basis, and we generated over $1.5 billion and free cash flow in the quarter.

Total Q3 revenue was approximately $7.4 billion.

Up 19% quarter over quarter and up 36% year over year.

Revenue growth was driven by stronger DRAM, and NAND pricing and by robust customer demand for micron products.

At Q3, DRAM revenue was $5.4 billion.

Representing 73% of total revenue.

DRAM revenue increased 23% sequentially and was up 52% year over year.

Bit shipments increased in the low single digit range sequentially, and Asps were up approximately 20% quarter over quarter.

At Q3, NAND revenue was approximately $1.8 billion.

Representing 24% of total revenue and an all time high for the company.

NAND revenue increased 10% sequentially and was up 9% year over year.

Bit shipments increased by low single digit sequentially, while asps increased in the high single digit percentage range quarter over quarter.

Now turning to our revenue trends by business unit revenue.

Revenue for the compute and networking business unit was approximately $3.3 billion.

Up approximately 25% sequentially and 49% year over year.

<unk> revenue growth was driven by broad based sequential pricing increases.

Revenue for the mobile business unit was $2 billion.

Up 10% sequentially and 31% year over year.

Mobile demand remained healthy despite handset sales continue to ramp.

Revenue for the storage business unit was $1 billion.

Up approximately 19% from the prior quarter and approximately flat year over year.

Both client and consumer SSD revenue set records.

And finally, the embedded business unit generated record revenue of $1.1 billion.

Which was up 18% sequentially and 64% year over year.

Automotive and industrial revenues were at an all time high for the company.

The consolidated gross margin for Q3 was 42, 9% up 10 percentage points from the prior quarter day.

<unk> and NAND price increases helped drive the margin expansion in Q3.

Gross margins also benefited by 100 basis points from $75 million less depreciation at our Lehigh Fab, which is classified as assets held for sale.

Operating expenses were $821 million in Q3, which we continue to tightly manage.

Operating expenses also benefited from approximately $21 million of gains from the sales of certain assets.

At Q3 operating income was $2.4 billion.

Resulting in an operating margin of 32% compared to 20% in the prior quarter and 18% in the prior year's quarter.

F Q3, EBITDA was $4 billion, resulting in an EBITDA margin of 53% compared to $2, 45% in the prior quarter and 44% in the prior year.

Net interest expense was $31 million in Q3, and we expect it to be roughly flat going forward.

Our Q3 effective tax rate was 8.4%, we expect our tax rate to be in the high single digits for Q4.

Non-GAAP earnings per share in Q3 were $1.88.

Up from 98 in Q2, the 19th sequential improvement with the largest and micron history.

EPS included approximately <unk> <unk> from the sale of certain assets investment gains from Micron ventures, and onetime tax items.

Turning to cash flows and capital spending we generated approximately $3.6 billion in cash from operations in Q3, representing 48% of revenue.

Net capital spending was approximately $2 billion during the quarter as Sanjay mentioned, we now expect our FY 'twenty, 1 capital spending to be somewhat higher than $9.5 billion.

Most of this capex increase that we are highlighting today will not increase our <unk> 21, and <unk> 22 bit supply.

We expect that while we invest in the EV infrastructure and initial deployment, our capital intensity will increase to mid 30% of revenues.

Once we get past the investment period of <unk> adoption, we expect that these tools will boost our competitiveness and help drive productivity of our fabs.

As a result of the strong market environment and Micron is extraordinary execution, we generated positive free cash flow of $1.5 billion in Q3 the.

The increased cash flow was driven by strong revenue growth higher margins and efficient working capital management.

We expect free cash flow to continue to improve in the fourth quarter driven by continuing growth in revenue and earnings.

We completed share repurchases of $150 million or approximately 1.7 million shares in Q3.

From the inception of the share repurchase program, we've repurchased $3 billion worth of micron stock, representing 55% of our cumulative free cash flow.

In addition, since FY 19, we have used approximately $2 billion in cash to settle conversions of our convertible notes, including approximately $800 million to settle the convert premiums.

Combining the share repurchases and convert premiums we've used $3.8 billion or 69% of our cumulative free cash flow towards reducing our share count.

We plan to continue repurchasing shares in Q4.

Ending Q3 inventory was $4.5 billion.

<unk> hundred 98 days, we remain in a very lean inventory position as demand continues to outstrip our supply.

We ended the quarter with total cash and investments of $9.8 billion in.

And total liquidity of approximately $12.3 billion.

At Q3, ending total debt was $6.7 billion.

Our balance sheet is rock solid with investment grade ratings from all 3 rating agencies in the last 3 months Fitch and standard <unk> Poor's, both raised their outlook from stable to positive for micron debt.

These upgrades to the outlook for our debt ratings are further evidence of the financial transformation underway at micron.

Before providing the financial outlook I want to cover the financial implications of the sale of our Lehigh fab.

We are pleased with this transaction and believe that it is good for our shareholders as it frees up capital and enhances our ongoing profitability.

The economic value for micron from the sale is $1.5 billion.

Comprised of $900 million in cash, resulting from the sales transaction.

And approximately $600 million in value for select tools and other assets that micron will retain for redeployment to its other manufacturing sites or that are sold to other buyers.

We're taking an impairment charge of $435 million or approximately $330 million on an after tax basis as the $900 million sale price is below our book value of the assets being sold.

Note that the tools that we are keeping have largely been depreciated, but have substantial future value in our manufacturing network.

As we previously disclosed we stopped depreciation of the Lehigh fab assets last quarter and this benefited our cost by approximately $75 million in Q3.

Once the sale is completed we will further improve our profitability by entirely eliminating our under load charges.

Now turning to our near term outlook.

DRAM and NAND markets are tight and we expect pricing increases for both markets in the fiscal fourth quarter.

In Q4 were qualifying 1 alpha and $1.76 layer nodes with several customers. We expect these notes to support a modest level of bit growth and faced cost headwinds that or comment at this stage of the ramp.

Additionally, we also expect cost headwinds from product mix in and Covid mitigation.

Despite cost headwinds, we expect strong improvement in our financial performance in Q4, our growth opportunity is healthy and market momentum heading into fiscal year 2022 is strong.

With all of these factors in mind, our non-GAAP guidance for Q4 is as follows we.

We expect revenue to be $8.2 billion.

Plus or minus $200 million.

Gross margin to be in the range of 47% plus or -100 basis points.

And operating expenses to be approximately $900 million plus.

Plus or minus $25 million.

Finally based on a share count of approximately 115 billion fully diluted shares we expect EPS to be $2.30.

Plus or -10.

Micron's relentless focus on execution positions us well to generate solid returns for our shareholders.

Measuring our performance trough to trough across the cycle from FY <unk> to FY 'twenty, we substantially improved our EBITDA margin and our revenue grew by more than 70% D.

During this time, we delivered average gross margins of 40% EBITDA margins of 50% and return on invested capital of 20%.

We believe micron strong financial performance will continue cross cycle and over the long term our revenue growth will outperform the broader semiconductor industry.

Our industry, leading technology dramatically improved product portfolio and financial strength position us well to capitalize on the long running demand trends driving the memory and storage industry.

I will now turn it back to Sanjay.

Thank you Dave.

Micron fiscal third quarter results demonstrated the strength of our business and we expect to achieve continued strong results in the future day.

Demand for memory and storage is solid across market segments and industry trends like artificial intelligence edge computing and <unk> continued to create new opportunities for micron.

Our team is building on our technology leadership to deliver bold new solutions that offer valuable differentiation for our customers.

Micron's business is healthier and more robust than ever and we are energized to seize the opportunities ahead at a truly exciting time in the semiconductor industry.

We are also leveraging our success to deliver results for all our stakeholders.

In April we released our sixth annual sustainability report highlighting progress towards our environmental social and governance goals.

I am pleased to report that we are on track to achieve the environmental and sustainability goals, we set last year. Despite the challenges posed by the pandemic.

In fact, our ESG risk scores have improved to the top 10% of the semiconductor industry. According to the third party rating agencies sustained analytics.

We're also making good progress on achieving 100% renewable energy consumption in the U S by the end of 2025.

In calendar 2021, we continue to focus on emissions abatement transition to renewable sources water restoration and increased efforts to reduce the use of recycled waste.

We will pursue these goals with the same focus with which we have created sustained momentum in the business and I look forward to providing updates on our progress on future calls.

We will now open for questions.

As a reminder to ask a question you will need to press star 1 on your telephone.

Draw your question Christopher <unk>.

Keith Please standby, while we compile the Q&A roster.

Our first question comes from C. J Muse with Evercore you May proceed with your question.

Yes, good afternoon, and thank you for taking the question I guess.

End market demand question, Theres, clearly curious out there around Pcs creaking volatility around handsets and whether there is any inventory build on the cloud side yet.

Youre talking about DRAM and NAND remaining tight into calendar 'twenty..2 so I guess can you walk through what youre seeing out there from a demand perspective.

And then also I think very importantly, particular to the DRAM side, how you are thinking about supply, which clearly seems to be constrained both this year and next year.

Thanks, Jim So on the demand side, we certainly see strong demand across almost all end markets.

On a year over year basis in calendar year 'twenty, 1 the growth has been high teens and of course, the SSD attach rate average content continues to increase on the NAND side and continue D. C continues to drive healthy demand for DRAM as well our data center after the digestion period earlier in the year and.

The second half driving strong demand for us as well smartphone <unk> trends driving unit sales as well as average content growth automotive we cant meet the supply you can't meet the demand that is stronger industrial market. The demand is strong across the board almost across all end markets.

Seeing strong demand in fact in the industry that is unmet demand and as you know there is semiconductor shortage across the technology ecosystem and add that semiconductor shortage gets alleviated over time that actually is going to create more demand for memory and storage because every application.

<unk> today.

IC related or memory CPU cores related all of them actually acquired memory and storage. So semiconductor shortage, which is actually impacting some of the demand as that gets alleviated over the course of next several quarters that too will bring about increased demand. So the demand trends are strong the supply.

As we see through the year through the end of the year and into calendar year 2022.

As tight as well and you know that capex in the industry has been on the DRAM side extremely.

<unk> the producer inventories the supplier inventories are running extremely lean as well I can certainly speak for holiday inventory days of inventory are at 98 extremely low as well.

Capital intensity is increasing as.

As well in the industry index, all bodes well for disciplined supply growth as well and we talked about that how DDR 5.

As a spec that is there in the industry as <unk> expect actually requires more on chip ECC that reverse and bigger die sizes for everybody in the industry for DDR 5 over DDR 4 so that again as you can win and defend as the industry transitions to DDR 5 over the course of next several.

Quarters.

'twenty 2 as well as in 'twenty 3 that 2 means less supply growth availability from the wafers, even with technology transitions and so all of those trends from the demand side as well as from the supply side.

<unk> well.

Florida our industry.

That's very helpful. If I could follow up on the gross margin side, David you talked in the prepared remarks around <unk>.

Higher cost mix and investment in the supply chain can you walk through.

The moving parts there from fiscal 'twenty to gross margins.

So obviously.

1 of our bigger components of the.

Of the margins for fiscal 'twenty, 2 it's going to be around pricing and we don't provide pricing beyond.

Beyond the next fiscal Clark beyond this quarter other than to say that we think pricing will be up next quarter, and we are suggesting that it will be tight.

Leased into 'twenty, 2 so thats a as much as I can give you on the on the pricing side on the cost front. When you look at the front end cost reductions that we'll see next year on a like for like basis, driven by Sanjay mentioned in the prepared remarks.

The ramp of 1 alpha and the ramp of 176 on the NAND front, we do feel like those costs will be good.

The only counter to that is we will see a higher mix of products that carry higher costs Sanjay mentioned like DVR 5.

Higher density server modules effort more ssds, all those things will be a bit of a headwind on the cost Brian and we will likely go into the year with some COVID-19 mitigation costs that also will be a bit of a headwind now hopefully that over the course of the year alleviate.

And then it starts to.

Help on the margin front.

The only other factor is we will have a little bit of a lift in Q4 from.

Lehigh as the full amount of the depreciation goes away in the fiscal fourth quarter and then once we close on the sale all of the under low charted charges.

We will also go away the way I think I'd model. It is maybe about $20 million of benefit in the fourth quarter and probably another $20 million in the first fiscal quarter end.

Assuming we close somewhere close towards the end of the first fiscal quarter, we should be that should be behind us.

Thank you.

Thank you. Our next question comes from John Pitzer with <unk>.

Credit Suisse. You May proceed with your question.

Yeah, guys just 2 quick questions, Dave maybe to follow up on <unk> questions about costs I want to make sure I understand the messaging here.

I get that these higher value added parts have higher costs, but they also have higher gross margins or am I thinking about that incorrectly and then I have a follow up.

It somewhat depends on the product itself, but I would say in general we are trying to drive towards higher value products, which arguably on a like for like basis or at least on a comparable basis.

2 other products would carry better gross margins.

Perfect and then as my follow up.

2 quarters ago, Dave you didn't buyback any stock this quarter was $150 million, which was I think 10% of free cash flow not.

Notwithstanding what you've done over multiple quarters I'm, just kind of curious as to the message you are trying to give us here, especially if you look at sort of the cross cycle risk reward in the stock why not be more aggressive with the buyback here and does that portend something about next fiscal year's Capex and as you talk about that.

That Capex is next fiscal year, a year that you should outgrow bit relative to industry.

Okay, a lot of questions on pack, okay. So on the buyback I wouldn't read anything into a $150 million some quarters will have higher levels of buyback than others.

We did have an eye on our net cash position and so that was something that we were trying to move in the right direction.

You will find in the fourth fiscal quarter that our buybacks are.

Meaningfully higher than our first.

Third fiscal quarter, so nothing to read there we do feel like this price is obviously, a good price to be buying the stock back.

We are committed to.

What we've talked about previously which is to return at least 50% of our free cash flow in.

In the form of buybacks.

And as we talked about on the prepared remarks, I think Doug.

The metric we've hit so far is 55%, so we've done pretty well and that doesn't even account for the converts which I think by the end of this fiscal quarter that is the fourth fiscal quarter will be completely done with with.

With converts converts will be completely off the balance sheet.

And we will remove that dilution as well.

As it relates no message on the Capex as it relates to buybacks other than to say that.

Given the <unk> investments. It does appear that we will operate maybe at a little bit of a different level from a percent of sales perspective than perhaps we previously were operating we were thinking more in the low thirty's I think with the UV its safe to say that we probably are operating in the mid <unk> as a percent of revenue.

For Capex at least as we.

Build out the <unk> part of the.

The toolset.

Perfect. Thank you very much.

Thank you. Our next question comes from Shannon Cross with Cross Research you May proceed with your question.

Thank you very much I had a question about DRAM asps, 20% quarter over quarter growth was the highest in several years. So you can talk can you talk a bit about the drivers of that growth growth how much of it was like for like price increases given the current tight supply versus day benefit from mix and how should we think about sustainability.

So certainly on a like for like basis pricing increased across the board in the DRAM industry and again driven by the strong demand as I mentioned earlier, a pretty much across all of the end markets. So we enjoyed price increases across all end markets.

And.

As we have mentioned that even in FQ4 D. C price increases not just in <unk>, but we also see that in NAND.

Okay.

Then I guess given the common conversation your comments you made about customers moving to just in case inventory management can you unpack that a little bit just in terms of magnitude I mean is this sort of the.

1 off conversations you are having with people as they are dealing with.

The supply issues that are out there right now or do you think this is something that is going to be sort of a meaningful transition within the industry.

So D C. It is an emerging trend in the industry. When you think about it over the course of last couple of years or even maybe somewhat longer timeframe. There have been challenges with respect to geopolitical considerations certainly COVID-19 brought into stark relief the need for a resilient flexible <unk>.

<unk> chain.

And when you look at all the acceleration of the digital transformation and the surge in demand that has occurred.

And on top of it influenced semiconductor industry shortages that are leaving lot of the unmet demand across multiple industries here all of that is really leading the customer ecosystem as well as us the suppliers to really absolutely prepare for supply chain.

So that we can meet the demand I mean micron itself has taken actions in this regard in terms of securing capacity for example for the assembly operations and that has really enabled us for example, even our Morocco operation we had to bring down our team members there because of recent COVID-19 outbreak in Malaysia.

As we had made changes to our capacity assembly capacity footprint via secured more external supply assembly capacity that enabled us to quickly shift our production to other parts of our manufacturing footprint. These are the kind of cancellations that.

Customers in general and suppliers in general are considering to make sure that they're able to manage their supply chains to be able to meet the end customer demand and thats why certainly some of the just in time aspects of inventory management have proved to be costly.

<unk> over the course of last few quarters, particularly as <unk> has struggled to respond to the needs during the Covid time frame and yes. It is an emerging trend.

A word considering just in case, whether it is related to <unk>.

<unk> political considerations, whether it is related to acts of God.

Can result in supply chain disruptions or just responding from.

Challenges of Covid. So this is an emerging trend.

And some of the customers may have already acted faster in terms of building stronger inventory positions other customers, but <unk> still scrambling to meet the requirements. But this is definitely a trend that we think will likely persist with companies as they think about their own supply continuity.

Traditions in the future just like Micron itself has taken the steps necessary to address its on customer requirements and fulfilling their demands.

Great. Thank you.

Thank you. Our next question comes from Timothy Arcuri with UBS.

UBS you May proceed with your question.

Thanks, a lot I had 2 questions first on <unk> and then on cost down So Sanjay I guess the first question on <unk> is sort of what's changed on the <unk> I mean, it's not like there's been a sea change in <unk>.

Progress made on <unk> is it simply navy that Theres. Another big Chipmakers are trying to get in the queue and taking up some slots and so you felt like you had to get in the in the queue. So I'm just sort of curious what changed on <unk> and then I had a follow up.

So we had always said that we monitor <unk> progress we've actually engaged in evaluation of you have had <unk> in the past. So we had always said that vivo intercept <unk> in our roadmap at the right time, when we see the <unk> platform as well as the.

Ecosystem becomes more mature that's when we plan to intercept.

<unk> in our roadmap and back toward our plan is that in the 2024 timeframe and again aligned with our technology and leadership DRAM scaling roadmap that will be implementing this in 2024 timeframe. So it's consistent with how we have always approached it.

And of course <unk>.

Has.

<unk> continued to make good progress in mean anything that with our <unk> technology.

Capability from 'twenty to 'twenty 4 onward timeframe.

Coupled with our multi patterning expertise that micron has a leadership in the industry. We really will have unique differentiated capabilities and absolutely feel confident about continuing to lead our DRAM scaling roadmap through auto of course currently 1 alpha 1 beta and then 1 gamma and beer.

<unk> and initially we will deploy <unk> and limited layer count in 2024 timeframe with our 1 gamma node and then we will broaden it to the 1 delta node.

Data led adoption.

And just keep in mind that we will combine it with our emerging multi patterning techniques as well and so we really believe that we will have a very strong roadmap and this is pretty much along the lines of <unk> always intended to in third <unk> in our roadmap in the future.

Basically.

Keeping track of cost effectiveness productivity as.

As well as our overall scaling roadmap and we feel really good about our leadership in DRAM scaling roadmap ahead.

Thanks, Thanks, Sanjay I guess my <unk>.

Follow ups on cost Downs, you sound, a little more negative or a little more cautious on your fiscal 'twenty 2 cost downs than you were last quarter I think the issue. This.

This year in DRAM youre going to be close to roughly 10% this fiscal year and.

I think 1 alpha was supposed to help you next year. So the feeling was that you could do better than 10% next year in fiscal 'twenty, 2 but it sounds like maybe some of these mix issues are the results and Youre doing worse next year than you did this year can you sort of give us what next year is relative to the just sort of what you've done this year.

So I don't think I'm ready to we haven't completely finished the plans on next year. So maybe it's a little premature for me to talk about next year, specifically on cost downs.

I would say that when you look at 1 alpha cost declines they are they are very good.

The timing in which.

The 1 alpha ramp is certainly an impact and when it gets to its mature yields day is certainly an impact and then of course, it's hard to call. These these mix.

Elements that characterize some headwinds.

But suffice it to say when you kind of think about what our strategy is we do feel that we will see many of these things enter into the equation. So I think when you look at it on a front end basis is quite good and quite comparable I think when you look at it on a mixed basis somewhat dependent on how the market unfolds, but based on our early view into next year in terms of index.

We would expect some headwinds.

Okay. Thanks.

Thank you. Our next question comes from Joe Moore with Morgan Stanley You May proceed with your question.

Great. Thank you I wanted to follow up on the just in time to just in case inventory question.

You are talking about demand not being fulfilled in the short term.

So is the message here that the customers don't really have inventory.

But that they want to put that inventory into place are there pockets, where there is inventory kind of waiting for other components.

So again, it really varies from customer to customers. Some customers may have reacted fast and will be getting adequate level of inventory or the inventory in line with their strategy in terms of how to cope with the current environment with respect to demand and supply.

For their own components.

Some other customers may have less level of inventories so really it varies from customer to customer so what I'm, saying is that regarding the just in time.

Shifting toward just in case kind of mindset. It really is that customer focus on managing their supply chain. So that they can have sufficient inventory to meet the end market requirements. Some customers may have moved more in that direction and some other customers may have yet to.

Move in the direction of some adjusting time mindset toward just in case. So for example, the car production we have seen that.

Auto market has suffered through significant supply chain shortages and of course have incurred significant cost to that industry as well and not being able to fulfill the order all their supply requirements and of course that then drives a different mindset on how to avoid this kind of situation in the future.

So.

<unk> from end market to end market it varies from customer to customer.

But overall, what we are saying is that with the lessons of the geopolitical considerations with the lessons of the pandemic and the lessons of the recent supply chain shortages in the backdrop of digital transformation, requiring more and more of our semiconductor solutions customer.

Parts of the customer ecosystem likely is approaching their inventory reconciliations in a different manner compared to before and again, we look at it as an emerging.

Trends in the industry.

Great. Thank you very much.

Thank you. Our next question comes from Chris Danley with Citi. You May proceed with your question.

Hey, Thanks, guys.

Just to follow up on that previous question. If you look at the 3 day in end markets for DRAM PC cellphone server and your I guess your best guesses.

Centauri in each.

Would you say its lowest and then when do you think that Doug.

And markets will achieve their whatever the heck normalize.

These days level of inventory.

So if youre not going to go there in terms of trying to break it down by market by market.

Of course, you, sometimes see different moving parts and different parts of the market Channel. For example in mobile you saw that with the India Covid situation as well as the April and May in China. There was a reduction in demand in certain parts of the smartphone market. However in other parts of the world.

The smartphone suppliers moved to supply the increased demand in other parts of the world and of course some of their demand because the supply is in shortage some of the supply in the industry got shifted toward other parts of the market too. So we are not going to break it down I mean, I gave you a mobile just as 1 example.

This situation can vary from customer to customer, but all in all when you look at the end markets.

Almost all end markets are seeing shortages and in aggregate.

There is tight supply today, that's what is resulting an increase in prices in the industry that we reported for Q3 and we guided to in Q4 also for DRAM and NAND, we see price increases and overall, we see supply tightness continuing through the year and into 2024 timeframe.

As well.

Well said.

'twenty 2.

Like 2024 as well.

2000.

<unk> I'll take that you definitely talk about we'll definitely be talking about that 1 of these days through yes.

1 quick 1 Sanjay what do you think is going to be the chipset impact 2 micron in the memory ecosystem in general.

So I think when you say chipset impact.

Our chipset to IC, okay. So with respect to chipset, we definitely first of all it's really great that U S. Government is recognizing the importance of semiconductors and how employer embarked.

Important semiconductors are 2 national economic consideration as well as national security consultations and of course semiconductors are important to all global economies. Today. So we are certainly.

Look forward to greater support for U S leadership in semiconductor research as well as semiconductor manufacturing in the years to come and of course micron as the only.

Player in semiconductor memory and semiconductor storage in the industry as well engaged with the U S government and I know that the U S. Government also recognizes the importance of memory and storage as a strategic part of the semiconductor industry. So we really look forward to opportunities in terms.

Addressing our future needs. We continue to stay engaged we stay engaged with the government.

All global sites, where we have major operations and we look forward to the opportunities here in the U S as well and we're really glad that the funding has crossed the finish line in the Senate and we certainly hope that in the house as well this will pass.

And U S.

Industry can get on with the business of really strengthening U S leadership in research and manufacturing in semiconductors for the years to come and we are definitely demand always committed to growing our own supply in line with the industry demand and we remain disciplined in that regard.

Thanks Sanjay.

Thank you. Our next question comes from Toshi Hari with Goldman Sachs. You May proceed with your question.

Hi, guys. Thanks, a lot for taking taking my questions I have 1 on DRAM and 1 NAND on the DRAM side wanted to ask about your ability to grow bits over the next call. It 4 to 6 quarters I think Dave had a couple of conferences you talked about <unk>.

Bits being flattish into the August quarter.

Just given where you are in the transition and given the low inventories.

As you progress in sort of transition to 1 alpha.

At 1 point should we should we.

Expect your bit supply to accelerate in the DRAM business and to the extent you can't meet demand call. It over the next couple of quarters, how should we think about your willingness to increase Inc.

Chris capacity in DRAM, and then on the NAND side at a very high level I think Sanjay it feels like to me. It feels like you sound a little bit better on NAND supply demand or less cautious on NAND supply demand I'm curious what's changed over the past couple of quarters is it purely demand being <unk>.

<unk>.

Is it sort of the shortages around controllers.

Yields on tire layer count nodes are all of the above just curious.

What's changed in that over the past.

A couple of months couple of quarters. Thank you.

Okay. So I'll take the DRAM question first I think you would model for sure we're thinking pretty modest sequential growth in the fourth quarter in terms of DRAM I think that will carry into the first fiscal quarter quite honestly I would expect a relatively gradual increase.

As we ramp 1 alpha and that there wouldn't be necessarily an inflection point, where we see a big step up in the growth rates we've been.

<unk> focused on.

The supply demand balance on from our perspective, and so we have been.

Investing in 1 alpha with that in mind.

And then just the follow on question you had.

I'll say the same thing as.

As we look at DRAM and as we actually as we invest in DRAM and NAND, we take a long range view in terms of the growth rates of DRAM and NAND Sanjay mentioned that we think DRAM growth rates are in.

For for DRAM long term growth rates are in.

Mid to high teens, and we think NAND is growing should grow around 30% over the long term and thats, how we invest our capex and we're all week now year to year things might be a little different than that but we're investing over the long run to grow our our supply in relationship to that demand growth and we have not deviated from that strategy.

And then on the naphtha and on the NAND front, yes. As you noted that we have increased our outlook in terms of.

<unk> over year NAND industry growth to now mid thirties.

At the prior discussion.

And industry was somewhat of an oversupply of what we've seen is that NAND certainly has stabilized and the trends have improved in fact.

<unk> talked about price increases that we experience in Q3 for NAND as well as I've guided to price increase and then in Q4 as well. So overall you see tightness in NAND as well through the remainder of this calendar year and into 2022 and NAND demand is being driven by elasticity.

And certainly.

<unk> strength in Pcs, and also data center and smartphone markets as well.

Overall all of that out.

<unk> has changed because the supply of inventories, we believe are <unk> and certainly micron inventory and NAND also is running.

Leanne and certainly our 176 layer NAND industry, leading the launch is ramping well and overall, we expect our long term supply growth CAGR to be in line with the market did as well.

No.

Thank you.

Thank you and Doug.

That concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

[music].

Sure.

Hum.

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Yes.

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If you would like to ask a question. During this time. Please press Star then the number 1 on your touch tone telephone keypad.

If you would like to withdraw your question of course, the balance sheet in order to allow as many analysts to ask a question as possible. Please limit yourself to 1 question. Thank you.

It is now my pleasure to turn the floor over to your host Farhan Ahmad.

President of Investor Relations you May begin your conference.

Thank you and welcome to Micron technologies fiscal third quarter of 2021 financial conference call.

On the call with me today are Sanjay Mehrotra, President and CEO, and David <unk> Chief Financial Officer.

Today's call will be approximately 60 minutes in length.

This call, including the audio and slides is also being webcast from our Investor Relations website at investors day Micron Dot com.

In addition, our website contains the earnings press release and the prepared remarks by a short while ago.

Today's discussion of financial results will be presented on a non-GAAP financial basis, unless otherwise specified.

A reconciliation of GAAP to non-GAAP financial measures, maybe found on our website.

As a reminder, a webcast replay will be available on our website later today.

You can follow up Peter at Micron Tech.

Yes.

As a reminder, the matters we will be discussing today include forward looking statements.

These forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today.

We refer you to the problem.

Denki and thank you.

It would be filed with the SEC for a discussion of risks that may affect our future results.

Although we believe that the expected that day expectations reflected in the forward looking statements are reasonable we cannot guarantee future results levels of activity performance or achievements.

We are under no duty to update any of the forward looking statements. After today's date to conform these statements to actual results.

I'll now turn the call over to Sanjay.

Thank you Paul good.

Good afternoon, everyone.

We delivered outstanding because those in FQ3 our strong execution enabled us to achieve the largest sequential EPS improvement in our history and set multiple revenue records.

NAND hit record revenue propelled by record mobile MCP consumer that says D and client SSD revenues.

Our embedded business exceeded $1 billion for the first time mid record revenue across automotive and industrial markets.

We also achieved key technology and project milestones with our industry, leading 1 alpha DRAM and 176 layer NAND, reaching a meaningful portion of our production.

<unk> NAND accounting for the majority of our client SSD bit shipments.

We expect DRAM and NAND supply to remain tight into calendar 2022, as the global economy rebounds.

The strong demand for memory and storage across the data center intelligent edge and user devices puts micron in the best position ever to fully capitalize on these exciting opportunities.

We continue to make solid progress on our goals to deliver industry, leading technology and improve our cost structure.

To bring differentiated products to market and improve our product mix and to grow our share of industry profits, while maintaining stable bit sure.

I will start with an update on our operations despite shortages across the semiconductor ecosystem Nvidia Assembly materials and assembly capacity Micron delivered record assembly output this quarter, which helped fuel our strong revenue performance.

Our assembly and test success was the result of a strategic decision. We made several years ago to increase our captive footprint and strengthen relationships with suppliers and partners.

We successfully mitigated the impacts of the drought in Taiwan with no reduction in our production output.

Taiwan's rainy season has begun bringing with sufficient water supply to support our manufacturing requirements.

Why did the drought in Taiwan is behind US the rise in COVID-19 cases in Malaysia, India, and Taiwan, and a risk to our manufacturing operations and R&D activities in these regions.

We are also working with local governments to.

Facilitate onsite testing and vaccination for micron team members where possible.

Additionally, in order to predict micron team members at our more Malaysia backend facility.

We temporarily reduced our onsite workforce, Arlene FQ, 4 which reduced output levels.

We have since started bringing back team members to the site as the situation has improved.

While we ramp back towards full production levels, and where we will utilize our global supply chain, including subcontractor partners to meet our customer commitments and minimize any disruption to delivery schedules.

Earlier this year, we announced our decision to exit CD cost point development and manufacturing and to lead prioritize our R&D investments toward new CFL enables memory solutions.

CSL, our compute express link is in.

New industry standard interface that will significantly change datacenter architecture through high performance connectivity between compute memory and storage.

We are developing exciting CX sell enabled products and we'll have more to share on our roadmap in the future.

As part of holiday exit from the 3 D cost line business, we announced our intent to sell our Lehigh Utah Fab.

Today I am pleased to report that Micron has reached an agreement to sell the fab to Texas instruments and a transaction that we expect to close later this calendar year.

We see this transaction is positive for our team members, the Lehigh community and our shareholders.

The Lehigh site has been an important part of the Micron network and responsible for many technology and manufacturing innovations across NAND and <unk> Cross point products.

Texas instruments will offered all Lehigh team members the opportunity to become TIAA employees at the Lehigh site upon closing.

After the sale closes we will be able to eliminate the remaining under loading costs, we were incurring at Lehigh enhancing our efficiency and strengthening our profitability.

Dave will provide additional details.

Now for an update on technology and products.

Our industry, leading 1 alpha D them and 176 layer NAND process technologies are now in production and ramping according to plan.

These nodes accounted for a meaningful portion of our bid production in F Q3, and are on track to become a meaningful portion of our revenue in Q4.

We expect that by end of calendar 2021, the combination of 1 alpha and 1 Z DRAM nodes will represent the majority of our DRAM bit production and at the same time 176 layered NAND will be the majority of our NAND bit production.

In fiscal year 'twenty, 2 we expect these wildcards nodes to fuel that growth and provide us with good front end cost reduction on a like for like basis.

However, there are 2 factors that will create cost headwinds for us next fiscal year.

The first is driven by our strategic portfolio migration towards more advanced and higher value products, such as Dr. Slide memory high.

High density server modules and ssds.

While this portfolio shift helps us increase profit share. It will also impact our costs next fiscal year.

The second cost headwind is driven by several actions we have taken in our supply chain to increase resilience and provide business continuity to our customers across all product lines.

While these actions will allow us to capitalize on robust market demand. They will also impact our costs.

We are on track to support customers as they begin to introduce DDR 5 enabled platforms in the second half of calendar 2021.

<unk> was designed to meet more non data center requirements, including improved performance throughput doubling of memory bandwidth and improved reliability and efficiency through integration of on ECC.

<unk> features a larger die size compared to <unk>, 4 limiting DRAM industry supply growth and cost reduction as it ramps starting from the second half of calendar 2021.

In storage, we introduced the industry's first <unk> 3.1 solution for automotive applications this quarter.

We also announced volume production of client Pcie Gen..4 ssds built on the world's first 176 layer NAND and available in a variety of form factors.

We are delivering 176 layer NAND and volume to OEM and channel customers across multiple markets and have several products and customer qualifications.

We are also driving an increased mix of <unk>, NAND, which brings down the cost of ssds accelerating the replacement of hard drive.

TLC SSD adoption continues to grow and we delivered record Q LC SSD revenue and better mix in FQ3.

Turning to end markets.

In the data center integration of AI into data centric workloads will drive long term growth with memory and storage, becoming an increasing portion of firmware Bom cost.

Prepared by the transition to DDR 5 our strong capabilities in graphics memory, and the introduction of HBM and nvme SSD product offerings.

Micron's strong product roadmap across DRAM and non NAND solutions.

Positions us for success in the data center.

We will enhance our nvme SSD portfolio with the introduction of new products with internally designed controllers in the coming months.

In the fiscal third quarter data center DRAM revenue grew quarter over quarter, driven by strong demand from cloud customers and increases in module density.

Data center SSD bit shipments and revenue grew sequentially driven by both cloud and enterprise.

Data center demand is expected to be strong in the second half of the calendar year as cloud demand picks up and enterprise demand improves due to broad economic recovery.

In addition, we expect that the new Cpus, featuring more memory channels will accelerate server memory demand. Starting later this year and continuing into 2022.

The PC market continues to benefit from the trend toward greater mobility as people embrace of work or learn from anywhere culture.

Industry expectations for calendar 2021, PC unit demand growth have increased to the high teens, driven by robust notebook sales and a recovery in the desktop market.

In the fiscal third quarter, we achieved several customer qualifications for our 1 alpha based DDR floored products across various PC platforms.

Our client SSD bit shipments were up sharply quarter over quarter and year over year.

In graphics bit shipments increased sequentially and year over year, driven by strong next generation game console and graphics card shipments.

Micron has an excellent position in the graphics market with a broad product portfolio and deep customer partnerships.

Mobile business achieved record MCP quarterly revenue.

We made strong progress with our 1 Alpha LP DRAM products and 176 layer USF 3.1 enabled solutions.

We have already completed customer qualifications for some of these products.

While COVID-19 has softened mobile demand and parts of Asia supply shifts to address stronger demand in other regions are keeping the global market in tight supply demand balance.

Mobile unit sales are expected to show healthy growth this year with some variability across geographies driven by unexpected doubling of <unk> units in calendar 2021 to more than 500 million units.

These 5 firms also feature rich content demanding significantly higher DRAM and NAND.

We are also encouraged to see bold OEM innovation and new devices like gaming smartphones, featuring 18 gigabyte of DRAM.

Our automotive business delivered a third consecutive record quarter, driven by continued manufacturing recovery and increased <unk> 4 and E. MMC content for in vehicle infotainment and driver assistance applications.

Auto unit sales are expected to grow significantly from last year.

<unk>.

That is currently unmet demand for DRAM and NAND due to end market strength.

This unmet demand would have been even larger had it not been for the non memory component shortages influencing our customers ability to manufacture their products, particularly in the PC automotive and industrial markets.

These shortages can cause variability in demand patterns as customers experienced challenges sourcing matched set of non memory components. We.

We are hopeful that foundry capacity coming online can begin to alleviate some of the component shortages in the second half of calendar 2021, and support robust memory and storage growth <unk>.

Additionally, as a result of strong end market demand trends the lessons of the pandemic and ongoing geopolitical uncertainty some customers will change their inventory management strategy from just in time to just in case and increase the target level of what they consider normal inventory levels.

Long term, we see a DRAM bit demand growth CAGR of mid to high teens, and the NAND bit demand growth CAGR of approximately 30%.

Turning to micron supplier, we are targeting to align our long term bit supply growth CAGR with industry bit demand growth CAGR across DRAM and NAND.

However, we expect year to year variability caused by a node transition timing.

In both DRAM and NAND, we expect our calendar 2021 bit supply growth to be below the industry bit demand growth and we have used our inventory to add to our bit shipment growth. This year.

Before handing over to Dave I have 1 more important announcement to share regarding our DRAM technology and manufacturing strategy.

Based on our assessment of the progress <unk> has been making and aligns with our technology strategy and industry, leading DRAM scaling roadmap, we plan to insert <unk> into our DRAM roadmap starting in the 2024 timeframe.

Micron has placed purchase orders for multiple <unk> tools from ASML as part of our long term volume agreement.

The prepayments for these systems will contribute towards the fiscal year, 'twenty, 1 and fiscal year 'twenty 2 capex.

We have increased our fiscal year 'twenty, 1 capex to be somewhat above $9.5 billion, mostly from the areas that do not impact calendar year, 'twenty, 1 and calendar year 'twenty 2 bed growth such as these prepayments construction spending and other R&D and corporate items.

I will now turn it over to Dave.

Thanks, Sanjay Micron delivered outstanding at Q3 results revenue and EPS grew by a record amount sequentially on an organic basis, and we generated over $1.5 billion and free cash flow in the quarter.

Total Q3 revenue was approximately $7.4 billion up.

Up 19% quarter over quarter and up 36% year over year.

Revenue growth was driven by stronger DRAM, and NAND pricing and by robust customer demand for micron products.

At Q3, DRAM revenue was $5.4 billion.

Representing 73% of total revenue.

DRAM revenue increased 23% sequentially and was up 52% year over year.

Bit shipments increased in the low single digit range sequentially, and Asps were up approximately 20% quarter over quarter.

At Q3, NAND revenue was approximately $1.8 billion.

Representing 24% of total revenue and an all time high for the company.

NAND revenue increased 10% sequentially and was up 9% year over year.

Bit shipments increased by low single digits sequentially, while asps increased in the high single digit percentage range quarter over quarter.

Now turning to our revenue trends by business unit.

Revenue for the compute and networking business unit was approximately $3.3 billion.

Up approximately 25% sequentially and 49% year over year.

<unk> revenue growth was driven by broad based sequential pricing increases.

Revenue for the mobile business unit was $2 billion.

Up 10% sequentially and 31% year over year.

Mobile demand remained healthy despite handset sales continue to ramp.

Revenue for the storage business unit was $1 billion.

Up approximately 19% from the prior quarter and approximately flat year over year.

Both client and consumer SSD revenue set records.

And finally, the embedded business unit generated record revenue of $1.1 billion.

Which was up 18% sequentially and 64% year over year.

Automotive and industrial revenues were at an all time high for the company.

The consolidated gross margin for Q3 was 42, 9% up 10 percentage points from the prior quarter.

DRAM and NAND price increases helped drive the margin expansion in Q3.

Gross margins also benefited by 100 basis points from $75 million less depreciation at our Lehigh Fab, which is classified as assets held for sale.

Operating expenses were $821 million in Q3, which we continue to tightly manage.

Operating expenses also benefited from approximately $21 million of gains from the sales of certain assets.

At Q3 operating income was $2.4 billion.

Resulting in an operating margin of 32% compared to 20% in the prior quarter and 18% in the prior year's quarter.

F Q3, EBITDA was $4 billion, resulting in an EBITDA margin of 53% compared to $2, 45% in the prior quarter and 44% in the prior year.

Net interest expense was $31 million in Q3, and we expect it to be roughly flat going forward.

Our Q3 effective tax rate was 8.4%, we expect our tax rate to be in the high single digits for Q4.

Non-GAAP earnings per share in Q3 were $1.88.

Up from 98 in Q2, the 90 sequential improvement with the largest and micron history.

EPS included approximately <unk> <unk> from the sale of certain assets.

Gains from Micron ventures, and 1 time tax items.

Turning to cash flows and capital spending we generated approximately $3.6 billion in cash from operations in Q3, representing 48% of revenue.

Net capital spending was approximately $2 billion during the quarter as Sanjay mentioned, we now expect our FY 'twenty, 1 capital spending to be somewhat higher than $9.5 billion.

Most of this capex increase that we are highlighting today will not increase our <unk> 21, and <unk> 22 bit supply.

We expect that while we invest in the EV infrastructure and initial deployment our capital intensity will increase to mid 30% of revenues once we get past the investment period of <unk> adoption. We expect that these tools will boost our competitiveness and helped drive productivity of our fabs.

As a result of the strong market environment and Micron is extraordinary execution, we generated positive free cash flow of $1.5 billion in Q3 the.

The increased cash flow was driven by strong revenue growth higher margins and efficient working capital management.

We expect free cash flow to continue to improve in the fourth quarter driven by continuing growth in revenue and earnings.

We completed share repurchases of $150 million or approximately 1.7 million shares in Q3.

From the inception of the share repurchase program, we've repurchased $3 billion worth of micron stock, representing 55% of our cumulative free cash flow.

In addition, since FY 19, we have used approximately $2 billion in cash to settle conversions of our convertible notes, including approximately $800 million to settle the convert premiums.

Combining the share repurchases and convert premiums we've used $3.8 billion or 69% of our cumulative free cash flow towards reducing our share count.

We plan to continue repurchasing shares in Q4.

Ending Q3 inventory was $4.5 billion.

Or 98 days, we remain in a very lean inventory position as demand continues to outstrip our supply.

We ended the quarter with total cash and investments of $9.8 billion.

And total liquidity of approximately $12.3 billion.

At Q3, ending total debt was $6.7 billion.

These upgrades to the outlook for our debt ratings are further evidence of the financial transformation underway at micron.

Before providing the financial outlook I want to cover the financial implications of the sale of our Lehigh fab.

We are pleased with this transaction and believe that it is good for our shareholders as it frees up capital and enhances our ongoing profitability.

The economic value for micron from the sale is $1.5 billion.

Comprised of $900 million in cash, resulting from the sales transaction and approximately $600 million in value for select tools and other assets that micron will retain for redeployment to its other manufacturing sites or that are sold to other buyers.

We're taking an impairment charge of $435 million or approximately $330 million on an after tax basis as the $900 million sale price is below our book value of the assets being sold.

Note that the tools that we are keeping have largely been depreciated, but have substantial future value in our manufacturing network.

As we previously disclosed we stopped depreciation of the Lehigh fab assets last quarter and this benefited our cost by approximately $75 million in Q3.

Once the sale is completed we will further improve our profitability by entirely eliminating our under load charges.

Now turning to our near term outlook.

DRAM and NAND markets are tight and we expect pricing increases for both markets in the fiscal fourth quarter.

Additionally, we also expect cost headwinds from product mix in and Covid mitigation.

Despite cost headwinds, we expect strong improvement in our financial performance in Q4, our growth opportunity is healthy and market momentum heading into fiscal year 2022 is strong.

With all these factors in mind, our non-GAAP guidance for Q4 is as follows we.

We expect revenue to be $8.2 billion.

Plus or minus $200 million.

Gross margin to be in the range of 47% plus or -100 basis points.

And operating expenses to be approximately $900 million plus or minus $25 million.

Finally based on a share count of approximately 115 billion fully diluted shares we expect EPS to be $2.30, plus.

Plus or -10.

Micron's relentless focus on execution positions us well to generate solid returns for our shareholders.

Measuring our performance trough to trough across the cycle from FY <unk> to FY 'twenty, we substantially improved our EBITDA margin and our revenue grew by more than 70%.

During this time, we delivered average gross margins of 40% EBITDA margins of 50% and return on invested capital of 20%.

We believe micron strong financial performance will continue cross cycle and over the long term our revenue growth will outperform the broader semiconductor industry.

I will now turn it back to Sanjay.

Thank you Dave.

<unk> fiscal third quarter results demonstrate the strength of our business and we expect to achieve continued strong results in the future.

Demand for memory and storage is solid across market segments and industry trends like artificial intelligence edge computing and 5 continue to create new opportunities for micron.