Q1 2022 Micron Technology Inc Earnings Call

December 20, 2021

Hello. Thank you for standing by and welcome to Micron's first-quarter 2022 financial call. At this time all participants are in a listen-only mode. After the speaker presentation, there'll 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 today's conference may be recorded. If you require any further assistance. Please press star zero. I would now like to hand, the conference over to your speaker today Farhan Ahmed, Vice President of Investor Relations. Please go ahead.

be recorded. If you require any further assistance. Please press star zero. I would now like to hand, the conference over to your speaker today Farhan Ahmed,

Vice President of Investor Relations. Please go ahead.

Thank you and welcome to Micron Technologies fiscal first quarter 2022 financial conference call. On the call with me today are Sanjay Mehrotra, President and CEO and Dave Zinsner, Chief Financial Officer. Today's call will be approximately 60 minutes in length. This call, including the audio and slides, is also being webcast from our Investor Relations website at investors.Micron.com. In addition, our website contains the earnings press release and the prepared remarks filed a short while ago.

On the call with me today are Sanjay Mehrotra, President and CEO and data since the 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 filed a short while ago.

Today's discussion of financial results will be presented on a non-GAAP financial basis unless otherwise specified. A reconciliation of GAAP to non-GAAP financial measures may be found on our website. As a reminder, a webcast replay will be available on our website later today. We encourage you to monitor our website at Micron.com throughout the quarter for the most current information on the company, including information on the various financial conferences that we will be attending. You can follow us on Twitter [at my contact.]

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 on Twitter if my contacts.

As a reminder, the matters we will be discussing today include forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today. We refer you to the documents we filed with the SEC specifically, our most recent Form 10-K and 10-Q for a discussion of 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 will now turn the call over to Sanjay.

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

We refer you to the documents we filed with the SEC specifically, our most recent Form 10-K and 10-Q for a discussion of 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 will now turn the call over to Sanjay.

I will now turn the call over to Sanjay.

Thank you, Farhan, good afternoon, everyone. Micron delivered outstanding results in fiscal Q1, achieving strong year over year revenue growth and solid profitability. Our strong start to the year and our product portfolio momentum keep us on track to deliver record revenue and robust profitability in fiscal 2022. We are rapidly ramping our industry leading one alpha DRAM and 176 layer NAND products and achieving excellent yields and these products are now shipping across our major end markets.

We are rapidly ramping our industry, leading one alpha DRAM and 176 layer NAND products and achieving excellent yields and these products are now shipping across our major end markets.

We achieved significant product advancements and customer events, including launching our first DDR five solution, introducing our vertically integrated Gen Ford NVMe datacenter SSD validating the world's first low power DDR five X with Mediatek and shipping all of GDR six for AMD's Radeon Rx 6000 graphics card. The secular demand for memory and storage along with Micron's focus on building our technology and product leadership and deepening our customer relationships continues to strongly position us to create significant shareholder value in fiscal year '22 and beyond.

Validating the world's first low power DDR, five X with Mediatek and shipping all of G. D. R. Six for Amd's Radeon Rx 6000 graphics card.

The secular demand for memory and storage along with Micron and focus on building, our technology and product leadership and deepening our customer relationships continues to strongly position us to create significant shareholder value in fiscal year 'twenty two and beyond.

With the successful ramp up of Enel for DRAM, and 176 layer NAND products across major end markets, we are several quarters ahead of the industry and market deployment of these leading-edge process technologies. The combination of one alpha and one Z DRAM nodes represents the majority of our DRAM bit production and 176 layer NAND now accounts for the majority of our NAND bit production.

The combination of one alpha and one Z DRAM nodes represents the majority of our DRAM bit production and 176 layer NAND now accounts for the majority of our NAND bit production.

Our strong execution on these advanced nodes set us up for a successful fiscal year '22. We are also investing to scale our technology for the next decade, we are planning for volume DRAM production [EUV] in 2024, with our one gamma node. Integrating EUV with our existing multi-patterning immersion lithography expertise will help us maintain DRAM technology leadership for many years to come.

We are also investing to scale our technology for the next decade, we are planning for volume DRAM production on <unk> in 2024, with our one gamma node into.

Integrating <unk> with our existing multi patterning immersion lithography expertise will help us maintain DRAM technology leadership for many years to come.

And in NAND, we have successfully transitioned to replacement gate and have a roadmap to scale for several generations, while leveraging our leadership in CMOS on the other day and he will seek to maintain a bit density leadership. In addition to being a technology leader, Micron is the industrial quality leader with two thirds of our customer's ranking us number one in quality.

In addition to being a technology leader Micron is the industrial quality leader with two thirds of our customer's ranking us number one in quality.

As a technology and quality leader and as an innovation partner with strong global manufacturing network, we have become a strategic supplier to our customers. Amid ongoing semiconductor supply chain challenges, Micron has leveraged our deep related partnerships with customers and suppliers to support DRAM, NAND and NOR supply continuity. On the customer side, we're seeing greater commitment and collaboration on supply planning, including the use of long term agreements.

Amid ongoing semiconductor supply chain challenges micron has leveraged our deep related partnerships with customers and suppliers to support DRAM, NAND and nor supply continuity.

On the customer side, we are.

We're seeing greater commitment and collaboration on supply planning, including the use of long term agreements.

Today, over 75% of our revenue comes from volume-based annual agreements, a significant increase from five years ago, when they accounted for around 10% of our revenue. On the supply side, we have entered into strategic agreements to secure supply of certain components that we need to manufacture our products. As a result of these agreements, the current tight supply of these components is expected to gradually improve for us throughout calendar 2022.

On the supply side, we have entered into strategic agreements to secure supply of certain components that we need to manufacture our products.

As a result of these agreements the current tight supply of these components is expected to gradually improve for us throughout calendar 2022.

Now, let us review our end markets. Demand for memory and storage is broad extending some of the data center to the intelligent edge and to a growing diversity of user devices. Memory and storage revenue has outpaced the rest of the semiconductor industry over the last two decades, and we expect this trend to continue for years to come thanks to AI, 5G and EV adoption. In addition, the build-out of immersive virtual worlds often referred to as the metaverse will offer even more opportunity due to the intensive use of significant memory and storage in these applications.

Demand for memory and storage is broad extending some of the data center to the intelligent edge and to a growing diversity of user devices.

Memory and storage revenue has outpaced the rest of the semiconductor industry over the last two decades, and we expect this trend to continue for years to come thanks to AI five G and EV adoption.

In addition, the bill.

The out of immersive virtual worlds, often referred to as the meta worse will offer even more opportunity due to the intensive use of significant memory and storage in these applications.

Our team's execution and strengthening our product portfolio has been outstanding with several new product launches and customer qualifications in FQ1, achievements, we are very proud of. I will highlight some of these achievements as I discuss our end markets. Datacenter is the largest market for memory and storage and we expect it to outpace the broader memory and storage market over the next decade.

I can highlight some of these achievements as I discuss our end markets.

Data center is the largest market for memory and storage and we expect it to outpace the broader memory and storage market over the next decade.

Many in storage is growing as a portion of silver bomb supported by new and heterogeneous computing architectures the growth of data-intensive workloads in AI and the ongoing displacement of HDDs by SSDs. In the fiscal first-quarter data center revenue grew more than 70% year over year as a result of continued cloud demand and the resurgence of enterprise IT investment. Our strengthening product portfolio also contributed to strong profitability. In FQ1, we launched the 7400 SSD. The first data center NVMe SSD to utilize our internally developed controller and firmware along with our DRAM and NAND.

In the fiscal first quarter data center revenue grew more than 70% year over year as a result of continued cloud demand and the resurgence of enterprise it investment.

Our strengthening product portfolio also contributed to strong profitability.

In FQ, one we launched the 7400 SSD.

First data center Nvme SSD to utilize our internally developed controller and firmware along with our DRAM and NAND.

This gen four NVMe product has already been qualified by two key customers. Looking ahead, we expect a strong ramp in our datacenter SSD revenues in Q2, driven by increased sales of our NVMe SSD products. In addition, we launched the industry's leading DDR five and see strong demand as customers prepare for new server product launches in calendar '22.

Looking ahead, we expect a strong ramp in our datacenter SSD revenues in Q2, driven by increased sales of our nvme SSD products.

In addition, we launched the industry's leading DDR five and see strong demand as customers prepare for new server product launches in calendar 'twenty two.

While PCN demands remain strong, our clients' revenue declined sequentially due to the PC production impact from ongoing non memory component shortages and related customer inventory adjustments of DRAM and NAND products. Consistent with the expectations we articulated in our last earnings call, the inventory adjustment at most we see customers is now largely behind us and we are seeing signs of stabilization in demand in this end market.

Consistent with the expectations, we articulated in our last earnings call. The inventory adjustment at most we see customers is now largely behind us and we are seeing signs of stabilization in demand in this end market.

As we enter calendar year 2022, we expect PC unit sales to be in line with those for calendar year 2021. Mix of enterprise Pcs in calendar year, 2022 is projected to be higher as companies invest to support hybrid work environments. This shift in the mix of PC unit shipments should increase average PC DRAM and NAND content. Low power DRAM has grown to 20% of the PC industry DRAM bit demand today and is projected to become the majority of the PC market in five years. Given all the industry, leading solution and low power DRAM, we are well-positioned to benefit from this trend.

Mix of enterprise Pcs in calendar year, 2022 is projected to be higher as companies invest to support hybrid work environments.

This shift in the mix of PC unit shipments should increase average PC DRAM and NAND content.

Low power DRAM has grown to 20% of the PC industry DRAM bit demand today and is projected to become the majority of the PC market in five years.

Given all the industry, leading solution and low power DRAM, we are well positioned to benefit from this trend.

In FQ1, we achieved qualifications and volume production of our 176 layered Gen for PCIe client SSD at several PC OEMs as well as our first revenues for DDR5 memory. Across the PC industry, demand for DDR five products is significantly exceeding supply due to non-memory component shortages impacting memory suppliers the ability to build DDR5 modules. We expect these shortages to moderate through 2022, enabling bit shipments of DDR5 to grow two meaningful levels in the second half of calendar 2022.

Across the PC industry demand for DDR five products is significantly exceeding supply due to non memory component shortages impacting memory suppliers the ability to build DDR five modules.

We expect these shortages to moderate through 2022, enabling bit shipments of DDR five to grow two meaningful levels in the second half of calendar 2022.

We are poised to take advantage of this transition with industry-leading DDR5 solutions for Pcs. And the fast-growing graphics market Micron holes an excellent position with a broad product portfolio, featuring our proprietary GDDR6X product line and deep partnerships with leading GPU suppliers. We increased our revenue sequentially and year over year. Our proprietary GDDR6X continues to have market success, including integration on Nvidia's high-end gaming cards.

And the fast growing graphics market micron holes in excellent position with a broad product portfolio, featuring our proprietary E. D. D. D. R. Six X product line and deep partnerships with leading GPU suppliers.

We increased our revenue sequentially and year over year.

Albert proprietary G. D. D. R. Six X continues to have market success, including integration on Nvidia is high end gaming cards.

In FQ1, we were pleased to announce availability of our GDDR6X memory solutions on AMD's Radeon Rx 6000 graphics card extending the value of GDDR6 memory do the entire gaming market. F Q1 mobile revenue increased more than 25% year over year. Mobile memory and storage demand continues to strengthen supported by content-hungry applications and the continued transition from 4G to 5G. Recent 5G phones, which had more than 15% higher DRAM and double the NAND content versus 4G phones. 5G smartphone sales are forecast to exceed 500 million units in calendar year '21 with 700 million units forecast for calendar year '22.

F Q1, mobile revenue increased more than 25% year over year mobile memory and storage demand continues to strengthen supported by content hungry applications and the continued transition from <unk> to five <unk>.

Recent <unk>, France, which had more than 15% higher DRAM and double the NAND content. What's this <unk> phones <unk> smartphone sales are forecast to exceed 500 million units in calendar year 'twenty, one with 700 million unit forecast for calendar year 'twenty two.

We expect mobile content to continue increasing as 5G phones benefit from further innovation and 5G enabled applications. Following several industry-first last year in FQ1 our one alpha based LP DDR 5X, the world's fastest mobile DRAM. While samples and validated with Mediatek further demonstrating Micron's leadership in the mobile market. We expect automotive and industrial to be the fastest-growing memory and storage markets over the next decade, and we are exceptionally well-positioned as a market share leader with over 10% of our revenue coming from these end markets.

Following several industry first last year in FQ, one hour, one alpha based LP DDR five X the world's fastest mobile DRAM DRAM.

While samples and validated with Mediatek further demonstrating micron's leadership in the mobile market.

We expect automotive and industrial to be the fastest growing memory and storage markets over the next decade, and we are exceptionally well positioned as a market share leader with over 10% of our revenue coming from these end markets.

In the near term, non-memory component shortages are limited in calendar year '21 auto unit production to be flat year over year significantly below and consumer demand. However, our F Q1 year over year auto revenue growth remained strong at 25% as a result of content growth from in-vehicle infotainment and driver assistance applications, which are advancing rapidly, especially as EV adoption accelerates.

However, our F Q1 year over year auto revenue growth remained strong at 25% as a result of content growth from in vehicle infotainment and driver assistance applications, which are advancing rapidly, especially as E V adoption accelerates.

New EVs are becoming like a data center on wheels, and we're already seeing examples of 2022 model years EVs supporting level three autonomous capability with over 140 gigabytes of DRAM and also examples with over one terabyte of NAND. In addition to continued content growth, we expect calendar year '22 auto unit production to increase as non-memory component shortages ease.

In addition to continued content growth, we expect calendar year 'twenty, two auto unit production to increase as non memory component shortages ease.

We entered into a new supply agreement with UMC to improve our ability to support our automotive customers with NAND solutions as market demand strengthens in calendar year '22. In industrial IoT, we saw more than 80% year over year revenue growth fueled by the continued ramp in applications, such as factory automation and security systems. And consumer IoT, we saw more than 40% year over year revenue growth driven by applications, such as VR headsets and smart home devices.

In industrial Iot, we saw more than 80% year over year revenue growth fueled by the continued ramp in applications, such as factory automation and security systems.

And consumer Iot, we saw more than 40% year over year revenue growth driven by applications, such as VR headsets and smart home devices.

We expect IoT demand trends to accelerate further as 5G speeds the adoption of data-intensive applications powered by intelligent edge infrastructure. I'll review of calendar 2021 in calendar 2022 industry bit demand and supply growth is largely unchanged from last quarter. We expect calendar 2021, DRAM industry bit demand growth to be in the low 20% range and industry NAND bit demand growth to be in the high 30% range.

I'll review of calendar 2021 in calendar 2022 industry bit demand and supply growth is largely unchanged from last quarter.

We expect calendar 2021, DRAM industry bit demand growth to be in the low 20% range and industry NAND bit demand growth to be in the high 30% range.

We expect calendar 2022 industry bit demand growth to be in the mid to high teens for DRAM and approximately 30% for NAND in line with our view of the long term bit demand growth CAGR would each. We anticipate underlying demand in calendar 2022 to be led by increasing volume of data center server deployments, 5G mobile shipments, and continued strength in automotive and industrial markets. Non-memory supply shortages have constrained customer bills and pushed out some demand across many end markets. While these shortages may cause some variability to our demand, we expect them to ease through 2022 supporting memory and storage demand growth.

We anticipate underlying demand in calendar 2022 to be led by increasing volume of data Center server deployments.

<unk> mobile shipments and continued strength in automotive and industrial markets.

Non-memory supply shortages have constrained customer bills and pushed out some demand across many end markets. While these shortages may cause some variability to our demand, we expect them to ease through 2022 supporting memory and storage demand growth.

While these shortages may cause some variability to our demand we expect them to ease through 2022 supporting memory and storage demand growth.

Turning to other bit supply expectations for the year. Given prudent industry Capex and very lean supply and inventories, we expect a healthy industry supply-demand balance in calendar year '22. Micron's calendar year bit supply growth for DRAM and NAND will be in line with industry demand. We are planning to deliver record revenue with solid profitability in fiscal year '22. With stronger bit shipment growth in the second half of the fiscal year. The stronger second half bit shipments will be aided by the easing impact of non-memory component shortages on our supply and on customer demand together with additional product qualifications of our one [inaudible] DRAM and 176 layer NAND based products.

Given prudent industry, Capex, and very lean supply and inventories, we expect a healthy industry supply demand balance in calendar year 'twenty two.

Micron's calendar year bit supply growth for DRAM, and NAND will be in line with industry demand.

We are planning to deliver record revenue with solid profitability in fiscal year 'twenty two.

Stronger bit shipment growth in the second half of the fiscal year.

The stronger second half bit shipments will be aided by the easing impact of non memory component shortages on our supply and on customer demand together with additional product qualifications of our one asphalt DRAM and 176 layer <unk> NAND based products.

As expected in fiscal year '22, the continued ramp of one alpha DRAM and 176 layer NAND and providing us with good front end cost reductions. As we mentioned before, our efforts to increase supply chain resilience and provide business continuity to our customers that headwinds for our assembly and packaging costs consistent with the broader industry. Overall, we expect annual cost per bit reductions to be competitive with the industry in fiscal year '22 and over the long term.

As we mentioned before our efforts to increase supply chain resilience and provide business continuity to our customers that headwinds for data.

Assembly and packaging costs consistent with the broader industry.

Overall, we expect annual cost per bit reductions to be competitive with the industry in fiscal year 'twenty, two and over the long term.

Yeah.

Turning to capital expenditures, we expect fiscal year '22 Capex in the range of $11 billion to $12 billion. For both DRAM and NAND, we plan to achieve bit supply growth with no transitions alone through the middle of the decade. Beyond this time horizon, we anticipate the need to add greenfield wafer capacity for DRAM.

Fiscal year 'twenty to Capex in the range of $11 billion to $12 billion.

For both DRAM and NAND, we plan to achieve bit supply growth with no transitions alone through the middle of the decade beyond this time horizon, we anticipate the need to add greenfield wafer capacity for DRAM.

However, for our NAND supply growth, we expect continued 3D scaling to be sufficient to meet industry demand growth without the need for wafer capacity additions. We recently announced our intent to invest more than $150 billion globally over the next decade, and leading-edge memory manufacturing and R&D. As part of our commitment to investing in R&D, we announced plans to establish a state of the art memory design Center in Atlanta.

We recently announced our intent to invest more than $150 billion globally over the next decade, and leading edge memory manufacturing and R&D.

As part of our commitment to investing in R&D, we announced plans to establish a state of the art memory design Center in Atlanta.

These announcements reflect our confidence in persistent long term demand growth for memory and storage and our ability to generate returns on these investments. We look forward to working with governments around the world, including in the US. As we consider sites to support future expansion. I will now turn it over to Dave.

We look forward to working with governments around the world, including in the U S. As we consider sites to support future expansion.

I will now turn it over to Dave.

Thanks, Sanjay. Micron delivered outstanding results to start the fiscal year with revenue margin and EPS all coming in within our guidance ranges, while also generating healthy free cash flow. Total F Q1 revenue was approximately $7.7 billion. Down 7% quarter over quarter and up 33% year over year. The sequential revenue decline was predominantly attributable to weakness related to non-memory component shortages at our customers as Sanjay discussed earlier. F Q1, DRAM revenue was $5.6 billion, representing 73% of total revenue.

Total F Q1 revenue was approximately $7 7 billion.

Down 7% quarter over quarter and up 33% year over year.

The sequential revenue decline was predominantly attributable to weakness related to non memory component shortages at our customers as Sanjay discussed earlier.

F Q1, DRAM revenue was $5 $6 billion, representing 73% of total revenue.

DRAM revenue declined 8% quarter over quarter and was up 38% year over year. Sequentially, bit shipments declined in the mid-single-digit percentage range, while ASPs declined in the lower single-digit percentage range. F Q1 NAND revenue was approximately $1.9 billion. Representing 24% of Micron's total revenue. [Net] revenue declined 5% quarter over quarter and was up 19% year over year. Sequential bit shipments were approximately flat and asps declined in the mid-single-digit percentage range.

Sequentially shipments declined in the mid single digit percentage range, while asps declined in the lower single digit percentage range.

F Q1, NAND revenue was approximately $1 9 billion rep.

Representing 24% of Micron's total revenue.

<unk> revenue declined 5% quarter over quarter and was up 19% year over year.

Sequential bit shipments were approximately flat and asps declined in the mid single digit percentage range.

Now turning to our F Q1 revenue trends by business unit revenue. Revenue for the compute and networking business unit was $3.4 billion. Down 10% quarter over quarter and up 34% year over year. Coud enterprise and graphics performed well in the quarter, while client revenues declined sequentially. Revenue for the mobile business unit was $1.9 billion, up 1% sequentially and up 27% year over year.

Revenue for the compute and networking business unit was $3 4 billion.

Down 10% quarter over quarter and up 34% year over year.

Loud enterprise and graphics performed well in the quarter, while client revenues declined sequentially.

Revenue for the mobile business unit was $1 9 billion.

Up 1% sequentially and up 27% year over year.

Micron continues to lead in managed NAND and MCP revenues surpassed 50% of mobile revenue in FQ 1 for the fifth consecutive quarter. Revenue for the storage business unit was $1.2 billion down 4% from the prior quarter and up 26% year over year. SBU profitability benefited in FQ1 from the strong progress made in ramping our 176 layer node. Finally, revenue for the embedded business unit was $1.2 billion the second highest in our history. EBU revenue was up 51% year over year and down 10% from record levels in the prior quarter. EBU gross margin and operating margin improved sequentially driven by strong execution.

Revenue for the storage business unit was $1 2 billion down 4% from the prior quarter and up 26% year over year.

SBU profitability benefited in FQ, one from the strong progress made in ramping our 176 layer node.

Finally revenue for the embedded business unit was $1 2 billion the second highest in our history.

<unk> revenue was up 51% year over year and down 10% from record levels in the prior quarter.

<unk> gross margin and operating margin improved sequentially driven by strong execution.

The consolidated gross margin for FQ1 was 47% at the midpoint of our guidance and down approximately 85 basis points from the prior quarter. A higher mix of NAND sales were a headwind to F Q1 gross margin. Operating expenses in Q1 were $891 million. We continue to expect FY '22 R&D to be up approximately 15% over FY '21 as we invest to strengthen our portfolio.

A higher mix of NAND sales were a headwind to F Q1 gross margin.

Operating expenses in Q1 were $891 million, we continue to expect FY 'twenty to R&D to be up approximately 15% over FY 'twenty, one as we invest to strengthen our portfolio.

F Q1 operating income was strong at $2.7 billion, resulting in an operating margin of 35% down slightly from 37% in Q4 and up from 17% in the prior year. FQ1 adjusted EBITDA was $4.4 billion, resulting in an EBITDA margin of 57% flat from the prior quarter and up from 43% in the prior year. Non-GAAP earnings per share in Q1 were $2.16. Down from $2.42, and our Q4 and up from 78 in the year-ago quarter.

Q1, adjusted EBITDA was $4 4 billion, resulting in an EBITDA margin of 57% flat from the prior quarter and up from 43% in the prior year.

Non-GAAP earnings per share in Q1 were $2 16 down.

Down from $2 42, and our Q4 and up from 78 in the year ago quarter.

EPS included approximately one set of gains from Micron ventures investments. Turning to cash flows and capital spending. We generated $3.9 billion in cash from operations in FQ, one representing 51% of revenue. Net capital spending was $3.3 billion during the quarter. We continue to expect fiscal 2022 CAPEX to be between $11 billion and $12 billion and it will be front end loaded in the fiscal year. Due to the strong revenue and profitability, we generated approximately $671 million in free cash flow.

Turning to cash flows and capital spending we generated $3 9 billion in cash from operations in FQ, one representing 51% of revenue.

Net capital spending was $3 3 billion during the quarter we.

We continue to expect fiscal 2022, capex to be between $11 billion and $12 billion and it will be front end loaded in the fiscal year.

Due to the strong revenue and profitability, we generated approximately $671 million in free cash flow in.

In addition, we received approximately $900 million from the sale of the Lehi Fab, which closed in the quarter. We completed share repurchases of approximately $260 million or approximately $3.6 million shares in Q1. Including our dividend payments, we returned around $371 million to shareholders in the quarter, which represented more than 50% of the free cash flow generated during the quarter.

We completed share repurchases of approximately $260 million or approximately $3 6 million shares in Q1.

Including our dividend payments, we returned around $371 million to shareholders in the quarter, which represented more than 50% of the free cash flow generated during the quarter in.

In addition, our board of directors approved a quarterly dividend of 10 cents to be paid on January 18th to shareholders of record on January 3rd. We remain committed to returning more than 50% of the cross cycle free cash flow through a combination of dividends and buybacks. As we've mentioned before we will be opportunistic in share repurchases and more aggressive when the shares are trading at larger discounts to intrinsic value. Our ending F Q1 inventory was $4.8 billion. And average days for the quarter were 103 days within our normal target range of 95 to 105 days.

To be paid on January 18th to shareholders of record on January 3rd we remain committed to returning more than 50% of the cross cycle free cash flow through a combination of dividends and buybacks.

As we've mentioned before we will be opportunistic in share repurchases and more aggressive when the shares are trading at larger discounts to intrinsic value.

Our ending F Q1 inventory was $4 8 billion.

And average days for the quarter were 103 days within our normal target range of 95 to 105 days.

We expect to exit FY '22 with days of inventory at less than 100 days as we expect our DRAM and NAND supply to be tight for the year. We ended the quarter with $11.5 billion of total cash and investments and $14 billion of total liquidity. Our FQ1 total debt was $7 billion. Following our successful sustainability linked credit facility in May and continuing with our strong commitment to enhancing our environmental and social performance. In FQ1 we achieved two important milestones for Micron. Our inaugural Green bond and inaugural long bonds. The total proceeds from these bonds were $2 billion. And several nationally recognized minority disabled veterans and women-owned financial institutions participated.

We ended the quarter with $11 5 billion of total cash and investments and $14 billion of total liquidity.

Our FQ1 total debt was $7 billion.

Following our successful sustainability linked credit facility in May and continuing with our strong commitment to enhancing our environmental and social performance in FQ. One we achieved two important milestones for micron.

Our inaugural Green bond and inaugural long bonds. The total proceeds from these bonds were $2 billion. And several nationally recognized minority disabled veterans and women-owned financial institutions participated.

The total proceeds from these bonds were $2 billion.

And several nationally recognized minority disabled veteran and women owned financial institutions participated.

The 1 billion Green bond proceeds will finance eligible sustainability-focused projects, including reducing the company's greenhouse gas emissions energy and water use and waste generation. The 1 billion proceeds from the long bonds, along with cash on hand were used to redeem Micron senior notes maturing in 2023 and 2024.

The 1 billion proceeds from the long bonds, along with cash on hand were used to redeem micron senior notes maturing in 2023 and 2024.

The net result from the Green and long bond offering was essentially leverage neutral for Micron while improving our net interest expense and increasing the weighted average maturity of our notes and bank debts from four years to nine years. Now turning to our outlook for the fiscal second quarter, we're starting to see stabilization in demand for PC customers and end demand remains solid across our markets. On the margin front, we expect that mix improvements are a positive factor for gross margins in NAND.

Now turning to our outlook for the fiscal second quarter, we're starting to see stabilization in demand for PC customers and end demand remains solid across our markets.

On the margin front, we expect that mix improvements are a positive factor for gross margins in NAND.

While we continue to have cost headwinds due to COVID-19 mitigation expenses and above normal assembly test and component costs, our front end costs continue to benefit from a ramp of one alpha DRAM and 196 layer NAND. We expect operating expenses to increase sequentially as we invest in next-generation technologies and products for both DRAM and NAND and accelerate our new product roadmap. With all these factors in mind, our non-GAAP guidance for Q2 is as follows we expect revenue to be $7 5 billion, plus or minus $200 million. Gross margin to be in the range of 46% plus or minus 100 basis points and operating expenses to be approximately $975 million-plus or minus $25 million.

We expect operating expenses to increase sequentially as we invest in next generation technologies and products for both DRAM and NAND and accelerate our new product roadmap.

With all these factors in mind, our non-GAAP guidance for Q2 is as follows we expect revenue to be $7 5 billion, plus or minus $200 million.

Gross margin to be in the range of 46% plus or minus 100 basis points and operating expenses to be approximately $975 million plus or minus $25 million.

We expect our non-GAAP tax rate to be approximately 10% for Q2. Based on a share count of approximately 1.14 billion fully diluted shares we expect EPS to be $1.95. Plus or minus 10 cents. Our Q1 results and Q2 outlook keep us on track to deliver record revenue and solid profitability and free cash flow in FY '22.

Based on a share count of approximately 1.1 dollars 4 billion fully diluted shares we expect EPS to be $1 95.

Plus or minus 10.

Our Q1 results and Q2 outlook keep us on track to deliver record revenue and solid profitability and free cash flow in FY 'twenty two.

In closing, our business is delivering strong cross cycle performance. Revenue growth has significantly outpaced the broader semiconductor industry. Gross margins have averaged over 40% and operating margins have averaged around 30%. The strong product and technology momentum and Micron's solid execution give us confidence that we can sustain solid financial performance in the future. I will now turn it back to Sanjay.

Our strong product and technology momentum and micron solid execution give us confidence that we can sustain solid financial performance in the future.

I will now turn it back to Sanjay.

Thank you, Dave. Micron's culture has played a significant role in driving our stronger results. Our vision to transform how the world uses information to enrich life for all serves both as an inspiration for our team and as a foundation for everything we do. Earlier this month, we released Micron's 2021 [BEI] report entitled for all, which highlights significant accomplishments across the six DI commitments that we introduced last year.

Our vision to transform how the world uses information to enrich life at all.

Both as an inspiration for our team and as a foundation for everything we do.

Earlier. This month, we released <unk> 2021 dei report entitled for Auto, which highlights significant accomplishments across the six D. I call My comments that we introduced last year.

These accomplishments include achieving comprehensive global pay equity as well as increasing their presentation of underrepresented groups among new college graduate hires by 7%. He also publicly disclosed consolidated equal employment opportunity or EEO1 data for the first time. This report is available on our website.

He also publicly disclosed consolidated equal employment opportunity or E. One data for the first time. This report is available on our website.

Demand for memory and storage remains strong. The broad integration of AI, proliferation of the intelligent edge, continued data center growth, EV adoption and 5G deployment are creating expanded opportunities for Micron to innovate and deliver new value to our customers. The strategic importance of semiconductors to economic growth has never been more clear and niche and ensuring the security of supply for our customers across all industries has never been more important.

The strategic importance of semiconductors to economic growth has never been more clear and niche and ensuring the security of supply for our customers across all industries has never been more important.

We look forward to working with governments on initiatives to invest in domestic production. Both here in the US through the chipset and Fabs Act and in other countries around the world. It is a truly exciting time in the industry, our business is robust and growing and our team is energized to seize the opportunities ahead of us. We'll now open for questions.

It is a truly exciting time in the industry, our business is robust and growing and our team is energized to seize the opportunities ahead of us.

We'll now open for questions.

Thank you. As a reminder to ask a question you will need to press star one on your telephone. To withdraw your question press the pound key. Our first question comes from C. J Muse with Evercore. You may proceed with your question.

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

Yeah. Good afternoon, and thank you for taking the question and happy holidays. I guess first question would be around more depth from you on kind of the current supply-demand environment. As this cycle is really different from any other cycle, obviously in the last quarter, we've seen PC getting issues now that appears to be largely resolved. You've talked about shortages in auto. Curious how you're thinking about kind of normal seasonality if at all. First half in many part of 2022, where you're seeing ongoing tightness and how we should interpret that in terms of the sequential growth into the second half of fiscal '22 and beyond in calendar '22.

I guess first question would be around.

More depth from you on kind of the current supply demand environment.

This cycle is really different from any other cycle, obviously in the last quarter.

C. P C getting issues now that appears to be largely resolved you've talked about shortages in audio.

How you're thinking about kind of normal seasonality if at all.

First half in many part of 2022, where you're seeing ongoing tightness and how we should interpret that in terms of the sequential growth into the second half of fiscal '22 and beyond in calendar '22.

<unk> <unk> growth into the into the second half of fiscal 'twenty, two and beyond in calendar 'twenty two.

Thank you C. J, so happy holidays to you too and to all our listeners on the call. With respect to the demand trends. As we said, we see second half to be strong bit growth supported by the easing of shortages across our customer base. These shortages that our customers have experienced have constrained demand for us and of course, the end demand trends have been strong. So as the supply chain shortages ease during the course of 2022, that will be a tailwind for demand for us for memory and storage products. And of course, there is some aspect of seasonality as you know in the current quarter. But clearly in some segments that are more consumer-oriented parts of our business. So second half. There will be a stronger seasonality aspect as well.

With respect to.

The demand trends.

As we said, we see second half to be strong bit growth supported by the easing of shortages across our customer base.

These shortages that our customers have experience have constrained demand for.

For us and of course, the end demand trends have been strong so as the supply chain shortages.

<unk> during the course of 2022 that will be a tailwind for demand for the us for memory and storage products and of course, there is some aspect of seasonality as you know in the current quarter, but clearly in some segments that are more consumer oriented parts of our business. So second half.

There will be a stronger seasonality aspect as well.

Then is the product cycles of our customers. New products in data center with new processors with new architecture that enabled with more memory channels, more course in those processes are more AI and big data workloads, driving greater demand for memory and storage during calendar year '22. We expect calendar year '22 to be a strong year for data center demand. 5Gs, with respect to smartphones continues to drive strong content increases as well as of course more 5G phones are being sold. And automotive you talked about some of the new vehicles that will have more content and certainly EVs with more than 140 gigabyte of DRAM and some EVs having a terabyte of NAND content. This is a trend that's starting to build up as well. So overall, the devices have more content and actually in automotive if you think about it. We have 90 million automobiles, what's the silver instead about 15 million. So 6X of automobiles bid increasing content. So of course this will be a strong demand driver not just for 2022, I mean beyond that as well. So the demand trends are secular here in nature and of course, we work closely with our customers and we understand how they are looking at their own demand rolling out through calendar '22. So dimensions are strong we expect healthy demand-supply environment in calendar year '22 on the supply side, of course, it has been disciplined CAPEX.

Architecture that enabled with.

More memory channels more course, and those processes are more AI and big data workloads, driving greater demand for memory and storage in the.

expect calendar year '22 to be a strong year for data center demand. 5Gs, with respect to smartphones continues to drive strong content increases as well as of course more 5G phones are being sold. And automotive you talked about some of the new

new vehicles that will have more content and certainly EVs with more than 140 gigabyte of DRAM and some EVs having a terabyte of NAND content. This is a trend that's starting to build up as well. So overall, the devices have more content and actually in automotive

if you think about it. We have 90 million automobiles, what's the silver instead about 15 million. So 6X of automobiles bid increasing content. So of course this will be a strong demand driver not just for 2022, I mean beyond that as well. So the demand trends are secular here in nature and of course, we work closely with

You have 90 million automobiles, what's the silver instead about 15 million. So six ex of automobiles bid increasing content. So of course this will be a strong demand driver not just for 2022, I mean beyond that as well. So the demand trends are secular here in nature and of course, we work.

our customers and we understand how they are looking at their own demand rolling out through calendar '22. So dimensions are strong we expect healthy demand-supply environment in calendar year '22 on the supply side, of course, it has been disciplined CAPEX.

And as we've highlighted, we expect DRAM to be in mid-teens to high teens in terms of year over year supply growth and approximately 30%. And of course on the supply side, the CAPEX has been disciplined by the suppliers, but also equipment constrains the long lead time that is there. That to gives us confidence regarding calendar year '22 supply outlook. So overall. We believe we are well-positioned to deliver a strong second half. Based on all the demand aspects as well as supply aspects that I just described here as well as strong profitability for record fiscal year, '22 revenue and robust profitability.

Time that are there that too gives us confidence regarding calendar year 'twenty two supply outlook. So overall.

We believe we are well positioned to deliver a strong second half.

Based on all the demand aspect as well as supply aspects that I just described here as well as <unk>.

Strong profitability for gallon record fiscal year, 'twenty, two revenue and and robust profitability.

That's very helpful. As a quick follow up, Dave, can you speak to the cost side, you highlighted your expectations for strong front end costs down, but curious how are you thinking about normalization of Cobra related expenses. And how should we be thinking about any mix shifts in your product portfolio in calendar '22?

As a quick follow up Dave can you speak to.

The cost side, you highlighted XP.

Expectations for strong front end costs down, but curious how are you thinking about normalization of Cobra related expenses and how should we be thinking about any mix shifts.

In your product portfolio in calendar 'twenty two.

Sure, Thanks, Vijay and happy holidays, as well, let me join Sanjay and say everybody happy holidays. Yes, so from a cost perspective, let me just step back a little bit on the margin front, because I think it's worth touching on it just for a second. So we delivered very strong gross margins as you saw in the first quarter. 47% right in line with where we thought we'd be. Just keep in mind that just a year ago. Our gross margins were just a little bit over 30%. So this is a pretty significant improved improvement in the gross margins and of course, some of that obviously comes from pricing, but it also comes from good cost discipline and the beginnings of a ramp-up one alpha and 176 layer that we saw last year and into this year. As we look into the second quarter. When you do expect to continue to see a tailwind from cost reductions associated with both 176 layer and one alpha node and that should continue through the year. Also as Sanjay mentioned, we have a lot of product calls ahead of us for this year that will improve the mix of our business into high-value solutions and so we also expect that to be beneficial. The root of your question is these costs that we're seeing in terms of COVID mitigation and some inflationary pressure.

Yes, so from a cost perspective, let me just step back a little bit on the margin front, because I think it's worth touching on it just for a second so we delivered very strong gross margins as you saw in the first quarter.

47% right in line with where we thought we'd be just keep in mind that just a year ago. Our gross margins were just a little bit over 30%. So this is a pretty significant improved improvement.

in the gross margins and of course, some of that obviously comes from pricing, but it also comes from good cost discipline and the beginnings of a ramp-up one alpha and 176 layer that we saw last year and into this year. As we look into the second quarter. When you do expect to continue to see a tailwind from cost reductions associated with both 176 layer and one alpha node and that should continue through the year. Also as Sanjay mentioned, we have a lot of product calls ahead of us for this year that will improve the mix of our business into high-value solutions and so we also expect that to be beneficial. The root of your question is these costs that we're seeing in terms of COVID mitigation and some inflationary pressure.

As we look into the second quarter. When you do expect to continue to see.

A tailwind from cost reductions associated with both 176 layer and one alpha node and that should continue through the year also as Sanjay mentioned, we have a lot of product calls ahead of us for this year that will improve the mix of our business into high value solutions and so we also expect that.

To be beneficial.

<unk> the root of your question is these costs that we're seeing in terms of.

Covid mitigation and some inflationary pressure.

Those are likely to continue through the year. Hard to say when they abate. But we do expect that they will continue through the year, but other than that the other areas that where we have good control over I think we're executing very well in terms of delivery good cost reductions. And at these levels of profitability, the ROI, the ROIC for us from a business perspective is quite high so we're in a good what I think is a really good place.

We do expect that that they will continue through the year, but other than that the other areas that where we have good control over I think we're executing very well in terms of delivery.

Cost reductions.

And at these levels of profitability.

Why for Us ROIC for us from a business perspective is quite high so.

We're in a good what I think is a really good place.

Thank you. Thank you. Our next question comes from Vivek Arya with Bank of America. You may proceed with your question. Thanks for taking my question. You mentioned that you're starting to see PC customers less constrained from a component perspective. I'm curious is that a near term or is that an expectation of second half of fiscal year '22 comment? So when do you expect your shipments to PC customers, just start to improve? So the comment is relative to what we saw three months ago. And as we had highlighted in our earnings call last earnings call, we have seen that certain PC customers had their supply chain challenges. Making it hard for them to get all non-memory components, thereby limiting their production of PCs, even though their end demand of PCs was still strong. Compared to that what we have seen is that the inventory adjustment that was as a result of the non-component shortages is now largely behind. Then as we are certainly seeing recovery of demand on the PC front compared to the levels that existed three months ago. And overall as I noted that for calendar year '22 we expect total PC unit sales to be similar to calendar year '21 level. So PC we expect will be recovering for us in terms of demand as we go forward here in calendar year '22.

Thank you. Our next question comes from Vivek Arya with Bank of America. You May proceed with your question.

Thanks for taking my question.

You mentioned that Youre, starting to see DC customers less constrained from a component perspective, I'm curious is that a near term or is that an expectation.

Second half of fiscal <unk>.

Plenty to come.

Comment so when do you expect your shipments to PC customers, that's just start to improve.

So the comment is relative to what we saw three months ago and as we had highlighted in our earnings call last earnings call.

We have seen that certain PC customers had their supply chain challenges.

Making it hard for them to get all non memory components, thereby limiting their production of Pcs, even though their end demand of BCS was still strong so.

Compared to that what we have seen is that the.

Two the adjustment that was it.

result of the non-component shortages is now largely behind. Then as we are certainly seeing recovery of demand on the PC front compared to the levels that existed three months ago. And overall as I noted that for calendar year '22 we expect total PC unit sales to be similar to calendar year '21 level.

Now largely behind.

Them and we are certainly seeing recovery of demand on the PC front compared to the levels that existed three months ago and overall as I noted that for calendar year 'twenty. Two we expect total PC unit sales to be similar to calendar year 'twenty one level.

So PC we expect will be recovering for us in terms of demand as we go forward here in calendar year '22.

Recovering, Florida in terms of demand as we go forward here in calendar year 'twenty two.

Okay, very helpful and for my follow up, Sanjay, you mentioned 75% of your revenues are now based on these long term agreements. What kind of assumption goes into that? Are these take or pay arrangements. You know just given the cyclical nature of the industry. How fixed or defendable are these contracts from a price or volume or margin perspective? Thank you.

Fixed are defendable are these contracts from a price or volume or margin perspective. Thank you.

So again, we would like to remind you that about four years ago five years ago, we used to have about 10% of our revenue based on these LTAs and today, we have more than 75% of our revenue based on LTAs. What the LTAs have done is brought us closer to the customer and really enabled us to have a much closer dialogue on their planning, their forecast and enables us to plan our supply in the mix of supply appropriately as well. These LTAs are nonbinding in nature, but they do help build greater visibility greater transparency and over the long haul build greater trust and accountability between us and partners because value of memory is just continuing to increase and there is the sentiment, of course, wanting to make sure that there is sufficient supply of memory available to our customers. So we work closely with them and it helps us decide our product portfolio as well and manage our overall product portfolio and the mix of the products. So these agreements at volume target data agreements, they're not generally based on pricing. But they do help us as well as our customers plan our business far better than give us greater visibility. And again these have been bogged on improved upon over the course of last few years and we continue to look forward to continuing to strengthen these LTAs going forward as well.

The customer and really enabled us to have.

A much closer dialogue on they're planning their forecast and enables us to plan our supply in the mix of supply appropriately as well. This LTA is a nonbinding in nature, but they do help build greater visibility greater transparency and over the long haul build greater trust and.

Accountability between us and partners because value of memory is just continuing to increase and there is.

sentiment, of course, wanting to make sure that there is sufficient supply of memory available to our customers. So we work closely with them and it helps us decide our product portfolio as well and manage our overall product portfolio and the mix of the products. So these agreements at volume target data agreements, they're not generally based on

pricing. But they do help us as well as our customers plan our business far better than give us greater visibility. And again these have been bogged on improved upon over the course of last few years and we continue to look forward to continuing to strengthen these LTAs going forward as well.

But they do help us as well as our customers.

<unk>, our business far better than give us greater visibility and again these have been bogged on improved upon over the course of.

Last few years and we continue to look forward to continuing to strengthen these npls going forward as well.

Thank you very much. Thank you. Our next question comes from John Pitzer with Credit Suisse. You may proceed with your question. Good afternoon, guys. Thanks for letting me ask the question and congratulations on the solid results. So I'm sorry, I wanted to go back to your expectation for industry bit demand growth for DRAM in calendar year '22 of mid to high teens. While that's in line with kind of your long term view for bit demand, it would be a relatively big deceleration from this year. Despite the fact that it sounds like you've got a lot of good tailwinds next year, whether it be PC mix improving, smartphone mix and units improving or new architectural shifts on the server-side that are going to significantly increase DRAM density per server. And so I'm kind of curious when you look at that expectation for next year is that being gated by what you and your peers can supply to the industry? Is it being gated by your view of demand? Is it being gated by components outside of your control?

Thank you. Our next question comes from John Pitzer with Credit Suisse. You May proceed with your question.

Good afternoon, guys. Thanks for letting me ask the question and congratulations on the solid results. So I'm sorry, I wanted to go back to your expectation for industry bit demand growth for DRAM in calendar year 'twenty two of mid to high teens.

While that's in line with kind of your long term view for bit demand, it would be a relatively big deceleration from this year. Despite the fact that it sounds like you've got a lot of good tailwinds next year, whether it be PC mix improving, smartphone mix and units improving or new architectural shifts on the server-side that are going to significantly increase DRAM density per server. And so I'm kind of curious when you look at that expectation for next year is that being gated by what you and your peers can supply to the industry? Is it being gated by your view of demand? Is it being gated by components outside of your control?

Demand it would be a relatively big deceleration from this year. Despite the fact that it sounds like you've got a lot of good tailwind next year, whether it be PC mix, improving smartphone mix and units improving or new architectural shifts on the server side that are going to significantly increase.

Ram density per server and so I'm kind of curious when you look at that expectation for next year is that being gated by what you and your peers can supply to the industry as it being gated by your view of demand as it being gated by components outside of your control.

So I think you are right to note that certainly, supply is limited, as I highlighted earlier. CAPEX in the industry has been disciplined and of course, as you know that exiting 2020, there was inventory in the industry. Supply and inventories are at lean levels as well. And of course in terms of supply growth given the various aspects of supply chain shortages across all industries that have been discussed equipment today has long lead time as well. So overall when you really look at calendar year '22 overall supply is rather limited and of course, demand trends are strong. What I would like to highlight is that you really have to look at long term CAGR. Long term CAG on DRAM of mid-teens to high teens is really driving strong growth and it is there because of all of the demand trends we have discussed. And so you can't just look at one year you have to continue to look at longer-term trends. These are secular trends in nature driving more demand for memory and storage. And of course, what we provided here is our estimation regarding the bit growth. This is what we expect and we'll continue to monitor this. Essentially we expect a healthy industry demand-supply environment in calendar year, '22 particularly on the side of DRAM.

There was inventory in the industry supply and inventories are at lean levels as well and of course in terms of supply growth given the various aspects of supply chain shortages across all industries that have been discussed equipment. Today has long lead time as well. So overall when you really look at.

Calendar year 'twenty, two overall supply is rather limited and of course demand trends are strong.

What I would like to highlight is that you really have to look at long term CAGR. Long term CAG on DRAM of mid-teens to high teens is really driving strong growth and it is there because of all of the demand trends we have discussed. And so you can't just look at one year you have to continue to look at longer-term trends. These are secular trends in nature driving more demand for memory and storage.

Long term CAG on DRAM of mid teens to high teens is really driving strong growth and it is there because of all of the demand trends. We have discussed and so you can't just look at one year you have to continue to look at longer term trends. These are secular trends in nature driving more demand.

For memory and storage.

And of course, what we provided here is our estimation regarding the bit growth. This is what we expect and we'll continue to monitor this. Essentially we expect a healthy industry demand-supply environment in calendar year, '22 particularly on the side of DRAM.

Essentially we expect a healthy industry demand supply environment in calendar year, 'twenty, two particularly on the side of DRAM.

That's helpful and then David. I think again my supply comment that based on some of the Capex that we have our sales said is in DRAM is guided down but also by the other suppliers in the other suppliers that have DRAM in the industry. That's helpful and then David as a quick follow up just on the Opex line. Both this quarter and last quarter, you sort of characterized fiscal year '22 as an investment year, but you kind of came in at the low end of Opex for the fiscal first quarter. Were there any sort of pandemic issues that are preventing you from investing at the rate you want? And as you think about the balance of the fiscal year, how do we think about linearity of Opex and what are the two or three big buckets of incremental spend?

And DRAM is guided down but also by the other.

Other suppliers in the other suppliers that have DRAM in the industry.

That's helpful and then David as a quick follow up just on the Opex line.

Both this quarter and last quarter, you sort of characterized fiscal year '22 as an investment year, but you kind of came in at the low end of Opex for the fiscal first quarter. Were there any sort of pandemic issues that are preventing you from investing at the rate you want? And as you think about the balance of the fiscal year, how do we think about linearity of Opex and what are the two or three big buckets of incremental spend?

Three big buckets of incremental spend.

Yeah. So it's right to note that there is a little bit of tightness in the labor market, which of course, it makes it challenging but I'd say the biggest single contributor of the Opex this quarter in the first fiscal quarter was just lower R&D expenses. Related to prequalification expenses, and those can be a little lumpy and sometimes you just fall over the transom between the first and second quarter of a year. And so it just turns out that they didn't hit in the first quarter, but we feel very confident that they will hit in the second quarter and we will really spend in absolute terms for the year at the same levels we were predicting last quarter. It's more of a timing situation. So we will have this kind of step-up in Opex for the second fiscal quarter and then it's a much lower sequential rate of growth in the third and fourth fiscal quarter that will get us to roughly call it 15% for R&D and SG&A will be able to dip below that. But overall, what would drive that number were predicting.

So its right to note that there is a little bit of.

Tightness in the labor market, which of course, it makes it challenging but I'd say the biggest single contributor of the Opex. This quarter in the first fiscal quarter was just lower R&D expenses.

Related to Prequalification expenses, and those can be a little lumpy and sometimes you just fall over the transom between the first and second quarter of a year and so it just turns out that they didnt hit in the first quarter, but we feel very confident that they will hit in the second quarter and we were really spend.

in absolute terms for the year at the same levels we were predicting last quarter. It's more of a timing situation. So we will have this kind of step-up in Opex for the second fiscal quarter and then it's a much lower sequential rate of growth in the third and fourth fiscal quarter that will get us to roughly call it 15% for R&D and SG&A will be able to dip below that.

Much.

Lower sequential rate of growth in the third and fourth fiscal quarter that will get us to roughly call. It 15% for R&D and SG&A SG&A will be able to dip below that but.

But overall, what would drive that number were predicting.

Perfect. Thanks, guys. Thank you. Our next question comes from Timothy Arcuri with UBS. You may proceed with your question. Thanks a lot. Dave, my first question is for you. Can you walk us through the impact from the Lehi sale? I think there was some underloading charges and there was maybe like $100 million a quarter worth of Opex. So can you sort of bridge that for us as it relates to Lehi between the fiscal Q1 results and our fiscal Q2 guidance?

Thank you. Our next question comes from Timothy Arcuri with UBS. You May proceed with your question your question.

Thanks, a lot David My first question is for you.

Can you walk us through the impact from the Lehigh sale I think there was some under loading charges and there was maybe like $100 million a quarter worth of Opex. So can you sort of bridge that for us as it relates to Lehigh between the fiscal Q1 results and our fiscal Q2 guidance.

Sure. So we had about $100 million of revenue in the first fiscal quarter related to wafer sales. It was accelerated because we closed at the end of October. That's a little bit higher than we've actually been running for the last couple of quarters. So that does actually go away in the second quarter. On the margin front, it was actually pretty close towards the corporate average. Normally that's lower but we moved the assets to a held-for-sale status. I think at the end of the second fiscal quarter of last year, and so that discontinued the depreciation expense there. And so we saw margins generally similar relatively similar levels once you kind of factor that in. So a lot of the underloading got somewhat removed over the course of the third and fourth fiscal quarter or let's call the first fiscal quarter. Such that it won't have a meaningful impact to gross margin in the second fiscal quarter.

Accelerated because we closed at the end of October that's a little bit higher than we've actually been running for the last couple of quarters. So that does actually go away in the second quarter.

Margin front, it was actually pretty close towards the corporate average, we normally thats lower but we moved the assets to a held for sale status I think at the end of the second fiscal quarter of last year, and so that discontinue the depreciation expense there and so we saw margins generally similar relatively.

Similar levels once you kind of factor that in so a lot of the under loading got somewhat.

Moved over the course of the third and fourth fiscal quarter or let's call. It the first fiscal quarter.

Such that it won't have a meaningful impact to gross margin in the second fiscal quarter.

Got it thanks, Dave. And then Sanjay for you just back on the topic of long term agreements with your customers. Obviously, there's been quite a change in the tenor of sort of how you engage with them. And my question is sort of where do you see this all heading? I mean when you talk to your customers there are very very concerned about procuring DRAM at a reasonable price. So for example, do you envision a scenario where maybe you can get them to prepay you four bits?

Obviously, there's been quite a change in the tenor of sort of how you engage with them.

And my question is sort of where do you see this all heading I mean, when you talk to your customers. There are very very concerned about procuring DRAM at a reasonable price. So for example, do you envision a scenario, where maybe you can get them to prepay you four four bits.

As we highlighted.

Discussions with our customers and Lps are more around the requirements of supply and of course these.

These lead to closure discussion in terms of understanding.

Their product portfolio, the roadmap and how our roadmap gets defined into how our.

Portfolio fits in with their requirements. So as I mentioned earlier I mean these.

Discussions these relationships with our customers have continued to evolve over the course of last few years, taking us from yes that 10% LTE is now 75% LTV is but then also continuing to evolve in terms of.

The relationship that is based on value as well. So of course, we will continue to look for opportunities as I mentioned earlier to strengthen these LTA is in the future as well and I would just like to highlight that we are in this good position with the customers in terms of gaining greater visibility to their requirements.

And being able to drive these LTE to lot of good work that our team has done here. The sales teams our business unit teams and of course supported by strong technology product portfolio and supply chain execution that just gives these customers and other partners the confidence in <unk>.

Aging and these LTA discussions with us.

Thank you.

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

You May proceed with your question.

Yes. Thanks for taking my question. My first question is for you and I was wondering if you have any thoughts as to how you see the mix of <unk> as a percentage of overall server DRAM trending throughout 2022, and I have a follow up for David.

So with respect to 2022.

Sure.

As the new processors.

To able to use <unk> gets rolled out into the marketplace that will drive adoption of DDR five in the server space as well as we noted in the PC space DDI five adoption has already started and we have begun to ship <unk> product VDI five currently is in.

High demand actually supply there is limited for <unk> in the industry.

So when I look at BC as well as for server, we expect that DDR five.

We'll be ramping up first MPC and ASIC processors with DDI five new processors.

Become available in the industry, we particularly see that ramping up later in calendar year 'twenty two I expect that we will be exiting calendar year 'twenty two with approximately 20%.

The mix of DDR.

Im sorry, with approximately 20% of the mix of DRAM.

Compute space.

Approximately 20% there okay. Okay.

Got it ancillary stronger a stronger ramp in the second half versus the first half because again as those new processors ramp up into production with our customers that will drive of ample of DDR five in the second half in the server space and MPC as I mentioned is happening all throughout calendar year 'twenty two.

Got it thanks with detail on for David.

Just trying to better understand the supply demand environment and when I looked at your guide revenue guide and what you reported.

For DRAM and NAND ASP. It seems to me the underlying assumption is based on moderate decline in blended prices and I'm not asking you for good but is it fair observation.

For the second fiscal quarter Youre talking about <unk>.

Yes.

Yes, so obviously, we can't comment on on pricing on a forward looking basis.

I would just reiterate Sanjay his comments that we see a healthy healthy supply demand dynamic for the fiscal year for both DRAM and NAND.

And we continue to ramp once every six layer, one alpha which.

It gives us good.

A good cost structure.

Going forward, we're going to continue to drive the mix.

All of those assumptions are built into our margin guidance.

Of course, Theres, a high and a low to that margin assumption based on how things can play out.

Okay. Thank you.

Sure.

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

Great. Thank you I Wonder if you could talk about the rollout.

Sort of just in case philosophy that you talked about a couple of quarters ago, clearly you're comfortable with your customer inventory levels now how are they feeling and do you expect there to be a higher level of inventory on a sustained basis from here.

So inventory strategy is clearly very from customers to customers.

And.

<unk>.

Some definitely.

Given the pandemic introduced in terms of supply chain shortages.

<unk> are looking at strategically higher level of inventory.

Some may also be doing it for geopolitical considerations.

We don't really yet see customers going back to pre pandemic levels, but the strategy around inventory does vary from customer to customer and overall as I said for on an industry wide level.

<unk>.

There may be some pockets of some customers getting extra inventory overall, given the current environment, that's when inventory levels.

In a decent shape.

And just look at US Micron itself is also.

Our own manufacturing, we are holding a lot more inventory of raw materials, just to make sure that our supply chain has assuredness with respect to our ability to supply our customers and.

Our operations planning just in the current environment.

Got higher uncertainty on the geopolitical front as well as pandemic related fund is operating with greater levels of.

Inventory.

Non memory components inventory and similarly to the customers have similar.

Approach as well in terms of managing that inventory.

Great. Thank you very much.

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

Hi, good afternoon. Thanks, so much for taking <unk>.

My questions I guess my first one is on the supply side Sanjay you talked about.

Constraints in the equipment space a couple of times are you actually seeing delays or sort.

Decommit from your suppliers at all.

I guess you've maintained your full year capex guidance, so perhaps not but I just wanted to clarify that.

And then my my my part two of my supply question, where there any.

Was there any impact from the earthquake in Taiwan, and the quarter, whether it be from a bip perspective or in terms of your ability to reduce costs.

So our.

Our procurement team and our supply chain team works closely with equipment suppliers in terms of long term planning and securing of slow.

Slots for equipment.

And we continue to drive that and yes, we have of course seen lengthening lead times, but those have also been factored in in terms of our overall planning and as I mentioned I mean, we are really seeing a lot more collaboration.

These suppliers in terms of driving our on demand.

The timing of equipment.

No I would not say that.

We have seen any push outs versus our own expectations, but again those expectations of equipment delivery is built based on our collaboration with our suppliers and with the visibility that we have provided and with lot of good planning work between us and our suppliers.

And your second part of your question I forgot number towards the second part of the question.

Can you please repeat that.

Quick in Taiwan, any impact to bits have been through the quarter or cost downs.

So the earthquake in Taiwan at the time of the earthquake certainly did reduce some of our base production by end of the quarter.

Impact to our overall output.

Was meaningfully reduced.

Got it.

As a follow up.

Wanted to ask about your business in automotive and industrial you.

You talked about.

The two businesses are the two end markets combining for more than 10% of your overall revenue.

In a fairly normal environment.

Whatever that is both in automotive and industrial how are you thinking about the sustainable growth rate in those two end markets you throw out a couple of growth rate numbers for the quarter, but curious how you're thinking about both auto industrial on a cross cycle basis. Thank you.

The auto and industrial certainly will be high growth drivers for us.

What's the cycle.

I spoke to all the demand drivers in the automotive market Micron is clearly in automotive leader in this space.

And we.

We said that auto and industrial combined.

Over 10% if you look at automotive itself our share of the market is.

Some of it is mid single digits.

This shared we would expect to continue to grow based on all our experience in this market our share leadership the high quality, we provide an increasing demand.

For memory and storage content in these markets and of course, the industrial is also growing for us.

We had five G, enabling tremendous demand in the industrial segment.

Industrial Iot.

Marty drones with surveillance equipment.

The automation in the factories all of this is tending to drive greater demand as well so we expect.

Solid growth in both of these markets. We expect the overall if you look at DRAM content gather in the automotive market.

Approximately 40% and over the course of next three years NAND CAGR in the automotive market above 50% as well.

The course of next year. So this really has legs in terms of sustainable growth and again, we are well positioned in these markets and we expect our percentage of revenue in this market to continue to increase over the course of next several years.

Very helpful. Thank you.

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

Thank you everyone and then a follow up I realize it's early and what's going on with regard to the current variant, but I'm wondering if you've seen any impact from it and also given here that first company at least that I cover that is had to provide guidance in light of some of the changes and I'm curious how you approached it.

About the variance.

Thank you.

So first of all of this back to our focus on the business with respect to our people.

And micron has been proactive all throughout the pandemic and taking actions.

To protect the safety of our team members.

Yeah.

It is managing strict protocols with our operations on site operations.

With respect to.

Yes.

I'm, asking physical distancing as well as the explanation.

And.

So and of course as a result of that we have been successful in continuing to run our operations all throughout the pandemic and despite various industry wide challenges on supply.

<unk> been overall generally quite good in terms of our ability to support our customers and with respect to the oil market Micron of course, we will continue.

But a stringent focus on safety of our team members as well as continuing to run our operations, we will not let our guard down in this regard and of course continue to monitor all the trends and developments here I would like to point out that even the delta all our operations continued to run.

Well and of course as you saw the demand for our products continued to be strong as well.

And.

Of course, we saw in some parts of the business higher demand.

As a result of Covid for certain periods of time, whereas other parts may have had lower demand for certain periods of time as well. So of course, we will continue to monitor the trend and to the extent that <unk> have any impact on the macroeconomic environment of course.

In fact, some of our business. However, you have seen that we have been extremely adaptive we have been extremely agile and we will continue to do so.

Okay. Thank you and then I'm just curious you mentioned higher opex.

In fiscal 2022 and that would be you know accelerating the roadmap I'm wondering if you can elaborate a little bit on on what we can expect and is that more sort of a 2023 comment.

In terms of roadmap benefit thank you.

Well, you're already seeing a lot of the benefit we'll have a lot of good products coming out through 2022, which were the benefit of the investments that we've made in prior years.

To a large extent, it's a continuation of the progression of our products and.

In all markets, obviously, theres more that we have to do.

In the SSD front to fully capture all of the opportunity for from an <unk> perspective, so there's going to be investment there.

Obviously.

The next set of process technologies, which will include.

Continued investment in <unk> for the one gamma.

That Sanjay mentioned.

So lots of different products.

We think will be necessary to address the whole market plus continued investment on the process technology side to keep our pace.

In terms of our leadership position and.

Cost leadership position.

Okay.

Yeah.

Okay.

Thank you and that concludes our Q&A session.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

[music].

Q1 2022 Micron Technology Inc Earnings Call

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