Q3 2022 Micron Technology Inc Post Earnings Analyst Call

June 30, 2022

Speaker 1: I.

Yeah.

Operator: Thank you for standing by, and welcome to Micron Technology's Fiscal Third Quarter 2022 Post-Earnings Analyst Call. After the speaker presentation, there will be a Q&A session. To ask a question, press star one on your touchtone telephone. I would now like to hand the call over to Vahan Hovsepian, Vice President, Investor Relations. Please go ahead.

Speaker 2: Thank you for standing by and welcome to Micron Technologies, fiscal third quarter 2022 post earnings analyst call. After the speaker presentation, it will be a Q&A session. To ask a question, press star one on your touch tone telephone. I would now like to hand the call over to Fahim Ahmad, Vice President and Best Relations. Please go ahead.

Thank you for standing by and welcome to Micron technologies fiscal third quarter 2022 post earnings analyst call. After the speaker presentation, there will be a Q&A session to ask a question press star one on your Touchtone telephone I would now like to hand, the call over to Farhan Ahmad Vice President Investor Relations. Please go ahead.

Vahan Hovsepian: Thank you, Latif. Welcome to Micron Technology's Fiscal Third Quarter 2022 Sell-Side Analyst Call. On the call with me today are Sumit Sadana, our Chief Business Officer, Manish Bhatia, our EVP of Global Operations, and Mark Murphy, our CFO. As a reminder, the matters we will be discussing today include forward-looking statements regarding market demand and supply, our expected results, and other matters. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today. We refer you to the documents we filed with the SEC, specifically our most recent Form 10-K and 10-Q, for a discussion of the risks that may affect our future results. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.

Speaker 3: Thank you, Latif. Welcome to Micron Technologies fiscal third quarter 2022 Southside Analyst, ALBAC. On the call with me today are Sumit Sadana, our chief business officer.

Thank you Laurie welcome.

Welcome to Micron technologies fiscal third quarter 2022 sell side analysts all back on.

On the call with me today are submit for Donna <unk>, our chief business Officer.

Speaker 3: Manish Patia, our EVP of Global Operations and Mark Murphy, our CFO .

The niche patio, our EVP of global operations and Mark Murphy our CFO .

Speaker 3: As a reminder, the matters we will be discussing today include forward-looking statements regarding market demand and supply, our expected results, and other matters. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today.

As a reminder, the matters we will be discussing today include forward looking statements regarding market demand and supply are expected results and other matters.

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

Speaker 3: We refer you to the documents we filed with the SEC, specifically our most recent Form 10-K and 10-Q, for a discussion of the risks that may affect our future results. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements to conform these statements to actual results. Ratif, you can now open the call for Q&A.

We refer you to the documents we filed with the SEC specifically, our most recent Form 10-K and 10-Q for a discussion of the risks that may affect our future results.

Although we believe that.

That the expectations reflected in the forward looking statements are reasonable we can.

Net guarantee future results levels of activity performance or achievements, we are under no duty to update any of the forward looking statements to confirm these statements to actual results.

Vahan Hovsepian: We are under no duty to update any of the forward-looking statements to conform these statements to actual results. Latif, you can now open the call for Q&A.

We are under no duty to update any of the forward-looking statements to conform these statements to actual results. Latif, you can now open the call for Q&A.

But if you can now open the call for Q&A.

Operator: Yes, sir. Again, to ask a question, please press star one at this time. Our first question comes from Tom O'Malley of Barclays. Your line is open.

Speaker 2: Yes sir, again to ask a question please press star 1 at this time. Our first question comes from Tom O'Malley of Barclays. Your line is open.

Yes, Sir again to ask a question. Please press star one at this time.

Our first question comes from Tom O'malley of Barclays. Your line is open hey, thanks.

[Analyst] (Barclays): Hey, thanks for taking my question. I just wanted to ask on the long term, the long-term through cycle model, you guys laid out 30% from an operating margin perspective. I understand that there are some China headwinds that are impacting that. I think are, you know, slightly more exacerbating this down cycle, but you're already in the guidance moving below that 30%, and it sounds like there may be some more weakening to come. Can you just talk to if you think that 30% is still viable now that you've seen these cuts, and just any of the moving parts as to how you think that that can sustain through a cycle? Thank you.

Tom O'Malley: Hey, thanks for taking my question. I just wanted to ask on the long term, the long-term through cycle model, you guys laid out 30% from an operating margin perspective. I understand that there are some China headwinds that are impacting that. I think are, you know, slightly more exacerbating this down cycle, but you're already in the guidance moving below that 30%, and it sounds like there may be some more weakening to come. Can you just talk to if you think that 30% is still viable now that you've seen these cuts, and just any of the moving parts as to how you think that that can sustain through a cycle? Thank you.

Speaker 4: Hey, thanks for taking my question. I just wanted to ask on the long term, the long term through cycle model, you guys laid out 30% from an operating margin perspective.

For taking my question.

I just wanted to ask on the long term the long term through cycle model you guys laid out 30% from an operating margin perspective, I understand that there is some china headwinds that are impacting that I think are slightly more.

Speaker 4: I understand that there are some China headwinds that are impacting that I think are, you know, slightly more exacerbating this down cycle, but you're already in the guidance moving below that 30% and it sounds like there may be some more weakening to come. Can you just talk to if you think that 30% is still viable now that you've seen these cuts and just any of the moving parts as to how you think that that can sustain through a cycle. Thank you.

Exacerbating this down cycle, but you are already in the guidance moving below that 30% and it sounds like there may be some more weakening to come can you just talk to if you think that 30%.

Still viable now that you've seen these cuts and just any of the moving parts as to how you think that that can sustain through the cycle. Thank you.

Mark Murphy: Tommy, Mark, I'll start. I mean, it is a through cycle model, so it's not intended to be a floor, it's not intended to be any point in time. So, I think that, you know, the way to look at it is we're not gonna base any given quarter on where it stands relative to the long-term model, because there are a lot of conditions that, you know, that impact, obviously, the short-term results. You know, we have entered a period here where the market weakened considerably in a very short period of time, and we're just, you know, we've given a Q4 guide to reflect the best view we have at the moment, and we'll update through the quarter.

Speaker 5: Tommy Mark, I'll start. I mean, it is a through cycle model. So it's not intended to be a floor. It's not intended to be any point in time. So I think that...

Tommy Mark I'll start.

I mean, it is a through cycle model. So it is not intended to be a floor. It's not intended to be any point in time. So.

I think that.

Speaker 5: I think the way to look at it is we're not going to base any given quarter on where it stands relative to the long-term model because there are a lot of conditions that impact obviously the short-term results.

I think I think the way to look at it is we're not going to.

Base any given quarter on where it stands relative to the long term model because there are a lot of conditions.

That impact obviously, the short term results.

Speaker 5: Yeah, we are in or we have entered a period of year where the market we can considerably in a very short period of time. And we're just...

Yes, we are Andrew we have entered a period here where the market.

Weekend.

Considerably in a very short period of time and we're just.

Speaker 5: We've given a fourth quarter guide to reflect the best view we have at the moment and we'll update through the quarter.

We've given a fourth quarter guide to reflect the best view, we have at the moment and we'll update through the quarter.

[Analyst] (Barclays): Gotcha. Appreciate it. And then my follow-up is just on the cost side, going into the quarter, you guys had talked about just limited cost reductions in both DRAM and NAND. Can you just give any color on just the reported quarter on how cost kind of shook out between the two buckets?

Tom O'Malley: Gotcha. Appreciate it. And then my follow-up is just on the cost side, going into the quarter, you guys had talked about just limited cost reductions in both DRAM and NAND. Can you just give any color on just the reported quarter on how cost kind of shook out between the two buckets?

Speaker 4: Gotcha. I appreciate it. And then my follow up is just on the cost side, going into the quarter, you guys had talked about just limited cost reductions in both DRAM and NAND. Can you just give any color on just the reported quarter on how costs kind of shook out between the two buckets?

Gotcha I appreciate and then my follow up is just on the cost side.

Going into the quarter you guys had talked about just limited cost reductions in both DRAM and then can you just give any color on just the reported quarter on how cost kind of shook out between the two buckets.

Mark Murphy: Yeah, well, on, we do expect for the full year for our cost to still outpace industry costs. But in the third and the fourth quarter, improvements have been flattish. A little bit better on the front end because, you know, the leading node activities and those benefits, a little bit of inflation or inflation, but that inflation is more manifest on the back end, where, you know, and the net is that we end up with basically flattish costs down in third, fourth quarter. Long term, you know, we're still planning to be in line with industry cost trends.

Speaker 5: Yeah, well, we do expect for the full year for our cost to still outpace industry costs, but in the third and the fourth quarter improvements have been flattish. A little bit better on the front end because.

Yes, well.

We do expect for the full year for our cost is still outpace industry costs, but in the third and the fourth quarter.

Improvements have been flattish a little bit better on the front end because.

Speaker 5: the leading node activities and those benefits. A little bit of inflation, or inflation, but that inflation's more manifest on the back end where.

Yes.

Leading node.

<unk> activities and those benefits.

Little bit of inflation or inflation, but that inflations more manifest in the back end.

Speaker 5: you know and the net is that we end up with with basically flatish

And then that is that we ended up with basically flattish.

Speaker 5: cost down and third fourth quarter. Long term, we're still playing to be in line.

Cost down in third and fourth quarter.

Long term, we're still planning to be in line.

Speaker 5: with industry cost rents. I'll just add in there that a lot of that has to do.

Sumit Sadana: And I'll just, Tom, I'll just add in there that, you know, a lot of that has the reported COGS obviously have a lot of mix adjustments. So when we have, you know, strong growth, you know, record quarter in SSDs, you know, we have stronger growth in some of these high-value solutions. Obviously, the COGS number is mix adjusted, but when we talk about outperforming the industry in terms of cost reduction for the year, we're talking about at the memory level, where our, you know, technology leadership in 1-alpha and 176-layer have allowed us to outpace the industry this year and perform well at the front-end level.

With industry cost trends.

Tom I'll just add in there that a lot of that has.

Speaker 6: reported COGS, obviously we have a lot of mixed adjustments. So when we have strong growth, record, quarter and SSDs.

The reported Cogs.

Obviously, a lot of mix adjusted so when we have strong growth record quarter in ssds.

Speaker 6: You know, we have strong growth in some of these high value solutions. Obviously, the COG's number is mixed-adjusted, but when we talk about outperforming the industry in terms of cost reduction for the year, we're talking about at the memory level where our technology leadership in one alpha and 176 layer have allowed us to outpace the industry this year and perform well at the front end level.

We have stronger growth in some of these high value solutions, obviously, the Cogs number is mix adjusted but when we talk about outperforming the industry in terms of cost reduction for the year.

Talking about at the memory level, where our technology leadership and one alpha and 176, there has allowed us to outpace the industry. This year end.

Performed well.

At the front end level.

Sumit Sadana: But obviously, mix of movement towards high-value solutions, and as that, you know, happens over the last quarter and this next quarter, those are, you know, impacting the all-in costs, but obviously providing higher margin as well or higher price.

But obviously, mix of movement towards high-value solutions, and as that, you know, happens over the last quarter and this next quarter, those are, you know, impacting the all-in costs, but obviously providing higher margin as well or higher price.

Speaker 6: But obviously, moving towards high-value solutions and as that happens over the last quarter and this next quarter, those are...

But obviously mix of moving moving towards high value solutions and as that happens over the.

Last quarter in this next quarter.

We are.

Speaker 6: impacting the all-in cost, but obviously providing higher margin as well for higher price.

Impacting the all in cost, but obviously, providing higher margin business for higher prices.

[Analyst] (Barclays): Thank you.

Tom O'Malley: Thank you.

Thank you.

Operator: Thank you. Our next question comes from Joe Moore, Morgan Stanley. Your line is open.

Speaker 2: Thank you and next question comes from Joe Moore, Morgan Stanley . Your line is open.

Thank you. Our next question comes from Joe Moore of Morgan Stanley . Your line is open.

Vahan Hovsepian: Great. Thank you. I wonder if you could quantify at all the impact of the supply reduction that you guys are looking to do, the utilization impact of that. And I guess, is it-- can you compare it to what you did in 2019? Do you think it's something similar to that, more significant than that, less significant than that? Just any color would be helpful.

Joe Moore: Great. Thank you. I wonder if you could quantify at all the impact of the supply reduction that you guys are looking to do, the utilization impact of that. And I guess, is it-- can you compare it to what you did in 2019? Do you think it's something similar to that, more significant than that, less significant than that? Just any color would be helpful.

Speaker 7: Great, thank you. I wonder if you could quantify at all the impact of the supply reduction that you guys are looking to do that the utilization impact of that. And I guess, is it, can you compare it to what you did in 2019? Do you think it's something similar to that more significant than that less significant than that? Just any color would be helpful.

Great. Thank you I Wonder if you could quantify at all the impact of the <unk>.

<unk> reduction that you guys are looking to do the utilization impact of that and I guess is it can you compare it to what you did in 2019 do you think it's something similar to that more significantly that less significant than that just any color would be helpful.

Sumit Sadana: Sure. Hi, Joe. So, you know, we're still evaluating, you know, what we will finally do. I think what was important for us to give guidance and clarity to everyone on was that we are reducing WFE. And, you know, that will have an impact on supply bit growth for both DRAM and NAND from our prior levels next in 2023. And, you know, at this time, not really, you know, ready to compare it. We're still working to finalize what our plans are. As we mentioned, we're gonna have a combination of trying to manage CapEx.

Speaker 6: Sure, I go. So, you know, we're still evaluating, you know, what we will finally do. I think what was important for us to give guidance and clarity to everyone on was that we are reducing WSE. And you know, that will have impact on supply big growth for both DRAM and NAND from our prior levels.

Sure Joe So.

We're still evaluating what we will finally do what I think was important for us to give guidance and clarity to everyone on was that we are reducing WMC.

And.

That will have an impact on supply bit growth for both DRAM and NAND from our prior levels.

Speaker 6: Next in 23.

Next.

In 'twenty three.

Speaker 6: And at this time, not really ready to compare it, we're still working to finalize what our plans are. As we mentioned, we're going to have a combination of trying to manage Chapeck.

And.

At this time not really.

Ready to.

<unk>, we're still working to finalize what our.

As we mentioned, we're gonna have a combination of trying to manage CapEx manage utilization, particularly for some of our legacy nodes, and take a look at, you know, maybe less cost-effective nodes, how we can optimize those, how we can optimize the manufacturing footprint, space as we transition to more advanced nodes. You know, and we're gonna be ramping our 1-beta and 232-layer technologies. We think it's very important to make sure that we continue to maintain leadership and launch those technologies, so that we can, you know, have the product portfolio benefits from those as well as the cost benefits from those. And then the other piece, of course, is managing inventory, as Mark was talking about on the call.

Plans are as we mentioned, we're going to have a combination of.

Trying to manage capex manage utilization, particularly for some of our legacy nodes and take a look at maybe less cost effective at how we can optimize those how we can optimize the manufacturing footprint.

Sumit Sadana: manage utilization, particularly for some of our legacy nodes, and take a look at, you know, maybe less cost-effective nodes, how we can optimize those, how we can optimize the manufacturing footprint, space as we transition to more advanced nodes. You know, and we're gonna be ramping our 1-beta and 232-layer technologies. We think it's very important to make sure that we continue to maintain leadership and launch those technologies, so that we can, you know, have the product portfolio benefits from those as well as the cost benefits from those. And then the other piece, of course, is managing inventory, as Mark was talking about on the call.

Speaker 6: manage utilization, particularly for some of our legacy nodes and take a look at maybe less cost-effective nodes, how we can optimize those, how we can optimize the manufacturing footprint space as we transition to more advanced nodes. We're going to be ramping our one beta and 232 technologies. We think it's very important to make sure that we continue to maintain leadership and launch those technologies so that we can have the product portfolio benefits from those as well as the cost benefits from those.

As we transition to more advanced nodes and we're going to be ramping our one data and 232 technologies. We think it's very important to make sure that we continue to maintain leadership in launch those technologies.

Technologies.

So as we can.

We have the product portfolio benefits from those as well as the cost benefits from those.

Speaker 6: And then the other piece of course is managing inventory as Mark was talking about on the call. So we'll kind of look at all those areas together to be able to determine what the right mix of supply big growth, you know, capex utilization and inventory and cost reduction is for next year. And we'll provide more color I think on the next call.

And then the other piece of course is managing inventory as Mark was talking about on the on the call. So we'll kind of look at it.

Sumit Sadana: So we'll kind of look at you know, all those areas together, to be able to determine what the right mix of supply bit growth, you know, CapEx, utilization, and inventory is, and cost reduction is for next year. And we'll provide more color, I think, on the next call.

So we'll kind of look at you know, all those areas together, to be able to determine what the right mix of supply bit growth, you know, CapEx, utilization, and inventory is, and cost reduction is for next year. And we'll provide more color, I think, on the next call.

All of those areas together to be able to determine what the right.

Mix of supply bit growth capex utilization and inventory and cost reduction is for next year and we'll provide more color I think on the next call.

[Analyst] (Evercore): Great. Thank you very much.

Joe Moore: Great. Thank you very much.

Yes.

Great. Thank you very much.

Operator: Thank you. Our next question comes from Toshiya Hari of Goldman Sachs. Please go ahead.

Speaker 2: Thank you. Our next question comes from Tishia Hari of Goldman Sachs. Please go ahead.

Thank you. Our next question comes from tertiary Goldman Sachs. Please go ahead.

[Analyst] (Goldman Sachs): Great, thank you. I have one quick clarification, then one quick question. On the clarification for the fiscal Q4 guide, based on your commentary, it seems like the sequential decline in revenue, that's mostly coming from bits and pricing is perhaps, you know, down low singles or something like that, based on sort of the strategy that you're taking. Is that a fair assumption?

Toshiya Hari: Great, thank you. I have one quick clarification, then one quick question. On the clarification for the fiscal Q4 guide, based on your commentary, it seems like the sequential decline in revenue, that's mostly coming from bits and pricing is perhaps, you know, down low singles or something like that, based on sort of the strategy that you're taking. Is that a fair assumption?

Speaker 8: Great, thank you. I have one quick clarification, then one quick question. On the clarification for the fiscal Q4 guide, based on your commentary, it seems like the sequential decline in revenue that's mostly coming from bits and pricing is perhaps down low singles or something like that based on sort of the strategy that you're taking. Is that a fair assumption?

Great. Thank you I have one quick clarification and then one quick question on the clarification for the.

Fiscal Q4 guide based on your commentary it seems like the sequential decline in revenue that is mostly coming from bits and pricing is perhaps.

Down low singles or something like that based on sort of the strategy that youre taking.

Is that is that a fair assumption.

Mark Murphy: Yeah, if you, if you do the math on things, you'll see that volume's roughly 2/3 sequential.

Speaker 5: Yeah, if you do the math on things, you'll see that volume's roughly 2 thirds sequential.

Yes, if you if you do the math on things Youll see that volumes roughly two thirds.

[Analyst] (Goldman Sachs): Got it. Okay, that's helpful. And then, got it, and then, as my question, this one's for you as well, probably, Mark. On OpEx, you know, you, you talked about some of the, initiatives having a bigger impact in fiscal 2023. I, I guess last time you were kind of in the zip code from a revenue perspective, OpEx was kind of in the low $800 million. And I, I realize there's been broad-based inflation, but how should we think about OpEx, in the early part of fiscal 2023, as, as you guys flex down?

Toshiya Hari: Got it. Okay, that's helpful. And then, got it, and then, as my question, this one's for you as well, probably, Mark. On OpEx, you know, you, you talked about some of the, initiatives having a bigger impact in fiscal 2023. I, I guess last time you were kind of in the zip code from a revenue perspective, OpEx was kind of in the low $800 million. And I, I realize there's been broad-based inflation, but how should we think about OpEx, in the early part of fiscal 2023, as, as you guys flex down?

Sequential.

Got it Okay. That's helpful and then.

Speaker 8: Got it. And then as my question, this one for you as well, probably Mark, on OpEx, you talked about some of the initiatives having a bigger impact in fiscal 23.

Got it and then.

That's my question.

This one is for you as well probably mark.

On Opex.

You talked about some of the <unk>.

Initiatives, having a bigger impact in fiscal 'twenty three.

Speaker 8: I guess last time you were kind of in the zip code from a revenue perspective.

I guess last time, you were kind of in the ZIP code from a revenue perspective, Opex was kind of in the low 800 millions of dollars and I realize there has been broad based inflation, but how should we think about opex in the early part of fiscal 'twenty three as you guys flex down.

Speaker 8: op-x was kind of in the low eight hundred millions of dollars and i realize there's been broad-based inflation but how should we think about op-x in the early part of fiscal twenty three as you guys flexed down

Mark Murphy: Yeah, you know, you can back into OpEx long term as a percent of sales through the model. I won't give you a number for OpEx in 2023, because, you know, we haven't done our plans. We'll give guidance on that at a future call. I think the comments today were meant to reflect that, you know, it is an environment that's changed very quickly, and the demand environment's weakened, and we've responded quickly across all major areas of spend. We are, you know, the OpEx number is down from what it was in our original forecast here. So that gives you a sense of we're already dealing with it.

Yes.

Speaker 5: Yeah, you know, you can back into OptX long-term as a percentage sales through the model. I won't give you a number for OptX in 23 because we haven't done our plans, we'll give guidance on that at a future call. I think the comments today were meant to reflect that, it is an invite.

You can back into Opex long term as a percent of sales through the model.

I won't give you a number for opex in 'twenty three.

Because we haven't done our plans, we'll give we'll give guidance on that at a future call.

I think the comments today were meant to reflect that.

It is a.

It is an environment thats changed.

Speaker 5: change very quickly and the demand environments weakened and we've responded quickly.

Change very quickly and demand environments weekend, and we've responded quickly.

Speaker 5: across all major areas of spend and we are, you know, the the op-x number is...

Across all major areas of spend and we are.

Yes.

Opex number is.

Speaker 5: down from what it was in our original forecast here.

Down from what it was in our original forecast here. So that gives you a sense that we're already dealing with it.

Speaker 5: So that gives you a sense of we're already dealing with it. And our expectation is that as the market outlook becomes clear, we will adjust our off-expand appropriately.

Mark Murphy: You know, our expectation is that, as the market outlook becomes clear, we will, you know, adjust our OpEx spend appropriately. Now, you know, the company's in great position of leadership across technology, products, and manufacturing. So, this is not a, you know, take a sledgehammer to, you know, OpEx. It's a scalpel, you know, scalpel exercise, and we work to get OpEx down and for an appropriate level for the conditions of the business.

You know, our expectation is that, as the market outlook becomes clear, we will, you know, adjust our OpEx spend appropriately. Now, you know, the company's in great position of leadership across technology, products, and manufacturing. So, this is not a, you know, take a sledgehammer to, you know, OpEx. It's a scalpel, you know, scalpel exercise, and we work to get OpEx down and for an appropriate level for the conditions of the business.

Our.

<unk> is it.

As the market.

Outlook becomes clear.

We will.

Adjust our opex spend appropriately now.

Speaker 5: It's not a, this isn't a, a company's in great position of leadership across technology products and manufacturing. So this is not a, you know, take a sledge.

It's not a.

This isn't a company is in great position of leadership across technology products and manufacturing so.

This is not a.

I'll take a sledgehammer to.

Speaker 5: you know, op-X, it's a scalpel exercise and we work to get op-X down and an appropriate level for the conditions of the business.

Opex, it's a scaffold scalpel exercise and we work to get Opex down.

For an appropriate level for the conditions of the business.

[Analyst] (Goldman Sachs): And Mark, sorry, just to be clear, the sequential increase in OpEx this quarter, that's just timing of quals, as you guys noted on the call?

Toshiya Hari: And Mark, sorry, just to be clear, the sequential increase in OpEx this quarter, that's just timing of quals, as you guys noted on the call?

Speaker 8: And Mark's are just to be clear the sequential increase in op-x this quarter. That's just timing of Qualls as you guys noted on the call

Mark sorry, just to be clear the sequential increase in Opex. This quarter Thats just timing of of calls you guys noted on the call.

Mark Murphy: Yeah, we had in the Q3, the OpEx was low. It was actually about $100 million off of the, I think, the guidance. Two major drivers, one, product and technology spend, as you talked about. That was actually not due to sort of fewer programs. It was due to actually very good performance and fewer wafers required for technology qualification. That was the largest part of the variance. The next was just, as you can imagine, our forecast came way down, so the incentive comp was adjusted, and since we're this far in the year, it was a sizable, you know, accrual adjustment. So those two things were drivers. In the Q4, of course, those benefits, you know, become headwinds for the Q4.

Speaker 5: Yeah, we had in the third quarter, the OpEx was low, was actually about 100 million off of the, I think the guidance and two major drivers. One, product and technology spend, as you talked about. That was actually...

Yes, we had in the third quarter. The Opex was low was actually about $100 million off of the.

I think the guidance and two major drivers one.

And technology spend as you talked about and that was actually.

Speaker 5: Not due to, for fewer programs, it was due to actually very good performance and fewer wafers required for technology qualification. That was the largest part of the variance. The next was just, as you can imagine, our forecast came way down. So the incentive comp was adjusted and since we're this far in the year, it was a sizable, you know, a cruel adjustment. So those two things were drivers.

Not due to.

Sorry fewer programs. It was due to actually very good performance and fewer wafers required for our technology qualification that was the largest part of the variance. The next one is just as you can imagine our forecast came way down so the so the.

Incentive comp.

It was adjusted.

And since we're thus far in the year. It was it was a sizable.

Accrual adjustment so those two things were drivers.

Speaker 5: in the fourth quarter of course those benefits.

In the fourth quarter of course those benefits.

<unk> become headwinds for the fourth quarter. So we're kind of back up to this level.

Speaker 5: become headwinds for the fourth course or kind of back up to this level yeah just over a billion

Mark Murphy: So we're kind of back up to this level, you know, just over $1 billion, and sort of makes it, makes it look like more of a sequential decline than in reality it is. And we'll just continue to work it, in a disciplined way from here.

So we're kind of back up to this level, you know, just over $1 billion, and sort of makes it, makes it look like more of a sequential decline than in reality it is. And we'll just continue to work it, in a disciplined way from here.

Yes, just over $1 billion.

Speaker 5: and sort of makes it look like more of a sequential decline in reality it is and we'll just continue to work it in a disciplined way from here.

And sort of makes it makes it look like a more of a sequential decline in reality it is.

And we'll just continue to work it.

In a disciplined way from here.

[Analyst] (Goldman Sachs): Great. Thank you.

Toshiya Hari: Great. Thank you.

Great. Thank you.

Operator: Thank you. Our next question comes from C.J. Muse of Evercore. Your line is open.

Speaker 2: Thank you our next question comes from CJ Muse of Evercore. Your line is open.

Thank you. Our next question comes from C. J Muse of Evercore. Your line is open.

[Analyst] (Evercore): Yeah, I wanted to just follow up on prior question around cost downs and whether you're contemplating any material kind of change to utilization rates and how we should think about that impacting cost downs, you know, in the coming quarters.

C.J. Muse: Yeah, I wanted to just follow up on prior question around cost downs and whether you're contemplating any material kind of change to utilization rates and how we should think about that impacting cost downs, you know, in the coming quarters.

Speaker 9: Yeah, I wanted to just follow up on prior question around cost downs and whether you're contemplating any material kind of change to utilization rates and how we should think about that impacting cost downs, you know, the common quarters.

Yes, I wanted to just follow up on prior question around cost Downs.

What are you contemplating any material change to utilization rates and how we should think about that.

Packaging costs.

The coming quarters.

Sumit Sadana: Hi, C.J. I think, as I said, we are evaluating utilization. I would say that, you know, we're really, you know, with having technology leadership, you know, we definitely believe that the, you know, the inventory at the leading edge that we're generating is very cost effective relative to the rest of the industry, relative to even what will be available for us in future quarters. So, you know, we're really, you know, on the utilization front, focused on thinking about optimizing older nodes, legacy nodes. You know, of course, keeping in mind the legacy demand that we have for certain customers as well. But it's not as if I think we're at a position where on the leading edge, we're gonna be making, you know, significant action or drastic action.

Speaker 6: Hi, CJ. So we are evaluating, I think, as I said, we are evaluating utilization. I would say that we're really having technology leadership. We definitely believe that the inventory at the leading edge that we're generating is very cost effective relative to the rest of the industry, relative to even what will be available for us in future quarters. So we're really on the utilization front focus on thinking about optimizing older nodes, legacy nodes.

C J.

So we are evaluating as I said, we are evaluating utilization I would say that we're really.

Sure.

Having technology leadership, we definitely believe that the inventory at the leading edge that we're generating is very cost effective relative to.

The rest of the industry relative to even what will be available for us.

Future quarters. So we are really on the utilization front focused on thinking about optimizing older nodes legacy nodes.

Speaker 6: You know, of course, keeping in mind the legacy demand that we have for certain customers as well. But it's not as if I think we're at a position we're on the leading edge, we're gonna be making, you know.

Of course, keeping in mind, the legacy demand that we have for certain customers as well.

But it's not as if I think we're in a position where on the leading edge, we're going to be making.

Speaker 6: significant action, for drastic action. And then, you know, and as I mentioned before, when...

Significant action for drastic action and then.

Sumit Sadana: And then, you know, and I, as I mentioned before, when previously, when I think Joe or Tom had asked about this, you know, we're still planning on ramping our 1-beta and 232-layer technologies later this year. We think it's very important that we maintain the technology cadence and the, the, you know, the learning and the, you know, drive the adoption of those technologies, and that'll happen in fiscal year 2023 as well.

And then, you know, and I, as I mentioned before, when previously, when I think Joe or Tom had asked about this, you know, we're still planning on ramping our 1-beta and 232-layer technologies later this year. We think it's very important that we maintain the technology cadence and the, the, you know, the learning and the, you know, drive the adoption of those technologies, and that'll happen in fiscal year 2023 as well.

And as I mentioned before.

Okay.

Speaker 6: Previously when I think Joe or Tom had asked about this, we're still planning on ramping our one beta in two, three, two technologies later this year. We think it's very important that we maintain that technology cadence and the learning and drive the adoption of those technologies and that will happen in just a year, 23 years.

Previously I think Joe or comment asked about this.

We're still planning on ramping our one data and 232 technologies. Later this year, we think it's very important that we maintain the technology cadence.

The learning and the.

To drive the adoption of those technologies and that will happen in fiscal year 'twenty three as well.

[Analyst] (Evercore): Very helpful. And I guess as a just quick follow-up, are there any targets you have for inventory that you can share with us, and in what kind of time frame?

C.J. Muse: Very helpful. And I guess as a just quick follow-up, are there any targets you have for inventory that you can share with us, and in what kind of time frame?

Speaker 9: We're helpful and I guess it's just quick follow up. Are there any targets you have for inventory that you can share with us and what kind of time frame?

Very helpful and I guess it was just a quick follow up are there any target.

Targets you have for inventory that you can share with us what kind of timeframe.

Mark Murphy: C.J., the only target that, you know, we can provide is the previous level of discomfort target, I guess, maybe you'd call it. You know, I think we'd like to keep it below 150 days. We do think it'll go up in the Q4 on DIO. I think I gave a number of a couple of weeks, and we'll just have to see where it goes from there. That's a function of, you know, market conditions, as you know.

C J the only target.

Speaker 5: You know, we can provide as the previous level of discomfort target, I guess. Maybe you'd call it the, you know, I think we'd like to keep it below 150 days. We do think it'll go up in the, well, we...

We can provide is the previous level of discomfort target I guess, maybe you can call it.

<unk>.

We'd like to keep it below a 150 days.

Do think it will go up in the.

Speaker 5: It will go up in the fourth quarter on DIO. I think it gave a number of a couple of weeks. And we'll just have to see where it goes from there. That's a function of market conditions, as you know.

That will go up in the fourth quarter.

On <unk> I think I gave a number of a couple of weeks.

And we will just have to see where it goes from there and thats a function of.

Market conditions as you know.

[Analyst] (Evercore): Thanks so much.

C.J. Muse: Thanks so much.

Sure.

Thanks, so much.

Operator: Thank you. Our next question comes from Srini Pajjuri of SMBC Nikko. Your line is open.

Speaker 2: Thank you. Next question comes from Serini Pajuri of SMBC Nico. Your line is open.

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

<unk> Your line is open.

[Analyst] (SMBC Nikko): Thank you. A couple from me as well. First on the PC and smartphone weakness, you know, you talked about inventory correction. Just curious, I mean, do you think it's a 1-quarter event? Meaning, do you think the inventories, you know, will customers will normalize, you know, after this quarter? Or do you see, you know, further potential for kind of a correction going forward, if assuming that, you know, demand kind of stabilizes here? Then I have a follow-up.

Srini Pajjuri: Thank you. A couple from me as well. First on the PC and smartphone weakness, you know, you talked about inventory correction. Just curious, I mean, do you think it's a 1-quarter event? Meaning, do you think the inventories, you know, will customers will normalize, you know, after this quarter? Or do you see, you know, further potential for kind of a correction going forward, if assuming that, you know, demand kind of stabilizes here? Then I have a follow-up.

Speaker 10: Thank you, a couple from me as well. First on the PC and smartphone weakness, you talked about inventory correction. Just curious, do you think it's a one quarter event, meaning do you think the inventories, customers will normalize after this quarter, or do you see further potential for a correction going forward if assuming that demand kind of stabilizes here. Then I have follow.

Thank you a couple from me as well first on the PC and smartphone weakness you talked about inventory correction.

Just curious I mean do you think it's a one quarter event, meaning do you think the inventories.

Customers will normalize.

After this quarter or do you see.

The potential for kind of a correction going forward, assuming that demand kind of stabilizes here then I have a follow up.

Manish Bhatia: Typically, we see that, in any given segment, when customers start to correct inventory, it is, a couple of quarters worth of a process. It takes, several months to get down to, their own internal target levels of inventory. That, of course, assumes a predictable, macroeconomic environment and demand trends in their own segment. And so obviously, you know, there is concern about the trajectory of the macroeconomic environment, so that can, further, create another vector of, uncertainty that has to be dealt with. But typically, it takes a couple of quarters for the inventory to get normalized.

Speaker 11: Typically, we see that in any given segment when customers start to correct inventory, it is a couple of quarters.

Typically we see that.

In any given segment.

Customers start to correct inventory.

It is a couple of quarters.

Speaker 11: worth of a process, it takes several months to get down to their own internal target levels of inventory. That of course assumes a predictable macroeconomic environment and demand trends in their own segment.

Both of our process.

To get down to.

On their own internal target levels of inventory.

That of course assumes a predictable.

The macroeconomic environment and demand trends in their own segment.

Speaker 11: And so obviously, you know, there is concern about the trajectory of the macroeconomic environment. So that can further create another vector of uncertainty that has to be dealt with. But typically it takes a couple of quarters for the inventory to get normalized.

And so obviously.

There is concern about the trajectory of the macroeconomic environment so that can.

Further create another vector of.

Uncertainty that has to be dealt with but typically it takes a couple of quarters for the inventory to get normalized.

[Analyst] (SMBC Nikko): And we're talking both PC and smartphones, I mean, that started this quarter, so we're talking two quarters, basically, from current quarter?

Srini Pajjuri: And we're talking both PC and smartphones, I mean, that started this quarter, so we're talking two quarters, basically, from current quarter?

Speaker 10: And we're talking both PC and smartphone submit that started this quarter. So we're talking to quarters basically from current quarter. Yeah, I mean, that's the reason we said that, you know, we see this playing out sort of in the second half of calendar 22 as the biggest portion of the impact of the load cell-through rates in the end markets in those segments as well as the inventory correct.

And we're talking both PC and smartphone that started this quarter. So we're talking two quarters basically from from current quarter.

Manish Bhatia: Yeah. I mean, that's, that's the reason we said that, you know, we see this playing out, sort of in the second half of calendar 2022, as the biggest portion of the impact of the lowered sell-through rates in the end markets in those segments, as well as the inventory correction.

That's the reason, we said that we see this playing out.

Sort of in the second half of calendar 'twenty two as the biggest portion of the.

Impact of the load.

Sell through rate.

In the end markets in those segments as well as the inventory correction.

[Analyst] (SMBC Nikko): Okay, got it. And then, on your own balance sheet inventory, Mark, you know, you talked about $150 is kind of, you know, where, you know, you, you'll start getting uncomfortable. But if I look at your historic inventory, I think it peaked out around $130s, in a mid $130. So I'm just curious, what changed, you know, in the last, I guess, in a year or two, that, you know, you are more comfortable even at $150? I guess, why has that level gone higher? And then the other side of the question is that, you know, you did say that, you know, you want kind of, you know, you're going to maintain pricing discipline and, and also use your inventory, to kind of, you know, supply into the market next year.

Srini Pajjuri: Okay, got it. And then, on your own balance sheet inventory, Mark, you know, you talked about $150 is kind of, you know, where, you know, you, you'll start getting uncomfortable. But if I look at your historic inventory, I think it peaked out around $130s, in a mid $130. So I'm just curious, what changed, you know, in the last, I guess, in a year or two, that, you know, you are more comfortable even at $150? I guess, why has that level gone higher? And then the other side of the question is that, you know, you did say that, you know, you want kind of, you know, you're going to maintain pricing discipline and, and also use your inventory, to kind of, you know, supply into the market next year.

Speaker 10: Okay, got it. And then on your own balance sheet inventory mark, you know, you talked about 150 is kind of, you know, where.

Okay got it and then on your own balance sheet inventory Mark.

You talked about 150 is kind of where you.

Speaker 10: you'll start getting uncomfortable. But if I look at your historic inventory, I think it peaked out around one in a 30s, in a mid one 30s. So I'm just curious.

Youll start getting uncomfortable, but if I look at your historic inventory I think it peaked out at around one <unk> in the mid 100, <unk>. So I'm just curious what changed.

Speaker 10: What changed in the last year or two that you are more comfortable even at 150, I guess? Why is that level gone higher? And then the other side of the question is that you did say that you want kind of, you know.

In the last I guess in a year or two that you're more comfortable even at $1 50, I guess why is that level go on higher and then the other side of the question is that you did say that you want kind of.

Speaker 10: you're going to maintain pricing discipline and also use your inventory to kind of supply into the market next year. So I guess at some point the inventory will come down as you lower your production growth.

Youre going to maintain pricing discipline and.

And also use your inventory.

Kind of supply into the market next year. So I guess at some point the inventory will come down as you lower your production growth.

[Analyst] (SMBC Nikko): So I guess at some point, the inventory will come down as you lower your production, you know, growth. At what is the minimum level that you're comfortable? I mean, I'm looking at, I guess, you know, a few quarters ago, you're in the low 90s. I'm just curious, you know, what is the minimum level that you're comfortable? When do you have to ramp up, you know, production again, at what level? Thank you.

Srini Pajjuri: So I guess at some point, the inventory will come down as you lower your production, you know, growth. At what is the minimum level that you're comfortable? I mean, I'm looking at, I guess, you know, a few quarters ago, you're in the low 90s. I'm just curious, you know, what is the minimum level that you're comfortable? When do you have to ramp up, you know, production again, at what level? Thank you.

Speaker 10: at what is the minimum level that you're comfortable i mean i'm looking at i guess you know a few quarters ago you're in the low 90s i'm just curious you know what is the minimum level that you're comfortable either when when you have to wrap up you know production again at what

What is the minimum level that youre comfortable I mean im looking at I guess, a few quarters ago. You are in the low nineties. So I'm just curious what is the minimum level that you're comfortable with.

When do you have to ramp up production again at one level. Thank you.

Mark Murphy: Yeah. So, there was no news today on the call, actually. It was more a validation of ranges that have been set before. I did comment on, you know, there are some headwinds in the sense of on DIO around more complex processing and, you know, the cycle time in the fab would be longer and more WIP. There's more complex modules, and there's the associated components with those, and assembly times and so forth. So I think all that is a headwind, but at the same time, you know, the team's doing a lot of things to offset those. And so I was validating that, you know, the number that we've provided before of about 150 is a maximum level.

Speaker 5: Yeah, so there was no news today on the call. Actually, it was more validation of ranges that had been set before. I did comment on, you know, there's some headwinds in the sense of, on DIO around more complex processing. And, you know, that the cycle time in the fab would be longer and more web. There's more complex modules. And there's the associate components with those.

Yes so.

There is no news today on the call actually it was more of a validation of.

Ranges that have been set before.

I did comment on yes, there is some headwinds in the sense of.

On tio around more complex processing in.

The cycle time in the fab would be longer and more web.

As more complex modules.

Associated components with those.

Speaker 5: assembly times and so forth. So I think all that.

Assembly times, and so forth. So I think I think all of that is.

Speaker 5: is a headwind but at the same time um... you know the team's doing a lot of things offset those and so i was

As a headwind, but at the same time.

The team's doing a lot of things offset those and so I was.

Speaker 5: validating that the number that we've provided before, of about 150 is a maximum level. Normal levels have also been talked about before, around 100 days. So the number that you cited low 90s is a level that we would view as good lean inventory levels for our business.

Validating that.

The number that we've provided before of about 150.

As a maximum level.

Mark Murphy: Normal levels have also been talked about before, around 100 days. So, the number that you cited, low 90s, is, you know, a level that we would view as, you know, good lean inventory levels for our business.

Normal levels have also been talked about before, around 100 days. So, the number that you cited, low 90s, is, you know, a level that we would view as, you know, good lean inventory levels for our business.

Normal.

Levels have also been talked about before.

Round 100 days so.

So the number that that you that you sited low 90 days is a level that we would view as.

Good lean inventory levels for our business.

[Analyst] (SMBC Nikko): Got it. Thank you.

Srini Pajjuri: Got it. Thank you.

Got it thank you.

Sumit Sadana: May I- I'll just add one comment there, just Srini. I mean, these things always are the trend in the industry, and it doesn't matter whether you look at the logic in this logic side, or you look at memory. The trend is longer and longer processing time and cycle time in the fabs, right? So that's more fab WIP. For us, specifically, then you add in the fact that we're transforming more of our business and, in general, more industry demand, moving towards high-value solutions like SSDs, like data center DRAM modules. These things have longer cycle time in the back end, as well as more component inventory required to be held for the back end as well.

Speaker 6: Okay, I have the FABs one comment they're just treeneys. I mean, these things, we always hard, the trend in the industry and it doesn't matter whether you look the logic in this subject side or you look at memory, the trend is longer and longer processing time and cycle time in the FABs, right, so that's more of FAB with.

Yes, I'll just add one comment there just <unk>.

These things are trending.

Trends in the industry and it doesn't matter, whether you look the logic in this subject side or you look at memory, the trend is longer and longer processing time and cycle time in the fab right. So that's more of a fab width.

Speaker 6: For us, specifically then, you add in the fact that we're transforming more of our business and, in general, more industry demand moving towards high-value solutions like SSDs, like data center DRM modules. These things have longer cycle time in the back end, as well as more component inventory required to be held for the back end as well. So when you think about all of those things, all of these...

For US specifically then you add in the fact that we are transforming more of our business and in general more industry demand moving towards high value solutions like Ssds like data Center DRAM modules. These things have longer cycle time in the backend as well as more component inventory required to be held for the back end as well. So when you think.

Sumit Sadana: So when you think about all of those things, all of these, whether you're talking about the lean inventory range or the max comfortable inventory range, those are things that, you know, generally across this industry, as technology becomes more complex and products become more complex, are gonna continue to keep going up, you know, over time. And the other thing, just to keep in mind, and we talked about this at our Investor Day, is one of the trends in the industry over the last several years, now, again, speaking about memory, that's helpful to allow us to hold more inventory, is the cost declines are lower now, than they were a decade ago, from technology transition.

So when you think about all of those things, all of these, whether you're talking about the lean inventory range or the max comfortable inventory range, those are things that, you know, generally across this industry, as technology becomes more complex and products become more complex, are gonna continue to keep going up, you know, over time. And the other thing, just to keep in mind, and we talked about this at our Investor Day, is one of the trends in the industry over the last several years, now, again, speaking about memory, that's helpful to allow us to hold more inventory, is the cost declines are lower now, than they were a decade ago, from technology transition.

About all of those things all of these.

Speaker 6: Whether you're talking about the lean inventory range or the max comfortable inventory range, those are things that, you know, generally across this industry as technology becomes more complex and products become more complex. We're going to continue to keep going up, you know.

Whether you are talking about the lean inventory range of the met comfortable inventory range. Those are things that generally across this industry as technology becomes more complex and products become more complex, they're going to continue to keep going up.

Overtime.

Speaker 6: And the other thing just to keep in mind, and we talked about this at our investor days, one of the trends in the industry over the last several years now against speaking about memory, that are helpful to allow us to hold more injuries across the climbs are lower now, than they were a decade ago from technology transition. So.

And the other thing just to keep in mind and we talked about this at our Investor Day is one of.

The trends in the industry over the last several years now again speaking about memory.

Helpful to allow us to hold more inventory as the cost declines are lower now.

Then they were a decade ago from technology transition so.

Sumit Sadana: So, you know, that's another one of the areas where we're able to hold more inventory because, you know, we have very good cost-effective inventory, especially being at the leading edge now of the industry, and we expect that inventory to continue to be cost-effective through the next, you know, through this next period while we're working down our inventories.

So, you know, that's another one of the areas where we're able to hold more inventory because, you know, we have very good cost-effective inventory, especially being at the leading edge now of the industry, and we expect that inventory to continue to be cost-effective through the next, you know, through this next period while we're working down our inventories.

Speaker 6: That's another one of the areas where we're able to hold more inventory because we have very good cost effective inventory, especially being at the leading edge now at the industry. And we expect that inventory to continue to be cost effective through the next, you know, through this next period while we're working down our inventory.

That's another one of the areas, where we're able to to hold more inventory because we have very good cost effective inventory, especially being at the leading edge now of the industry and we expect that inventory to continue to be cost effective through the next.

Through this next period, while we're working down our inventory.

[Analyst]: Very helpful. Thank you.

Srini Pajjuri: Very helpful. Thank you.

Very helpful. Thank you.

Operator: Thank you. Our next question comes from Steven Fox of Fox Advisors. Please go ahead.

Speaker 2: Thank you. Our next question comes from Stephen Fox of Fox Advisors. Please go ahead.

Thank you. Our next question comes from Steven Fox with Fox Advisors. Please go ahead.

[Analyst] (Fox Advisors): Thanks. Good afternoon. Two questions. First, on the gross margin guidance for the quarter, I think you're guiding down about 500 basis points, roughly, quarter-over-quarter. Can you sort of break that out between, I assume a bulk of that is just sheer volume, but anything you can provide color on how much is related to mix, pricing, et cetera? And then I had a follow-up.

Steven Fox: Thanks. Good afternoon. Two questions. First, on the gross margin guidance for the quarter, I think you're guiding down about 500 basis points, roughly, quarter-over-quarter. Can you sort of break that out between, I assume a bulk of that is just sheer volume, but anything you can provide color on how much is related to mix, pricing, et cetera? And then I had a follow-up.

Speaker 12: Thanks. Good afternoon. Two questions first. On the Gross Margin Guidance for the Quarter, I think your your guiding down about 500 basis points roughly quarter over quarter. Can you sort of break that out between, I assume a bulk of that is just sheer volume, but anything you can provide color on how much is related to mix, pricing, et cetera. And then I had to follow up.

Thanks, Good afternoon, two questions first.

On the gross margin guidance for the quarter, I think youre guiding down about 500 basis points roughly quarter over quarter can you sort of break that out between I assume a bulk of that is just the sheer volume, but anything you can.

Good color on how much is related to mix pricing et cetera, and then I had a follow up.

Mark Murphy: Yeah, I won't go into the details, but the sequential decline, Q3 to Q4, is just driven by market trends or, yeah, dynamics in the market. The Q2 to Q3 was driven by a higher mix of NAND, that decline.

Speaker 5: Yeah, I won't go into the details, but the sequential decline third to fourth is just driven by market trends or dynamics in the market.

Yes.

I'll go into the details but that.

Sequential decline third to fourth is just driven by market trends are.

<unk> in the market.

Yes.

Speaker 5: The second quarter, third quarter, was driven by a higher mix of NAND. That's a climb.

Second quarter to third quarter was driven by a higher a higher mix of NAND that decline.

[Analyst] (Fox Advisors): Got it.

Steven Fox: Got it.

Mark Murphy: Q3, Q4-

[Analyst] (Fox Advisors): And then in terms of-

Steven Fox: And then in terms of-

Got it.

Mark Murphy: Our Q3. Go ahead.

Third Paul go.

[Analyst] (Fox Advisors): Third, third quarter to sec- from second quarter, yeah. I got, I got that. And then, just in terms of-

Steven Fox: Third, third quarter to sec- from second quarter, yeah. I got, I got that. And then, just in terms of-

Go ahead.

Speaker 12: their quarter of second from second quarter. Yeah, I got that. And then I would just, I would just, I'm sorry, just one thing to add. So, you know, beyond the fourth quarter.

Third quarter from second quarter, yes, Okay got that and then on average.

Mark Murphy: I'm sorry, just one thing to add. So, you know, beyond the fourth quarter, you know, as we've talked about, as these inventories are elevated and the market works through this period, we would expect that to weigh on gross margins. So, you know, I just wanna make sure that that's clear.

Yes, I am sorry, just one thing to add so.

Beyond the fourth quarter.

Speaker 5: As we've talked about, as these inventories are elevated and the market works through this period, we would expect that to weigh on gross margins. So I just want to make sure that's clear.

As we've talked about as these inventories are elevated in the market works through this period.

We would expect that to weigh on gross margins. So.

Yes, I just want to make sure that that's clear.

[Analyst] (Fox Advisors): That's helpful. Then, just on the long-term agreements, I mean, I understand, you know, this is unusual times, but, I mean, you, you just spent the last several quarters putting some long-term agreements into place, and they seem, as soon as things got tough, to unraveled a bit. So I guess, you, you would kind of-- It sounded like you were kind of describing some benefits that are still coming through from the long-term agreements, even as demand slows here. I'm, I'm just not clear on what those are. Can, so can you maybe talk to the, I guess, that comment and the question I just put out there? Thanks.

Steven Fox: That's helpful. Then, just on the long-term agreements, I mean, I understand, you know, this is unusual times, but, I mean, you, you just spent the last several quarters putting some long-term agreements into place, and they seem, as soon as things got tough, to unraveled a bit. So I guess, you, you would kind of-- It sounded like you were kind of describing some benefits that are still coming through from the long-term agreements, even as demand slows here. I'm, I'm just not clear on what those are. Can, so can you maybe talk to the, I guess, that comment and the question I just put out there? Thanks.

Speaker 12: and then just on the long-term agreement, but I mean, I understand this is unusual times, but I mean, you just spent the last several quarters putting some long-term agreements into place and they seem as soon as things got tough to unraveled a bit. So I guess you would kind of, it sounded like you were kind of describing some benefits that are still coming through from the long-term agreements, even as demands close here. I'm just not clear on what those are. So can you maybe talk to the, I guess that comment and the question. I just have to put it out.

That's helpful and then.

Just on the long term agreements I mean I understand.

This is unusual times, but.

You just spent the last several quarters, putting some long term agreements into place and they seem to as soon as things got tough to unravel a bit. So I guess you were kind of it sounded like you had kind of describing some benefits that are still coming through from the long term agreements even as demand slows here I'm just not clear on what those are so can you maybe talk to that.

I guess that comment and the question I just pass it out there.

Manish Bhatia: Sure. So in terms of the long-term agreements, you know, we, we have been working on these for several years. Used to be just over 10% of our revenue on the long-term agreements five years ago, and it's now 75% of our revenue on the long-term agreements. So substantially, all of our large customers are on the long-term agreements in terms of purchases. And I have mentioned this in the past, that these agreements were never structured to be take or pay agreements, that our customers would buy the volume, come hell or high water.

Speaker 11: So in terms of the long-term agreement, you know, we...

Sure. So in terms of the long term agreements.

<unk>.

Speaker 11: We have been working on these for several years, used to be just over 10% of our revenue under long-term agreements five years ago when it's now 75% of our revenue under long-term agreements. So potentially, all of our large customers are under long-term agreements in terms of purchases. And I have mentioned this in the past that these agreements were never structured to be take or pay agreements.

We have been working on these for seven years.

To be just over 10% of our revenue under long term agreements five years ago.

With 75% of our revenue under long term agreements so substantially all of our large customers are under long term agreements in terms of purchases and I have mentioned this in the past that.

These agreements whenever structured to be take or pay agreements.

Speaker 11: that our customers would buy the volume, come in the high water. It's more like very strong.

That our customers would buy the volume.

Manish Bhatia: It's more like a very strong, you know, good level of planning between our customers and us to ensure that we are driving alignment between their demand, our supply, allocation of bits to different customers, different segments, and the mechanism to drive share dynamics in different customers and different segments. So our goal with these agreements is really to, you know, use these as a mechanism to drive the portfolio mix to where we want it to be. And we have mentioned in the past that our goal is to keep our supply bit share consistent over time in both DRAM and NAND, and strive for a bigger and bigger portion of the industry profit pool through moves in our product portfolio and mix.

It's more like a very strong, you know, good level of planning between our customers and us to ensure that we are driving alignment between their demand, our supply, allocation of bits to different customers, different segments, and the mechanism to drive share dynamics in different customers and different segments. So our goal with these agreements is really to, you know, use these as a mechanism to drive the portfolio mix to where we want it to be. And we have mentioned in the past that our goal is to keep our supply bit share consistent over time in both DRAM and NAND, and strive for a bigger and bigger portion of the industry profit pool through moves in our product portfolio and mix.

Hello, Hi, water, it's more like.

Very strong.

Speaker 11: good level of planning between our customers and us to ensure that we are driving alignment between their demand, our supply, allocation of bids to different customers, different segments.

Good level of planning between our customers and us to ensure that we are driving alignment between their demand or supply.

Allocation of that.

Different customers different segments.

Speaker 11: and the mechanism to drive shared dynamics and different customers and different segments.

The mechanism to drive share dynamics in different customers in different segments.

Speaker 11: So our goal with these agreements is really to use these as a mechanism to drive the portfolio in the portfolio make.

So our goal with these agreements is really too.

Use these.

As a mechanism to.

Drive the portfolio mix.

Speaker 11: to where we want it to be. And we have mentioned in the past that our goal is to keep our supply-bit share consistent over time in both DRAM and NAND, and strive for a bigger and bigger portion of the industry profit pool through.

The way, we want it to be and we have mentioned in the past that our goal is to keep our supply bit share consistent over time in both DRAM and NAND.

And strive for a bigger and bigger portion of the industry profit pool through.

Speaker 11: moves in our product portfolio and mix and that's where we have had

Moves and our product portfolio and mix and Thats, where we have had.

Manish Bhatia: And that's where we have had tremendous success, not just in improving our product portfolio, but also using these agreements to drive our product portfolio mix into a place which gives us better profitability and improved stability. One example is that in the auto, industrial, networking, graphics type of segments, the margin stability through the cycle is much better compared to other segments of the market. And so our goal has been to drive higher share in those segments, and these long-term agreements become critical over time in driving that share. Now, that does not mean that, you know, we don't work with customers to have them purchase that is consistent with these long-term agreements. Of course, we do, but I think to be fair to our customers as well, when these kinds of significant macro events occur-...

And that's where we have had tremendous success, not just in improving our product portfolio, but also using these agreements to drive our product portfolio mix into a place which gives us better profitability and improved stability. One example is that in the auto, industrial, networking, graphics type of segments, the margin stability through the cycle is much better compared to other segments of the market. And so our goal has been to drive higher share in those segments, and these long-term agreements become critical over time in driving that share. Now, that does not mean that, you know, we don't work with customers to have them purchase that is consistent with these long-term agreements. Of course, we do, but I think to be fair to our customers as well, when these kinds of significant macro events occur-...

Speaker 11: Tremendous success, not just in improving our product portfolio, but also using these agreements to drive our product portfolio mix into a place which gives us...

Remember success, not just in improving our product portfolio, but also using these agreements to drive our product portfolio mix into a place, which gives us better profitability and improved stability.

Speaker 11: better profitability and improved stability. One example is that in the

One example is that in the.

Speaker 11: Auto Industrial Networking Graphics Title Segment The

Auto industrial networking graphics type of segments.

Speaker 11: margins stability through the cycle is much better compared to other segments of the market. And so our goal has been to drive higher share in those segments and these long-term agreements become critical over time in driving that share. Now, that does not mean that we don't work with customers to have them purchased and that is consistent with these long-term agreements. Of course, we do.

Margin stability through the cycle is much better compared to <unk>.

The other segments of the market and so our goal has been to drive higher share in those segments and these long term agreements to come.

Critical time in driving that share now that does not mean that we don't.

Work with customers to have them purchase.

That is consistent with these long term agreements of course, we do.

But I.

Speaker 11: I think to be fair to our customers as well when you're kind of significant macro events occur It's not like You know that is feasible outcome

I think to be fair to our customers as well and then kind of significant.

Macro events upper.

Manish Bhatia: It's not like, you know, that is a feasible outcome. So I think we use these in a way that meets our overall company goals in a very effective manner, recognizing what the, you know, limitations are of these agreements and what they are meant to do and what they're not meant to do. So hopefully that helps.

It's not like, you know, that is a feasible outcome. So I think we use these in a way that meets our overall company goals in a very effective manner, recognizing what the, you know, limitations are of these agreements and what they are meant to do and what they're not meant to do. So hopefully that helps.

It's not like.

That is feasible outcome.

Speaker 11: So I think we use these in a way that meets our old company goals in a very effective manner, recognizing what the limitations are of these agreements and what they are meant to do and what they are not meant to do. So hopefully that helps.

So I think I think we use this in a way that means subtle company goals and a very effective manner recognizing what the.

Limitations are of these agreements.

What they're meant to do and what they are not going to do so hopefully that helps.

[Analyst] (Deutsche Bank): Yeah, that's great color. Thank you so much.

Steven Fox: Yeah, that's great color. Thank you so much.

Yes, that's great color. Thank you so much.

Operator: Thank you. Our next question comes from Vijay Rakesh of Mizuho. Your line is open.

Speaker 2: Thank you our next question comes from Vijay Rakesh, Mazar, your line is up.

Thank you. Our next question comes from Vijay Rakesh with Mizuho. Your line is open.

[Analyst] (Mizuho): Yeah, hi, guys. Just a quick question here. I know you mentioned inventories are high on PC handsets, and I think people are seeing that, but I was wondering if you could give us some way of quantifying that. What are the inventory levels on the PC handset and, you know, on the cloud side, now, and versus, you know, what are normal levels?

Vijay Rakesh: Yeah, hi, guys. Just a quick question here. I know you mentioned inventories are high on PC handsets, and I think people are seeing that, but I was wondering if you could give us some way of quantifying that. What are the inventory levels on the PC handset and, you know, on the cloud side, now, and versus, you know, what are normal levels?

Speaker 3: Yeah, hi guys, just a quick question here. I know you mentioned inventories are high on PC handset and I think people are seeing that, but let me give us some, we have quantifying that, what are the inventory levels on the PC handset and on the cloud side now and versus what are normal levels?

Yeah, Hi, guys just a quick question.

I know you mentioned inventories are high on PC handset and I think.

Seeing that but I was wondering if you could give us some.

Quantifying that what are the inventory levels on the PC handset.

On the cloud side.

Now versus normal levels.

Manish Bhatia: Yeah. So I think in terms of PC and smartphones, and then, you know, you look at cloud. I think it's a generalized comment across the industry that as the semiconductor industry, and this goes beyond memory and storage. You know, as the industry went through a significant shortage in semiconductors, definitely that was one driver of customers wanting to have higher levels of inventory. Another was all of the geopolitical risks in terms of impact to shipments. And then the last piece was shutdowns happening in different parts of the world due to COVID-related restrictions being put by individual local and federal governments around the world.

Speaker 11: Yeah, so I think in terms of the C and Smartphone.

Yes, I think in terms of PC and smartphone.

Speaker 11: And then you look at Cloud, I think it's a generalized comment across the industry that

And then you look at cloud I think it's a it's a generalized comment across the industry that.

Speaker 11: as the industry over the last semiconductor industry and this goes beyond memory and storage. As the industry went through a significant shortage in semiconductors, definitely that was one driver of customers wanting to have higher levels of inventory. Another was all of the geopolitical risks in terms of impact reshapement.

As the industry over the last semiconductor industry and this goes beyond memory and storage.

As the industry went through a significant shortage in semiconductors definitely that was one.

Driver of customers wanting to have higher levels of inventory in other words all of the geopolitical risks in terms of.

Impact to shipments.

Speaker 11: And then the last piece was shutdowns happening in different parts of the world due to COVID related.

And then the last piece was shutdowns happening in different parts of the world due to Covid related.

Speaker 11: restrictions being put by individual local and federal governments around the world. So all of these conspired to cause

The restrictions being put by individual local and federal governments around the world. So all of these.

Manish Bhatia: So all of these conspired to cause customers to feel like they need to have better level of inventory, and customers who couldn't get to those inventory levels, and one good example of that is automotive companies. You can see the, you know, significant impact on revenue that those segments and those companies have suffered as a result of not having adequate inventory. So I think across several segments, you know, there has been higher level of inventory than what existed pre-COVID. And, you know, the question is, how will that trajectory of inventory in terms of weeks of sales change over time, especially as the industry gets to a phase, the whole semiconductor industry gets to a phase where fewer and fewer components are in short supply?

So all of these conspired to cause customers to feel like they need to have better level of inventory, and customers who couldn't get to those inventory levels, and one good example of that is automotive companies. You can see the, you know, significant impact on revenue that those segments and those companies have suffered as a result of not having adequate inventory. So I think across several segments, you know, there has been higher level of inventory than what existed pre-COVID. And, you know, the question is, how will that trajectory of inventory in terms of weeks of sales change over time, especially as the industry gets to a phase, the whole semiconductor industry gets to a phase where fewer and fewer components are in short supply?

Conspired to cause.

Speaker 11: customers to feel like they need to have better level of inventory and customers who couldn't get to those inventory levels and one good example of automotive companies. You can see the significant impact on revenue that those segments and those companies have suffered as the result of not having adequate inventory. So I think across several segments

Customers to feel like they need to have better level of inventory and customers, who couldnt get to those inventory levels and one. Good example of that is automotive companies.

Can see the significant impact on revenue that those segments and those companies have suffered as a result of not having adequate inventory so.

I think across several segments.

There has been.

Speaker 11: higher level of inventory than what existed pre-COVID. And the question is how will that trajectory of inventory in terms of weeks of sales change? Yes.

Higher level of inventory than what was what existed pre COVID-19.

And the question is how will that trajectory of inventory in terms of weeks of sales.

Change over time.

Speaker 11: especially as the industry gets to a phase, the whole semiconductor industry gets to a phase where fewer and fewer components are in short supply. So I think that part is different customers and different parts of the market will make their own determination on these things.

Especially as the industry.

<unk> two a phase the whole semiconductor industry gets to a phase where fewer and fewer components are.

Manish Bhatia: So I think that part is, you know, different customers and different parts of the market will make their own determination on these things. But coming specifically to the PC and smartphone portion of the business, the volumes in each of these, in terms of TAM for 2022, are down roughly 10% from the expectations for 2022 at the start of this calendar year. So with that degradation in sell-through expectations, obviously the inventory levels, consequently from a weeks of sales perspective, appears even bigger, and so there is a need for that adjustment.

So I think that part is, you know, different customers and different parts of the market will make their own determination on these things. But coming specifically to the PC and smartphone portion of the business, the volumes in each of these, in terms of TAM for 2022, are down roughly 10% from the expectations for 2022 at the start of this calendar year. So with that degradation in sell-through expectations, obviously the inventory levels, consequently from a weeks of sales perspective, appears even bigger, and so there is a need for that adjustment.

In short supply so I think that part is.

Different customers in different parts of the market will make their own determination on these things.

Speaker 11: but coming specifically to the PC and smartphone portion of the business, the volumes in each of these in terms of time for 22 are down to roughly 10%.

But coming specifically to the PC and smartphone portion of the business the volumes in each of these in tons of Pam 422 are down roughly 10%.

Speaker 11: from the expectations for 22 at the start of this calendar year.

From the expectations for 'twenty two at the start of this calendar year.

Speaker 11: So with that degradation and self-through expectations, obviously the...

So with that degradation in sell through expectation obviously.

The.

Speaker 11: inventory levels consequently from a week's surface perspective appears even bigger. And so there is a need for that adjustment. So I think those were some of the

Inventory levels. Consequently from a weeks of sales perspective appears even bigger and so there is a need for that adjustment. So I think those were some of the catalysts that.

Manish Bhatia: So I think those were some of the catalysts that created that impact on our Q4 and what we have projected for, you know, the rest of the calendar year, this year, in terms of when we expect the inventory correction to sort of play out in those segments.

So I think those were some of the catalysts that created that impact on our Q4 and what we have projected for, you know, the rest of the calendar year, this year, in terms of when we expect the inventory correction to sort of play out in those segments.

Speaker 11: catalyst that created that impact on RQ4 and what we have projected for

<unk> created.

That impact on our Q4 and what we have projected for the.

Speaker 11: you know, the rest of the calendar year, this year, in terms of when we expect the inventory collection to sort of play out in those seconds.

The.

Rest of the calendar year this year.

In terms of when we expect the inventory collection to sort of play out in <unk>.

<unk> segment.

[Analyst] (Mizuho): Got it. And so it looks like you're talking more to a 10% discrepancy, but, and is there, if you, are you seeing a higher inventory level on the DRAM side or the, or the NAND side? If you can give a little bit of color around that, and that's it. Thank you.

Vijay Rakesh: Got it. And so it looks like you're talking more to a 10% discrepancy, but, and is there, if you, are you seeing a higher inventory level on the DRAM side or the, or the NAND side? If you can give a little bit of color around that, and that's it. Thank you.

Speaker 3: God is and so looks like you're talking more to a 10% discrepancy but and if you are you seeing a higher inventory level on the DRAM side or the NAND side if you can get a little bit of color around that and that's it. Thank you.

Got it.

It looks like Youre talking more to attend person discrepancy but.

Is there.

Seeing a higher inventory level on the DRAM side of the demand side.

And on that and that's it thank you.

Manish Bhatia: So, you know, just for clarity, right, that 10% was a number, it was the number of units that are lower in the TAM expectation for calendar 2022 for PC and smartphone global unit sales, versus expectations from six months ago. And the impact on our revenue, of course, is not just on the reduction in end demand sell-through, but also on top of that, the inventory reduction, right? So I just wanted to clarify that the inventory reduction is on top of the reduction on the end market, weakness.

Speaker 11: So, you know, just for clarity, right, that 10% was a number. It was the number of units.

And just for clarity right that 10% was a number.

It was the number of units.

Speaker 11: that are lower in the TAM expectation for calendar 22 for PC and smartphone global unit sales versus expectations from six months ago. And the impact on our revenue, of course,

That are lower in the ban expectation for calendar 'twenty, two for PC and smartphone global unit sales versus expectations from six months ago.

And the impact on our revenue of course.

Speaker 11: is not just on the reduction and end demand self-rule, but also on top of that the inventory reduction. I just wanted to clarify that the inventory reduction is on top of the...

It's not just on the reduction in end demand sell through but also on top of that the inventory reduction right. So I just wanted to clarify that the inventory reduction is on top of the <unk>.

Speaker 11: reduction on the end market week. So I just I just want to make sure that it's not just

Reduction on the end market.

[Analyst] (Mizuho): Got it.

Vijay Rakesh: Got it. So I just wanted to make sure that it's not just that 10%.

Manish Bhatia: So I just wanted to make sure that it's not just that 10%.

Okay.

So I just wanted to make sure that it's not just that 10%.

[Analyst] (Mizuho): Yeah.

Manish Bhatia: Yeah.

Yes.

Vahan Hovsepian: Yeah, and 10% is for the full year. Second, the impact to us in the second half is more, as-

Yes, and 10% for the full year.

Speaker 3: 10% is for the full year. Okay, the impact to us in the second half.

Back to us in the second half.

Manish Bhatia: Yeah.

Vahan Hovsepian: - we said in the call.

Speaker 3: more. He said in the morning, well, that's a very good, very important point that for us, most of the impact of our full year is going to happen.

It was more.

Manish Bhatia: Yeah, that's a very good, very important point, that for us, most of the impact of that full year is going to occur in the second half of the calendar year.

Yes.

Yes, that's a very good very important point that.

Most of the impact of full year is going to occur.

Okay got it.

[Analyst] (Mizuho): Got it. Thank you.

Vijay Rakesh: Got it. Thank you.

Got it thank you.

Operator: Thank you. Our next question comes from Sidney Ho of Deutsche Bank. Your line is open.

Speaker 2: Thank you. Your next question comes from Sydney Hall of Deutsche Bank. Your line is open.

Thank you. Our next question comes from Sidney Ho of Deutsche Bank. Your line is open.

[Analyst] (Deutsche Bank): Hey, thanks. So in terms of the demand side of things, you talk a lot about PC and smartphones, but you also make a comment that enterprise OEMs are adjusting the memory and storage inventory because of shortages in non-memory components and macro. I want to see if you can give us a little more color. Any precedents that you can point to, to see how long this correction should play out, and maybe the magnitude of those kind of adjustments in the past? And I'll have a follow-up question. Thanks.

Sidney Ho: Hey, thanks. So in terms of the demand side of things, you talk a lot about PC and smartphones, but you also make a comment that enterprise OEMs are adjusting the memory and storage inventory because of shortages in non-memory components and macro. I want to see if you can give us a little more color. Any precedents that you can point to, to see how long this correction should play out, and maybe the magnitude of those kind of adjustments in the past? And I'll have a follow-up question. Thanks.

Speaker 12: Hey, thanks. So in terms of the demand side of things, we talked a lot about PC smartphones, but you also make a comment that enterprise OEMs are adjusting the memory and storage inventory because of shortages in non-memory components and macro. Why don't we see if we can give us a little more color? And any president that you can point is to see how long this correction to play out and maybe the magnitude of those kind of adjustments in the past. And I'll have a follow-up question.

Hey, Thanks, so in terms of the demand side of things.

Can you talk a lot about PC and smartphones, but you're also making the comment that enterprise Oems are adjusting the memory and storage inventory because of shortages nimbly components at nacco.

Wanted to see if you can give us a little more color and any precedents that you can point to to see how long. This correction could play out and maybe the magnitude of those kind of adjustments in the past and I'll have a follow up question. Thanks.

Manish Bhatia: ... Yeah, I think the issue on that side is different than the issue on the PC and smartphone side. So whereas in PC and smartphones, the end demand trends are clearly weak, and the sell-through is clearly weak, and there has been a substantial degradation in expectations for this year's TAM from six months ago to now. By contrast, the server business and the trends of end demand, even in enterprise server on our OEM customers in that space, are healthy. And our customers continue to report robust backlog and good, good server demand. I think the concern is that you know, some of them are obviously data center, generally across cloud and enterprise, and including small and medium businesses.

Speaker 11: Yeah, I think the issue on that side is different than the issue on the PC and smartphone side. So whereas in PC and smartphones, the M demand trends are clearly weak and the cell...

Yes, I think the.

The issue on that side is different.

And the issue on the smartphone side, so it hasnt BCN smartphones the end demand trends are clearly weak.

And the sell through was clearly weak.

Speaker 11: and there has been a substantial degradation in expectations for this year's time from six months ago to now. By contrast, the server business and the trends of end demand

And there hasnt been a substantial degradation in.

Expectations for this year's time from six months ago to now.

By contrast, the server business and the trends of end demand even in enterprise server on our OEM customers in that space are healthy.

Speaker 11: Even an enterprise over on our OEM customers in that space are held in.

Speaker 11: And our customers continue to report robust backlogs.

Our customers continue to report robust backlog.

Speaker 11: and good server demand. I think the concern...

And good goods so demand.

I think the concern is that.

Speaker 11: Some of them are obviously data center, generally across cloud and enterprise and including small and medium businesses. The builds of servers are not being able to be completed to the extent of the end demand because of shortages of certain parts that are still persisting, including for example network interface cards as an as one example. And then there are others.

Some of them are obviously.

Data center generally across cloud and enterprise.

Including small and medium businesses.

Manish Bhatia: The builds of servers are not being able to be completed to the extent of the end demand because of shortages of certain parts that are still persisting, including, for example, network interface cards as one example, and then there are others. So that's one factor that's preventing them from completing builds and meeting end demand. And then the other factor is just the general cautiousness that is creeping in, driven by some of these macroeconomic factors. But I just, you know, we are trying to just be extremely transparent and lay out what we see and what we hear very openly, because, you know, that caution is happening, causing them to reduce some of their inventories or wanting to reduce their inventories, in spite of, at least today, what is clearly robust demand on the end customer side.

The builds of servers are not being able to be completed to the extent of the end demand because of shortages of certain parts that are still persisting, including, for example, network interface cards as one example, and then there are others. So that's one factor that's preventing them from completing builds and meeting end demand. And then the other factor is just the general cautiousness that is creeping in, driven by some of these macroeconomic factors. But I just, you know, we are trying to just be extremely transparent and lay out what we see and what we hear very openly, because, you know, that caution is happening, causing them to reduce some of their inventories or wanting to reduce their inventories, in spite of, at least today, what is clearly robust demand on the end customer side.

The bids of servers on not being able to be completed to the extent of the end demand because of shortages of.

Certain parts that are still persisting.

Including for example network interface cards is one example.

Then there are others.

Speaker 11: So that's one factor that's preventing them from completing builds and meeting end demands. And then the other factor is just the general cautiousness.

So that's one factor that's preventing them from completing builds and meeting end demand and then the other factor is just the gender cautiousness.

Speaker 11: that is creeping in, driven by some of these macroeconomic factors. But we are trying to just be extremely transparent and lay out what we see and what we hear very openly.

That is creeping in.

Driven by some of these macroeconomic factors, but I just.

We are trying to just be extremely transparent and lay out what we see and what we hear very openly.

Speaker 11: because that caution is happening, causing them to reduce some of their inventories or wanting to reduce their inventories.

Because.

That caution is happening.

Causing them to reduce some of their inventories are wanting to reduce their inventory.

Speaker 11: In spite of at least today what is clearly robust demand on the end customer side.

In spite of at least today, what is clearly robust demand on the end customer side.

[Analyst] (Deutsche Bank): Okay, that's, that's helpful. Maybe a follow-up question is, Mark, I want to elaborate on a comment earlier that you said beyond fiscal Q4, that the planned inventory builds will weigh on gross margin. But I thought it would actually help your gross margin because you keep your utilization higher than the current demand indicates. But the other question I have, is there a framework that we can use to help understand where gross margin is going to bottom, and when is the, any kind of inflection point we can think about? Obviously, pricing is a big factor here, but are there things that are within your control, whether it's technology transitions or maybe utilization starts to improve? Thanks.

Sidney Ho: Okay, that's, that's helpful. Maybe a follow-up question is, Mark, I want to elaborate on a comment earlier that you said beyond fiscal Q4, that the planned inventory builds will weigh on gross margin. But I thought it would actually help your gross margin because you keep your utilization higher than the current demand indicates. But the other question I have, is there a framework that we can use to help understand where gross margin is going to bottom, and when is the, any kind of inflection point we can think about? Obviously, pricing is a big factor here, but are there things that are within your control, whether it's technology transitions or maybe utilization starts to improve? Thanks.

Speaker 12: Okay, that's helpful. Maybe a follow-up question is, Mark, I wanted to elaborate on a comment earlier that he said, the Yon Fisco fourth quarter, that the planned inventory bill to be way on gross margin. But I thought it would actually help you gross margin because you keep your utilization highest and the current demand indicates.

Okay. That's helpful. Maybe a follow up question is mark.

Elaborate on a comment earlier that you said beyond fiscal fourth quarter that the planned inventory build will weigh on gross margin, but I thought it would actually help your gross margin because you keep utilization higher than the current demand indicators, but the other question I have is there a framework that we could use to help understand where gross margins are going to bottom.

Speaker 12: But the other question I have is there a framework that we can use to help understand where close margin is going to bottom and when is the any kind of selection point we think about obviously pricing is a big factor here but are there things that are within your control what is technology transition or maybe utilization starts to improve? Thanks.

And when do you see any kind of inflection point, we think about obviously pricing is a big factor here, but are there things that are within your control what is technology transitions or maybe utilization starts starts to improve.

Mark Murphy: Yeah, yeah, there's no comment about the, you know, we're not guiding the quarter. Mine was just a market commentary that, you know, the market's gotten weak, and, you know, these conditions of the market will continue to weigh on margins. That was the only comment. It's not a guide, and I'm certainly not going to comment on anything beyond that.

Speaker 5: Yeah, there's no comment about the, or not guiding the quarter. Am I just a market commentary that the market's gotten weak and these conditions of the market will continue to weigh on margins. That was the only comment.

Yes, there is no comment about.

We're not guiding the quarter mile was just the market commentary that you had.

The market has gotten a week.

And these conditions of the market will continue to weigh on margins that was the only comment.

Speaker 5: not a guide and I'm certainly not going to comment on the

It's not a guide and I'm certainly not going to comment on the.

Speaker 3: anything beyond that. It was more a comment on inventory in the market of the customer inventory adjustments and that environment continuing rather than anything about our inventory. Yes. Okay, that's clear. All right. Thanks.

Manish Bhatia: It was more a comment on inventory in the market, the customer inventory adjustments, and that environment continuing rather than anything about our inventory.

Anything beyond that it was more a comment on inventory in the market the.

The customer inventory adjustments.

Environment continuing.

Rather than anything about argument, yes, okay, that's great all right. Thanks.

Mark Murphy: Yes.

[Analyst] (Deutsche Bank): Okay, that's, that's clear. All right. Thanks.

Sidney Ho: Okay, that's, that's clear. All right. Thanks.

Operator: Thank you. Our next question comes from Raji Gill of Needham & Company. Your question, please.

Speaker 2: Thank you. I have a question. It comes from Roger Gill of Needham & Company. Your question.

Thank you. Our next question comes from Rajiv Gill of Needham <unk> Company. Your question. Please.

[Analyst] (Needham & Company): Yes, thank you, and this question is kind of a follow-up on the sequential decline. So if you look at the August decline, it's 17% down sequentially. That's the biggest decline sequentially for August in kind of recent company history. And you talked about, you know, an abrupt change to demand, a considerable change in demand. So I just wanted to see if you could compare and contrast what you're seeing with this level of abrupt in demand versus, say, when, you know, revenue declined pretty significantly back in kind of February of 2019 or May of 2019, when we were in the middle of the trade war with China and there were sanctions against China.

Raji Gill: Yes, thank you, and this question is kind of a follow-up on the sequential decline. So if you look at the August decline, it's 17% down sequentially. That's the biggest decline sequentially for August in kind of recent company history. And you talked about, you know, an abrupt change to demand, a considerable change in demand. So I just wanted to see if you could compare and contrast what you're seeing with this level of abrupt in demand versus, say, when, you know, revenue declined pretty significantly back in kind of February of 2019 or May of 2019, when we were in the middle of the trade war with China and there were sanctions against China.

Speaker 13: Yes, thank you. And this question is kind of a follow-up on the sequential decline. So if you look at the August decline, it's 17% down sequentially. That's the biggest decline sequentially for August in kind of recent.

Yes. Thank you and this question is kind of a follow up on the sequential decline.

So if you look at the August declined 17%.

Down sequentially.

The biggest declines sequentially for August .

<unk>.

Speaker 13: kind of company history and you talked about uh... you know and abrupt change to demand a considerable change in demand but i just wanted to see if you can compare and contrast with your scene with this level of abruption demand versus say when you know revenue decline pretty significantly back in ten of that boy of nineteen or may have nineteen when we're in the middle of the trade war with with china their sanctions against china

Kind of company history.

And you talked about.

An abrupt change to demand a considerable change in demand. So I just wanted to see if you could compare and contrast, what you see with.

This level of abruption demand versus say.

Revenue declined pretty significantly back in February of 19 or May have 90, when we're in the middle of the trade war with China and their sanctions against China.

[Analyst] (Needham & Company): Is it similar in terms of certain dynamics, in terms of a significant cut in inventory that you're seeing from your customers? Is it more concentrated? It seems to be more concentrated in mobile and PC versus, say, last time, but I'm just curious how you're thinking about that, because we've had a few of these are very abrupt macro impacts to demand.

Speaker 13: Is it similar in terms of certain dynamics, in terms of a significant cut in inventory that you're seeing from your customers? Is it more concentrated? It seems to be more concentrated in mobile and PC versus say last time, but I'm just curious about how you're thinking about that. Because we've got a few of these of very abrupt macro impacts to demand.

Is it similar in terms of certain dynamics, in terms of a significant cut in inventory that you're seeing from your customers? Is it more concentrated? It seems to be more concentrated in mobile and PC versus, say, last time, but I'm just curious how you're thinking about that, because we've had a few of these are very abrupt macro impacts to demand.

Is it.

Similar.

In terms of certain dynamics in terms of.

Yes.

Significant cut in inventory that you're seeing from your customers is it more concentrated it seems to me we will come through in mobile and PC versus say last last time, but I'm just curious how you're thinking about that because we've had a few of these a very abrupt macro impacts to demand.

Manish Bhatia: Yeah, I mean, I think if we look at the environment, and I understand the desire to use a framework from past, from past declines, but if you look at the 2019 environment, that was the time that we had been seeing some weakness in the demand trend on the backs of 7 or 8 quarters of extraordinarily high increases in DRAM pricing that had caused, you know, DRAM margins to become unsustainably high and the pricing to become unsustainably high due to significant shortage in the market. So I think that environment was entirely different, and the motivations of customers, and the actions of the customers was also pretty, pretty different. And so, you know, each environment brings with it its own sets of unique issues.

Speaker 11: Yeah, I mean, I think if we get the environment and I understand the desire to use the frambole from path

Yes.

<unk> had the environment and I understand the desire to use our framework from past.

Speaker 11: from past declines. But if you look at 2019 environment, that was the time that we had been seeing some weeks just in the demand trend.

Sure.

From past declines, but if you look at 2019 environment that was the time that.

We had been seeing some weakness.

And the demand trend on the backs of.

Speaker 11: seven or eight quarters of extraordinarily high increases in DRAM pricing that had caused DRAM margins to unsustainably high and the pricing to become unsustainably high due

Seven or eight quarters of extraordinarily high increases in DRAM pricing.

That had caused.

<unk> margin.

On sustainably high on the pricing to become unsustainably high.

Significant shortage in the market. So I think that environment was entirely different than the motivations of customers.

Speaker 11: significant shortage in the market. So I think that environment was entirely different and the motivations of customers.

And the actions of the customers was also pretty pretty different.

Speaker 11: and the actions of the customers was also pretty different. And so, each environment brings with it its own sets of unique issues. And so I think the way to think about the FQ4 number, yes, I mean definitely the environment wasn't quickly late in our FQ3. And we have had...

So each environment brings with it its own set of unique issues.

Manish Bhatia: And so I think the way to think about the FQ4 number, yes, I mean, definitely, the environment worsened quickly late in our FQ3. And you know, we have had primarily the consumer portions of the market, the PC, smartphone, and consumer segments, channel, et cetera, be the ones that are driving a lot of this weakness, especially in our FQ4. I will call out that within that context, you know, we spoke about in the Q&A earlier today, the impact of China has been pretty significant. The weakness in China is very pronounced. We spoke about the trajectory we were on, that we believe we were on a quarter ago, for FQ4 versus our current guide for China revenue.

And so I think the way to think about the FQ4 number, yes, I mean, definitely, the environment worsened quickly late in our FQ3. And you know, we have had primarily the consumer portions of the market, the PC, smartphone, and consumer segments, channel, et cetera, be the ones that are driving a lot of this weakness, especially in our FQ4. I will call out that within that context, you know, we spoke about in the Q&A earlier today, the impact of China has been pretty significant. The weakness in China is very pronounced. We spoke about the trajectory we were on, that we believe we were on a quarter ago, for FQ4 versus our current guide for China revenue.

And so I think the way to think about the FQ4 number yes, I mean definitely.

On the environment.

Worsened quickly late in our FQ3.

And.

And we have.

Had.

Speaker 11: Primarily, the consumer portions of the market, the PT smartphone and consumer segments channel, et cetera, be the ones that are driving the lot of this weakness, especially in our...

Mentally.

The consumer portions of the market.

PC smartphone and consumer segments channel et cetera.

The ones that are driving a lot of this.

Weakness.

Especially in that FQ4.

Speaker 11: I will call out that within that context, you know, we spoke about in the Q&A in the earlier today, the impact of China has been pretty significant. The weakness in China is very pronounced.

I will call out that within that context, we spoke about in the Q&A.

Earlier today.

The impact of China has been pretty significant the weakness in China is very pronounced.

Speaker 11: spoke about the project tree we were on, that we believe we were on a quarter ago, 4 FQ4 versus a current guide for China revenue. Our China revenue is down 30% approximately from that project tree to our latest forecast. And that itself has impacted our consolidated revenue by approximately 10%.

We spoke about the trajectory of Eva wrong that we believed we would on a quarter ago.

As far as Q4 versus our current guide for China revenue, our China revenue was down 30% approximately.

Manish Bhatia: Our China revenue is down 30% approximately from that trajectory to our latest forecast, and that itself has you know, impacted our consolidated revenue by approximately 10%. So very significant impact coming from China. And, and then, of course, you know, we mentioned some inventory correction here and there, in the other segments that we mentioned in our prepared remarks within the price OEM forward. So that's sort of the, the big picture that we just wanted to, highlight. Now, like we said, every environment is different, and how this plays out, you know, you're- I'm sure you'll be watching for, trends, when other companies report to try and triangulate, you know, where this is going.

Our China revenue is down 30% approximately from that trajectory to our latest forecast, and that itself has you know, impacted our consolidated revenue by approximately 10%. So very significant impact coming from China. And, and then, of course, you know, we mentioned some inventory correction here and there, in the other segments that we mentioned in our prepared remarks within the price OEM forward. So that's sort of the, the big picture that we just wanted to, highlight. Now, like we said, every environment is different, and how this plays out, you know, you're- I'm sure you'll be watching for, trends, when other companies report to try and triangulate, you know, where this is going.

That trajectory to our latest forecast and that itself has impacted our consolidated revenue by approximately 10%.

Speaker 11: So very significant impact coming from China. And then of course, you know, we mentioned some inventory collection here and there in the other segments that we mentioned, not prepared remarks with endoplasalian. So that's sort of the...

So very significant impact coming from China.

And then of course, you have you mentioned some inventory correction here and there.

And the other segments that we mentioned in our prepared remarks with enterprise OEM servers. So.

That's sort of the.

Speaker 11: the big picture that we just wanted to highlight. Now, like we said, every environment is different and how this plays out. You know, I'm sure you'll be watching for friends when other company's report to try and triangulate you know, where this is going.

The Big picture that we just wanted to.

Highlights now.

Like we said every environment is different.

And how this plays out.

I'm sure you'll be watching for.

And then other companies report to try and triangulate.

This is going.

Yes.

[Analyst] (Needham & Company): Yeah, no, that's super helpful. To follow up on that, sizing up the China impact was important to understand that. Any kinda, you know, fresh data points or insights now that China has, you know, reversed the lockdowns? Because this appears to be primarily, you know, a China lockdown situation, combined with some of the other factors you talked about. But if the China lockdowns reverse, are there any indications that that region is stabilizing, or is it still to be determined?

Raji Gill: Yeah, no, that's super helpful. To follow up on that, sizing up the China impact was important to understand that. Any kinda, you know, fresh data points or insights now that China has, you know, reversed the lockdowns? Because this appears to be primarily, you know, a China lockdown situation, combined with some of the other factors you talked about. But if the China lockdowns reverse, are there any indications that that region is stabilizing, or is it still to be determined?

Speaker 13: Yeah, that's super helpful. And just to follow up on that, sizing up the China impact was important to understand that. Any kind of fresh data points or insights now that China has reversed all of the data.

Yes, that's super helpful and just just to follow up on that.

The sizing up the China impact was was what's important to understand that.

Any kind of.

Fresh data points or insights now that China has.

Reverse the Lockdowns.

Speaker 13: Because this appears to be primarily a China lockdown since which combined with some of the other factors you talked about, but the China lockdown's reverse.

Because this appears to be primarily China lockdown situation combined with some of the other factors you talked about the China Lockdowns reverse.

Speaker 13: Are there any indications of that region is stabilizing or is it still to be determined?

Are there any indications of that region is stabilizing or is it still to be determined.

Manish Bhatia: I think the recent data points from the last month on, you know, smartphone sales in China still continue to be pretty weak.

Speaker 11: I think the recent data points from the last month on smartphone sales in China still continue to be pretty weak.

I think the recent data points from the last month.

Smartphone sales in China continued to be pretty weak.

[Analyst] (Needham & Company): Mm.

Raji Gill: Mm.

Manish Bhatia: And so a lot of the consumer spending, you know, remains to be seen, how it actually starts to improve towards electronics and those type of items versus, you know, pent-up demand for travel and things like that. So it's not just about the overall consumer spending, it's also about the categories of those spending, where consumers are choosing to shift their dollars. You know, a lot of inflation out there, just like everywhere else. So I think there is a lot of that. But also just keep in mind that the China economy and its weakness, you know, was a lot more pronounced than most parts of the world, and-

Speaker 11: So a lot of the consumer spending remains to be seen how it actually starts to improve towards electronics and those types of items versus...

And so a lot of the consumer spending.

Remains to be seen how it actually.

Start to improve towards electronics, and those type of items versus <unk>.

Speaker 11: you know, pent up demand for travel and things like that. So it's not just about the overall consumer spending. It's also about the categories of those spending. Their consumers are choosing to shift their dollars. You know, a lot of inflation out there, just like everywhere else. So I think there is a lot of that, but also just keep in mind that the China economy and its weakness

Pent up demand for travel and things like that so it's not just about the overall consumer spending. It's also about the categories of those spending where consumers are choosing to shift their dollars and a lot of inflation out there just like everyone else. So I think there is a lot of that but also just keep in mind that the China economy and its weakness.

<unk>.

Speaker 11: you know, was lot more pronounced than most parts of the world and did proliferate beyond just the consumer segment of the market, right? So the weakness in China was a broader economic weakness when the shutdown just shut down all economic activity, right? Much of the economic activity gets shut down. And so that has been pretty damaging. And even though everyone thought of

Okay.

Lot more pronounced than most parts of the world and.

[Analyst] (Needham & Company): Mm

Raji Gill: Mm

Manish Bhatia: ... did proliferate beyond just the consumer segment of the market, right?

They proliferate beyond just the consumer segment of the market right.

[Analyst] (Needham & Company): Mm.

Raji Gill: Mm.

Manish Bhatia: The weakness in China was a broader economic weakness when the shutdown just shut down all economic activity, right? Much of the economic activity got shut down, and so that has been pretty damaging. Even though everyone sort of intellectually knows and understands that that is happening, you know, this is probably one of the first few data points to understand the magnitude of some of these impacts.

Weakness in China was a broader economic weakness and the shutdown does shutdown all economic activity much of economic activity to get shut down and so that has been pretty damaging and even though everyone sort of Intel.

Speaker 11: intellectually knows and understands that that is happening. You know, this is probably one of the first few data points to understand the magnitude of some of these impacts.

Intellectually northern understands that that is happening. This is for at least one of the first few data points to understand the magnitude of some of these impacts.

[Analyst] (Needham & Company): Thank you.

Raji Gill: Thank you.

Thank you.

Operator: Thank you. Our next question comes from Nick Todorov of Longbow Research. Your line is open.

Yes.

Speaker 2: Thank you for your next question comes from Nick Kodarov of Longbow Research. Your line is old.

Thank you. Our next question comes from Nick Todorov of Longbow Research. Your line is open.

[Analyst] (Longbow Research): Yeah, thanks for taking the question. Two questions on inventory, and, but Sumit, you touched on, on one of them. When you speak to your customers, in those conversations, where are they trying to land in terms of inventory on their shelves? Do you anticipate the inventory downstream to normalize to pre-COVID levels, or you think there's gonna be a new normal?

Nick Todorov: Yeah, thanks for taking the question. Two questions on inventory, and, but Sumit, you touched on, on one of them. When you speak to your customers, in those conversations, where are they trying to land in terms of inventory on their shelves? Do you anticipate the inventory downstream to normalize to pre-COVID levels, or you think there's gonna be a new normal?

Speaker 8: Yeah, thanks for taking the question. Two questions on inventory, and that summit you touched on one of them. When you speak to your customers in those conversations, where are they trying to land in terms of inventory on their shelves? Do you anticipate the inventory downstream to normalize to pre-COVID levels or you think there's gonna be a new normal?

Yes, thanks for taking the question two questions on inventory.

Some of you touched on one of them.

When you speak to your customers when those conversations where are they trying to land in terms of inventory on their shelves do you anticipate the inventory downstream to normalize to pre COVID-19 levels or you think theres going to be a new normal.

Manish Bhatia: We think that the inventory will normalize to a level that is higher than where the pre-COVID levels were. I don't think enough distance has been put between the shortages and, you know, the experiences and memories are still very raw of that time. So I would be surprised if the inventories went all the way down to pre-COVID levels. There is still uncertainty around, for example, China's COVID zero-COVID policies and what that means in case more COVID cases come up in different parts of China. So those kind of uncertainties will probably cause customers to have, even after they rationalize the inventory, a higher level of stable base, at least in the near term to medium term, compared to pre-COVID levels a little bit higher levels.

Speaker 11: We think that the inventory will normalize

We think that the inventory will normalize.

Speaker 11: to a level that is higher than where the pre-COVID levels were. I don't think enough distance has been put between the shortages and, you know,

To a level that is higher than the pre COVID-19 levels were I don't Henk enough distance has been put between the shortages and.

Sure.

Speaker 11: The experiences and memories are still very raw at that time. So I would be surprised as the inventories went all the way down to pre-COVID levels.

The experiences and memories are still very raw that time, so I wouldn't be surprised as the inventories went all the way down to pre COVID-19 levels.

Speaker 11: There is still uncertainty around, for example, China's COVID, zero COVID policies, and what that means in case more COVID cases come up in different parts of China. So those kind of uncertainties will probably cause customers to have...

There is still uncertainty around for example, China's COVID-19 Vito Covid policies and what that means in case more COVID-19 cases come up in different parts of China. So those kind of uncertainties will probably cause customers to have.

Speaker 11: Even after they rationalize the inventory, a higher level of stable base, at least in the near term to medium term, compared to pre-COVID levels at a little bit higher levels.

Even after they've rationalized inventory a higher level of stable base at least in the near term to medium term.

Compared to pre COVID-19 levels, a little bit higher levels.

Manish Bhatia: But then again, you know, how all of this transpires, I mean, this is just something we'll have to see. We're working very closely with customers. And as things improve, you know, sell-through improve over time, you know, China may decide to stimulate the economy in a significant way, and, you know, that can improve end demand. So those kind of trends then can quickly eat up the inventory once the sell-through improves, right? So these are all very dynamic numbers. They have their individual weeks of sales targets, but then the absolute value of the inventory is heavily determined by the trajectory of the future sales expectations. And that's really where, you know, a change in that trajectory, improvement in expectations of future sales can quickly quickly cause things to improve.

But then again, you know, how all of this transpires, I mean, this is just something we'll have to see. We're working very closely with customers. And as things improve, you know, sell-through improve over time, you know, China may decide to stimulate the economy in a significant way, and, you know, that can improve end demand. So those kind of trends then can quickly eat up the inventory once the sell-through improves, right? So these are all very dynamic numbers. They have their individual weeks of sales targets, but then the absolute value of the inventory is heavily determined by the trajectory of the future sales expectations. And that's really where, you know, a change in that trajectory, improvement in expectations of future sales can quickly quickly cause things to improve.

But then again.

Speaker 11: How all of this transpires? I mean, this is just something we'll have to see. We're working very closely with customers. And as things improve, you know, sell through, improve over time. China may decide to...

How all of this transpires I mean this is just something we'll have to see we are working very closely with customers.

And as things improve sell through improve overtime and on China.

Decided to.

Speaker 11: stimulate the economy in a significant way and you know that can improve and demand so those kind of trends Then can quickly eat up the inventory once the cell through improves right so

Stimulate the economy in a significant way and that can improve and demand so those kinds of trends.

And quickly eat up the inventory once the sell through improve right. So.

Speaker 11: These are all very dynamic numbers. They have their individual weeks of sales targets, but then the absolute value of the inventory is heavily determined by the trajectory of the future sales expectations. And that's really where...

These are all very dynamic.

<unk> they have their individual weeks of sales targets.

But then the absolute value of the inventory is heavily determined by the trajectory of the future sales expectations and Thats really where.

Speaker 11: you know, change in that trajectory improvement in expectations of future sales can quickly cause things to improve. But again, you know, there is the environment of the macroeconomic weakness that everyone focused on. So it will take some time.

A change in that trajectory.

Proven and expectations of future sales can quickly.

Quickly cause things to improve but again.

Manish Bhatia: But again, you know, there is the environment of the macroeconomic weakness that everyone's focused on, so it will take some time.

But again, you know, there is the environment of the macroeconomic weakness that everyone's focused on, so it will take some time.

That is the environment of the macroeconomic weakness that everyone's focused on so it will take some time.

[Analyst] (Longbow Research): Yeah, makes sense. And second question is, can you talk about the inventory levels between DRAM and NAND, maybe both internally in the channel and at customers? Are there any meaningful differences between the two?

Nick Todorov: Yeah, makes sense. And second question is, can you talk about the inventory levels between DRAM and NAND, maybe both internally in the channel and at customers? Are there any meaningful differences between the two?

Speaker 8: Yeah, it makes sense. And second question is, can you talk about the inventory levels between DRM and NAND, maybe both internally in the channel and the customers? Are there any meaningful differences between...

Yes. It makes sense and second question is can you talk about the inventory levels between DRAM and NAND, maybe bolt internally in the channel where the customers are there any meaningful differences between the two.

Manish Bhatia: ... I mean, our inventory levels are higher in NAND than in DRAM. So I think if you look at the impact, in terms of the TAM on all of these changes in unit forecast for PC, smartphones, consumer markets, obviously, that's being felt in both DRAM and NAND markets. But internally, our own inventory is lower, in the DRAM segment.

Speaker 11: I mean our inventory levels are higher in NAND than in DRAM.

I mean, our inventory levels are higher in NAND than in DRAM.

Speaker 11: So I think if you look at the impact in terms of the dam, on all of these changes in unit forecast for PC smartphones, consumer markets, obviously that's being felt in both DRAM and NAND markets.

So I think if you look at the impact in terms of the ban on all of these changes in unit forecast for PC smartphones consumer market, obviously, that's being felt in both DRAM and NAND market.

Speaker 11: but internally our own inventory is lower in the data.

But internally our own inventory is lower.

The DRAM segment.

[Analyst]: Okay. And in customers, is it fairly similar, or do you think that there's more NAND again?

Nick Todorov: Okay. And in customers, is it fairly similar, or do you think that there's more NAND again?

Speaker 8: Okay, and then customers is it fairly similar or is you think that there's more than that again?

Okay, and then customers.

Fairly similar as you think that Theres more NAND again.

Manish Bhatia: I can't see too many differences between DRAM and NAND. When customers go into this inventory reduction mode, they tend to reduce all semiconductor inventory of parts that they feel are readily available. So when, you know, different parts, even beyond memory and storage, are not in shortage across the semiconductor space, you know, they tend to go up and down sort of in a similar trajectory. Now, the inventory of products at customers may be at different levels. Different customers may have different levels of inventory of different semiconductor products, but generally, when they go into a inventory reduction mode, it's pretty broad-based approach.

Aye.

Speaker 11: I can't see too many differences between DRAM and NAND when customers go into this inventory reduction mode. They tend to reduce all semiconductor inventory of parts that they feel are readily available. So when different parts, even beyond memory and storage, are not in shortage across the semiconductor space, they tend to.

See too many differences between DRAM and NAND when customers go into this inventory reduction mode that tend to.

Reduce all semiconductor inventory of parts that they feel are readily.

Available so when different parts, even beyond memory and storage.

Northern shortage.

Across the semiconductor space they tend to.

Speaker 11: go up and down sort of in a similar trajectory. Now the inventory of products as customers may be at different levels. Different customers may have different levels of inventory of different semiconductor products, but.

Go up and down sort of in a similar trajectory now the inventory off products as customers maybe at different levels different customers may have different levels of inventory of different semiconductor products, but.

Speaker 11: Generally when they're going to inventory reduction mode, it's pretty broad-based approach.

Generally when they go into it.

Inventory reduction mode, it's pretty broad based approach.

[Analyst]: Got it. Thanks for the answers.

Nick Todorov: Got it. Thanks for the answers.

Thanks for the answers.

Manish Bhatia: Sure.

Sure.

Operator: Our next question comes from Timothy Arcuri of UBS. Please go ahead.

Speaker 2: Next question comes from Timothy, our Curie of UBS. Please go ahead.

Our next question comes from Timothy Arcuri of UBS. Please go ahead.

[Analyst] (UBS): Hi, thanks. I just wanted to go back to this issue of LTAs, and I guess I'm a little surprised that customers would be able to reduce demand this quickly, unless you're getting something out of it. I mean, I certainly understand that it provides you visibility, and it helps you plan CapEx. But is there something that you're in a better position today versus if this same thing happened, you know, three or so years ago when you had less on LTA? Are you selling at a higher price, maybe in August, than you otherwise would have if you didn't have these LTAs? I'm just trying to...

Timothy Arcuri: Hi, thanks. I just wanted to go back to this issue of LTAs, and I guess I'm a little surprised that customers would be able to reduce demand this quickly, unless you're getting something out of it. I mean, I certainly understand that it provides you visibility, and it helps you plan CapEx. But is there something that you're in a better position today versus if this same thing happened, you know, three or so years ago when you had less on LTA? Are you selling at a higher price, maybe in August, than you otherwise would have if you didn't have these LTAs? I'm just trying to...

Speaker 14: Bye thanks. I just wanted to go back to this issue of LTAs.

Hi, Thanks.

I just wanted to go back to this.

Issuer lta's.

Speaker 14: And I guess I'm a little surprised that customers would be able to reduce demand this quickly unless you're getting something out of it. I mean, I certainly understand that it provides you visibility and it helps you plan cat-back.

I guess I'm, a little surprised that customers would be able to.

Reduced demand this quickly.

Unless youre getting something out of it I mean.

I certainly understand that it provides you the visibility and it helps your planned capex.

Speaker 14: But is there something that you were in a better position today versus if this same thing happened three or so years ago when you had less on LTA? Are you selling at a higher price? Maybe in August than you otherwise would have if you didn't have these LTAs. I'm just trying to, because people will say, well, what good are these LTAs if customers can stop buying to this magnitude? And then I had a second question.

But is there something that you were in a better position today.

Versus if the same thing happened three or so years ago. When you had less on LTA or you're selling at a higher price maybe in August than you otherwise would have if you didn't have these otas I'm just trying to because people will say well what good are these LTA customers, Ken Ken can stop buying.

[Analyst] (UBS): You know, because people will say, "Well, what good are these LTAs if, you know, customers can, you know, stop buying, you know, to this magnitude?" I had a second question, too. Thanks.

You know, because people will say, "Well, what good are these LTAs if, you know, customers can, you know, stop buying, you know, to this magnitude?" I had a second question, too. Thanks.

To this.

Magnitude.

I had a second question.

Manish Bhatia: Sure. Yeah. I mean, I think, you know, if you look at customers, in the past, you know, going back five years, there would be situations where customers would, not be very clear or specific as to how much they intend to purchase from each of the suppliers. And the end result could, in many cases, be that the amount of bits that these suppliers are targeting to produce for any given customer is 10 or 120% of that customer's TAM. And so, you know, when, when there are these LTAs that are used pretty pervasively in the industry now, it definitely helps to rationalize and bring supply and demand into a better balance from a planning perspective. And the reason I say from a planning perspective is, of course, actuals can deviate from plans when these kind of macro events occur.

Sure, Yes, I mean, I think if you look at customers.

Speaker 11: Sure, I mean, I think if you look at customers in the past, going back five years.

In the past going back five years.

Speaker 11: There would be situations where customers would not be very clear or specific as to how much they intend to purchase from each of the suppliers. And the end result could, in many cases, be that the amount of

There would be situations where customers would.

Now, let's be very clear our specific as to how much they intend to purchase some.

Yes.

Lawyers and the end result could in many cases be that VM.

The amount of bids that.

Speaker 11: the suppliers are targeting to produce for any given customer is 10 or 120% of the customer's time.

The suppliers are targeting to produce for any given customer.

And on 120% of their customers path.

Speaker 11: So, you know, when there are these health issues that are used pretty pervasively in the industry now, it definitely helps to rationalize and bring supply and demand into a better balance from a planning perspective.

So when there are these <unk> that are used pretty pervasive in the industry now.

It definitely helps to rationalize and bring supply and demand into a better balance from a planning perspective.

Speaker 11: And the reason I say from a planning perspective is of course actual can deviate from plans when the kind of macro events occur. But when they occur and you know these LTS provide us with a very good basis to better understand how our customers are thinking. How do you say about the next quarter, you decide what to do?

And the reason I say from a planning perspective is of course, the actual spend deviate from clients when.

These kind of macro events occur, but when they occur and these Lps provides us with a very good basis to better understand how our customers are thinking about the next.

Manish Bhatia: But when they occur and, you know, these LTAs provide us with a very good basis to better understand how our customers are thinking, not just about the next quarter, but about, you know, multiple quarters, it just gives us a mechanism to have a dialogue, for longer visibility into, you know, how they expect things to proceed. And as you can expect, you know, when we think about our own supply, we think about making changes to our CapEx plans, our supply plans. Any changes that we make have an impact several months out, right? I mean, these cycle times are pretty long. And consequently, you know, we need those, longer views from our customers in order to, understand exactly how best to create a better balance between supply and demand in the industry.

But when they occur and, you know, these LTAs provide us with a very good basis to better understand how our customers are thinking, not just about the next quarter, but about, you know, multiple quarters, it just gives us a mechanism to have a dialogue, for longer visibility into, you know, how they expect things to proceed. And as you can expect, you know, when we think about our own supply, we think about making changes to our CapEx plans, our supply plans. Any changes that we make have an impact several months out, right? I mean, these cycle times are pretty long. And consequently, you know, we need those, longer views from our customers in order to, understand exactly how best to create a better balance between supply and demand in the industry.

<unk>, but about multiple quarters.

Speaker 11: It just gives us a mechanism to have a dialogue for longer visibility into how they expect things to proceed. And as you can expect, when we think about our own supply.

It just gives us.

Recognize him to have dialogue for longer visibility into how they expect things to proceed and as you can expect when we think about our own supply.

Speaker 11: We think about making changes to our CAPX plans or supply plans. Any changes that we make have an impact several months out. Right now these cycle times are pretty long. And consequently, you know, we...

About making changes to our Capex plans our supply plans.

Any changes that we may have an impact several months of vitamin D cycle times are pretty long and.

And consequently, we need those.

Speaker 11: longer views from our customers in order to understand exactly how best to create a better balance between supply and demand in the industry. So I understand you're concerned that okay if they're not going to buy based on the LTA volume what good are these LTAs and you know we have repeatedly said that these LTAs are never meant to be takeoff here agreements. That was not the goal for which they were set up.

Longer views from our customers in order to.

Understand exactly how best to create a better balance between supply and demand in the industry. So.

Manish Bhatia: So I understand your concern that, okay, if they are not going to buy based on the LTA volume, what good are these LTAs? And, you know, we have repeatedly said that these LTAs are never meant to be take or pay agreements. That was not the goal for which they were set up. And there is no pricing in these agreements either. They're more of volume-based agreement, and the price is negotiated every quarter or every month, depending on, you know, what kind of customer arrangements there are.

So I understand your concern that, okay, if they are not going to buy based on the LTA volume, what good are these LTAs? And, you know, we have repeatedly said that these LTAs are never meant to be take or pay agreements. That was not the goal for which they were set up. And there is no pricing in these agreements either. They're more of volume-based agreement, and the price is negotiated every quarter or every month, depending on, you know, what kind of customer arrangements there are.

I understand your concern that okay, we're not going to buy based on the LTA volume what godaddy LTA is in.

We have repeatedly said that is healthier than ever meant to be take or pay agreement that was not the goal for which they will set up.

Speaker 11: And there is no pricing in these agreements either. They're more of volume-based agreement and the prices negotiated every quarter or every month depending on.

And there is no pricing in these agreements either their motor volume based agreement and the prices negotiated every quarter or every month depending on.

Speaker 11: what kind of customer arrangements there are. And so, I think the way to think about it is, it's a very useful mechanism to drive alignment between supply and demand over the medium term.

What kind of customer.

Arrangements that are and so I think the way to think about it is it's a very useful mechanism to drive alignment between supply and demand over the medium term.

Manish Bhatia: And so, you know, I think the way to think about it is, it's a very useful mechanism to drive alignment between supply and demand over the medium term, to drive our portfolio direction, share gains, and things of that nature, and reduce, you know, an apparent level of customer and suppliers targeting 110 to 120% of a customer's TAM, because the customer will, you know, have LTAs with pretty much all the suppliers, so more difficult to do that in a normal environment.

And so, you know, I think the way to think about it is, it's a very useful mechanism to drive alignment between supply and demand over the medium term, to drive our portfolio direction, share gains, and things of that nature, and reduce, you know, an apparent level of customer and suppliers targeting 110 to 120% of a customer's TAM, because the customer will, you know, have LTAs with pretty much all the suppliers, so more difficult to do that in a normal environment.

Speaker 11: to drive portfolio direction share gain and things of that nature and reduce You know and the parent level of

To drive our portfolio direction share gains and things of that nature and reduce.

And the parent level of.

Speaker 11: Custom suppliers targeting 100, 10, 120% of a customer's hand because the customer will have LTS with pretty much all the suppliers. So more difficult to do that on a normal environment.

Customers and suppliers targeting 110, 120% of our customers have because the customer will.

We'll have Lps with pretty much all of the suppliers, so more difficult to do that in a normal environment.

[Analyst] (UBS): Can I just follow up on that? So, in this case, if a PC and a smartphone customer is taking bits down by, I mean, it has to be at least 40, 50% sequentially. If they're doing that, they, they pay the exact same price that they would have if they took what they said they would. There's, you know, not even like a little bit of a price kicker you get if they, if, you know, if they're down 40, 50% sequentially for a customer?

Speaker 14: Can I just follow up on that? So in this case, if a PC and a smartphone customer is taking this down by, I mean, it has to be at least 40, 50% sequentially. If they're doing that, they pay the exact same price that they would have if they took what they said they would. There's not even like a little bit of a price kicker you get if they, you know, this they have 40, 50% sequentially for a customer.

Timothy Arcuri: Can I just follow up on that? So, in this case, if a PC and a smartphone customer is taking bits down by, I mean, it has to be at least 40, 50% sequentially. If they're doing that, they, they pay the exact same price that they would have if they took what they said they would. There's, you know, not even like a little bit of a price kicker you get if they, if, you know, if they're down 40, 50% sequentially for a customer?

Can I just can I just follow up on that so.

In this case, if a PC and smartphone customer is taking breaks down by I mean, it has to be at least 40%, 50% sequentially if theyre doing that.

They pay the exact same price that they would have if they took what they said they will there is no there is no.

Not even like a little bit of a price kicker you get.

Mr down, 40% to 50% sequentially for <unk>.

Customer.

Manish Bhatia: Well, there are things that happen on the pricing front, which I can't get into. But those are all things that we discuss with customers based on, you know, what their needs are and how it deviates from the LTA and so on. So what exactly do we do with these customers when those kind of situations occur? I'm not at liberty to discuss in this call, but, you know, clearly the intent is that if there are things that are happening that are outside the control of our own customers, you know, we work with them to come to a resolution that both sides can feel good about. So that's what we do. So the details of that and how it changes with price, et cetera, is not something I can address here.

Speaker 11: Well, there are things that happen on the pricing front which I can't get into.

Well there are there are things that happened on the pricing front, which I can't get into.

Speaker 11: But those are all things that we discussed with customers based on what their needs are and how it deviates from the LTA and so on. So what exactly do we do with these customers when those kind of situations occur? I'm not at liberty to discuss.

But those are all things that we discussed with customers based on what their needs are and how it deviates from the LTA and so on so what exactly do we do with these customers when those kind of situations after I'm not at Liberty to discuss.

Speaker 11: in this call. But clearly the intent is that

In this call but.

Clearly the intent is that.

Speaker 11: If there are things that are happening that are outside the control of our own customers

If there are things that are happening that are outside the control of our own customers.

Speaker 11: you know, we work with them to come to a resolution that both sides can feel good about. So that's what we do. So the details of that and how it changes with price, et cetera, is not something I can address.

We work with them to come to a resolution that both sides can feel good about so that's what that's what we do so the details of that and how it changes with price et cetera.

Not something I can I can address here.

[Analyst]: Okay. Thank you.

Timothy Arcuri: Okay. Thank you.

Okay. Thank you.

Operator: Thank you. Ladies and gentlemen, this does conclude today's conference call. Thank you for participating. You may now disconnect. Thank you for standing by, and welcome to Micron Technology's Fiscal Q3 2022 Post-Earnings Analyst Call. After the speaker presentation, there will be a Q&A session. To ask a question, press star one on your touchtone telephone. I would now like to hand the call over to Vahan Hovsepian, Vice President, Investor Relations. Please go ahead.

Operator: Thank you. Ladies and gentlemen, this does conclude today's conference call. Thank you for participating. You may now disconnect.

Okay.

Speaker 2: Thank you, ladies and gentlemen. This does conclude today's conference.

Thank you ladies and gentlemen, this does conclude today's conference call.

Speaker 2: Thank you for participating. You may now dis-

Thank you for participating you may now disconnect.

Operator: Thank you for standing by, and welcome to Micron Technology's Fiscal Q3 2022 Post-Earnings Analyst Call. After the speaker presentation, there will be a Q&A session. To ask a question, press star one on your touchtone telephone. I would now like to hand the call over to Vahan Hovsepian, Vice President, Investor Relations. Please go ahead.

Speaker 1: The what.

Okay.

[music].

Speaker 1: Really.

[music].

Speaker 2: Thank you for standing by and welcome to Micron Technologies, fiscal 3rd quarter, 2022, post earnings analyst call. After the speaker presentation, there will be a Q&A session to ask a question, press star one, and you're touched on telephone. I would now like to hand the call over to Fahann Ahmad, Vice President and Investor Relations. Please go ahead.

Thank you for standing by and welcome to Micron technologies fiscal third quarter 2022 post earnings analyst call. After the speaker's presentation, there will be a Q&A session to ask a question press star one on your Touchtone telephone I would now like to hand, the call over to Farhan Ahmad Vice President of Investor Relations. Please go.

Vahan Hovsepian: Thank you, Latif. Welcome to Micron Technology's fiscal Q3 2022 sell-side analyst call back. On the call with me today are Sumit Sadana, our Chief Business Officer; Manish Bhatia, our EVP of Global Operations; and Mark Murphy, our CFO. As a reminder, the matters we will be discussing today include forward-looking statements regarding market demand and supply, our expected results, and other matters. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today. We refer you to the documents we filed with the SEC, specifically our most recent Form 10-K and 10-Q, for a discussion of the risks that may affect our future results. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.

Ahead.

Thank you Latif.

Speaker 3: Thank you, Lapis. Welcome to my phone technologies, fiscal third quarter, 2022, self-side, annual, or back. On the call with me today, our Sumit Fadhana, our chief business partner.

To Micron technologies fiscal third quarter 2022 sell side analysts.

On the call with me today are so much sudano, our chief business Officer.

Speaker 3: Manish Pachya, our EVP of Global Operations and Mark Murphy, RCA4.

The niche patio, our EVP of global operations.

Mark Murphy our CFO .

Speaker 3: As a reminder, the matters we will be discussing today include forward-looking statements regarding market demand and supply are expected results in other matters. These forward-looking statements are subject to risk and uncertainties that may cause actual results to defer materially from the statements made today.

As a reminder, the matters we will be discussing today include forward looking statements regarding market demand and supply unexpected results and other matters.

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

Speaker 3: We refer you to the documents we filed with the SEC, specifically as most recent form 10K and 10Q for a discussion of the risks that may affect our future results. Although we believe that the expectations reflected in the forward looking statements are reasonable, we cannot guarantee future results levels of activity, performance or achievements. We are under no duty to update any of the forward looking statements to conform these statements to actual results. But if you can now open the call for Q&O.

We refer you to the documents we filed with the SEC specifically, our most recent Form 10-K and 10-Q for a discussion of the risks that may affect our future results, although we believe that.

That the expectations reflected in the forward looking statements are reasonable we can.

A love guarantee future results levels of factory performance or achievements, we are under no duty to update any of the forward looking statements to confirm these statements to actual results.

Vahan Hovsepian: We are under no duty to update any of the forward-looking statements to conform these statements to actual results. Latif, you can now open the call for Q&A.

But if you can now open the call for Q&A.

Operator: Yes, sir. Again, to ask a question, please press star one at this time. Our first question comes from Tom O'Malley of Barclays. Your line is open.

Speaker 2: Yes sir, again to ask a question please press star one at this time. Our first question comes from Tom O'Malley, a Barclays. Your line is open.

Yes, Sir again to ask a question. Please press star one at this time.

Our first question comes from Tom O'malley of Barclays. Your line is open hey, thanks.

[Analyst] (Barclays): Hey, thanks for taking my question. I just wanted to ask on the long term, the long-term through cycle model. You guys laid out 30% from an operating margin perspective. I understand that there are some China headwinds that are impacting that I think are, you know, slightly more exacerbating this down cycle, but you're already in the guidance moving below that 30%, and it sounds like there may be some more weakening to come. Can you just talk to if you think that 30% is still viable now that you've seen these cuts, and just any of the moving parts as to how you think that that can sustain through the cycle? Thank you.

Tom O'Malley: Hey, thanks for taking my question. I just wanted to ask on the long term, the long-term through cycle model. You guys laid out 30% from an operating margin perspective. I understand that there are some China headwinds that are impacting that I think are, you know, slightly more exacerbating this down cycle, but you're already in the guidance moving below that 30%, and it sounds like there may be some more weakening to come. Can you just talk to if you think that 30% is still viable now that you've seen these cuts, and just any of the moving parts as to how you think that that can sustain through the cycle? Thank you.

Speaker 4: Hey, thanks for taking my question. I just wanted to ask on the long term, the long term through cycle model, you guys laid out 30% from an operating margin perspective.

For taking my question.

I just wanted to ask on the long term the long term through cycle model you guys laid out 30% from an operating margin perspective, I understand that there are some china headwinds that are impacting that I think are slightly more.

Speaker 4: I understand that there are some China headwinds that are impacting that. I think are slightly more exacerbating this down cycle, but you're already in the guidance moving below that 30%. And it sounds like there may be some more weakening to come. Can you just talk to, if you think that 30% is still viable, now that you've seen these cuts, and just any of the moving parts is to how you think that that can sustain through a cycle.

Exacerbating this down cycle, but you're already in the guidance moving below that 30% and it sounds like there may be some more weakening to come can you just talk to if you think that 30%.

They'll viable data that you've seen these cuts.

Just any of the moving parts as to how you think that that can sustain through the cycle. Thank you.

Mark Murphy: Tommy, Mark, I'll start. I mean, it is a through cycle model, so it's not intended to be a floor, it's not intended to be any point in time. So, I think that, you know, I think the way to look at it is we're not gonna, you know, base any given quarter on where it stands relative to the long-term model, because there are a lot of conditions that, you know, that impact, obviously, the short-term results. You know, we have entered a period here where the market weakened considerably in a very short period of time, and we're just, you know, we've given a fourth quarter guide to reflect the best view we have at the moment, and we'll update through the quarter.

Tommy Mark I'll start.

Speaker 5: Tommy Mark, I'll start. I mean, it is a through-spycle model. So it's not intended to be a floor, it's not intended to be any point in time. So I think that, you know, I think the way to look at it is we're not gonna, base any given quarter on where it stands relative to the long-term model because there are a lot of conditions that impact obviously the short-term results.

I mean, it is a through cycle model. So it's not intended to be a floor. It's not intended to be any point in time. So.

Hey, thanks.

I think I think the way to look at it is we're not going to.

Yeah.

Base any given quarter on where it stands relative to the towards the long term model because there are a lot of conditions.

That impact obviously, the short term results.

Speaker 5: You know, we are in or we have in our depurion year where the market we can considerably in a very short period of time. And we're just...

Yeah. We have we are in or we have entered a period where the market.

Weekend.

Considerably in a very short period of time.

We're just.

Speaker 5: you know we've we've given a force corridor reflect the best view we have at the moment and and well well update through the court

Yeah, We've got enough force Cora guide to reflect the best view, we have at the moment and well update during the quarter.

Speaker 4: I appreciate it. And then my follow-up is just on the cost side, going into the quarter, you guys had talked about just limited cost reductions in both DRM and NAND. If you just give any color on just a reported quarter on how cost kind of shook out between the two buckets.

Gotcha I appreciate and then my follow up is just on the cost side.

Going into the quarter you guys had talked about just limited cost reductions in both DRAM and then could you just give any color on just the reported quarter on how cost kind of shook out between the two buckets.

Mark Murphy: Yeah. Well, on, we do expect for the full year for our cost to still outpace industry costs. But in Q3 and Q4, improvements have been flattish. A little bit better on the front end because, you know, the leading node activities and those benefits. A little bit of inflation, but that inflation's more manifest on the back end, where, you know, the net is that we end up with basically flattish costs down in Q3, Q4. Long term, you know, we're still planning to be in line with industry cost trends.

Yes.

Speaker 5: Yeah, well, we do expect for the full year for our cost to still outpace industry costs, but in the third and the fourth quarter improvements have been flatish. A little bit better on the front end because...

Well, we do expect for the full year cost to still outpace industry cost, but in the third and the fourth quarter.

Improvements have been flattish a little bit better on the front end because.

Speaker 5: the leading node activities and those benefits. Little bit of inflation or inflation, but that inflation's more manifest on the backend where...

Yes.

Leading node.

<unk> activities and those benefits.

A little bit of inflation or inflation, but that inflations more manifest on the backend.

Speaker 5: and the net is that we end up with basically flatish

Yes, and that is that we ended up with but with basically flattish.

Speaker 5: costs down and third, fourth quarter. Long term, we're still playing to be in line.

Cost down in third and fourth quarter.

Long term, we're still planning to be in line.

Speaker 5: industry cost. And I'll just come. I'll just add in there that a lot of that has the

Sumit Sadana: And I'll just, Tom, I'll just add in there that, you know, a lot of that has the reported COGS, obviously, have a lot of mix adjustments. So when we have, you know, strong growth, you know, record quarter in SSDs, you know, we have stronger growth in some of these high-value solutions. Obviously, the COGS number is mix-adjusted, but when we talk about outperforming the industry in terms of cost reduction for the year, we're talking about at the memory level, where our, you know, technology leadership in 1-alpha and 176-layer, have allowed us to outpace the industry this year and perform well at the front-end level.

Whereas the industry cost trends and I'll, just Tom I'll, just add in there that a lot of that has.

The reported Cogs.

Speaker 6: reported COGS, obviously we have a lot of mixed adjustments. So when we have strong growth, record, quarter and SSDs.

We have a lot of mix adjustments, where we have strong growth record quarter in ssds.

Speaker 6: We have strong growth in some of these high-value solutions. Obviously the COG number is mixed-adjusted, but when we talk about outperforming the industry in terms of cost reduction for the year, we're talking about at the memory level where our technology leadership in one alpha and 176 layer have allowed us to outpace the industries this year and perform well at the front end level.

We have stronger growth in some of these high value solutions, obviously, the Cogs number is mix adjusted but when we talk about outperforming the industry in terms of cost reduction for the year, we're talking about at the memory level, where our technology leadership and one alpha and 176 were have allowed us to outpace the industry. This year end.

Uh huh.

Performed well at the front end level.

Sumit Sadana: But obviously, mix moving towards high-value solutions, and as that, you know, happens over the last quarter and this next quarter, those are, you know, impacting the all-in cost, but obviously providing higher margin as well, or higher price.

Speaker 6: But obviously, moving towards high-value solutions and as that happens over the last quarter and this next quarter, those are...

But obviously mix of moving towards high value solutions and as that happens over the <unk>.

Last quarter in this next quarter.

Our.

Speaker 6: you know, impacting the all-in cost, but obviously providing higher margin as well, for higher price.

Impacting the all in cost, but obviously, providing higher margin neutral for higher prices.

Mark Murphy: Thank you.

Thank you.

Operator: Thank you. Our next question comes from Joe Moore, Morgan Stanley. Your line is open.

Speaker 2: Thank you. Our next question comes from Joe Moore, Morgan Stanley . Your line is open.

Thank you. Our next question comes from Joe Moore of Morgan Stanley . Your line is open.

[Analyst] (Morgan Stanley): So great. Thank you. I wonder if you could quantify at all the impact of the supply reduction that you guys are looking to do, the utilization impact of that. And I guess, is it—can you compare it to what you did in 2019? Do you think it's something similar to that, more significant than that, less significant than that? Just any color would be helpful.

Joe Moore: So great. Thank you. I wonder if you could quantify at all the impact of the supply reduction that you guys are looking to do, the utilization impact of that. And I guess, is it—can you compare it to what you did in 2019? Do you think it's something similar to that, more significant than that, less significant than that? Just any color would be helpful.

Speaker 7: Great. Thank you. I wonder if you could quantify it all the impact of the supply reduction that you guys are looking to do, that the utilization impact of that. And I guess, is it, can you compare it to what you did in 2019? Do you think it's something similar to that? More significant than that, less significant than that? Just any color of your health.

Great. Thank you I Wonder if you could quantify at all the impact of the supply reduction that you guys are looking to do the utilization impact of that and I guess is it can you compare it to what you did in 2019 do you think it's something similar to that more significantly less significant than that just any color would be helpful.

Sure Joe So.

We're still evaluating what we will finally do what I think what was important for us to give guidance and clarity to everyone on was that we are reducing WSB.

And that will have an impact on supply bit growth for both DRAM and NAND from our prior levels.

Speaker 6: lungs, people in can

Next.

In 'twenty three.

Speaker 6: And at this time, not really ready to compare it, we're still working to finalize what our plans are. As we mentioned, we're going to have a combination of trying to manage Chapex.

And.

At this time not really.

Ready to.

Compare it we're still working to finalize what our.

Sumit Sadana: As we mentioned, we're going to have a combination of trying to manage CapEx, manage utilization, particularly for some of our legacy nodes, and take a look at, you know, maybe less cost-effective nodes, how we can optimize those, how we can optimize the manufacturing footprint, space, as we transition to more advanced nodes. You know, and we're going to be ramping our 1-beta and 232-layer technologies. We think it's very important to make sure that we continue to maintain leadership and launch those technologies, so we can, you know, have the product portfolio benefits from those as well as the cost benefits from those. And then the other piece, of course, is managing inventory, as Mark was talking about on the call.

Sure.

Plans are as we mentioned, we're going to have a combination of.

Trying to manage capex manage utilization, particularly for some of our legacy nodes and take a look at maybe less cost effective those how we can optimize those how we can optimize the manufacturing footprint.

Speaker 6: Manage utilization, particularly for some of our legacy nodes and take a look at maybe less cost-effective nodes, how we can optimize those, how we can optimize the manufacturing footprint space as we condition to more advanced nodes. We're gonna be ramping our one data and 232 technologies. We think it's very important to make sure that we continue to maintain leadership and launch those technologies so that we can have the product portfolio benefits from those as well as the cost benefits from those.

So as we can.

The product portfolio benefits from those as well as the cost benefits from those.

And then the other piece of course is managing inventory as Mark was talking about on the on the call. So we'll kind of look at it.

All of those areas together to be able to determine what the right mix of supply bit growth capex utilization and inventory and cost reduction is for next year and we'll provide more color I think on the next call.

[Analyst] (Morgan Stanley): Great. Thank you very much.

Joe Moore: Great. Thank you very much.

Great. Thank you very much.

Operator: Thank you. Our next question comes from Toshiya Hari of Goldman Sachs. Please go ahead.

Yes.

Speaker 2: Thank you. Our next question comes from Tashiyahari of Goldman Sachs. Please go ahead.

Thank you. Our next question comes from tissue.

Goldman Sachs. Please go ahead.

Speaker 15: Great, thank you. I have one quick clarification, then one quick question. On the clarification for the fiscal Q4 guide, based on your commentary, it seems like the sequential decline in revenue that's mostly coming from bits and pricing is perhaps down low singles or something like that based on sort of the strategy that you're taking. Is that a fair assumption?

Great. Thank you I have one quick clarification and then one quick question on the clarification.

For the.

Fiscal Q4 guide based on your commentary it seems like the sequential decline in revenue, that's mostly coming from bits and pricing is perhaps.

Low singles or something like that based on sort of the strategy that youre taking.

Is that is that a fair assumption.

Mark Murphy: Yeah. If you, if you do the math on things, you'll see that volume's roughly 2/3 sequential.

Speaker 5: Yeah, if you do the math on things, you'll see that volumes roughly two thirds sequential.

Yes, if you if you do the math on things Youll see that volumes roughly two thirds <unk>.

[Analyst] (Goldman Sachs): Got it. Okay.

Toshiya Hari: Got it. Okay.

Sequential.

Mark Murphy: So-

[Analyst] (Goldman Sachs): That's helpful. And then... Got it. And then, as my question, this one's for you as well, probably, Mark. On OpEx, you know, you talked about some of the initiatives having a bigger impact in fiscal 2023. I guess last time you were kind of in the zip code from a revenue perspective, OpEx was kind of in the low $800 million. And I realize there's been broad-based inflation, but how should we think about OpEx in the early part of fiscal 2023, as you guys flex down?

Toshiya Hari: That's helpful. And then... Got it. And then, as my question, this one's for you as well, probably, Mark. On OpEx, you know, you talked about some of the initiatives having a bigger impact in fiscal 2023. I guess last time you were kind of in the zip code from a revenue perspective, OpEx was kind of in the low $800 million. And I realize there's been broad-based inflation, but how should we think about OpEx in the early part of fiscal 2023, as you guys flex down?

Got it Okay. That's helpful and then.

Speaker 15: Got it. And then as my question, this one for you as well, probably Mark, on OpEx, you talked about some of the initiatives having a bigger impact in fiscal 23.

Got it and then I guess.

Is my question.

This one is for you as well probably mark.

On Opex.

You talked about some of the <unk>.

Initiatives, having a bigger impact in fiscal 'twenty three.

Speaker 15: I guess last time you were kind of in the zip code from a revenue perspective, OpEx was kind of in the low 800 millions of dollars and I realized there's been broad-based inflation, but how should we think about OpEx in the early part of fiscal 23 as you guys select down?

Mark Murphy: Yeah, I, you know, we can back into OpEx long term as a percent of sales through the model. I won't give you a number for OpEx in 2023, because, you know, we haven't done our plans. We'll give guidance on that at a future call. I think the comments today were meant to reflect that, you know, it is an environment that's changed very quickly, and the demand environment's weakened, and we've responded quickly, across all major areas of spend. And we are, you know, the OpEx number is down from what it was in our original forecast here. So that gives you a sense that we're already dealing with it.

Speaker 5: Yeah, you know, you can back into OptX long-term as a percentage sales through the model. I won't give you a number for OptX in 23 because we haven't done our plans. We'll give guidance on that at a future call. I think the comments today were meant to reflect that, you know, it is an invite.

Yes.

You can back into Opex long term as a percent of sales through the model.

I will give you a number for opex in 'twenty three.

Because we haven't done our plans, we'll give we'll give guidance on that at a future call.

I think the comments today were meant to reflect that.

It is a.

It is an environment thats.

Speaker 5: change very quickly and the demand environments weakened and we've responded quickly.

Change very quickly and demand environments weekend, and we've responded quickly.

Speaker 5: across all major areas that spend and we are, you know, the op-x number is...

Across all major areas of spend and we are.

Yes, the Opex number is down from what it was in our original forecast here.

Speaker 5: down from what it was in our original forecast here.

Speaker 5: So that gives you a sense of we're already dealing with it. And our expectation is that as the market outlook becomes clear, we will adjust our off-expend appropriately.

So that gives you a sense that we're already dealing with it and.

Mark Murphy: You know, our expectation is that, as the market outlook becomes clear, we will, you know, adjust our OpEx spend appropriately. Now, you know, it's, it's not a, this isn't a, the company's in great position of leadership across technology, products, and manufacturing, so it's, this is not a, you know, take a sledgehammer to, to, you know, OpEx. It's a scalpel, you know, scalpel exercise, and we, we work to get OpEx down and, and, and, for an appropriate level for the, conditions of the business.

Our expectation is it.

As the market outlook becomes clear.

We will.

Yes, adjust our opex spend appropriately now.

<unk>.

Speaker 5: It's not a, this isn't a, a company's in great position of leadership across technology products and manufacturing. So this is not a, you know, take a sledgehammer.

It is not a this.

This isn't a company is in great position of leadership across technology products and manufacturing so.

This is not a.

I'll take a sledgehammer to.

Speaker 5: you know, op-ex, it's a scalpel exercise and we work to get op-ex down and an appropriate level for the conditions of the business.

Opex, that's a scaffold scalpel exercise and we work to.

Get opex down.

For an appropriate level for the <unk>.

Conditions in the business.

[Analyst] (Goldman Sachs): And Mark, sorry, just to be clear, the sequential increase in OpEx this quarter, that's just timing of quals, as you guys noted on the call?

Toshiya Hari: And Mark, sorry, just to be clear, the sequential increase in OpEx this quarter, that's just timing of quals, as you guys noted on the call?

Speaker 15: Mark's are just to be clear the sequential increase in op-ex this quarter that's just timing of Qualls as you guys noted on the call

Mark sorry, just to be clear the sequential increase in Opex this quarter Thats just timing of.

<unk> as you guys noted on the call.

Mark Murphy: Yeah. We had in Q3, OpEx was low. It was actually about $100 million off of the, I think, the guidance. And two major drivers, one, product and technology spend, as you talked about. And that was actually not due to sort of fewer programs, it was due to actually very good performance and fewer wafers required for technology qualification. That was the largest part of the variance. The next was just, as you can imagine, our forecast came way down, so the incentive comp was adjusted, and since we're this far in the year, it was a sizable, you know, accrual adjustment. So those two things were drivers. In Q4, of course, those benefits, you know, become headwinds for Q4.

Yes, we had in the third quarter. The Opex was low is actually about $100 million off of the.

I think the guidance and two major drivers one.

Product and technology spend as you talk about and that was actually.

Not due to.

Incentive comp.

Was adjusted in <unk>.

And since we are thus far in the year. It was it was a sizable.

Accrual adjustment so those two things were drivers.

Speaker 5: In the fourth quarter of course, those benefits.

In the fourth quarter of course those benefits.

Speaker 5: become headwinds for the fourth course or kind of back up to this level yeah just over a billion

<unk> become headwinds for the fourth quarter. So we're kind of back up to this level.

Mark Murphy: So we're kind of back up to this level, you know, just over $1 billion, and sort of makes it look like a more of a sequential decline than in reality it is. And we'll just continue to work it, in a disciplined way from here.

Yes, just over $1 billion.

Speaker 5: and sort of makes it look like more of a sequential decline in reality it is and we'll just continue to work it in a disciplined way from here.

And sort of makes it makes it look like a more of a sequential decline in reality it is.

And well just continue to work at.

In a disciplined way from here.

[Analyst] (SMBC Nikko): Great. Thank you.

Srini Pajjuri: Great. Thank you.

Great. Thank you.

Operator: Thank you. Our next question comes from C.J. Muse of Evercore. Your line is open.

Thank you. Our next question comes from C. J Muse of Evercore. Your line is open.

Speaker 2: Thank you. Our next question comes from CJ Muse of Evercore. Your line is open.

[Analyst] (Evercore): Yeah, I wanted to just follow up on prior question around cost downs and whether you, you're contemplating any material kind of change to utilization rates and how we should think about that impacting cost downs, you know, in the coming quarters.

C.J. Muse: Yeah, I wanted to just follow up on prior question around cost downs and whether you, you're contemplating any material kind of change to utilization rates and how we should think about that impacting cost downs, you know, in the coming quarters.

Yes, I wanted to just follow up on prior question around cost Downs.

What are you contemplating any material change to utilization rates and how we should think about that.

<unk> costs.

The coming quarters.

Sumit Sadana: Hi, C.J. So we are evaluating utilization. I think, as I said, we are evaluating utilization. I would say that, you know, we're really, you know, with, you know, with having technology leadership, you know, we definitely believe that, you know, the inventory at the leading edge that we have - we're generating is very cost effective relative to, the rest of the industry, relative to even what will be available for us in future quarters. So, you know, we're really, you know, on the utilization front, focused on thinking about optimizing older nodes, legacy nodes. You know, of course, keeping in mind the legacy demand that we have for certain customers as well. But it's not as if I think we're at, at a position where on the leading edge, we're gonna be making, you know, significant action or drastic action.

Speaker 6: Hi, CJ. So we are evaluating, I think as I said, we are evaluating utilization. I would say that we're really having technology leadership. We definitely believe that the inventory at the leading edge that we're generating is very cost effective relative to the rest of the industry, relative to even what will be available for us in future quarters. So we're really on the utilization front focus on thinking about optimizing older nodes, like if he nodes.

Thanks P J.

We are evaluating as I said, we are evaluating utilization I would say that we're really.

We.

Having technology leadership with <unk>.

We believe that the inventory at the leading edge that we're generating is very cost effective relative to.

The rest of the industry relative to even what will be available for us.

Future quarters so.

We're really on the utilization front focused on thinking about optimizing older nodes legacy nodes.

Speaker 6: You know, of course, keeping in mind the legacy demand that we have for certain customers as well. But it's not as if I think we're at a position where on the leading edge we're going to be making, you know,

Of course, keeping in mind, the legacy demand that we have for certain customers as well but.

But it's not as if I think we're at a position where on the leading edge, we're going to be making.

Significant action to address the tax and then.

Speaker 6: significant action, for drastic action. And then, you know, and I, as I mentioned before, when,

Sumit Sadana: Then, you know, as I mentioned before, previously, when I think Joe or Tom had asked about this, you know, we're still planning on ramping our 1-beta and 232-layer technologies later this year. We think it's very important that we maintain the technology cadence and the, the, you know, the learning and the, you know, drive the adoption of those technologies, and that'll happen in fiscal year 2023 as well.

<unk>.

And as I mentioned before.

Okay.

Speaker 6: previously went to the show or Tom had asked about this. You know, we're still planning on ramping our one beta in two, three, two technologies later this year. We think it's very important that we maintain that technology cadence and the learning and drive the adoption of those technologies and that'll happen in just a year, 23 years.

Previously I think Joe or comment asked about this.

We're still planning on ramping our one data and 232 technologies. Later this year, we think it's very important that we maintain the technology cadence.

The learning and the <unk>.

The adoption of those technologies and that will happen in fiscal year 'twenty three as well.

[Analyst] (Evercore): Very helpful. And I guess there's just a quick follow-up. Are there any targets you have for inventory that you can share with us, and in what kind of time frame?

C.J. Muse: Very helpful. And I guess there's just a quick follow-up. Are there any targets you have for inventory that you can share with us, and in what kind of time frame?

Speaker 9: We're helpful and I guess it's just quick follow up. Are there any targets you have for inventory that you can share with us and what kind of time print?

Very helpful and I guess, just a quick follow up are there any target.

Do you have for inventory that you can share with us what kind of timeframe.

Mark Murphy: C.J., the only target that, you know, we can provide is the previous level of discomfort target, I guess maybe you'd call it. You know, I think we'd like to keep it below 150 days. We do think it'll go up in the, well, it will go up in Q4 on DIO. I think I gave a number of a couple of weeks, and we'll just have to see where it goes from there. That's a function of, you know, market conditions, as you know.

C J the only target.

Speaker 5: You know, we can provide as the previous level of discomfort target, I guess, maybe you call it. I think we'd like to keep it below 150 days. We do think it'll go up in the...

You can provide us the previous level of discomfort target I guess, maybe you can call. It I think we.

We'd like to keep that below a 150 days we.

We do think it'll go up in the <unk>.

It will go up in the fourth quarter.

On <unk> I think I gave a number of a couple of weeks.

And we will just have to see where it goes from there that's a function of.

Market conditions as you know.

[Analyst] (Evercore): Thanks so much.

C.J. Muse: Thanks so much.

Sure.

Thanks, so much.

Operator: Thank you. Our next question comes from Srini Pajjuri of SMBC Nikko. Your line is open.

Speaker 2: Thank you. Next question comes from Serini Pajuri of SMBC Nico. Your line is open.

Thank you. Our next question comes from Serena <unk> SMB Simi call. Your line is open.

[Analyst] (SMBC Nikko): Thank you. A couple from me as well. First, on the PC and smartphone weakness, you know, you talked about inventory correction. Just curious, I mean, do you think it's a one-quarter event? Meaning, do you think the inventories, you know, customers will normalize, you know, after this quarter? Or do you see, you know, further, you know, potential for kind of a correction going forward, if assuming that, you know, demand kind of stabilizes here? Then I have a follow-up.

Srini Pajjuri: Thank you. A couple from me as well. First, on the PC and smartphone weakness, you know, you talked about inventory correction. Just curious, I mean, do you think it's a one-quarter event? Meaning, do you think the inventories, you know, customers will normalize, you know, after this quarter? Or do you see, you know, further, you know, potential for kind of a correction going forward, if assuming that, you know, demand kind of stabilizes here? Then I have a follow-up.

Thank you a couple from me as well first on the PC and smartphone weakness you talked about inventory correction.

Speaker 10: Thank you, a couple for me as well. First on the PC and smartphone, the weakness, you know, you talked about inventory correction. Just curious, I mean, do you think it's a one quarter event, meaning do you think the inventories, you know, will, customers will normalize, you know, after this quarter, or do you see, you know, further, you know, potential for kind of a correction, going forward, assuming that, you know, demand kind of stabilizes here, then I have a follow-up.

Just curious I mean do you think it's a one quarter event, meaning do you think the inventories.

Customers will normalize.

After this quarter or do you see.

The potential for kind of a correction going forward, if assuming that demand kind of stabilizes here then I have a follow up.

Speaker 11: Typically, we see that in any given segment when customers start to correct inventory, it is a couple of quarters.

Really we see that.

In any given segment.

Customers start to correct inventory.

It is a couple of quarters.

Speaker 11: Both of us are able to get down to their own internal target levels of inventory. That of course assumes a critically booked macroeconomic environment and demand trends in their own segment.

Both of our process.

So getting down to.

On their own internal target levels of inventory.

That of course assumes a predictable.

The macroeconomic environment and demand trends in their own segment.

And so obviously.

There is concern about the trajectory of the macroeconomic environment that can.

Further create another vector of.

Uncertainty that has to be dealt with but typically it takes a couple of quarters for the inventory to get normalized.

[Analyst] (SMBC Nikko): And we're talking both PC and smartphone, Sumit, that started this quarter, so we're talking two quarters, basically, from current quarter?

Srini Pajjuri: And we're talking both PC and smartphone, Sumit, that started this quarter, so we're talking two quarters, basically, from current quarter?

And we're talking both PC and smartphone that started this quarter. So we're talking two quarters basically from current quarter, Yes, I mean, that's the reason we said that we see this playing out.

Manish Bhatia: Yeah. I mean, that's, that's the reason we said that, you know, we see this playing out sort of in the second half of calendar 2022 as the biggest portion of the impact of the lowered sell-through rates in the end markets in those segments, as well as the inventory correction.

Sort of in the second half of calendar 'twenty two as the biggest portion of the.

Impact of the load.

Sell through rate.

In the end markets in those segments as well as the inventory correction.

[Analyst] (SMBC Nikko): Okay, got it. And then, on your own balance sheet inventory, Mark, you know, you talked about $150 is kind of, you know, where, you know, you'll start getting uncomfortable. But if I look at your historic inventory, I think it peaked out around $130s, in a mid-$130s. So I'm just curious, what changed, you know, in the last, I guess, in a year or two, that, you know, you are more comfortable even at $150? I guess, why has that level gone higher? And then the other side of the question is that, you know, you did say that, you know, you want kind of, you know, you're going to maintain pricing discipline and also use your inventory, to kind of, you know, supply into the market next year.

Srini Pajjuri: Okay, got it. And then, on your own balance sheet inventory, Mark, you know, you talked about $150 is kind of, you know, where, you know, you'll start getting uncomfortable. But if I look at your historic inventory, I think it peaked out around $130s, in a mid-$130s. So I'm just curious, what changed, you know, in the last, I guess, in a year or two, that, you know, you are more comfortable even at $150? I guess, why has that level gone higher? And then the other side of the question is that, you know, you did say that, you know, you want kind of, you know, you're going to maintain pricing discipline and also use your inventory, to kind of, you know, supply into the market next year.

Speaker 10: Okay, got it. And then on your own balance sheet inventory, Mark, you know, you talked about 150 is kind of, you know, where.

Okay got it and then on your own balance sheet inventory Mark.

You talked about 150 is kind of where you.

Speaker 10: You'll start getting uncomfortable. But if I look at your historic inventory, I think it peaked out around one in a 30s and a mid one 30s. So I'm just curious.

Youll start getting uncomfortable, but if I look at your historic inventory I think it peaked out at around one <unk> in the mid 100, <unk>. So I'm just curious what changed.

Speaker 10: what changed in the last year or two that you are more comfortable even at 150? Why is that level gone higher? The other side of the question is that you did say that you want...

In the last I guess year or two that you're more comfortable even at $1 50, I guess why is that level gone higher and then the other side of the question is that you did say that you want kind of.

Youre going to maintain pricing discipline and.

And also use your inventory.

Kind of supply into the market next year. So I guess at some point the inventory will come down as you lower your production growth.

[Analyst] (SMBC Nikko): So I guess at some point, the inventory will come down as you lower your production, you know, growth. What is the minimum level that you're comfortable? I mean, I'm looking at, I guess, you know, a few quarters ago, you're in the low 90s. So I'm just curious, you know, what is the minimum level that you're comfortable? When do you have to ramp up, you know, production again, at what level? Thank you.

Srini Pajjuri: So I guess at some point, the inventory will come down as you lower your production, you know, growth. What is the minimum level that you're comfortable? I mean, I'm looking at, I guess, you know, a few quarters ago, you're in the low 90s. So I'm just curious, you know, what is the minimum level that you're comfortable? When do you have to ramp up, you know, production again, at what level? Thank you.

Speaker 10: What is the minimum level that you're comfortable? I mean, I'm looking at I guess, you know, a few quarters ago, you're in the low 90s. I'm just curious, you know, what is the minimum level that you're comfortable? When you have to wrap, you know, production again, at what level?

What is the minimum level that youre comfortable I mean im looking at I guess, a few quarters ago. You are in the low 90 days. So I'm just curious what is the minimum level that you're comfortable with.

When do you have to ramp up production again at what level. Thank you.

Mark Murphy: ... Yeah, so, there was no news today on the call, actually. It was more a validation of, of, ranges that have been set before. I did comment on, you know, there are some headwinds in the sense of, on DIO around, more complex processing and, you know, that- the, the cycle time in the fab would be longer and more WIP. There's more complex modules, and there's the associated components with those, and assembly times and so forth. So I think, I think all that is a headwind, but at the same time, you know, the team's doing a lot of things to offset those. And so I was validating that, you know, the number that we've provided before of about 150 is, is, is a maximum level.

Speaker 5: Yeah, so there was no news today on the call. Actually, it was more validation of ranges that had been set before. I did comment on, you know, there's some headwinds in the sense of, on DIO around more complex processing and, you know, that the cycle time in the fab would be longer and more with. There's more complex modules and there's the associate components with those.

Yes so.

There is no news today on the call actually it was more of a validation of.

Range has that had been set before.

I did comment on yes, there is some headwinds in the sense of.

On tio around more complex processing and yeah that.

The cycle time in the fab would be longer and more web.

More complex modules.

Associated components with those.

Speaker 5: assembly times and so forth. So I think all that.

Assembly times, and so forth. So I think I think all of that is.

Speaker 5: is a headwind but at the same time uh... you know the team doing a lot of things are offset those and so i was

As a headwind, but at the same time.

The team's doing a lot of things offset those and so I was <unk>.

Speaker 5: validating that the number that we've provided before of about 150 is a maximum level. Normal levels have also been talked about before around 100 days. The number that you cited in low 90s is a level that we would view as good, lean inventory levels for our business.

Validating that.

The number that we've provided before of about 150.

As a maximum level.

Normal <unk>.

<unk> have also been talked about before around 100 days so.

So the number that that you that you sited low 90 days is a level that we would view as.

Good lean inventory levels for our business.

[Analyst]: Got it. Thank you.

Got it. Thank you.

Got it thank you.

Sumit Sadana: I'll just add one comment there, just Srini. I mean, these things always are the trend in the industry, and it doesn't matter whether you look at the logic in this logic side or you look at memory. The trend is longer and longer processing time and cycle time in the fabs, right? So that's more fab WIP. For us, specifically, then, you add in the fact that we're transforming more of our business and, in general, more industry demand moving towards high-value solutions like SSDs, like data center DRAM modules. These things have longer cycle time in the back end, as well as more component inventory required to be held for the back end as well.

Speaker 6: Okay, I'll just add one comment there, just three needs to come in. These things, we always hard, the trend in the industry, and it doesn't matter whether you look the logic into subject side or you look at memory. The trend is longer and longer, processing time and cycle time in the fab, right? So that's more of fab way.

Yes, I'll just add one comment there just <unk>.

These things are.

The trend in the industry and it doesn't matter whether you look at the logic in this budget side or you look at memory, the trend is longer and longer processing time and cycle time in the fab right. So thats more fab width.

Speaker 6: For us, specifically then, you add in the fact that we're transforming more of our business and, in general, more industry demand moving towards high-value solutions like FSDs, like data center DRM modules. These things have longer cycle time in the back end, as well as more component inventory required to be held for the back end as well. So when you think about all of those things, all of these...

For US specifically then you add in the fact that we're transforming more of our business and in general more industry demand moving towards high value solutions like Ssds like data Center DRAM modules. These things have longer cycle time in the backend as well as more component inventory required to be held for the back end as well. So when you think about.

Sumit Sadana: So when you think about all of those things, all of these, whether you're talking about the lean inventory range or the max comfortable inventory range, those are things that, you know, generally across this industry, as technology becomes more complex and products become more complex, are gonna continue to keep going up, you know, over time. And the other thing just to keep in mind, and we talked about this at our Investor Day, is one of the trends in the industry over the last several years, now, again, speaking about memory, that's helpful to allow us to hold more inventory, is the cost declines are lower now, than they were a decade ago, from technology transition.

All of those things all of these.

Speaker 6: Whether you're talking about the lean inventory range or the max comfortable inventory range, those are things that generally across this industry has technology become more complex and products become more complex, we're gonna continue to keep going up.

Whether you are talking about the lean inventory range or the Max comfortable inventory range. Those are things that generally across this industry as technology becomes more complex and products become more complex. They are going to continue to keep going up.

Overtime.

Speaker 6: I mean the other thing just to keep in mind and we talked about this at our investor days, one of the trends in the industry over the last several years now against speaking about memory that's helpful to allow us to hold more injuries across the clients are lower. Now then they were a decade ago from technology transition. So

And the other thing just to keep in mind and we talked about this at our Investor Day is one of the the.

The trends in the industry over the last several years now again speaking about memory.

Helpful to allow us to hold more inventory as the cost declines are lower now.

And then they were a decade ago from technology transition so.

Through this next period, while we're working down our inventory.

[Analyst]: Very helpful. Thank you.

Very helpful. Thank you.

Sure.

Operator: Thank you. Our next question comes from Steven Fox of Fox Advisors. Please go ahead.

Speaker 2: Thank you. Our next question comes from Stephen Fox of Fox Advisors. Please go ahead.

Thank you. Our next question comes from Steven Fox with Fox Advisors. Please go ahead.

Speaker 16: Thanks. Good afternoon. Two questions first. On the Gross Margin Guidance for the Quarter, I think your your guiding down about 500 basis points roughly quarter over quarter. Can you sort of break that out between, I assume a bulk of that is just sheer volume, both anything you can provide color on how much is related to mix, pricing, et cetera. And then I had to follow up.

Thanks, Good afternoon, two questions first.

To provide color on how much is related to mix pricing et cetera.

And then I had a follow up.

Mark Murphy: Yeah, I won't go into the details, but the sequential decline third to fourth is just driven by market trends or yeah dynamics in the market. The, you know, the second quarter to third quarter was driven by a higher mix in demand, that decline.

Speaker 5: Yeah, I won't go into the details, but the sequential decline third to fourth is just driven by market trends or dynamics in the market.

Yeah, I won't go into the details, but the sequential decline third to fourth is just driven by market trends are.

Dynamics in the market.

Yes.

Speaker 5: Yeah, the second quarter, the third quarter, was driven by a higher mix of man, that decline.

Yes.

Second quarter to third quarter was driven by a higher a higher mix of NAND that decline.

[Analyst] (Fox Advisors): Got it.

Steven Fox: Got it.

Mark Murphy: Q3, Q4-

[Analyst] (Fox Advisors): And then in terms of-

Steven Fox: And then in terms of-

Got it.

Mark Murphy: Go ahead.

Third point.

[Analyst] (Fox Advisors): Third quarter from second quarter. Yeah, I got, I got that. And then,

Speaker 16: their quarter effect from second quarter. Yeah, I got that. And then I would just, I would just, I'm sorry, just one thing to add. So, you know, beyond the fourth quarter.

Go ahead.

Steven Fox: Third quarter from second quarter. Yeah, I got, I got that. And then,

Sure Sir.

From second quarter, Yes got that and then on average I think.

Mark Murphy: I would just... I'm sorry, just one thing to add. So, you know, beyond the fourth quarter, you know, as we've talked about, as these inventories are elevated and the market works through this, this period, we would expect that to weigh on, on gross margins. So, you know, I just wanna make sure that, that's clear.

Yes, I am sorry, just one thing to add so.

Beyond the fourth quarter.

As we've talked about as these inventories are elevated in the market works through this period.

We would expect that to weigh on gross margins. So.

Yes, I just want to make sure that that's clear.

[Analyst] (Fox Advisors): That's helpful. And then, just on the long-term agreements, I mean, I understand, you know, this is unusual times, but I mean, you, you just spent the last several quarters putting some long-term agreements into place, and they seem, as soon as things got tough, to unravel a bit. So I guess you, you would kind of- it sounded like you were kind of describing some benefits that are still coming through from the long-term agreements, even as demand slows here. I'm just not clear on what those are. So can you maybe talk to the, I guess, that comment and the question I just put out there? Thanks.

Steven Fox: That's helpful. And then, just on the long-term agreements, I mean, I understand, you know, this is unusual times, but I mean, you, you just spent the last several quarters putting some long-term agreements into place, and they seem, as soon as things got tough, to unravel a bit. So I guess you, you would kind of- it sounded like you were kind of describing some benefits that are still coming through from the long-term agreements, even as demand slows here. I'm just not clear on what those are. So can you maybe talk to the, I guess, that comment and the question I just put out there? Thanks.

Speaker 16: That's helpful. And then just on the long term agreement, so I mean, I understand this is unusual times, but I mean, you just spent the last several quarters putting some long term agreements into place and they seem as soon as things got tough to unraveled a bit. So I guess you would kind of, it sounded like you were kind of describing some benefits that are still coming through from the long term agreements, even as demand slows here. I'm just not clear on what those are. So can you maybe talk to the, I guess that comment and the question. I just have to put it in.

That's helpful and then.

Just on the long term agreements I mean I understand.

This is unusual times, but.

You just spent the last several quarters, putting some long term agreements into place and they seem to as soon as things got tough to unraveled a bit. So I guess you were kind of it sounded like you had kind of describing some benefits that are still coming through from the long term agreements even as demand slows here I'm just not clear on what those are so can you maybe talk to that.

I guess that comment and the question I just put.

Put out there thanks.

Sure. So in terms of the long term agreements.

Speaker 11: So in terms of the long-term agreement, you know, we...

<unk>.

Speaker 11: We have been working on these for several years, used to be just over 10% of our revenue under long-term agreements five years ago and it's now 75% of our revenue under long-term agreements. So potentially, all of our large customers are under long-term agreements in terms of purchases. And I have mentioned this in the past that these agreements were never structured to be take or pay agreements.

We have been working on these for seven years.

To be just over 10% of our revenue under long term agreements five years ago, and it's now 75% of our revenue under long term agreements with substantially all of our large customers are under long term agreements in terms of purchases and I have mentioned this in the past that.

These agreements whenever structure being take or pay agreements.

Speaker 11: that our customers would buy the volume, come, come, Hello high water. It's more like very strong.

That our customers would buy the volumes come.

Manish Bhatia: It's more like a very strong, you know, good level of planning between our customers and us to ensure that we are driving alignment between their demand, our supply, allocation of bits to different customers, different segments, and the mechanism to drive shared dynamics in different customers and different segments. So our goal with these agreements is really to, you know, use these as a mechanism to drive the portfolio mix to where we want it to be. And we have mentioned in the past that our goal is to keep our supply bit share consistent over time in both DRAM and NAND, and strive for a bigger and bigger portion of the industry profit pool through moves in our product portfolio and mix.

Hello, Hi, water, it's more like.

Very strong.

Speaker 11: You know, good level of planning between our customers and us to ensure that we are driving alignment between their demand or supply allocation of this to different customers, different segments.

Good level of planning between our customers and us to ensure that we are driving alignment between their demand or supply.

Allocation of beds to different customers different segments, and the mechanism to drive share dynamics in different customers in different segments.

Speaker 11: and the mechanism to drive shared dynamics and different customers and different segments.

Speaker 11: So our goal with these agreements is really to use these as a mechanism to drive the portfolio of your mine.

So our goal with these agreements is really too.

Use these.

As the mechanism to.

Drive the portfolio mix to where we wanted to be and we have mentioned in the past that our goal is to keep our supply bit share consistent overtime in both DRAM and NAND.

And strive for a bigger and bigger portion of the industry profit pool through.

Speaker 11: moves in our product portfolio and mix and that's where we have had

Moves and our product portfolio and mix and Thats, where we have had tremendous success not just in improving our product portfolio, but also using these agreements to drive our product portfolio mix into a place, which gives us better profitability and improved stability.

Manish Bhatia: And that's where we have had tremendous success, not just in improving our product portfolio, but also using these agreements to drive our product portfolio mix into a place which gives us better profitability and improved stability. One example is that in the auto, industrial, networking, graphics type of segments, the margin stability through the cycle is much better compared to other segments of the market. And so our goal has been to drive higher share in those segments, and these long-term agreements become critical over time in driving that share. Now, that, that does not mean that, you know, we don't work with customers to have them purchase in that is consistent with these long-term agreements.

Speaker 11: Remend the success not just in improving our product portfolio, but also using these agreements to drive our product portfolio mix into a place which gives us

Speaker 11: better profitability and improved stability. One example is that in the

One example is that in the auto industrial networking graphics type of segments. The.

Speaker 11: Auto Industrial Networking Graphics Title Segment The

Speaker 11: margins stability through the cycle is much better compared to other segments of the market. And so our goal has been to drive higher share in those segments and these long-term agreements become critical over time in driving that share. Now that does not mean that we don't work with customers to have them purchase that is consistent with these long-term agreements. Of course we do.

Margin stability through the cycle is much better.

<unk> two <unk>.

Other segments of the market and so our goal has been to drive higher share in those segments and these long term agreements to come.

A critical time in driving that share now that does not mean that we don't.

Work with customers to have them purchase.

That is consistent with these long term agreements of course, we do.

Manish Bhatia: Of course, we do, but I think to be fair to our customers as well, when these kinds of significant macro events occur, it's not like, you know, that is a feasible outcome. So I think, I think we use these in a way that meets our overall company goals in a very effective manner, recognizing what the, you know, limitations are of these agreements and what, what they are meant to do and what they're not meant to do. So hopefully that helps.

But.

Speaker 11: I think to be fair to our customers as well when you kind of significant macro events occur. It's not like, you know, that is feasible outcome.

Thanks to be fair to our customers as well and then kind of significant.

Macro events upper.

It's not like.

That is feasible outcome.

So I think I think we use this in a way that mean subtle company goals and a very effective manner, recognizing what the limb.

Our limitations are of these agreements.

What they are meant to do and what they are not going to do so hopefully that helps.

[Analyst] (Fox Advisors): Yeah, that's great color. Thank you so much.

Steven Fox: Yeah, that's great color. Thank you so much.

Yes, that's great color. Thank you so much.

Operator: Thank you. Our next question comes from Vijay Rakesh of Mizuho. Your line is open.

Speaker 2: Thank you our next question comes from Vijay Rakesh, Mazzouha, your line is up.

Thank you. Our next question comes from Vijay Rakesh with Mizuho. Your line is open.

Speaker 3: Yeah, hi guys, just a quick question here. I know you mentioned inventories are high on PC handsets and I think people are seeing that, but let me give us some, we have quantifying that what are the inventory levels on the PC handset and on the cloud side now and versus what are normal levels.

Yeah, Hi, guys just a quick question.

I know you mentioned inventories are high on PC handsets and I think.

Seeing that but I was wondering if you could give us some way of quantifying that what are the inventory levels on the PC handset.

On the cloud side.

Now versus normal levels.

Manish Bhatia: Yeah. So I think in terms of PC and smartphones, and then, you know, you look at cloud. I think it's a generalized comment across the industry that as the industry over the last semiconductor industry, and this goes beyond memory and storage. You know, as the industry went through a significant shortage in semiconductors, definitely that was one driver of customers wanting to have higher levels of inventory. Another was all of the geopolitical risks in terms of impact to shipments. And then the last piece was shutdowns happening in different parts of the world due to COVID-related restrictions being put by individual local and federal governments around the world.

Speaker 11: Yeah, so I think in terms of VC and smartphone

Yes, I think in terms of PC and smartphone.

Speaker 11: And then you look at Cloud, I think it's a generalized comment across the industry that

And then you look at cloud I think it's <unk>.

Generalized comment across the industry that.

As the industry over the last semiconductor industry and this goes beyond memory and storage.

As the industry went through a significant shortage in semiconductors definitely that was one <unk>.

Driver of customers wanting to have higher levels of inventory in other words all of the geopolitical risks in terms of.

Impact to shipments.

Speaker 11: And then the last piece was shutdowns happening in different parts of the world due to COVID related.

And then the last piece was shutdowns happening in different parts of the world due to Covid related.

Speaker 11: restrictions being put by individual local and federal governments around the world. So all of these conspired to cause

The restrictions being put by individual local and federal governments around the world. So all of these.

Conspired to cause customers to feel like they need to have better level of inventory and customers, who couldnt get to those inventory levels and one. Good example of that is automotive companies.

Speaker 11: customers to feel like they need to have better level of inventory and customers who couldn't get to those inventory levels and one good example of automotive companies. You can see the significant impact on revenue that those segments and those companies have suffered as a result of not having adequate inventory. So I think across several segments.

Can see the significant impact on revenue that those segments and those companies have suffered as a result of not having adequate inventory. So I think across several segments.

There has been.

Speaker 11: higher level of inventory than what existed pre-COVID. And the question is how will that trajectory of inventory in terms of weeks or sales change?

Higher level of inventory than what was what existed pre COVID-19.

And the question is how will that trajectory of inventory in terms of weeks of sales.

Change over time.

Especially as the industry.

<unk> two a phase the whole semiconductor industry gets to a phase where fewer and fewer components are.

In short supply so I think that part is.

Manish Bhatia: So I think that part is, you know, different customers and different parts of the market will make their own determination on these things. But coming specifically to the PC and smartphone portion of the business, the volumes in each of these in terms of TAM for 2022 are down roughly 10% from the expectations for 2022 at the start of this calendar year. So with that degradation in sell-through expectations, obviously, the inventory levels consequently from a weeks of sales perspective appears even bigger, and so there is a need for that adjustment.

Different customers in different parts of the market will make their own determination on these things.

Speaker 11: but coming specifically to the PC and smartphone portion of the business, the volumes in each of these in terms of time for 22 are down to roughly 10%.

But coming specifically to the PC and smartphone portion of the business the volumes.

Volumes in each of these in terms of Pam 422 are down roughly 10% from.

Speaker 11: from the expectations for 22 at the start of this calendar year.

From the expectations for 'twenty two at the start of this calendar year.

Speaker 11: So with that degradation and self-through expectations, obviously the...

So with that degradation in sell through expectation obviously.

The.

Speaker 11: inventory levels consequently from a week. So sales perspective appears even bigger. And so there is a need for that adjustment. So I think those were some of the

Inventory levels. Consequently from a sales perspective appears even bigger and so there is a need for that adjustment. So I think those were some of the catalysts that.

Speaker 11: catalyst that created that impact on RQ4 and what we have projected for

Created.

That impact on our Q4 and what we have projected for.

Speaker 11: you know, the rest of the calendar year, this year, in terms of when we expect the inventory correction to sort of play out in those seconds.

The rest of the calendar year this year.

In terms of when we expect the inventory correction to sort of play out.

Those segments.

[Analyst] (Mizuho): Got it. And so looks like you're talking more to a 10% discrepancy, but are you seeing a higher inventory level on the DRAM side or the NAND side? If you can give a little bit of color around that, and that's it. Thank you.

Vijay Rakesh: Got it. And so looks like you're talking more to a 10% discrepancy, but are you seeing a higher inventory level on the DRAM side or the NAND side? If you can give a little bit of color around that, and that's it. Thank you.

Got it.

So it looks like Youre talking more to a 10 person discrepancy but.

Is there.

Are you seeing a higher inventory level on the DRAM side or the demand side.

And on that and Thats it. Thank you.

Speaker 11: So, you know, just for clarity, right? That 10% was a number. It was the number of units.

So just for clarity right that 10% was a number.

It was the number of units.

Speaker 11: that are lower in the TAM expectation for calendar 22 for PC and smartphone global unit sales versus expectations from six months ago. And the impact on our revenue, of course,

That are lower in the Tam expectation for calendar 'twenty, two for PC and smartphone global unit sales versus expectations from six months ago.

And the impact on our revenue of course.

Speaker 11: is not just on the reduction and end demand self-rule, but also on top of that the inventory reduction. I just wanted to clarify that the inventory reduction is on top of the...

It's not just on the reduction in end demand sell through but also on top of that the inventory reduction right. So I just wanted to clarify that the inventory reduction is on top of the.

Speaker 11: reduction on the end market week. So I just I just I just want to make sure that it's not just

The reduction on the end market.

Because.

So I just wanted to make sure that it's not just about 10%.

Vahan Hovsepian: Yeah. Yeah, and 10% is for the full year. Second, the impact to us in the second half is more, as-

Yes.

Speaker 3: 10% is for the full year. Okay, the impact to us in the second half.

Yes, and 10% for the full year.

Back to us in the second half.

Speaker 3: That's a very good, very important point that for us most of the impact of our full year is going to happen.

Manish Bhatia: Yeah.

Vahan Hovsepian: - we said in the last call.

There's more.

Manish Bhatia: Yeah, that's a very good, very important point, that for us, most of the impact of that full year is going to occur in the second half of the calendar year.

Yes.

Yes, that's a very good very important point that.

Most of the impact of first full year is going to occur.

The second half of 2000.

Vahan Hovsepian: Got it. Thank you.

Yes.

Got it thank you.

Operator: Thank you. Our next question comes from Sidney Ho of Deutsche Bank. Your line is open.

Speaker 2: Thank you. Your next question comes from Sydney Hall of Deutsche Bank. Your line is open.

Thank you. Our next question comes from Sidney Ho of Deutsche Bank. Your line is open.

[Analyst] (Deutsche Bank): Hey, thanks. So, in terms of the demand side of things, you talk a lot about PC and smartphones, but you also make a comment that enterprise OEMs are adjusting the memory and storage inventory because of shortages in non-memory components and macro. I want to see if you can give us a little more color. Any precedents that you can point to, to see how long this correction could play out and maybe the magnitude of those kind of adjustments in the past? And I'll have a follow-up question. Thanks.

Sidney Ho: Hey, thanks. So, in terms of the demand side of things, you talk a lot about PC and smartphones, but you also make a comment that enterprise OEMs are adjusting the memory and storage inventory because of shortages in non-memory components and macro. I want to see if you can give us a little more color. Any precedents that you can point to, to see how long this correction could play out and maybe the magnitude of those kind of adjustments in the past? And I'll have a follow-up question. Thanks.

Speaker 12: Hey, thanks. So in terms of the demand side of things, we talked a lot about PC smartphones, but you also make a comment that enterprise OEMs are adjusting the memory and storage inventory because of shortages in memory components and macro. Why don't we see if you can give us a little more color? And any president that you can point is to see how long this correction to play out and maybe the magnitude of those kind of adjustments in the past. And I'll have a follow-up question.

Hey, thanks.

And in terms of the demand side of things.

You talked a lot about PC and smartphones, but you're also making the comment that enterprise OEM, suggesting the memory and storage inventory because of shortages in memory component is it macro.

One wanted to see if you can give us a little more color and any precedents that you can point to to see how long. This correction could play out and maybe the magnitude of those kind of adjustments in the past and now have a follow up question. Thanks.

Manish Bhatia: Yeah, I think the issue on that side is different than the issue on the PC and smartphone side. So whereas in PC and smartphones, the end demand trends are clearly weak, and the sell-through is clearly weak, and there has been a substantial degradation in expectations for this year's TAM from six months ago to now. By contrast, the server business and the trends of end demand, even in enterprise server, on our OEM customers in that space, are healthy. And our customers continue to report robust backlogs and good, good server demand. I think the concern is that you know, some of them are obviously data center generally across cloud and enterprise, and including small and medium businesses.

Speaker 11: Yeah, I think the issue on that side is different than the issue on the PC and smartphone side. So whereas in PC and smartphones, the MDM trends are clearly weak and the cell...

Yes, I think.

The issue on that side is different.

The issue on the smartphone side, so it hasnt BCN smartphones the end demand trends are clearly weak.

And the sell through was clearly weak.

Speaker 11: and there has been a substantial degradation in expectations for this year's time from six months ago to now. By contrast, the server business and the trends of end demand

And there has been a substantial degradation in.

Expectations for this year's time from six months ago to now.

By contrast, the server business and the trends of end demand.

Speaker 11: Even an enterprise server on our OEM customers in that space are held in.

Even in enterprise server on our OEM customers in that space are healthy.

Speaker 11: and our customers continue to report robust backlogs.

And our customers continue to report robust backlog.

Speaker 11: and good, good forward to man. I think the concern...

And and good good solid demand.

I think the concern is that.

Speaker 11: Some of them are obviously data center, generally across cloud and enterprise, and including small and medium businesses. The builds of servers are not being able to be completed to the extent of the end demand because of shortages of certain parts that are still persisting, including, for example, network interface cards as an as one example. And then there are others.

Some of them are obviously.

Data center generally across cloud and enterprise.

Including small and medium businesses.

The bids of servers on not being able to be completed to the extent of the end demand because of shortages of.

Certain costs that are still persisting.

Including for example network interface cards isn't as one example.

And then there are others.

Speaker 11: So that's one factor that's preventing them from completing builds and meeting end demands. And then the other factor is just the general cautiousness.

So that's one factor that's preventing.

Preventing them from completing builds and meeting end demand and then the other factor is just the general cautiousness.

Speaker 11: that is creeping in, driven by some of these macroeconomic factors. But we are trying to just be extremely transparent and lay out what we see and what we hear very openly.

That is creeping in.

Driven by some of these <unk>.

Manish Bhatia: But I just, you know, we are trying to just be extremely transparent and lay out what we see and what we hear very openly, because, you know, that caution is happening, causing them to reduce some of their inventories or wanting to reduce their inventories, in spite of, at least today, what is clearly robust demand on the end customer side.

Macro economic factors.

We are trying to just be extremely transparent and lay out what we see and what we hear very openly.

Speaker 11: because that caution is happening, causing them to reduce some of their inventories or wanting to reduce their inventories.

Because.

That caution is happening.

Causing them to reduce some of their inventories are wanting to reduce their inventory.

Speaker 11: in spite of, at least today, what is clearly robust demand on the end customer side.

In spite of at least today, what is clearly robust demand on the end customer side.

[Analyst] (Deutsche Bank): Okay, that's, that's helpful. Maybe a follow-up question is, Mark, I want to elaborate on a comment earlier that you said beyond fiscal Q4, that the planned inventory builds will weigh on gross margin. But I thought it would actually help your gross margin, because you keep your utilization higher than the current demand indicates. But the other question I have, is there a framework that we can use to help understand where gross margin is going to bottom, and when is any kind of inflection point we can think about? Obviously, pricing is a big factor here, but are there things that are within your control, whether it's technology transitions or maybe utilization starts to improve? Thanks.

Sidney Ho: Okay, that's, that's helpful. Maybe a follow-up question is, Mark, I want to elaborate on a comment earlier that you said beyond fiscal Q4, that the planned inventory builds will weigh on gross margin. But I thought it would actually help your gross margin, because you keep your utilization higher than the current demand indicates. But the other question I have, is there a framework that we can use to help understand where gross margin is going to bottom, and when is any kind of inflection point we can think about? Obviously, pricing is a big factor here, but are there things that are within your control, whether it's technology transitions or maybe utilization starts to improve? Thanks.

Speaker 12: Okay, that's helpful. Maybe a follow-up question is, Mark, I want to elaborate on a comment earlier that he said beyond fiscal fourth quarter, that the planned inventory bill to be way on gross margin. But I thought it would actually help you, gross margin because you keep your utilization highest and the current demand indicates.

Okay. That's that's helpful. Maybe a follow up question is mark.

Elaborate on a comment earlier that you said beyond fiscal fourth quarter that the planned inventory build will weigh on gross margin, but I thought it would actually help your gross margin because you keep utilization higher than the current demand indicators, but the other question I have is there a framework that we can use to help understand where gross margins in the bottom.

Speaker 12: But the other question I have is there a framework that we can use to help understand where gross margin is going to bottom and when is the any kind of selection point we think about obviously pricing is a big factor here. But are there things that are within your control what is technology transition or maybe utilization starts to improve? Thanks.

And when do you see any kind of inflection point as we think about obviously pricing is a big factor here, but are there things that are within your control what is technology transitions old Navy utilization starts starts to improve.

Mark Murphy: Yeah, yeah, there's no comment about the, you know, we're not guiding the quarter. I mean was just a market commentary that, you know, the market's gotten weak, and, you know, these conditions of the market will continue to weigh on margins. That was the only comment. It's not a guide, and I'm certainly not going to comment on anything beyond that.

Yes, yes, there is no comment about.

We're not guiding the quarter mile or just the market commentary that you had.

The market has gotten a week.

And these conditions of the market will continue to weigh on margins that was the only comment.

Speaker 5: not a guide and I'm certainly not going to comment on the S.

It's not a guide and I'm certainly not going to comment on the.

Vahan Hovsepian: It was more a comment on inventory in the market, the customer inventory adjustments and that environment continuing, rather than anything about our inventory.

Anything beyond that it was more a comment on inventory in the market the.

The customer inventory adjustments.

That environment, continuing rather than anything about argument, yes, okay. That's clear.

Mark Murphy: Yes.

[Analyst] (Deutsche Bank): Okay, good. That's clear. All right. Thanks.

Sidney Ho: Okay, good. That's clear. All right. Thanks.

Alright. Thanks.

Operator: Thank you. Our next question comes from Raji Gill of Needham & Company. Your question, please.

Yeah.

Speaker 2: Thank you. I next question comes from Rajee Gil of Needham and Company. Your question.

Thank you. Our next question comes from Rajiv Gill of Needham <unk> Company. Your question. Please.

[Analyst] (Needham & Company): Yes, thank you, and this question is kind of a follow-up on the sequential decline. So if you look at the August decline, it's 17% down sequentially. That's the biggest decline sequentially for August in kind of recent company history. And you talked about, you know, an abrupt change to demand, a considerable change in demand. So I just wanted to see if you could compare and contrast what you're seeing with this level of abrupt in demand versus, say, when, you know, revenue declined pretty significantly back in kind of February 2019 or May 2019, when we were in the middle of the trade war with China, and there were sanctions against China.

Raji Gill: Yes, thank you, and this question is kind of a follow-up on the sequential decline. So if you look at the August decline, it's 17% down sequentially. That's the biggest decline sequentially for August in kind of recent company history. And you talked about, you know, an abrupt change to demand, a considerable change in demand. So I just wanted to see if you could compare and contrast what you're seeing with this level of abrupt in demand versus, say, when, you know, revenue declined pretty significantly back in kind of February 2019 or May 2019, when we were in the middle of the trade war with China, and there were sanctions against China.

Yes. Thank you and this question is kind of a follow up on the sequential decline.

So if you look at the August decline, 17% down sequentially.

The biggest declines sequentially for August .

Recent kind.

Speaker 13: kind of company history and you talked about uh... you know and abrupt change to demand a considerable change in demand but i just wanted to see if you can compare and contrast with your scene with this level of abruption demand versus a when you know revenue decline pretty significantly back in kind of that boy of nineteen or may have nineteen when we're in the middle of the trade war with with china their sanctions against china

Company history, and you talked about.

An abrupt change to demand a considerable change in demand. So I just wanted to see if you could compare and contrast, what you see.

This level of abruption demand versus say when revenue declined pretty significantly back in February of 19 or may of 19, when we're in the middle of a trade war with China and there are sanctions against China.

[Analyst] (Needham & Company): Is it similar in terms of certain dynamics, in terms of a significant cut in inventory that you're seeing from your customers? Is it more concentrated? It seems to be more concentrated in mobile and PC versus, say, last time, but I'm just curious how you're thinking about that. Because we've had a few of these are very abrupt macro impacts to demand.

Speaker 13: Is it similar in terms of certain dynamics, in terms of significant cut inventory that you think from your customers, is it more concentrated? It seems to be more concentrated in mobile and PC, versus say last time, but I'm just curious how you're thinking about that. Because we've got a few of these of very abrupt macro impacts to demand.

Raji Gill: Is it similar in terms of certain dynamics, in terms of a significant cut in inventory that you're seeing from your customers? Is it more concentrated? It seems to be more concentrated in mobile and PC versus, say, last time, but I'm just curious how you're thinking about that. Because we've had a few of these are very abrupt macro impacts to demand.

Is it.

Similar.

In terms of certain dynamics in terms of.

A significant cut in inventory that you're seeing from your customers is it more concentrated it seems to me we will come through in mobile and PC versus say last.

Last time, but im just curious how youre thinking about that because we've had a few of these are very abrupt macro impacts to demand.

Manish Bhatia: ... Yeah, I mean, I think if we look at the environment, and I understand the desire to use a framework from past declines, but if you look at the 2019 environment, that was the time that we had been seeing some weakness in the demand trend on the backs of 7 or 8 quarters of extraordinarily high increases in DRAM pricing that had caused, you know, DRAM margins to become unsustainably high, and the pricing to become unsustainably high due to significant shortage in the market. So I think that environment was entirely different, and the motivations of customers, and the actions of the customers was also pretty, pretty different. And so, you know, each environment brings with it its own sets of unique issues.

Speaker 11: Yeah, I mean, I think if we detect the environment and I understand the desire to use the flamble from past.

Yes, I mean, I think if we look at.

The environment and I understand the desire to use our framework from past.

Speaker 11: from past declines. But if you look at 2019 environment, that was the time that we had seen some wishes in the demand trend on...

From past declines, but if you look at 2019 environment that was the time that.

We had been seeing some weakness.

And the demand trend on the backs of.

Speaker 11: seven or eight quarters of extraordinarily high increases in DRAM pricing that had caused DRAM margins to unsustainably high and the pricing to become unsustainably high due

708 quarters of extraordinarily high increases in DRAM pricing.

That had caused.

<unk> margin unsustainable.

Unsustainably high and the pricing to become unsustainably high.

Speaker 11: significant shortage in the market. So I think that environment was entirely different and the motivations of customers.

Significant shortage in the market. So I think that environment was entirely different than the motivations of customers.

Speaker 11: and the actions of the customers was also pretty different. And so, each environment brings with it its own sets of unique issues. And so I think the way to think about the FQ4 number, yes, I mean, definitely the environment wasn't quickly laid in our FQ3. And we have had,

And the actions of the customers was also pretty clearly different.

So each environment brings with it its own set of unique issues.

Manish Bhatia: And so I think the way to think about the FQ four number, yes, I mean, definitely, the environment worsened quickly late in our FQ three, and you know, we have had primarily the consumer portions of the market, the PC, smartphone, and consumer segments, channel, et cetera, be the ones that are driving a lot of this weakness, especially in our FQ four. I will call out that within that context, you know, we spoke about in the Q&A earlier today, the impact of China has been pretty significant. The weakness in China is very pronounced. We spoke about the trajectory we were on, that we believe we were on a quarter ago, for FQ four versus our current guide for China revenue.

And so I think the way to think about the FQ4 number yes, I mean definitely.

On the environment.

Worsened quickly late in our FQ3.

And.

And we have.

Had.

Speaker 11: Primarily, the consumer portions of the market, the BT smartphone and consumer segments channel, et cetera, be the ones that are driving the Lord of this weakness, especially in our actual...

Mentally.

The consumer portions of the market.

<unk> smartphone and consumer segments channel et cetera.

The ones that are driving a lot of this.

Weakness.

Especially in that FQ4.

I will call out that within that context, we spoke about in the Q&A.

Earlier today.

The impact of China has been pretty significant the weakness in China is very pronounced.

Speaker 11: spoke about the trajectory we were on, that we believe we were on a quarter of a row, 4FQ4 versus a current guide for China revenue. Our China revenue is down 30% approximately from that trajectory to our latest forecast. And that itself has impacted our consolidated revenue by approximately 10%.

Let's talk about the trajectory we were wrong that we believed we were on a quarter ago.

For Q4 versus our current guide for China revenue, our China revenue was down 30% approximately.

Manish Bhatia: Our China revenue is down 30% approximately from that trajectory to our latest forecast, and that itself has you know, impacted our consolidated revenue by approximately 10%. So very significant impact coming from China. And, and then, of course, you know, we mentioned some inventory correction here and there, in the other segments that we mentioned in our prepared remarks with enterprise OEM sellers. So that's sort of the, the big picture that we just wanted to, highlight. Now, like we said, every environment is different, and how this plays out, you know, you're-- I'm sure you'll be watching for, trends, when other companies report to try and triangulate, you know, where this is going.

From that trajectory to our latest forecast and that itself has impacted our consolidated revenue by approximately 10%.

So very significant impact coming from China.

And then of course, you mentioned some inventory correction here and there.

And the other segments that we mentioned in our prepared remarks with enterprise OEM silver so.

That's sort of the.

Speaker 11: the big picture that we just wanted to highlight now. Now, like we said, every environment is different and how this plays out. I'm sure you'll be watching for friends when other company's report to try and triangulate where this is going.

The Big picture that we just wanted to.

Highlights now.

Like we said every environment is different.

And how this plays out.

Im sure youll be watching for.

Trend than other companies report to try and triangulate where this is going.

[Analyst] (Needham & Company): Yeah, no, that, that's super helpful. To follow up on that, sizing up the China impact was important to understand that. Any kinda, you know, fresh data points or insights now that China has, you know, reversed the lockdowns, because this appears to be primarily, you know, a China lockdown situation, combined with some of the other factors you talked about. But if the China lockdowns reverse, are there any indications that that region is stabilizing, or is it still to be determined?

Raji Gill: Yeah, no, that, that's super helpful. To follow up on that, sizing up the China impact was important to understand that. Any kinda, you know, fresh data points or insights now that China has, you know, reversed the lockdowns, because this appears to be primarily, you know, a China lockdown situation, combined with some of the other factors you talked about. But if the China lockdowns reverse, are there any indications that that region is stabilizing, or is it still to be determined?

Yes, that's super helpful and just just to follow up on that.

Sizing up the China impact was it was.

What's important to understand that.

Any kind of.

Fresh data points or insights now that China has.

Reverse the Lockdowns.

Speaker 13: Because this appears to be primarily a China lockdown situation combined with some of the other factors you talked about but the China lockdown's reverse

Because disappears to be primarily China lockdown situation combined with some of the other factors you talked about the China Lockdown reverse.

Speaker 13: Are there any indications of that region that if stabilized, New Yorkers are still to be determined?

Are there any indications of that region is stabilizing or is it still to be determined.

Manish Bhatia: I think the recent data points from the last month on, you know, smartphone sales in China still continue to be pretty weak.

Speaker 11: I think the recent data points from the last month on smartphone sales in China still continue to be pretty weak.

I think the recent data points from the last month.

Smartphone sales in China continued to be pretty weak.

[Analyst] (Needham & Company): Mm-hmm.

Raji Gill: Mm-hmm.

Speaker 11: And so a lot of the consumer spending remains to be seen how it actually starts to improve towards electronics and those types of items versus...

And so a lot of the consumer spending.

Remains to be seen how it actually.

Start to improve towards electronics, and those type of items versus <unk>.

[Analyst] (Needham & Company): Mm.

Raji Gill: Mm.

Manish Bhatia: So it's not just about the overall consumer spending, it's also about the categories of those spending, where consumers are choosing to shift their dollars. You know, a lot of inflation out there, just like everywhere else. So I think there is a lot of that. But also just keep in mind that the China economy and its weakness, you know, was a lot more pronounced than most parts of the world, and-

<unk>.

Was not more pronounced than most parts of the world and.

[Analyst] (Needham & Company): Mm

Raji Gill: Mm

Manish Bhatia: ... did proliferate beyond just the consumer segment of the market, right?

They proliferate beyond just the consumer segment of the market right. So the weakness in China was a broader economic weakness when the shutdown just shut down all economic activity that much of the economic activity gets shut down and so that has been pretty damaging and even though everyone sort of intellectually.

[Analyst] (Needham & Company): Mm-hmm.

Raji Gill: Mm-hmm.

Speaker 11: intellectually knows and understands that that is happening, this is probably one of the first few data points to understand the magnitude of some of these impacts.

<unk> understands that that is happening. This is probably one of the first few data points to understand the magnitude of some of these impacts.

[Analyst] (Needham & Company): Thank you.

Raji Gill: Thank you.

Thank you.

Operator: Thank you. Our next question comes from Nick Todorov of Longbow Research. Your line is open.

Speaker 2: Thank you. Next question comes from Nick Kodarov of Longbow Research. Your line is old.

Thank you. Our next question comes from Nick Todorov of Longbow Research. Your line is open.

[Analyst] (Longbow Research): Yeah, thanks for taking the question. Two questions on inventory, but Sumit, you touched on one of them. When you speak to your customers, in those conversations, where are they trying to land in terms of inventory on their shelves? Do you anticipate the inventory downstream to normalize to pre-COVID levels, or you think there's gonna be a new normal?

Nick Todorov: Yeah, thanks for taking the question. Two questions on inventory, but Sumit, you touched on one of them. When you speak to your customers, in those conversations, where are they trying to land in terms of inventory on their shelves? Do you anticipate the inventory downstream to normalize to pre-COVID levels, or you think there's gonna be a new normal?

Speaker 8: Yeah, thanks for taking the question. Two questions on inventory, and then some of you touched on one of them. When you speak to your customers in those conversations, where are they trying to land in terms of inventory on their shelves? Do you anticipate the inventory downstream to normalize to pre-COVID levels or you think there's gonna be a new normal?

Yes, thanks for taking the question two questions on inventory.

Some of you touched on one of them.

Can you speak to your customers.

Those conversations where are they trying to land in terms of inventory on their shelves do you anticipate the inventory downstream to normalize to pre COVID-19 levels or you think theres going to be a new normal.

Manish Bhatia: We think that the inventory will normalize to a level that is higher than where the pre-COVID levels were. I don't think enough distance has been put between the shortages and, you know, the experiences and memories are still very raw of that time. So I would be surprised if the inventories went all the way down to pre-COVID levels. There is still uncertainty around, for example, China's zero COVID policies and what that means in case more COVID cases come up in different parts of China. So those kind of uncertainties will probably cause customers to have even after they rationalize the inventory, a higher level of stable base, at least in the near term to medium term, compared to pre-COVID levels a little bit higher levels.

Speaker 11: We think that the inventory will normalize

We think that the inventory will.

Normalize.

Speaker 11: to a level that is higher than where the pre-COVID levels were. I don't think enough distance has been put between the shortages and, you know,

To a level that is higher than pre COVID-19 levels were I don't Henk enough distance has been put between the shortages and.

Speaker 11: The experiences and memories are still very raw at that time. So I would be surprised as the inventories went all the way down to pre-COVID levels.

The experiences and memories are still very raw that time, so I wouldn't be surprised as the inventories went all the way down to pre COVID-19 levels.

There is still uncertainty around for example, China's COVID-19 Vito Colby policies and what that means in case more COVID-19 cases come up in different parts of China. So those kind of uncertainties will probably cause customers to have.

Speaker 11: Even after they rationalize the inventory, a higher level of stable base, at least in the near term to medium term, compared to pre-COVID levels at a little bit higher levels.

Even after they've rationalized inventory at a higher level of stable base at least in the near term to medium term.

Compared to pre COVID-19 levels, a little bit higher levels.

Manish Bhatia: But then again, you know, how all of this transpires, I mean, this is just something we'll have to see. We're working very closely with customers, and as things improve, you know, sell-through improve over time, you know, China may decide to stimulate the economy in a significant way, and, you know, that can improve end demand. So those kind of trends then can quickly eat up the inventory once the sell-through improves, right? So these are all very dynamic numbers. They have their individual weeks of sales targets, but then the absolute value of the inventory is heavily determined by the trajectory of the future sales expectations. And that's really where, you know, a change in that trajectory, improvement in expectations of future sales can quickly quickly cause things to improve.

But then again.

How all of this transpires.

It's something we'll have to see we are working very closely with customers.

And as things improve sell through improve over time.

On China.

The site too.

Stimulate the economy in a significant way and that can improve and demand. So those kinds of trends and quickly eat up the inventory once the sell through improve right. So.

These are all very dynamic numbers they have their individual weeks of sales targets, but then the absolute value of the inventory is heavily determined by the trajectory of the future sales expectations and Thats really where.

A change in that trajectory improvement and expectations of future sales can quickly.

Quickly cause things to improve but again.

Manish Bhatia: But again, you know, there is the environment of the macroeconomic weakness that everyone's focused on, so it will take some time.

<unk>.

That is the environment of the macroeconomic weakness that everyone's focused on so it will take some time.

Speaker 8: Yeah, it makes sense. And second question is, can you talk about the inventory levels between DRM and NAND, maybe both internally in the channel and customers? Are there any meaningful differences between...

Manish Bhatia: I mean, our inventory levels are higher in NAND than in DRAM. I think if you look at the impact in terms of the TAM on all of these changes in unit forecast for PC, smartphones, and consumer markets, obviously, that's being felt in both DRAM and NAND markets. But internally, our own inventory is lower in the DRAM segment.

Speaker 11: I mean our inventory levels are higher than NAND than in DRAM.

I mean, our inventory levels are higher in NAND than in DRAM.

Speaker 11: So I think if you look at the impact in terms of the TAM, on all of these changes in unit forecast for PC smartphones, consumer markets, obviously that's being felt in both DRAM and Man Market.

So I think if you look at the impact in terms of the Bam on.

All of these changes in unit forecast for PC smartphones consumer market, obviously, that's being felt in both DRAM and NAND market.

Speaker 11: but internally our own inventory is lower in the data.

But internally our own inventory is lower than.

In the DRAM segment.

[Analyst] (Longbow Research): Okay. And at customers, is it fairly similar, or as you think that there's more NAND again?

Nick Todorov: Okay. And at customers, is it fairly similar, or as you think that there's more NAND again?

Yes.

Speaker 8: And then the customers is it fairly similar or is you think that there's more than and again?

Okay and then the customers is it fairly similar as you would think that Theres more NAND again.

Manish Bhatia: I can't see too many differences between DRAM and NAND. When customers go into this inventory reduction mode, they tend to reduce all semiconductor inventory of parts that they feel are readily available. So when, you know, different parts, even beyond memory and storage, are not in shortage across the semiconductor space, you know, they tend to go up and down, sort of, in a similar trajectory. Now, the inventory of products at customers may be at different levels. Different customers may have different levels of inventory of different semiconductor products, but generally, when they go into an inventory reduction mode, it's pretty broad-based approach.

Hi.

Speaker 11: I can't see too many differences between DRAM and NAND when customers go into this inventory reduction mode, they tend to reduce all semiconductor inventory of parts that they feel are readily available. So when different parts, even beyond memory and storage, are not in shortage across the semiconductor space, they tend to...

Can't see too many differences between DRAM and NAND when customers go into this inventory reduction mode. They tend to.

Reduce all semiconductor inventory of parts that they feel are readily <unk>.

Available so different.

Different parts, even beyond memory and storage.

Not in shortage.

Across the semiconductor space.

<unk> two <unk>.

Speaker 11: go up and down in a similar trajectory. Now, the inventory of products at customers may be at different levels. Different customers may have different levels of inventory of different semiconductor products. Butiggiofoid, as individual users, the utility of the equipment could be built against different user interfaces and AC, as individual users are very grateful for their awesome power of

Go up and down.

Sort of in a similar trajectory now the inventory off products.

Customers may be at different levels different customers may have different levels of inventory of different semiconductor products, but.

Speaker 11: Generally when they're going to inventory reduction mode, it's pretty broad based approach.

Generally when they go into.

Inventory reduction mode, it's pretty broad based approach.

[Analyst] (Longbow Research): Got it. Thanks for the answers.

Nick Todorov: Got it. Thanks for the answers.

Thanks for the answers.

Manish Bhatia: Sure.

Sure.

Operator: Our next question comes from Timothy Arcuri of UBS. Please go ahead.

Speaker 2: Next question comes from Timothy, our Curie of UBS. Please go ahead.

Our next question comes from Timothy Arcuri of UBS. Please go ahead.

[Analyst] (UBS): Hi, thanks. I just wanted to go back to this issue of LTAs, and I guess I'm a little surprised that customers would be able to reduce demand this quickly, unless you're getting something out of it. I mean, I certainly understand that it provides you visibility, and it helps you plan CapEx. But is there something that you're in a better position today versus if the same thing happened, you know, three or so years ago when you had less on LTA? Are you selling at a higher price, maybe in August, than you otherwise would have if you didn't have these LTAs? I'm just trying to...

Timothy Arcuri: Hi, thanks. I just wanted to go back to this issue of LTAs, and I guess I'm a little surprised that customers would be able to reduce demand this quickly, unless you're getting something out of it. I mean, I certainly understand that it provides you visibility, and it helps you plan CapEx. But is there something that you're in a better position today versus if the same thing happened, you know, three or so years ago when you had less on LTA? Are you selling at a higher price, maybe in August, than you otherwise would have if you didn't have these LTAs? I'm just trying to...

Speaker 14: Hi, thanks. I just wanted to go back to this issue of LTAs.

Hi, Thanks.

I just wanted to go back to this.

Issuer lta's.

And I guess I'm, a little surprised that customers would be able to.

Demand this quickly.

Unless youre getting something out of it I mean.

I certainly understand that it provides you the visibility and it helps your planned capex.

But is there some something that you were in a better position today.

If the same thing happened three or so years ago. When you had less on LTA or you're selling at a higher price maybe in August than you otherwise would have if you didn't have these otas I'm just trying to because people will say well what good are these LTA customers, Ken Ken can stop buying to this to this.

[Analyst] (UBS): You know, because people will say, "Well, what good are these LTAs if, you know, customers can, you know, stop buying, you know, to this, to this magnitude?" And then I had a second question, too. Thanks.

Timothy Arcuri: You know, because people will say, "Well, what good are these LTAs if, you know, customers can, you know, stop buying, you know, to this, to this magnitude?" And then I had a second question, too. Thanks.

Magnitude.

I had a second question.

Manish Bhatia: Sure. Yeah. I mean, I think, you know, if you look at customers, in the past, you know, going back five years, there would be situations where customers would, not be very clear or specific as to how much they intend to purchase from each of the suppliers. And the end result could, in many cases, be that the amount of bits that these suppliers are targeting to produce for any given customer is 10 or 120 percent of their customer's TAM. And so, you know, when, when there are these LTAs that are used pretty pervasively in the industry now, it definitely helps to rationalize and bring supply and demand into a better balance from a planning perspective. And the reason I say from a planning perspective is, of course, actuals can deviate from plans when these kind of macro events occur.

Speaker 11: Sure, I mean, I think if you look at customers in the past, going back five years.

Sure, Yes, I mean, I think if you look at customers.

In the past going back five years.

There would be situations where customers would.

Now, let's be very clear our specific as to how much they intend to purchase.

Some of the suppliers and the end result could in many cases be that.

The amount of bids that.

Speaker 11: the suppliers are targeting to produce for any given customer is 10 or 120% of their customers.

The suppliers are targeting to produce for any given customer to handle 120% of their customers path.

So when there are these <unk> that are used.

Pervasively in the industry now.

It definitely helps to rationalize and bring supply and demand into a better balance from a planning perspective.

Speaker 11: And the reason I say from a planning perspective is, of course, actual scan DVAs from plans when these kinds of macro events occur. But when they occur, and these LTS provide us with a very good basis to better understand how our customers are thinking, what is about the next quarter, but about multiple.

And the reason I say from a planning perspective is of course actual can deviate from clients then.

These kind of macro events occur, but when they occur and these MTS provides us with a very good basis to better understand how our customers are thinking about the next.

Manish Bhatia: But when they occur and, you know, these LTAs provide us with a very good basis to better understand how our customers are thinking, not just about the next quarter, but about, you know, multiple quarters, it just gives us a mechanism to have a dialogue for longer visibility into, you know, how they expect things to proceed. And as you can expect, you know, when we think about our own supply, we think about making changes to our CapEx plans, our supply plans. Any changes that we make have an impact several months out, right? I mean, these cycle times are pretty long, and consequently, you know, we need those longer views from our customers in order to understand exactly how best to create a better balance between supply and demand in the industry.

Quarter, but about multiple quarters.

Speaker 11: It just gives us a mechanism to have a dialogue for longer visibility into how they expect things to proceed. And as you can expect, when we think about our own supply.

It just gives us.

Mechanism to have dialogue for longer visibility into how they expect things to proceed and as you can expect when we think about our own supply.

Think about making changes to our capex plans our supply plans any changes that we may have an impact several months out vitamin D cycle times are pretty long.

And consequently, we need those.

Speaker 11: longer views from our customers in order to understand exactly how best to create a better balance between supply and demand in the industry. Understand, you're concerned that if they're not going to buy based on the LTA, volume, what good are these LTAs? And we have repeatedly said that these LTAs are never meant to be take-off agreements. That was not the goal for which they were set up.

Longer views from our customers in order to.

Understand exactly how best to create a better balance between supply and demand in the industry. So.

Manish Bhatia: So I understand your concern that, okay, if they're not going to buy based on the LTA volume, what good are these LTAs? And, you know, we have repeatedly said that these LTAs are never meant to be take or pay agreements. That was not the goal for which they were set up. And there is no pricing in these agreements either. They are more of volume-based agreement, and the price is negotiated every quarter or every month, depending on, you know, what kind of customer arrangements there are.

I understand your concern that okay. They are not going to buy based on the LTA volume what godaddy Lts.

We have repeatedly said that his Lps never meant to be take or pay agreement that was not the goal for which they will set up.

Speaker 11: And there is no pricing in these agreements either. They're more of volume-based agreement and the price is negotiated every quarter or every month depending on.

And there is no pricing in these agreements either their model volume based agreement and the prices negotiated every quarter or every month, depending on what kind of customer.

Speaker 11: you know, what kind of customer arrangements there are. And so, you know, I think the way to think about it is, it's a very useful mechanism to drive alignment between supply and demand over the medium term.

Arrangements that are.

Manish Bhatia: And so, you know, I think the way to think about it is it's a very useful mechanism to drive alignment between supply and demand over the medium term, to drive portfolio direction, share gains, and things of that nature, and reduce, you know, an apparent level of customer and suppliers targeting 110, 120% of a customer's TAM, because the customer will, you know, have LTAs with pretty much all the suppliers. So more difficult to do that in a normal environment.

And so.

I think the way to think about it is it's a very useful mechanism to drive alignment between supply and demand over the medium term.

Speaker 11: to drive portfolio direction share gain and things of that nature and reduce You know and the parent level of

To drive our portfolio direction share gains and things of that nature.

And reduce.

And the parent level off.

Customers and suppliers targeting 110, 120% of our customers have because the customer will.

We'll have Lps with pretty much all of the suppliers, so more difficult to do that in a normal environment.

[Analyst] (UBS): Can I just follow up on that? So, in this case, if a PC and a smartphone customer is taking bits down by, I mean, it has to be at least 40, 50 sequentially. If they're doing that, they pay the exact same price that they would have if they took what they said they would. There's, you know, not even like a little bit of a price kicker you get if they, if, you know, if they're down 40, 50 percent sequentially for a customer?

Timothy Arcuri: Can I just follow up on that? So, in this case, if a PC and a smartphone customer is taking bits down by, I mean, it has to be at least 40, 50 sequentially. If they're doing that, they pay the exact same price that they would have if they took what they said they would. There's, you know, not even like a little bit of a price kicker you get if they, if, you know, if they're down 40, 50 percent sequentially for a customer?

Speaker 14: Can I just follow up on that? So in this case, if a PC and a smartphone customer is taking bits down by, I mean, the equity at least 40, 50% sequentially. If they're doing that, they pay the exact same price that they would have if they took what they said they would. There's not even like a little bit of a price kicker you get if they're down 40, 50% sequentially for a customer.

Can I just can I just follow up on that so so in this case, if a PC and smartphone customer is taking breaks down by I mean, it has to be at least 40%, 50% sequentially if theyre doing that.

They pay the exact same price that they would have if they took what they said they will there is no. There is not even like a little bit of a price kicker you get.

<unk>.

Mr down 40% to 50%.

Sequentially for customer.

Manish Bhatia: Well, there are things that happen on the pricing front, which I can't get into. But those are all things that we discuss with customers based on, you know, what their needs are and how it deviates from the LTA and so on. So what exactly we do with these customers when those kind of situations occur, I'm not at liberty to discuss in this call. But you know, clearly the intent is that if there are things that are happening that are outside the control of our own customers, you know, we work with them to come to a resolution that both sides can feel good about. So that's what we do. So the details of that and how it changes with price, et cetera, is not something I can address here.

Speaker 11: Well, there are things that happen on the pricing fund which I can't get into.

Well there are there are things that happen on the pricing front, which I can't get into.

Speaker 11: But those are all things that we discussed with customers based on what their needs are and how it deviates from the LPA and so on. So what exactly do we do with these customers when those kind of situations occur? I'm not at liberty to discuss.

But those are all things that we discussed with customers based on what they are.

Needs are and how it deviates from the LTA and so on so what exactly do we do with these customers when those kind of situations that are I'm not at liberty to discuss.

Speaker 11: and just call. But clearly the intent is that

In this call but.

Clearly the intent is that.

Speaker 11: If there are things that are happening that are outside the control of our own customers

If there are things that are happening that are outside the control of our own customers.

We work with them to come to a resolution that both sides can feel good about so that's what we that's what we do so the details of that and how it changes with price et cetera.

That's something I can I can address here.

[Analyst] (UBS): Okay, thank you.

Timothy Arcuri: Okay, thank you.

Okay. Thank you.

[Analyst]: Thank you. Ladies and gentlemen, this does conclude today's conference call. Thank you for participating. You may now disconnect.

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

Okay.

Speaker 2: Thank you, ladies and gentlemen. This does conclude today's conference.

Thank you ladies and gentlemen, this does conclude today's conference call.

Speaker 2: Thank you for participating. You may now dis-

Thank you for participating you may now disconnect.

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