Q4 2022 Micron Technology Inc Post Earnings Analyst Call

September 29, 2022

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Yeah.

Operator: Thank you for standing by. Welcome to Micron's Post-Earnings Analyst Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you need to press star one one on your telephone. And now I'd like to introduce your host for today's program, Farhan Ahmed, Vice President, Investor Relations. Please go ahead, sir.

Thank you for standing by and welcome to Micron's Post earnings Analyst call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you didn't need to press star one one on your telephone and now I would like to introduce your host for today's program Farhan Ahmed.

As President Investor Relations. Please go ahead Sir.

Farhan Ahmed: Thank you, and welcome to Micron Technology's Fiscal Fourth Quarter, 2022 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 file with the SEC, including 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.

Farhan Ahmad: Thank you, and welcome to Micron Technology's Fiscal Q4, 2022 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 file with the SEC, including 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.

Thank you and welcome to Micron technologies fiscal fourth quarter of 2022.

Call back.

On the call with me today are select Sedona, our chief business Officer, My niche patio, our EVP of global operations and Mark Murphy our CFO .

As a reminder, the matters, we will be discussing today. Good forward looking statements regarding market to balance 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, including 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're under no duty to update any of the forward looking statements to confirm these results.

Farhan Ahmed: We are under no duty to update any of the forward-looking statements to conform these statements to actual results. We can now open the call.

Farhan Ahmad: We are under no duty to update any of the forward-looking statements to conform these statements to actual results. We can now open the call.

Sorry to confirm these statements to actual results.

We can now open the call.

Operator: Certainly. Ladies and gentlemen, once again, if you have a question at this time, please press star, then one. One moment for our first question. Our first question comes from the line of Ambrish Srivastava from BMO. Your question, please.

Certainly ladies and gentlemen, once again, if you have a question at this time. Please press Star then one one moment for our first question.

Okay.

And our first question comes from the line of Bruce Your basketball from BMO. Your question. Please.

Hello, This is Jonathan Collins, where rubbish.

Two quick questions. The first one is on given the fact that you had guided.

Free cash flow to negative $1 million in <unk>.

It seems to be.

[Analyst] (BMO): ... A similar loss in Q2, given the front-end weighted CapEx, similar revenue and profitability profile, as well as inventory continuing to rise. And then leading to your commentary, free cash flow generation in the back half of the year, can you comment on your expectations for fiscal 2023 free cash flow as a whole? Thank you.

A similar loss in <unk>, given the front end weighted capex similar revenue profitability profile as well as inventory continued to rise and then leading to your commentary on free cash flow generation in the back half the year can you comment on your expectations for fiscal 'twenty three free cash flow.

Thank you.

Mark Murphy: Yeah, we just to maybe reference the script, I believe we stated over $1.5 billion negative free cash flow in Q1. We're not guiding Q2, though I did say it would be challenged, you know, because we do have still low levels of revenue and income. And then, you know, the inventory, elevated inventory levels. And then as you pointed out, we said that we would have CapEx weighted heavily in the first half. So all those are going to weigh on Q2 free cash flows as well, but we did not provide a number. And then we do expect to return to free cash flow generation in the second half. But I'm, you know, we're not providing a full year estimate at this time.

Sumit Sadana: Yeah, we just to maybe reference the script, I believe we stated over $1.5 billion negative free cash flow in Q1. We're not guiding Q2, though I did say it would be challenged, you know, because we do have still low levels of revenue and income. And then, you know, the inventory, elevated inventory levels. And then as you pointed out, we said that we would have CapEx weighted heavily in the H1. So all those are going to weigh on Q2 free cash flows as well, but we did not provide a number. And then we do expect to return to free cash flow generation in the H2. But I'm, you know, we're not providing a full year estimate at this time.

Yeah.

Just maybe referenced.

Graph I believe we stated over one 5 billion free cash negative free cash flow in the first quarter, we're not guiding the second though I did say it would be challenged.

Yes, because we do have still a low levels of revenue and income and then.

Yes.

Tori elevated inventory levels.

As you pointed out we said that we would have capex weighted heavily in the first half. So so all of those are going to weigh on second quarter free cash flows as well, but we did not provide a number.

And then we do expect to return to free cash flow generation in the second half.

But yes.

Yes, we're not providing a full year estimate at this time.

[Analyst] (BMO): Okay, thank you. Then, one other question on long-term bit growth, so especially for DRAM. I think you guys have lowered your bit growth several times over the last few years, from, you know, 20% to mid-high teens and now to mid-teens. What would it take for long-term bit growth to be said 10%? Is that something that you guys can see over the next several years or next decade happening? Or is that something that is very unlikely, and we should maintain it at teens? Thank you.

Okay. Thank you and then.

One other question on long term bit growth, so, especially for DRAM.

I think you guys lowered your bit growth several times in the last few years 'twenty.

20% to mid to high teens mid teens.

What would it take for a long term bit growth to be 10% is that is that something that.

That.

You guys can see over the next several years or next decade happening or is that something that is very unlikely.

Maintaining the teens thank.

Thank you.

Manish Bhatia: Sumit, do you want to take that one?

So Matthew I'll take time.

Mark Murphy: Yeah, I'm sorry. I couldn't catch the question. Was it-

Yes.

Yes, Im sorry, I Couldnt I couldnt catch the question.

Manish Bhatia: I did, but is Sumit on? Oh, no. All right, I can... The question was, sorry, Mark. The question was about the long-term CAGR.

Semicon.

Alright.

The question was I'm sorry, My question was.

About the long term.

Mark Murphy: Down to 10%.

Got it down to 10% can you answer the question as we used to say 20% for DRAM.

Manish Bhatia: For DRAM. So the question is, we used to say 20%.

Mark Murphy: Yeah.

Manish Bhatia: for DRAM, you know, four or five years ago. It came down to mid- to high-teens, and today we're saying, you know, mid-teens. So the question is, what would it take for your assumptions to have this long-term CAGR come down to 10%?

Five years ago, it came down to mid to high teens and today, we're saying mid teens. So his question is what would it take for your assumptions to have that long term CAGR come down to 10%.

Mark Murphy: Yeah, but that's not our assumption.

Yes, but that's our assumption yes.

Manish Bhatia: Yeah.

Mark Murphy: So.

Manish Bhatia: Yeah. I mean, I think right now, we, you know, our best projection we have, given the strong trends in, you know, artificial intelligence and 5G and eventual, you know, the content increases that will be driven in autos by autonomous, you know, right now our outlook is the mid-teens, and that's kind of where we see it now.

Yes, I mean, I think right now.

R R.

Projection, we have given the strong trends in artificial intelligence and <unk> an eventual contract.

Content increase considerably driven in autos by autonomous right now our outlook is the mid teens.

That's kind of where we see it now.

[Analyst] (BMO): Okay, thank you.

Okay. Thank you.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Aaron Rakers from Wells Fargo. Your question, please.

Thank you one moment for our next question.

And our next question comes from line.

Aaron Rakers from Wells Fargo.

Your question please.

[Analyst] (Wells Fargo): Aaron, can you hear me?

Aaron Rakers: Aaron, can you hear me?

Mark Murphy: We can't hear you.

Eric Eric can now we can hear you yes.

Operator: Now we can hear you.

Manish Bhatia: Now we can hear you.

Mark Murphy: Oh, there we go.

[Analyst] (Wells Fargo): Yeah, sorry about that. I missed my name there. It broke up. I appreciate you taking the question. I have two quick questions, if I can, as well. On the first question, you know, Mark, I just want to understand kind of how you're framing, you know, the expectations of bit growth. I think in the call, you had alluded to an expectation of returning to year-over-year bit growth. It sounded like for both DRAM and NAND into the back half of the second of the fiscal year. I guess the first question to that is, is that the expectation you're currently operating to?

Aaron Rakers: Yeah, sorry about that. I missed my name there. It broke up. I appreciate you taking the question. I have two quick questions, if I can, as well. On the first question, you know, Mark, I just want to understand kind of how you're framing, you know, the expectations of bit growth. I think in the call, you had alluded to an expectation of returning to year-over-year bit growth. It sounded like for both DRAM and NAND into the back half of the second of the fiscal year. I guess the first question to that is, is that the expectation you're currently operating to?

Yes, sorry about that I missed I missed my name there it broke up.

I appreciate you taking the question I have two quick questions. If I can as well on the first question.

Mark I, just wanted to understand kind of how you're framing the expectation for bit growth I think in the call you had alluded to.

An expectation of returning to year over year bit growth it sounded like for both DRAM and NAND into the back half of the second of the fiscal year I guess the first question to that is is that the expectation you are currently operating two and I guess, if you believe that you've got to.

[Analyst] (Wells Fargo): I guess if you believe that, you've got to assume a fairly steep, you know, north of 20% sequential bit growth expectation in your mind, looking into the back half of the fiscal year. Is that how you're thinking about it? Is that a fair assumption?

Aaron Rakers: I guess if you believe that, you've got to assume a fairly steep, you know, north of 20% sequential bit growth expectation in your mind, looking into the back half of the fiscal year. Is that how you're thinking about it? Is that a fair assumption?

I assume a fairly steep north of 20% sequential bit.

Growth expectation in your mind looking into the back half of the fiscal year.

Youre thinking about is that a fair assumption.

Mark Murphy: Yeah, Aaron, I did not break it out in the call, but you're right in that, you know, conceptually, that in the second half, we are expecting, you know, a robust recovery, and volumes.

Mark Murphy: Yeah, Aaron, I did not break it out in the call, but you're right in that, you know, conceptually, that in the H2, we are expecting, you know, a robust recovery, and volumes.

Yes.

Aaron I did not break it out in the call, but you are right in that <unk>.

Conceptually that in the second half we are expecting.

A robust recovery.

And Ed volumes.

[Analyst] (Wells Fargo): Yeah. And that was-

Aaron Rakers: Yeah. And that was-

Mark Murphy: And Aaron,

Manish Bhatia: And Aaron,

[Analyst] (Wells Fargo): -DRAM and NAND?

Aaron Rakers: -DRAM and NAND?

And that was a lot of ground and NAND.

Mark Murphy: Yes.

Yes, yes, yes, and I'll just add that if you look think about it.

[Analyst] (BMO): Yeah, and Aaron, I'll just add that if you look... think about it, we are not right now shipping well below end demand. And, so you know, the demand or our bit shipments are artificially, in some sense, low because of the inventory adjustment going on at the customers. Once that is done-

Manish Bhatia: Yeah, and Aaron, I'll just add that if you look... think about it, we are not right now shipping well below end demand. And, so you know, the demand or our bit shipments are artificially, in some sense, low because of the inventory adjustment going on at the customers. Once that is done-

Right now shipping well below end demand.

And so.

Sure.

Our <unk> shipments are active Shelly and Samsung.

Low because of the inventory adjustment going on at the customers.

Once that is done.

[Analyst] (Wells Fargo): Yeah

Aaron Rakers: Yeah

[Analyst] (BMO): ... it'll bounce back. And, you know, you can think of it like, you know, like, from where we were in the Q3 levels. From that, we have volumes come down almost 1/3, maybe even more than that, into the Q1. So at some point, there should be a bounce back from that as the inventory is adjusted.

Bounce back.

You can pick off at like cannot like from where we were in the Q3 level from that we have volumes come down almost occurred maybe even more than that into the Q1.

So at some point there should be a bounce back from that as the inventory is adjusted.

[Analyst] (Wells Fargo): Yeah, and I, I appreciate that. I guess it kind of segues to my second question, which is, you know, I guess your best assessment of the cloud, the server demand profile that you're seeing right now, you know, any, any views of what inventories are looking like? I think on the call, you alluded to some mask set issues, supply chain constraint issues still going on there. But how would you assess what, what you're seeing from a cloud inventory perspective at this point?

Aaron Rakers: Yeah, and I, I appreciate that. I guess it kind of segues to my second question, which is, you know, I guess your best assessment of the cloud, the server demand profile that you're seeing right now, you know, any, any views of what inventories are looking like? I think on the call, you alluded to some mask set issues, supply chain constraint issues still going on there. But how would you assess what, what you're seeing from a cloud inventory perspective at this point?

Yes.

I appreciate that I guess, it kind of segway to my second question, which is.

I guess your best assessment of the cloud the server demand profile that youre seeing right now any any views of.

Inventories are looking like I think on the call you alluded to some maps that issue is supply chain constraint issue still going on there, but how would you assess what youre seeing from a cloud inventory perspective at this point.

Mark Murphy: Sumit, are you on?

Yes.

Mark Murphy: Sumit, are you on?

So Matt are you on yes.

Sumit Sadana: Yeah, I'm, I'm here. Can you hear me?

Yes, I'm here can you hear me.

Mark Murphy: Yes.

Sumit Sadana: Okay. So yeah, I can, I can take that question. So yes, I mean, first of all, the demand in the cloud overall is healthy, and there is demand out there for servers that just cannot be built, because certain components for servers, like network interface cards of certain types, are still in pretty significant shortage. And so definitely because the servers cannot be built, the other portions of the supply chain, which have more than adequate inventory, are being cut back in terms of demand. So that is one aspect that is impacting the demand, even though the end demand in cloud is relatively healthy.

Yes.

So yes, I can I can take that question.

So yes, I mean first of all the demand in the cloud overall is healthy.

And there is.

Demand out there for servers that just cannot be built because.

Thanks.

Conan slower servers like network interface card those certain types.

In pretty significant shortage.

And so definitely because the servers cannot be built the other portions of the supply chain, which has more than adequate inventory are being cut back in terms of demand. So that is one aspect that is impacting the demand even though the end demand.

In cloud is.

It's relatively healthy now within cloud cyber to just look at different segments based on discussions with customers.

Sumit Sadana: Now, within cloud, you know, if I were to just look at different segments based on discussions with customers, there are portions of the cloud demand that are somewhat impacted by the macroeconomic environment, and then there are portions of the cloud demand that are very robust from a demand perspective. So when you net all of that out, the overall demand is relatively healthy. But, you know, I mentioned the server issue. The other aspect is memory and storage inventory at cloud customers is generally high and does need to be worked down, so that is part of what's impacting the demand in the near term.

The portions that are portions of the cloud demand that are somewhat impacted by the macroeconomic environment and then there are portions of the cloud demand that are very robust from a demand perspective. So when you net all of that out the overall demand is relatively healthy but.

I mentioned the server issue the other aspect is memory and storage.

Inventory at <unk>.

Cloud customers is generally high and does need to be worked down. So that is part of what's impacting the demand in the near term.

Sumit Sadana: Now, you know, we do think that the cloud demand is going to remain better than other segments of the market, even as the economic environment proceeds along the trajectory that most people expect. Because there is going to be a desire from companies to find a way to cut costs, to convert capital expenditures into operating expenditures through the use of cloud, to defer IT CapEx and use cloud more and things like that. And so there is definitely going to be an outperformance in terms of cloud demand versus other parts of the market. And then, obviously, the whole trend towards digitization of the economy is going to also continue. So we think that this is going to continue to be a good environment.

Now.

We do think that the cloud demand.

Is going to remain better than other segments of the market, even as the economic environment proceeds along the trajectory that most people expect because there is going to be a desire from companies to find a way to cut costs to convert capital expenditures in two operating <unk>.

Expenditures through the use of cloud.

To defer capex and use cloud more and things like that and.

And so there is definitely going to be.

Outperformance in terms of cloud demand versus other parts of the market and then obviously the whole trend towards digitization of the economy.

Is going to also continue so we think that this is going to continue to be a good.

Sumit Sadana: It may have some ups and downs based on the macroeconomic demand, but, we are optimistic about how this will play out over time.

Environment. It may have some ups and downs based on the macroeconomic demand, but we are optimistic about how this will play out over time.

[Analyst] (Cowen): Thank you very much.

Aaron Rakers: Thank you very much.

Thank you very much.

Sumit Sadana: Sure.

Sure.

Operator: Thank you. Once again, if you have a question, please press star one one. One moment for our next question. Our next question comes from the line of Thomas O'Malley from Barclays. Your question, please.

Thank you once again, if you have a question. Please press star 111 moment for our next question.

Our next question comes from the line of Thomas O'malley from Barclays. Your question. Please.

[Analyst] (Barclays): Hey, guys. Thanks for taking my question, and thanks for hosting the call. Mark, this one's for you. You talked about some decisive action on the OpEx side of things. Obviously, you're not seeing that flow through right away; it takes some time. But could you just try to lay out the cadence of what kind of, well, the cadence and the, and the vector of, of how extreme that could be throughout the year, just as that's a pretty good offset as revenue comes down? Just, just the shape of that OpEx decrease and, and how much you could save.

Thomas O'Malley: Hey, guys. Thanks for taking my question, and thanks for hosting the call. Mark, this one's for you. You talked about some decisive action on the OpEx side of things. Obviously, you're not seeing that flow through right away; it takes some time. But could you just try to lay out the cadence of what kind of, well, the cadence and the, and the vector of, of how extreme that could be throughout the year, just as that's a pretty good offset as revenue comes down? Just, just the shape of that OpEx decrease and, and how much you could save.

Guys. Thanks for taking my thanks for taking my question and thanks for hosting the call. Mark. This one is for you talked about some decisive action on the Opex side of things.

Obviously, you are not seeing that flow through right away. It takes some time, but could you just try to lay out the cadence.

What kind of the cadence and the vector of how extreme that could be throughout the year just as that's a pretty good offset as revenue comes down just just the shape of that Opex decrease.

How much you could say.

Mark Murphy: Sure, Tom. I, you know, as with CapEx, we did respond quickly, in this unprecedented downturn. Yeah, we've got clear line of sight on our spend, and it's in control, and we're projecting it to come down. I think, you know, in fourth quarter, we actually, it may not have been noticed, but we were actually below the low end of the guidance range we provided on OpEx. So I think, you know, some of that was incentive comp. But, but I think, you know, the actions in the company have already started. We expect to decline, sequentially off this billion-dollar level that we guided for the first quarter, and we would expect a decline through the year as, you know, as the actions take hold and more actions kick in.

Mark Murphy: Sure, Tom. I, you know, as with CapEx, we did respond quickly, in this unprecedented downturn. Yeah, we've got clear line of sight on our spend, and it's in control, and we're projecting it to come down. I think, you know, in Q4, we actually, it may not have been noticed, but we were actually below the low end of the guidance range we provided on OpEx. So I think, you know, some of that was incentive comp. But, but I think, you know, the actions in the company have already started. We expect to decline, sequentially off this billion-dollar level that we guided for the Q1, and we would expect a decline through the year as, you know, as the actions take hold and more actions kick in.

Sure Tom.

The Capex, we did respond quickly.

In this unprecedented downturn.

Yes, we've got clear line of sight on our spend and Thats that can control and we are projecting it to come down I think.

And fourth quarter, we actually it may not have been noticed but we were actually below the low end of the guidance range. We provided on Opex. So I think.

Some of that was incentive comp but.

But I think yes.

The actions of the company have already started.

We expect to decline sequentially off this billion dollar level that we guided for the first quarter.

And we would expect that decline through the year as you know.

As the actions take hold and more actions kick in.

Mark Murphy: We would plan to end the year, you know, down closer to the levels that we did in FY22, so I would say 3.8 or above. Yeah, the actions are wide ranging. You know, headcount freeze, attrition, other actions. You know, focusing on highest value, and highest probability projects for development. So, you know, those that are not, we're taking a harder look at, looking at office space, outside services, discretionary spend, and so forth. A lot of actions in flight, you know, more coming, and of course, we would adjust our spend as the market conditions warrant.

We would plan to end the year.

Yes.

Down closer to the levels that we did in FY 'twenty, two so I would say three eight or above.

Yes, the actions are wide ranging.

Yes, head count frame is attrition.

Our actions.

We are focusing on highest value.

And highest probability projects for development. So those that are not were taking a harder look at looking at office space.

Outside services discretionary spend and so forth a lot of actions in flight.

More coming and of course, we would adjust.

Our spend is as the market.

Conditions warrant.

Mark Murphy: We are clearly trying to balance, you know, the short term challenges in the business with, you know, retaining the long-term capabilities of the company and, you know, just working through that very carefully.

Are clearly trying to balance.

Yes, the short term.

Challenges in the business with.

Retaining the long term capabilities of the company at.

Yes, just just working through that very carefully.

[Analyst] (Barclays): Really helpful. And then, just a follow-up on the tax rate. You made a comment that it should be $300 million. Were you referring to the total for calendar year 2023 being above $300 million? And if that's the case, is like a 25% tax rate just kind of held consistent through November of 2022, through November of 2023, kind of the right area, or does it need to move around a little bit? Just any color there would be helpful.

Thomas O'Malley: Really helpful. And then, just a follow-up on the tax rate. You made a comment that it should be $300 million. Were you referring to the total for calendar year 2023 being above $300 million? And if that's the case, is like a 25% tax rate just kind of held consistent through November of 2022, through November of 2023, kind of the right area, or does it need to move around a little bit? Just any color there would be helpful.

Really helpful. And then just a follow up is on the tax rate you made a comment that it should be $300 million.

Affirming to the total for calendar year, 'twenty, three being about $300 million and if that's the case is like a 25% tax rate just kind of help consistent through November 22 through November of 'twenty, three kind of the right area or does it need to move around but just any color there would be helpful.

Mark Murphy: Yeah. So, you know, I think what we said, Tom, was a minimum number of 300. You know, could be above that, and that's a dollar basis for the full year. You know, and so you can assume that as a floor, could be a bit more. You know, I won't give you a percent because that'll back, you'll be able to, you know, back into full year income. But the, but it will be a, you know, strong double-digit rate. You know, but we expect that to be, you know, the rate that we're experiencing or we expect to experience in FY 2023 is really driven by two things.

Yes, so yes.

I think what we said Tom was the minimum number of 300, yes could be could be above that.

Thats a dollar basis for the full year.

And so you can assume that as a floor it could be a bit more.

And.

Yes.

Bob.

I won't give you a percent because that'll that you'll be able to back into full year income but.

The.

It will be.

Strong double digit.

Right.

And but we expect that to be.

The rates that we're experiencing I really expect to experience in FY 'twenty three is really driven by two things.

Mark Murphy: One, it's the introduction of this capitalization and amortization of R&D expenditures, and that, you know, that was a headwind on tax. And then the second thing is just the low levels of profitability. And the way our tax planning works is, it's optimized for higher levels of profitability. And so when you get these lower levels of profitability, you have, you know, basically sort of some fixed costs or fixed taxes at these levels. Now, as you look out in the future years, and we return to more normal levels of profitability, we would expect to be in the low to mid-teens. And that increase from, you know, FY 2022's rate, which was 8%, and, you know, there were some, you know, let's say a normalized rate there is 8% to 10%.

One it's the.

Introduction of this capitalization and amortization of R&D expenditures in that.

That was a headwind on tax.

And then the second thing is just the low levels of profitability and the way our tax planning works is it's optimized for higher levels of profitability and so when you get these lower levels of profitability you have base.

Basically sort of some fixed costs are fixed taxes at these levels.

As you look out in the future years, and we return to more normal levels of profitability, we would expect to be in the low to mid teens and that increase from <unk>.

FY 'twenty twos, right, which was 8%.

And yes, there are some.

Let's say at a normalized rate there is 8% to 10%, yes that several points of increase.

Mark Murphy: You know, that's several points of increase, as we look forward on a normalized basis, is principally driven by that R&D, capitalization and amortization effect. And then also, just as, you know, income grows, the GILTI, you know, parts of the US tax reform, put some pressure on the rate as more income gets exposed to GILTI.

As we look forward on a normalized basis is principally driven by that R&D capitalization and amortization effect and then also just as as income grows.

Guilty.

Parts of the U S tax reform.

Put some pressure on the rate as more income gets exposed to guilty.

[Analyst] (Needham): Super helpful. Thank you.

Thomas O'Malley: Super helpful. Thank you.

Super helpful. Thank you.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Rajvindra Gill from Needham. Your question please.

Thank you one moment for our next question.

And our next question comes from the mind of Raj Bindra Gill from Needham Your question. Please.

[Analyst] (Needham): Yeah, thank you for taking my questions. Yeah, just a follow-up question on the assumption of returning to year-over-year bit growth in the second half of fiscal 2023. Sanjay mentioned, you know, some color around smartphone market and kind of the PC market starting to normalize next year. That kind of assumes that the inventory adjustments that the customers, you know, will take place. I'm also wondering, are there other assumptions that you have kind of built in, with respect to those particular end markets as well as the other end markets, to kind of give you confidence that we are gonna see kind of this demand inflection point, you know, exiting February quarter?

Rajvindra Gill: Yeah, thank you for taking my questions. Yeah, just a follow-up question on the assumption of returning to year-over-year bit growth in the H2 of fiscal 2023. Sanjay mentioned, you know, some color around smartphone market and kind of the PC market starting to normalize next year. That kind of assumes that the inventory adjustments that the customers, you know, will take place. I'm also wondering, are there other assumptions that you have kind of built in, with respect to those particular end markets as well as the other end markets, to kind of give you confidence that we are gonna see kind of this demand inflection point, you know, exiting February quarter?

Yes, Thank you for taking my questions.

Just a follow up question on the assumption of returning to year over year good growth in the second half of fiscal 'twenty three.

Sanjay mentioned.

Some color around the smartphone market and kind of the PC market is starting to normalize.

Next year.

That kind of assumes that the.

Tori adjustments at the customers.

Will take place.

I'm also wondering are there other assumptions that you have kind of built in with respect to those particular end markets as well as the other end markets to kind of give you confidence that we are going to see kind of the demand inflection point.

Exiting February quarter.

[Analyst] (Needham): Are the inventory levels at the end market levels at a sufficiently low level that, you know, that gives you confidence that they'll start to rebuild? So any color there, in terms of that inflection point, would be helpful.

<unk>.

Rajvindra Gill: Are the inventory levels at the end market levels at a sufficiently low level that, you know, that gives you confidence that they'll start to rebuild? So any color there, in terms of that inflection point, would be helpful.

Are the inventory levels at the end market level at a sufficiently low level that.

What gives you confidence that they will start to rebuild.

So any color there in terms of that inflection point will be helpful.

Sumit Sadana: Yeah, I can, I can take that question. So I think, you know, there are a couple of, there are actually several moving parts in the demand environment. You know, of course, there is, different segments of the market growing at, different rates. There is different levels of inventory in the various segments of the market, and the macroeconomic environment is also expected to impact, going forward, these segments in different ways. And then the other important thing to just keep in mind, is, number one, the shipments that we are making, currently, to customers, are below the consumption rate of DRAM and NAND, because they are obviously, customers are trying to reduce their own inventories.

Yes, I can I can take that question.

So I think there are.

Couple of actually several moving parts.

And the demand environment and of course that is.

Different.

<unk> of the market growing at different rates.

There is different levels of inventory in the various segments of the market.

The macroeconomic environment is also expected to impact.

Going forward these segments in different ways.

And then the other important thing to just keep in mind.

Is.

Number one the shipments that we are making.

Currently two customers.

Our below the consumption rate of DRAM and NAND.

Because they are obviously customers are trying to reduce their own inventories now.

Sumit Sadana: Now, keep in mind that the PC market and the smartphone market entered the down cycle before the other parts of the market and well before the economic environment broadly started to weaken. And so we also expect that, since these are consumer devices that are pretty essential, when the volumes of these devices get down to really low levels, you know, we do think they will stabilize and there is a good chance of improvement in these volumes as countries like China start to open up and forego some of their zero COVID lockdowns related to zero COVID. We are assuming that those lockdowns will improve as we go through our fiscal year.

Now keep in mind that the PC market and the smartphone market entered.

The down cycle before the other parts of the market and well before the economic environment broadly.

Started to weaken and so we also expect that.

Since these are consumer devices that are pretty essential when the volumes of these devices gets down to really low levels.

We do think they will stabilize.

There is a good chance of.

Improvement in these volumes as countries like China start to open up and.

Forego some of their veto COVID-19.

Lockdowns.

Related to the vehicles at <unk>.

We are assuming that those lockdowns will.

Improve as we go through our fiscal year. So sometime in early next calendar year, we are assuming that the Chinese economy will start to improve.

Sumit Sadana: So sometime in early next calendar year, we are assuming that, you know, the Chinese economy will start to improve and there will be some reinvigoration of consumer demand there. So, you know, the last point I will make is the shipments that we are talking about growing in the second half of fiscal 2023 versus the first half of fiscal 2023 have a heavy component of, you know, that's catching up to what the end demand is, because the inventory correction has largely, we expect, would have largely run its course by the end of our first fiscal half of fiscal 2023.

Sumit Sadana: So sometime in early next calendar year, we are assuming that, you know, the Chinese economy will start to improve and there will be some reinvigoration of consumer demand there. So, you know, the last point I will make is the shipments that we are talking about growing in the H2 of fiscal 2023 versus the H1 of fiscal 2023 have a heavy component of, you know, that's catching up to what the end demand is, because the inventory correction has largely, we expect, would have largely run its course by the end of our first fiscal half of fiscal 2023.

There will be some reinvigoration of consumer demand there.

So.

The last the last one that will make us the.

The shipment.

That we're talking about growing in the second half of fiscal 2023 versus the first half of fiscal 2023.

Have a heavy component of.

The.

Because.

John .

Catching up to what the end demand is because the inventory correction and largely we expect would have largely run its course by the end of our first fiscal half.

623, so by the end of the February quarter, Youre expecting that the customer inventories would have been.

Sumit Sadana: So by the end of the February quarter, we are expecting that the customer inventories would have been materially improved because they would have been in inventory improvement mode for many months up to that point. If you think about the PC and smartphone segment, they would have been in that inventory improvement mode for the better half of a year.

Materially improve because they would have been in inventory improvement mode for many months after that point.

If you think about the BCN smartphone segment, they would've been in that inventory improvement mode for the bedroom half of a year.

[Analyst] (Needham): Right.

Rajvindra Gill: Right.

Sumit Sadana: So I think, you know, those are some of the factors. And then the final thing I will mention in terms of the overall health of the industry, although not directly related to demand itself, is that just like right now, the supply is significantly higher than demand in calendar year 2022. We expect that situation to reverse early in calendar year 2023, where we expect that due to the CapEx cuts that we are making and what we expect the industry supply growth to be next year, which is only in the mid-single digit sort of percentage range for DRAM in terms of supply growth.

So I think those are some of the factors and then the final thing I'll mention in terms of the overall health of the industry, although not directly related to the demand itself.

Is that just like right now the supply is significantly higher than demand.

Linda year 'twenty two.

We expect that situation to reverse.

Early in calendar 'twenty three.

We expect that due to the capex cuts that we're making and what we expect the industry supply growth to be next year, which is only in the.

Mid single digit sort of percentage range range for DRAM in terms of supply growth demand growth being in our model in that mid teens range.

We get.

Situation next year, where.

The inventory starts to come down sharply because the supply growth has fallen well below.

The demand growth and so the situation that you have today youll see sort of a mirror image of that sometimes.

[Analyst] (Needham): Mm-hmm.

Rajvindra Gill: Mm-hmm.

Sumit Sadana: It's obviously based on certain assumptions of the macroeconomic environment. If the environment is better, you know, things will get shifted to the left, in terms of improvement of shipments. If the environment gets worse than what we are modeling, then obviously things will shift to the right. So, that's sort of how we are looking at it. Hope, hope that helps.

And its obviously based on certain assumptions of the macroeconomic environment, if the environment is better.

Things, we get shifted to the left.

In terms of improvement of shipments of the environment gets worse than what we are modeling then obviously things will shift to the right. So that's sort of how we're looking at it hope that helps.

[Analyst] (Needham): Yeah, that's super helpful to understand those puts and takes. And just for my follow-up, with respect to the cloud server inventory, you know, you made a distinction between, you know, some portions of cloud being healthy, you know, regardless of the macro, some portions of the cloud being impacted by the macro. You also mentioned that, you know, the cloud inventory remains high, needs to be worked down. They clearly are kind of waiting for memory pricing to drop further before they start to kind of rebuild. But I wanted to get, you know, a little more insight on the portions of the cloud business that are being impacted because of the macro.

Rajvindra Gill: Yeah, that's super helpful to understand those puts and takes. And just for my follow-up, with respect to the cloud server inventory, you know, you made a distinction between, you know, some portions of cloud being healthy, you know, regardless of the macro, some portions of the cloud being impacted by the macro. You also mentioned that, you know, the cloud inventory remains high, needs to be worked down. They clearly are kind of waiting for memory pricing to drop further before they start to kind of rebuild. But I wanted to get, you know, a little more insight on the portions of the cloud business that are being impacted because of the macro.

That's super helpful to understand the puts and takes and just for my follow up with respect to the cloud server inventory.

You've made it this thing.

Distinction between.

Some portions of cloud being healthy.

Regardless of the macro some portions of the cloud being impacted by by the by the macro.

You also mentioned that the cloud inventory remained remained high and needs to be worked down.

Clearly are kind of waiting for memory pricing to drop further before they start to kind of rebuild.

But I wanted to get a little more insight on the portions of the cloud business that are being impacted because of the macro.

[Analyst] (Needham): You know, can you elaborate further, are you seeing kind of a, you know, an expectation that the hyperscaler customers will reduce infrastructure spending for data center? Or is it just, you know, they already have too much inventory and they're going to wait to rebuild until, you know, prices come down further?

Rajvindra Gill: You know, can you elaborate further, are you seeing kind of a, you know, an expectation that the hyperscaler customers will reduce infrastructure spending for data center? Or is it just, you know, they already have too much inventory and they're going to wait to rebuild until, you know, prices come down further?

Could you elaborate further.

Are you seeing kind of a <unk>.

The expectation that the hyperscale customers will reduce infrastructure spending for data center.

Or is it just they already have too much inventory and they're going to wait to rebuild until <unk>.

Prices come down further.

Sumit Sadana: Yeah, I mean, I, I think it's not—I don't view this as customers are waiting to have prices come down in order to buy. I don't feel like that is the mindset they have. I think what has happened is they had a certain amount of demand that they were, you know, buying components for, and then they didn't—they couldn't put together all the servers they needed to put together. And, that was mainly due to things like network inter-interface cards and so on, that were in shortage.

Yes, I mean, I think its not I don't view this as customers are waiting to have prices come down in order to buy and I don't feel like that is.

The mindset. They have I think what has happened is they had a certain amount of demand that they were.

Buying components for and then they been there.

They couldnt put together all of the servers they needed to put together.

And.

That was mainly due to things like network interface cards, and so on that were in shortage and so they found out they look at when they can.

Sumit Sadana: And so they found out that, okay, when they can't pull together all the servers they need, they do have built up a high level of inventory of things like DRAM and NAND, that, obviously they need to slow down the purchase of, because, because they are only able to build a certain number of servers. So that's one aspect of it.

Together all of the services they need they do have.

<unk> built up a higher level of inventory of things like DRAM and NAND.

Obviously, they need to slow down the purchase because.

Because they are only able to boost certain number of servers. So thats one aspect of it I think the other aspect of it is.

Sumit Sadana: I think the other aspect of it is, in terms of the areas that are somewhat impacted. I mean, if you think about consumer companies who do leverage the cloud infrastructure for their own purposes, of you know, expanding into some kind of a hybrid environment or a cloud-only environment, these consumer-facing companies are getting more impacted by the inflationary environment, and changing customer consumer behavior in terms of spending patterns, or generally getting more cautious about the macroeconomic environment and the trajectory of their own businesses. And those are the ones that are a little bit more susceptible in the short term, in terms of what's happening to the macroeconomic environment. And the companies that are more B2B type of companies have a little bit less susceptibility. And of course, these are very generalized statements.

In terms of the areas that.

Somewhat impacted I mean, if you think about consumer companies, who will do leverage the cloud infrastructure for their own.

Purposes.

<unk>.

Extending into some kind of a hybrid environment or a cloud only environment. These consumer facing company.

Are getting more impacted by the inflationary environment and changing customer consumer behavior in terms of spending patterns.

Generally getting more cautious about the macroeconomic environment and the trajectory of their own businesses and those are the ones.

Our.

A little bit more susceptible in the short term in terms of what's happening to the macroeconomic environment and the companies that are more <unk> type of companies have little bit less.

Susceptibility and of course these are very generalized statements within those sectors. There are some companies that are very strong and some companies that are weak and so on.

Sumit Sadana: Within those sectors, there are some companies that are very strong, and some companies that are weak. And so, at an aggregate level, I would say that, when you put all of that together, the end demand for cloud is still healthy. But of course, if all of the components had been available to put together servers, it would have been even stronger than that. But, that's the situation we are in right now. I do think that, it's not so much the putting off of purchases for lower prices. I think once the inventory normalizes, at cloud companies, you know, their, purchasing will, improve of DRAM and NAND, somewhat regardless of, you know, the end demand. Because when our shipments fall below their consumption level, that kind of pattern typically corrects itself-

At an aggregate level I would say that when you put all of that together the end demand for cloud is still healthy.

But of course.

If all of the components had been available to put together.

Have been even stronger than that but that's the situation. We're in right now I do think that.

It's not so much the putting off of purchases for lower prices I think once the inventory normalizes.

At cloud companies Theyre purchasing will.

Crew of DRAM and NAND.

Somewhat regardless of.

The end demand because when our shipments fall below their consumption levels that kind of pattern typically corrected.

[Analyst] (Needham): Mm-hmm.

Sumit Sadana: -after X number of months. So you can buy what that X is just based on how much inventory each customer has.

Rajvindra Gill: Mm-hmm.

Sumit Sadana: -after X number of months. So you can buy what that X is just based on how much inventory each customer has.

After X number of months.

You can buy what that takes is just based on how much inventory each customer.

[Analyst] (Needham): Thank you.

Rajvindra Gill: Thank you.

Thank you.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Sidney Ho from Deutsche Bank. Your question, please.

Thank you one moment for our next question.

And our next question comes from the line of Sidney Ho from Deutsche Bank. Your question. Please.

[Analyst] (Deutsche Bank): Great. Thanks for taking the question. So more on inventory, but your own inventory days. Sounds like that is going to go up in the November quarter. Should we be thinking that is the peak level in terms of either dollars or days? And at what point should we be worried about you have to write down the value of the inventory? Is it when gross margin turns negative, and do you expect that to happen in the next few quarters, especially given, especially on the NAND side?

Sidney Ho: Great. Thanks for taking the question. So more on inventory, but your own inventory days. Sounds like that is going to go up in the November quarter. Should we be thinking that is the peak level in terms of either dollars or days? And at what point should we be worried about you have to write down the value of the inventory? Is it when gross margin turns negative, and do you expect that to happen in the next few quarters, especially given, especially on the NAND side?

Great. Thanks for taking our question so more on inventory, but only inventory days.

Sounds like it's going to go up in the November quarter should we be thinking that as the peak level in terms of EBIT dollars odd days.

At what point should we be worried about.

Have to write down the value of your inventory is it wide gross margin turns negative and do you expect that to happen in the next few quarters, especially given the especially on the NAND side.

Mark Murphy: Yeah, Sidney, so, you know, we do expect inventory levels to go up substantially in Q1 and days go well over 150. We expect it to stay sort of at those levels into Q2 and then begin to come down as volumes pick up in the back half of the year. And, you know, but remain above our target level for sure through 2023. In fact, it, yes, stay probably elevated at that 150 plus through the year. You know, we, you know, though prices have come down and we have price assumptions in our outlook, you know, we have a robust process internally to monitor the potential exposure on inventories.

Yes, Sidney so.

Yes, we do expect inventory.

Levels to go up substantially.

In the first quarter and days go well over 150.

We expect it to stay.

Sort of at those levels.

And the second quarter.

And then begin to come down.

As volumes pick up in the back half of the year.

And.

Yes, but remain above our target level for sure through 'twenty three.

In fact.

Yes stay probably elevated at that 150 plus through.

Through the year.

<unk>.

Yes.

Yes prices have come down and we have price assumptions in our outlook.

Yes, we have a robust robust process internally to monitor.

The potential exposure on inventories, we review sales volumes customer orders contract prices.

Mark Murphy: We review sales volumes, customer orders, contract prices, supply-demand signals, seasonal factors, other trends, to evaluate the risk. But based on our assessment, as we see in our outlook, you know, we project margins at such levels that we do not see currently any write-downs. However, we'll obviously continue to monitor-

Demand signals seasonal factors other trends.

To evaluate the risk based on our assessment.

As we see in our outlook.

We project.

Margins at such levels that we do not see currently any write downs.

We'll obviously continue to monitor.

Manish Bhatia: You mean due-

Mark Murphy: monitor things. But-

Manish Bhatia: Due to lower profit.

Mark Murphy: Due to lower profit. We always, of course, have, you know, inventory adjustments for various reasons that occur every quarter. But the lower cost of market that you're talking about-

But due to lower due to due to.

Due to lower profit, we always of course have.

Inventory adjustments.

For various reasons that occur every quarter, but but.

Yes.

The lower cost of market that you are talking about.

Manish Bhatia: Right

Mark Murphy: ... we do. So I think that's where we are.

Sidney Ho: Right

Mark Murphy: ... we do. So I think that's where we are.

Yes.

So I think that's that's where we are.

[Analyst] (Deutsche Bank): Okay. Maybe a quick one on the capital spending side. I know you're taking it down to $8 billion. You normally talk about how much of the CapEx is dedicated DRAM versus NAND versus backend. I wonder if you can give us a breakdown of that. And within the WFE cut, you talk about 50%, are you cutting more on the DRAM side or NAND side, or it's about the same?

Sidney Ho: Okay. Maybe a quick one on the capital spending side. I know you're taking it down to $8 billion. You normally talk about how much of the CapEx is dedicated DRAM versus NAND versus backend. I wonder if you can give us a breakdown of that. And within the WFE cut, you talk about 50%, are you cutting more on the DRAM side or NAND side, or it's about the same?

Okay, maybe a quick one on the capital spending side I know you've taken it down to $8 billion.

Normally talk about how much of the Capex is get a dedicated DRAM versus NAND versus backend I Wonder if you can give us a breakdown of that and within the Wm. Because you talked about 50% are you cutting more in the DRAM and NAND cycle is about the same.

Manish Bhatia: Sure. So I can take that one, Sidney. You know, I'll take the second question first. We're cutting on both. There are reductions on both. And what I'll just, you know, emphasize is that, you know, all of the WFE that we're spending is really going to next-generation technologies. Meaning in DRAM, 1-beta and beyond, including even some early spending on 1-gamma, and then on the NAND side, 232 and beyond. Even though we're slowing down those ramps, still, all of whatever spending we do have in WFE is really going towards the future.

Sure. So I can take that one Sydney.

Yes, I think your second question first we're cutting on both the reductions on both.

And what I'll just emphasize is that all of that.

<unk> that we're spending is really going to next generation technologies, meaning and DRAM, one data and beyond including even some early spending on one gamma.

And then on.

The NAND side, $2 32, and beyond even though we are slowing down those those ramps still all whatever spending we do have in WMC is really going towards the future.

Manish Bhatia: And, you know, whenever you get in a situation like this, you always have to make a choice, and typically, what you do is you sort of stop spending on the existing technologies because that's capacity growth, and you, you pivot your spending towards the future generation so that you're prepared when, you know, when things reverse, that we're gonna have, you know, leading-edge technology, you know, qualified. It's gonna, we're gonna have multiple different products qualified, good yields, and that's sort of what we're investing for now, as well as, you know, generations even beyond those two. In terms of just giving you some, you know, rough breakdown of the overall, you know, $8 billion, I think, you know, we can say that, you know, the WFE is the largest part. It's, it's, it's, you know, more than half.

Yes.

And whenever you get in a situation like this you always have to make a choice and typically what you do is you could have stopped spending on the existing technologies, because thats capacity growth and you you pivot your spending towards the future generations of the your prepared when when things reversed and we're going to have leading edge technology qualified it's going to if we're going to have multiple different products qualified.

Good yields and Thats sort of what we're investing for now as well as generation that even beyond those two.

In terms of just giving you some rough breakdown of the overall 8 billion I think we can say that.

<unk>.

<unk> is the largest part.

More than half.

Manish Bhatia: We then have construction spending, which is actually, as we said in the script, above what the levels were in 2022. Construction spending, as you know, tends to be lumpy. It's sort of you build clean room space. We have been very proactive, you know, over the last several years, before last year, in building clean room space. If you go back to, you know, our years in 2019 and 2020, and 2021. So 2022 was a lower year. This year, we have more spending, and inclusive of that spending is the spending for the US project that we announced in Boise earlier this month.

We then have construction spending which is actually as we said in the script above what we had what levels were in 'twenty. Two construction spending as you know tends to be lumpy, it's sort of you build clean room space, we have been very proactive over.

The last several years before last year in building clean room space. If you go back to our years and 19 in 'twenty.

In 'twenty one for 'twenty two is a lower year. This year, we have more spending and inclusive of that spending is.

The spending for the U S project that we announced in Boise.

Earlier this month.

Manish Bhatia: And then we have spending for technology and development, as well as for assembly and tests, that are sort of the next categories.

And then we have spending for for <unk>.

Technology and development.

As well as for Assembly and test that are sort of the next category.

[Analyst] (Deutsche Bank): Okay, great. Thank you.

Sidney Ho: Okay, great. Thank you.

Mark Murphy: Maybe just, maybe, Sidney, just to add to something that, you know, Manish was covering there. So, you know, I think it's noteworthy, as he said, that, you know, there's a sizable construction part of this spend, and, and as, you know, as we cut levels, that becomes a higher percent. That actually is a higher percent in the back half of the year. And I just think it's worth calling out because these are investments for the long term, and we're gonna begin spending monies around, you know, Idaho, for example, and, and that, that is for end of the decade, you know, you know-

Okay, great. Thank you maybe just.

And maybe you Sidney just to add something.

M&A was covering there so.

Yes, I think it is noteworthy that he said that.

<unk>.

There is a sizable construction part of this spend and and as as we cut levels that becomes a higher percent.

That actually has a higher percent in the back half of the year.

And I just think it's worth calling out because these are investments for the long term and we're going to be spending money around.

Idaho for example, and.

That is for end of the decade.

Manish Bhatia: Sure

Mark Murphy: ... later in the decade demand. And, you know, I just think it's important to call that out because we're certainly exploring ways to, you know, finance those expenditures. And, you know, there are certainly government grants that we are working through, that CHIPS Act, for example, and the ITC benefits of that legislation.

Sure.

Later in the decade demand.

And.

I just think it's important to call that out because we're certainly exploring ways too.

Finance those.

Expenditures Ed.

Certainly government grants that we are working through that chip sack for example, and the ITC.

Benefits of that legislation.

Manish Bhatia: ... we would use, of course, as the business improves, our own operating cash flow, our balance sheet, and then other means to, you know, finance those, you know, expenditures.

Mark Murphy: ... we would use, of course, as the business improves, our own operating cash flow, our balance sheet, and then other means to, you know, finance those, you know, expenditures.

We would we would use of course as the business improves our own operating cash flow our balance sheet and then other means to.

Finance those.

<unk>.

[Analyst] (Goldman Sachs): Great, thank you very much.

Sidney Ho: Great, thank you very much.

Great. Thank you very much.

Operator: Thank you. One moment for our next question. And our next question comes from the line of Krish Sankar from Cowen. Your question please.

<unk>.

Thank you one moment for our next question.

And our next question comes from the line of Chris <unk> from Cowen.

Your question please.

[Analyst] (Cowen): Hey, guys, this is Eddie for Krish. Thanks for squeezing me in. At your Analyst Day, you gave us 50% target mix of DDR5 in servers by Q4 2023. Obviously, this will be lower, but can you share your updated thoughts on that? And I have another question, please. Thanks.

Hey, guys. This is Eddie for Chris Thanks for.

Squeezing me in.

At your Analyst day, you gave us the 50% target.

That mix of DDR five by Q4, 'twenty 'twenty three.

Obviously this will be lower but can you share your updated thoughts about.

I have another question. Please thanks.

Thanks.

Sumit Sadana: Yeah, I mean, definitely the DDR5 crossover point has been pushed out largely due to the push out of the schedule of certain new architecture introductions by the CPU vendors. And so, as we look at the DDR5 ramp, it is continuing on the PC side, but on the server side, the numbers are far lower in 2022 as we look towards the end of 2022, far lower than we had originally expected or the industry had originally expected. And, you know, we expect that by the end of 2023, the DDR5's penetration in the server space will be meaningfully below 50%. We'll get to 50% level sometime in 2024.

Yes, I mean definitely the DDR five crossover point.

Has been pushed out largely due to the.

The push out of the schedule of certain new architecture introductions by the CPU vendors and so as we look at the DDR five ramp is continuing on the.

EC side, but on the server side the numbers are far lower in 2022, as we look towards the end of 'twenty two far lower than we had originally expected all the industries and the reason we expected.

And.

We expect that.

By the.

End of 2023, the DDR fives.

Penetration in the server space to be meaningfully below 50%.

You get to 50% level sometime in <unk>.

2024.

[Analyst] (Cowen): Great. Thank you. And on cost declines, how should we think about cost declines for fiscal 2023 across DRAM and NAND? That's it for me. Thanks.

Great. Thank you and on cost declines how should we think about the cost declined four three across DRAM in them.

That's it for me thanks.

Manish Bhatia: Sure. Sure, I can take that. I mean, both of them are going to be, Eddie, are gonna be below the long-term category. This year, in fiscal year - actually, I shouldn't say this year. In fiscal year 2022, last year, we performed very well. Both NAND and DRAM at the memory level were above. The cost reductions were better than the long-term CAGR that we have for both, for DRAM, which we've said is high single digits, and for NAND, low teens. So we did better than that in 2022. In 2023, we expect both DRAM and NAND to be below that. Obviously, you know, reduced capital spending and slower technology transitions have a big part in that. The underutilization has a part in that.

Sure sure I can take that I mean, both of them.

Are going to be are going to be below the.

The long term CAGR this year in fiscal year actually this year in fiscal year 'twenty two last year, we performed very well, both NAND and DRAM at the memory level were about the cost reductions were.

Better than the long term CAGR or do we have for both for DRAM, which we've said is high single digits and Fernand.

Low teens, so we did better than that in 'twenty two 'twenty.

'twenty three we expect both DRAM and NAND to be below that obviously the.

Reduced capital spending and slower technology transitions have a big part in that the Underutilization has a part in that Mark gave some color on the call before about that part.

Manish Bhatia: Mark gave some color on the call before about that part. We have some inflationary headwinds, particularly in Singapore. On the NAND side, we have an inflationary headwind specifically unique there, given you know what's going on with the electricity markets there, and that's a challenge for us. DRAM does have some benefit on, you know, FX, given we manufacture in Japan and Taiwan, and both the yen and the Taiwan dollar have weakened recently. So we have some things there, but when you put all that together, we still expect DRAM and NAND both to be below the long-term CAGR for memory level cost reduction in fiscal year 2023, and NAND to be more challenged than DRAM.

We have some inflationary headwinds, particularly in Singapore on.

On the NAND side, we have an inflationary headwinds unique there given that we're coming out with the electricity markets, there and Thats a challenge for us.

DRAM does have some benefit on.

FX, given we manufacture in Japan, and Taiwan in both the yen in Taiwan.

Taiwan dollars have weakened recently, so we have some some things there but when.

When you put all that together, we still expect DRAM and NAND both to be below the long term CAGR for.

For memory level cost reduction in fiscal year 'twenty three in and then to be more challenged than DRAM.

[Analyst] (Cowen): Will it be lower than fiscal 2022?

And will it be lower than fiscal 2022.

Manish Bhatia: Yes, sorry. Yes.

Yes, sorry, yes, okay, both of them will be below the large competitors therefore below.

[Analyst] (Cowen): Okay.

Manish Bhatia: Both of them will be below the long-term CAGR, so therefore below. Let me make sure I'm clear. They will be - they will not reach the long-term CAGR. They will be worse than fiscal year 2022, and they'll be less cost reduction or shallower cost reduction than the long-term CAGR, with NAND more challenged than DRAM.

Let me make sure I'm sorry.

They will be.

Will not reach the long term casualty there'll be worse in fiscal year, 'twenty, two and there'll be.

Less cost.

Production.

Our shallower cost reduction.

Then.

The long term CAGR.

With NAND more challenged the DRAM.

Okay.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Toshiya Hari from Goldman Sachs. Your question, please.

Thank you.

One moment for our next question.

And our next question comes from the line of tissue from.

Your question please.

[Analyst] (Goldman Sachs): Hi, thank you for taking the question. I had a couple of questions on the demand side. You know, as your expectations have come down over the past, you know, couple of months, and this obviously isn't just you guys, but the overall environment has come in, which end market or application, I guess, has surprised you the most? It sounds like everything is worse, but if you can differentiate between the big core end markets, that would be helpful. And then related to that, you talked to elevated customer inventory and cloud, but is there a significant difference in customer inventory levels across the end markets vis-a-vis what you consider to be normal?

Toshiya Hari: Hi, thank you for taking the question. I had a couple of questions on the demand side. You know, as your expectations have come down over the past, you know, couple of months, and this obviously isn't just you guys, but the overall environment has come in, which end market or application, I guess, has surprised you the most? It sounds like everything is worse, but if you can differentiate between the big core end markets, that would be helpful. And then related to that, you talked to elevated customer inventory and cloud, but is there a significant difference in customer inventory levels across the end markets vis-a-vis what you consider to be normal?

Okay.

Hi, Thank you for taking the question.

I had a couple of questions on the demand side.

As your expectations have come down.

Over the past couple of months and this obviously isn't just you guys, but the overall environment.

Come in.

Which end market or application I guess, what surprised you. The most it sounds like everything is worse, but if.

If you can differentiate between the big.

Core end markets that would be helpful and then related to that.

You talked to.

Elevated customer inventory in cloud, but is there is there a significant difference in customer inventory levels across the end markets vis vis what you consider to be normal.

Sumit Sadana: Yeah, I mean, that's, yeah, that's a good question. I think in terms of what surprised us the most, I mean, you know, the smartphone and PC segments, first ones to weaken, and they, you know, weakened sharply, early, in the cycle. And, you know, we started seeing inventory-related corrections then spread to other segments of the market, and then some segments of the market started to see some end demand erosion alongside inventory correction, and that sort of compounded the demand issue. So in terms of, you know, the pullback of actual purchases, it has been pretty broad-based across all of the segments, due to a combination of inventory and end demand concerns. In some segments, the end demand concerns like cloud, I mentioned, you know, end demand still healthy, but inventory and server issues.

Yes.

Yes, that's a good question.

In terms of <unk>.

What surprised us the most.

<unk>.

The smartphone and PC.

First one to weaken.

Weaken sharply.

Early.

In the cycle.

And.

We started seeing inventory related corrections, then spread to other segments of the market.

And then some segments of the market started to see some end demand erosion alongside inventory correction and that sort of compounded the.

Demand issue so in terms of.

The pullback of actual purchases.

It has been pretty broad based across all of the segments due to a combination of inventory and demand concerns.

In some segments the end demand concerns like cloud dimension and demand still healthy but inventory in silver issues.

Sumit Sadana: But generally, the pullback has been pretty significant across multiple segments. I would say that the end demand in automotive still remains in very good shape as well. The pullback in demand in areas like automotive, despite the inventory correction, is, you know, less pronounced compared to the overall pullback in demand in other areas. But, you know, pretty much all segments have been impacted quite a bit.

But generally the pullback has been to the.

Pretty significant across multiple segments I would say that the end demand in automotive still remain.

In very good shape as well.

<unk>.

Pullback in demand in areas like automotive despite the inventory correction is.

It's less pronounced.

Compared to the overall pullback in demand in other areas, but pretty much all segments has been <unk>.

Impacted.

Quite a bit.

Sumit Sadana: And, I think part of this is also coming from the concern, a broadening level of concern among customers about the trajectory of the global economy and the US economy, and just driving that cautionary behavior of needing to manage or wanting to manage free cash flow and inventory levels in a tighter way than they would have in a mode that semiconductor parts are generally in shortage for the last couple of years, and the mindset had been to just accumulate parts and not gauge revenue, and now the mindset is more to protect free cash flow and keep, you know, healthier levels, lower levels of inventory. I think in terms of-- Sorry, go ahead.

And.

I think part of this is also coming from the concern broadening level of concern among customers about the trajectory of the global economy in the U S economy.

<unk>.

And just driving that cautionary behavior of needing to manage or wanting to manage.

Free cash flow and inventory levels in a tighter way than they would have than they would in a more debt semicon.

Semiconductor.

Thoughts generally in shortage for the last couple of years and the mindset had been to just accumulate.

Parts and not gauged revenue and now the mindset is more to protect free cash flow in and.

Keith.

Healthier levels lower levels of inventory.

I think in terms of.

[Analyst] (Goldman Sachs): Sorry, go ahead. No, please go ahead.

Toshiya Hari: Sorry, go ahead. No, please go ahead.

Sorry go ahead, sorry go ahead.

Please go ahead.

Sumit Sadana: You know, I was just going to the other part of your question regarding cloud. I mean, I think in terms of cloud, you know, the only differentiation I wanted to make is, you know, the enterprise versus the cloud part of the data center, you know, overall data center market. The enterprise being, you know, more of the traditional on-prem type of OEM-driven purchasing, that has been weaker than the cloud trend, generally speaking, in terms of differentiating between enterprise and cloud. And I think that at this point, I would not say that inventories are at normal levels in any major segment. I would say that there is some level of excess inventory in most segments, a small amount in some, but and more in others.

I was just I was just going to the other.

Other part of your question regarding cloud I mean, I think in terms of cloud.

<unk>.

The only differentiation I wanted to make is the enterprise versus the cloud part of the data center.

Overall data center market.

The enterprise being more of the traditional on Prem type of OEM.

OEM driven purchasing.

That has been.

Weaker than the cloud trend.

Generally speaking in terms of.

Differentiating between enterprise and cloud.

And I think that.

At this point I would not say that.

Inventories are at normal levels.

In any major segment.

I'd say that there is some level of excess inventory in most segments.

A small amount in some but and more than others, but.

Sumit Sadana: But there are definitely customers who have normal levels of inventory. Within each segment, there may be customers who have more normal levels of inventory, but if I look at it from an entire segment level, not easy to identify one where there is an entire segment that is healthy from an inventory perspective at this point. But I do think that, you know, you see that in our shipment numbers, in FQ4, our bit shipment declined. In FQ1, our bit shipment declined. Small bit shipment declines do happen from time to time. It's very normal on a sequential basis. But bit shipments having two quarters of back-to-back declines in a pretty substantial way typically only happens when, you know, inventory is being liquidated.

But there are definitely customers, who have normal levels of inventory.

And then each segment there may be customers, who have more normal levels of inventory, but if I look at it from a segment level.

Not easy to identify one that is in that segment is healthy from an inventory perspective.

At this point, but I do think that.

Youll see that in our shipment numbers.

In F Q4, our bit shipment declined in F Q1 bit shipment declined.

<unk> bit shipment declines do happen from time to time, it's very normal on a sequential basis.

Bit shipments.

Having two quarters back to back of declines in activity substantially typically only happens when inventory is being liquidated. So you can you can see that.

Sumit Sadana: So you can, you can see that, you know, inventory is going down at customers, between Q4 and Q1 of our fiscal year. And we expect those inventories to keep going down, you know, through the rest of this calendar year and into the early part of calendar 2023, at which point we think they would have reached levels where the ship in volume should start to rebound to meet the ship out volume levels. And of course, all of this is based on assumptions of certain macroeconomic environment that, you know, obviously is ahead of us.

Inventory is going down and customers between Q4, and Q1 of our fiscal year and we expect those inventories to keep going down.

So the rest of this calendar year and into the early part of this.

Calendar 'twenty three at which point, we think they would have reached levels where the.

The ship in volume should start to rebound to meet the ship out volume levels.

And of course, all of this is based on assumptions of certain macroeconomic environment.

Obviously is ahead of us.

[Analyst] (Goldman Sachs): Great, and thank you for that. As a follow-up on the supply side, so you're cutting WFE by 50% in fiscal 2023. You know, if for whatever reason the environment ends up being a lot better or less bad than expected, say, in the second half of your fiscal year, or your expectations for the early part of fiscal 2024 improve, how flexible can you be with that CapEx with your equipment suppliers? Meaning, can you go back to them and say: We actually don't want to cut this much, we need tools, or just given where lead times are, would that be difficult? I guess, you know, if you can compare and contrast the flexibility you have today versus past cyclical inflections, that would be helpful. Thank you.

Toshiya Hari: Great, and thank you for that. As a follow-up on the supply side, so you're cutting WFE by 50% in fiscal 2023. You know, if for whatever reason the environment ends up being a lot better or less bad than expected, say, in the H2 of your fiscal year, or your expectations for the early part of fiscal 2024 improve, how flexible can you be with that CapEx with your equipment suppliers? Meaning, can you go back to them and say: We actually don't want to cut this much, we need tools, or just given where lead times are, would that be difficult? I guess, you know, if you can compare and contrast the flexibility you have today versus past cyclical inflections, that would be helpful. Thank you.

Great.

Thank you for that as a follow up on the supply side.

So youre cutting Wi Fi by 50% in fiscal 'twenty three.

If for whatever reason the environment ends up being a lot better or less bad than expected say in the second half of your fiscal year or your expectations for the early part of fiscal 'twenty four improve how how flexible can you be with that capex with your equipment suppliers, meaning can you go back to them and say, we actually don't want to cut this.

Should we need tools or just given where lead times are would that be would that be difficult. I guess, if you can compare and contrast, the flexibility you have today versus past.

Cyclical inflections that would be helpful. Thank you.

Manish Bhatia: Sure, Toshiya, thanks. That's a nice thing to think about, to try to think about on a day like today, so thank you for giving us that question.

Sure sure. Thanks, and that's a nice thing to think about to try to think about it.

Today, so thank you for giving us that question Jamie.

[Analyst] (Goldman Sachs): Exactly.

Sumit Sadana: Exactly.

Manish Bhatia: So look, we have, you know, a great relationship with the equipment vendors, some of it over, you know, multiple decades, all the vendors really, you know, whether in the US or Japan or, or Europe. And you know, what I'll tell you is that, you know, when, when they were having supply chain challenges over the last couple of years, we really partnered with them closely to help them get their... You know, figure out how to, you know, keep their shipments to meet our schedule, doing things like qualifying all the alternate sources for, for certain parts so they could ship equipment or even doing the installations in place. So, we've worked with them really well, and I think they appreciate that partnership, and they're working with us now, you know, as we have this difficult period.

So look we have a great relationship with the equipment vendors some of it over.

Multiple decades.

All the vendors really whether in the U S or Japan or Europe .

I'll tell you is that when they were having supply chain challenges over the last couple of years, we really partnered with them closely to help them get there figure out how to.

Keep their shipments to meet our schedule doing things like qualifying alternate sources for certain parts. So they could ship equipment or even doing the installations in place.

So we've worked with them really well and I think they appreciate that partnership and Theyre working with US now as we have this difficult period.

Manish Bhatia: And I'm, you know, as I mentioned, we are maintaining, you know, the manufacturing corridors for the ramp-up of these new technologies to get multiple products qualified across them, to improve yield and make sure that when the demand turns around, we'll have the ability to ramp those leading-edge nodes. And, in terms of the flexibility that we'll have, you know, we're, you know, we've exhibited flexibility with them to try and help increase or improve and, you know, keep our ramps on pace in the past. This is obviously a different period, but we can certainly go back to the playbook we had before if we need to expedite shipments again. And certainly, if we did, it would be for leading-edge technology that we would.

As I mentioned, we are maintaining.

Manufacturing corridor is for the ramp up of these new technologies to get multiple product qualified across them to improve yield and make sure that when the demand turns around we will have the ability to ramp those leading edge.

Those leading edge nodes and.

In terms of the flexibility that we'll have.

Sure.

Exhibiting flexibility with them to try and help increase or improve keep our ramps on pace in the past. This is obviously a different period, but we can certainly go back to the playbook, we had before if we need to expedite shipments again.

Certainly if we did it would be for leading edge technology that we would but I don't think that its something where.

Manish Bhatia: But I don't think that it's something where, you know, we're gonna do it in line with the demand trends, and demand environment improving. And you know, for now, we're kind of slowing the ramps down through 2023 and looking at 2024, where we'll get the majority of the impact from these new, these two new technologies, 1-beta and 232-layer.

We're going to do it in line with the demand trends.

NAND environment improving.

For now we're kind of.

We are slowing the ramps down through 'twenty, three and looking at 24, when we'll get the majority of the impact from these new these two new technologies, one beta and 232 layer.

[Analyst] (Cowen): Makes sense. Thank you so much.

Toshiya Hari: Makes sense. Thank you so much.

Makes sense. Thank you so much.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Hans Mosesmann from Rosenblatt Securities. Your question, please.

Thank you one moment our next question.

And our next question comes from the line of hence most of them from Rosenblatt Securities. Your question. Please.

[Analyst] (Rosenblatt Securities): Yeah, thanks. Can you hear me okay?

Hans Mosesmann: Yeah, thanks. Can you hear me okay?

Yes. Thanks.

Can you hear me okay.

Operator: Yes.

Sumit Sadana: Yeah, we can hear you.

Yes, yes, we can hear you okay. Okay, great and then just a clarification there was a previous question on DDR five in.

[Analyst] (Rosenblatt Securities): Okay.

Hans Mosesmann: Okay.

Sumit Sadana: Go ahead.

[Analyst] (Rosenblatt Securities): Okay, great. And just a clarification, there's a previous question on DDR5, and I think management indicated that the DDR5 transition and/or crossover had been delayed during the analyst meeting. But now I think that the answer has been that the crossover is going to be well below 50%, by the end of 2023. Is that, is that accurate, or did I misunderstand?

Hans Mosesmann: Okay, great. And just a clarification, there's a previous question on DDR5, and I think management indicated that the DDR5 transition and/or crossover had been delayed during the analyst meeting. But now I think that the answer has been that the crossover is going to be well below 50%, by the end of 2023. Is that, is that accurate, or did I misunderstand?

I think management indicated.

The DDR five transition and our crossover had been delayed during the analyst meeting.

But now I think the answer has been that.

The crossover is going to be well below 50% by the end of 2023 is that is that accurate or.

Did I misunderstand.

Sumit Sadana: Yes, that is, that is what we said. Yeah.

Yes that is.

What we said yes.

[Analyst] (Rosenblatt Securities): That's a change from what had been implied during the analyst meeting earlier this year?

Hans Mosesmann: That's a change from what had been implied during the analyst meeting earlier this year?

And Thats a change from what had been implied.

During the analyst.

Meeting earlier this year.

Sumit Sadana: I mean, the DDR5 transition in the server market is heavily driven by the timing of the platform rollout from the CPU companies, because, you know, the DDR5 needs and can attach to only certain server platforms. And it also then depends on the rate and pace at which those platforms will be deployed. If the deployment of these platforms is faster than we expect, then, of course, you know, we'll be able to take advantage of that because we have an industry-leading DDR portfolio, and we are, we have a share position in DDR5 that's actually higher than our supply share. So we are in a really good position with DDR5, and regardless of what the timing of these ramps in DDR5 are, we are in great position to take advantage of it.

I mean, the DDR five transition in the server market is.

Heavily driven by the timing of the platform.

Rollout from the CPU companies because the deal size.

Needs.

And Ken attached to only certain server platforms and it also then depends on the rate and pace at which.

Those platforms will be deployed.

If the deployment of these platforms is faster than we expect then of course, we'll be able to take advantage of that because we have an industry, leading DDR portfolio in D. R.

<unk> share position in DDR, five that's actually higher than our supply share. So we had a really good position with edr five and regardless of what the timing of these ramps and DDR five yet in great position to take advantage of it.

Sumit Sadana: Our current expectation is that, yes, the 50% point would not have reached by the end of calendar 2023, as we had earlier expected.

Our current expectation is that.

Yes.

50% point would not have reached.

By the end of calendar 'twenty three as we had earlier expected.

[Analyst] (Rosenblatt Securities): What was the earlier expectation? Just to kind of confirm it, the earlier expectation was middle of 2023?

Hans Mosesmann: What was the earlier expectation? Just to kind of confirm it, the earlier expectation was middle of 2023?

And what was the early expectations just to kind of confirm it the earlier expectation was middle of 2023.

Sumit Sadana: No, no, no, it was never middle. It was more like it was going to be towards the end, like Q4 of 2023. Now it's pushed into 2024.

No no. It was never middle it was more like it was going to be towards the end late fourth quarter of 'twenty three now it's pushed into 'twenty four.

[Analyst] (Rosenblatt Securities): Okay, great. Thanks for the clarification. Very helpful.

Hans Mosesmann: Okay, great. Thanks for the clarification. Very helpful.

Okay, great. Thanks for the clarification very helpful.

Sumit Sadana: Sure.

Sure.

Operator: Thank you. Our final question for today. One moment, please. Our final question comes from the line of Steven Fox, from Fox Advisors. Your question, please.

Okay.

Thank you and our final question for today, one moment please.

Our final question comes from the line of Steven Fox from Fox Advisors. Your question. Please hi, Thanks for squeezing me in I just had one question.

Manish Bhatia: Hi. Thanks for squeezing me in. I just had one question. You guys have given a lot of detail on your thoughts on inventories and demand by different segments. I guess the one overall overarching question I had, especially since Sanjay called out China as being important: How much influence do you now, looking back, think that excess purchases out of China influenced this whole cycle up and down? And how sensitive do you think you're gonna be to what's going on in China on any sort of recovery? Thanks.

Steven Fox: Hi. Thanks for squeezing me in. I just had one question. You guys have given a lot of detail on your thoughts on inventories and demand by different segments. I guess the one overall overarching question I had, especially since Sanjay called out China as being important: How much influence do you now, looking back, think that excess purchases out of China influenced this whole cycle up and down? And how sensitive do you think you're gonna be to what's going on in China on any sort of recovery? Thanks.

You guys have given a lot of detail on your thoughts on inventories and demand by different segments. I guess, one overarching question I had especially since.

Sanjay called out China, as being important and how much influence do you know looking back think that excess purchases out of China influenced this whole cycle up and down and how sensitive do you think youre going to be what's going on in China on any sort of recovery. Thanks.

Sumit Sadana: I think, in terms of China, you know, we do have, we do have YMTC selling NAND to customers for use in in China, mostly into lower-end consumer applications. We do have a model of the industry TAM that incorporates certain levels of growth of supply from Chinese suppliers. That's part of how we look at the world in terms of when we think about supply and demand and balance and so on. There is no doubt that, particularly in NAND, but to a lower extent in DRAM, but particularly in NAND, you know, there has been supply from YMTC that has added to the supply-demand imbalance that is currently in the market.

I think.

In terms of China.

We do have.

We do have my mtc selling NAND to customers for use in in China.

Most leading to lower than consumer applications.

We do have a model of the industry Tam.

Cooperates certain levels of growth.

Supply from Chinese suppliers, so thats, how we look at the world in terms of.

When you think about supply and demand in balance and so on and there is no doubt that.

But it clearly.

In NAND.

But to a lower extent in DRAM, but particularly NAND there has been.

Supply from Brian do you see that has added to the supply demand imbalance.

It is currently in the market.

Sumit Sadana: But we do expect that, you know, the overall, supply growth next year, even in NAND, will fall meaningfully below the demand growth and the environment to consequently improve once the inventories are in better shape, as we have described in the past.

But we do expect that.

Overall.

Supply growth next year, even in NAND will fall meaningfully below the demand growth and the environment to consequently improve the inventory in better shape as we have described.

Manish Bhatia: Great. Thank you.

Steven Fox: Great. Thank you.

Great. Thank you.

Operator: Thank you. This does conclude the question and answer session, as well as today's program. Thank you for your participation. You may now disconnect. Good day.

Thank you. This does conclude the question and answer session as well as today's program. Thank you for your participation you may now disconnect good day.

Yeah.

Operator: The conference will begin shortly. To raise your hand during Q&A, you can dial star one one.

The conference will begin shortly to raise your hand during Q&A you can dial one one.

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Operator: Thank you for standing by. Welcome to Micron's post-earnings analyst call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star one one on your telephone. And now I'd like to introduce your host for today's program, Farhan Ahmed, Vice President in Investor Relations. Please go ahead, sir.

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And now I'd like to introduce your host for today's program Farhan Ahmed Vice President Investor Relations. Please go ahead Sir.

Farhan Ahmed: Thank you, and welcome to Micron Technology's fiscal fourth quarter 2022 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 file with the SEC, including 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.

Thank you and welcome to Micron technologies fiscal fourth quarter of 2022.

<unk> called out.

On the call with me today are Summit's O'donnell, Chief business Officer, My niche patio, our EVP of global operations and Mark Murphy our CFO .

As a reminder, the matters, we will be discussing today. Good 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.

Ideally from the statements made today.

We refer you to the documents, we filed with the SEC, including 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.

Farhan Ahmed: We are under no duty to update any of the forward-looking statements, sorry, to confirm these statements to actual results. We can now open the call.

Under no duty to update any of the forward looking statements to confirm these results.

Sorry to confirm these statements to actual results.

We can now open the call.

Certainly ladies and gentlemen, once again, if you have a question at this time. Please press Star then one one moment for our first question.

And our first question comes from the line of umbrella robust from BMO. Your question. Please.

[Analyst] (BMO): Hello, this is Jameson calling for Ambrish. So I just had two quick questions. The first one is on, given the fact that you had guided free cash flow to negative $1.5 billion in Q1, and what seems to be a similar loss in Q2, given the front and weighted CapEx, similar revenue and profitability profile, as well as inventory continue to rise, and then leading to your commentary on free cash flow generation in the back half of the year, can you comment on your expectations for fiscal 2023 free cash flow as a whole? Thank you.

Hello, This is Jonathan Collins for Enbridge.

Just had two quick questions. The first one is on given the fact that you had guided free.

Free cash flow to negative one 5 million <unk>.

It seems to be.

Similar loss in <unk>, given the front end weighted capex similar revenue profitability profile as well as inventory continued to rise.

And then leading to your commentary on free cash flow generation in the back half of the year can you comment on your expectations for fiscal 'twenty three for cash flow.

Thank you.

Mark Murphy: Yeah, we just to maybe reference the script, I believe we stated over $1.5 billion negative free cash flow in Q1. We're not guiding Q2, though I did say it would be challenged, you know, because we do have still low levels of revenue and income. And then, you know, the inventory, elevated inventory levels, and then as you pointed out, we said that we would have CapEx weighted heavily in the first half. So all those are gonna weigh on Q2 free cash flows as well, but we did not provide a number. And then we do expect to return to free cash flow generation in the second half. But, you know, we're not providing a full year estimate at this time.

Yeah, we are.

Just to maybe referenced.

Scrap I believe we stated over one 5 billion free cash negative free cash flow in the first quarter, we're not guiding the second though I did say it would be challenged.

Yes, because we do have still a low levels of revenue and income and then.

Yes.

Inventory elevated inventory levels.

And then we do expect to return to free cash flow generation in the second half.

But.

Yes, we're not providing a full year estimate at this time.

[Analyst] (BMO): Okay, thank you. And then, and then, one other question on, on long-term bit growth, so especially for DRAM. I think you guys have lowered your bit growth several times over the last few years, from, you know, 20% to mid-high teens and now to mid-teens. What would it take for, long-term bit growth to be said 10%? Is that, is that something that, that you guys can see over the next several years or next decade happening? Or is that something that, that is very unlikely and, and we should maintain it at teens? Thank you.

Yes.

Okay. Thank you and then.

One other question on long term bit growth, so, especially for DRAM.

I think you guys lowered your bit growth several times over last few years 'twenty.

20% and the type of change in how the mid teens.

What would it take for <unk>.

Long term bit growth to be 10% is that something that.

You guys can see over the next several years or next decade happening or is that something that is very unlikely we should maintain at that thank.

Thank you.

Operator: Sumit, do you want to take that one?

So thats going to take time.

Mark Murphy: Yeah. I'm sorry, I couldn't catch the question. Was it-

Yes.

Yes, Im sorry, I Couldnt I couldnt catch the question.

Operator: I did, but is Sumit on? Oh, no? All right. I can... The question was, sorry, Mark.

<unk>.

Alright.

Mark Murphy: Yeah.

Operator: The question was about the long-term.

The question was sorry my question was.

What about the long term.

Mark Murphy: ... Yeah, down to 10%.

Got it down to 10% DRAM. So the question is we used to say 20% for DRAM.

Manish Bhatia: For DRAM. So the question is, we used to say 20%.

Mark Murphy: Yeah.

Manish Bhatia: For DRAM, you know, four or five years ago, it came down to mid- to high teens, and today we're saying, you know, mid teens. So the question is, what would it take for your assumptions to have this long-term CAGR come down to 10%?

Five years ago, it came down to mid to high teens and today, we're saying mid.

Mid teens.

So the question is what would it take for your assumptions to have that long term CAGR come down to 10%.

Mark Murphy: Yeah, but that's not our assumption.

Yes, but that's our assumption yes.

Manish Bhatia: Yeah.

Mark Murphy: So.

Manish Bhatia: Yeah. I mean, I think right now, you know, our best projection we have, given the strong trends in, you know, artificial intelligence, 5G, and eventually, you know, the content increases that will be driven in autos by autonomous. You know, right now, our outlook is the mid-teens, and that's kind of where we see it now.

Yes, I mean, I think right now.

R R.

Projection, we have given the strong trends in artificial intelligence and <unk> an eventual.

Content increases that will be driven in autos by autonomous right now our outlook is the mid teens.

That's kind of where we see it now.

[Analyst] (Wells Fargo): Okay. Thank you.

Okay. Thank you.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Aaron Rakers from Wells Fargo. Your question, please.

Thank you one moment for our next question.

And our next question comes from the line.

Aaron Rakers from Wells Fargo.

Your question please.

Manish Bhatia: Aaron, can you hear me?

Mark Murphy: We can't hear you.

Operator: Now we can hear you.

Aaron you hear me.

Mark Murphy: There we go.

Now we can hear you.

Yes, sorry about that I missed I missed my name it broke up.

I appreciate you taking the question I have two quick questions. If I can as well on the first question.

Mark I, just want to understand kind of how you're framing the expectation for bit growth I think in the call you had alluded to.

I assume a fairly steep north of 20% sequential bit growth expectation in your mind looking into the back half of the fiscal years is that is that how youre thinking about is that a fair assumption.

Mark Murphy: Yeah, Aaron, I did not break it out in the call, but you're right, you know, conceptually, that in the second half, we are expecting, you know, a robust recovery, and volumes.

Yes.

I did not break it out in the call, but you are right in that.

Conceptually that in the second half we are expecting.

Yes, a robust recovery.

And volumes.

[Analyst] (Wells Fargo): Yeah. And that was-

Mark Murphy: And Aaron,

[Analyst] (Wells Fargo): DRAM and NAND?

And that was an algorithm and NAND.

Mark Murphy: Yes.

Farhan Ahmed: Yeah, Aaron, I'll just add that if you'd think about it, we are not right now shipping well below end demand. So, you know, the demand or our bit shipments are artificially, in some sense, low because of the inventory adjustment going on at the customers. Once that is done-

Yes, yes, yes, and I'll just add that if you look think about it.

Right now shipping well below end demand.

So.

The demand on our brick shipments are artificially and Samsung.

No because of the inventory adjustment going on with the customers.

[Analyst] (Wells Fargo): Yeah

Farhan Ahmed: ... it'll bounce back. And, you know, you can think of it like, you know, like, from where we were in the Q3 level. From that, we have volumes come down almost 1/3, maybe even more than that, into the Q1. So at some point, there should be a bounce back from that as the inventory is adjusted.

Once that is done.

Once back in.

You can pick off at like and all that.

From where we were in the Q3 level from that we have volumes come down almost occurred maybe even more than that.

The Q1.

At some point there should be a bounce back from that.

As adjusted.

[Analyst] (Wells Fargo): Yeah. And I appreciate that. I guess it kind of segues to my second question, which is, you know, I guess your best assessment of the cloud, the server demand profile that you're seeing right now, you know, any views of what inventories are looking like? I think on the call you alluded to some mask set issues, supply chain constraint issues still going on there. But how would you assess what you're seeing from a cloud inventory perspective at this point?

Yes.

I appreciate that I guess, it kind of segway to my second question, which is.

I guess your best assessment of the cloud the server demand profile that youre seeing right now any any views of.

Inventories are looking like I think on the call you alluded to some maps that issue is supply chain constraint issues still going on there, but how would you assess what youre seeing from a cloud inventory perspective at this point.

Mark Murphy: Sumit, are you on?

Okay.

So Matt are you on.

Sumit Sadana: Yeah, I'm, I'm here. Can you hear me?

Yes, I'm here.

Mark Murphy: Yes.

Can you hear me.

Sumit Sadana: Okay. So yeah, I can take that question. So yes, I mean, first of all, the demand in the cloud overall is healthy, and there is demand out there for servers that just cannot be built because certain-

Yes.

Okay. So yes, I can I can take that question.

So, yes, I mean first of all.

The demand in the cloud overall is healthy.

And there is.

The demand out there for servers that just cannot be built because.

Mark Murphy: Yeah

Sumit Sadana: ... components for servers, like network interface cards of certain types, are still in pretty significant shortage. So definitely, because the servers cannot be built, the other portions of the supply chain, which have more than adequate inventory, are being cut back in terms of demand. That is one aspect that is impacting the demand, even though the end demand in cloud is relatively healthy. Now, within cloud, you know, if I were to just look at different segments based on discussions with customers, there are portions of the cloud demand that are somewhat impacted by the macroeconomic environment, and then there are portions of the cloud demand that are very robust from a demand perspective.

<unk>.

Component slower servers like network interface card those certain types.

Still in pretty significant shortage and so definitely because the servers cannot be built.

The other portions of the supply chain, which has more than adequate inventory are being cut back in terms of demand.

That is one aspect that is impacting the demand even though the end demand.

In cloud is.

It's relatively healthy now within cloud if I just look at different segments based on discussions with customers.

The portion that are portions of the cloud demand that are somewhat impacted by the macroeconomic environment and then there are portions of the cloud demand that are very robust from a demand perspective.

Sumit Sadana: So when you net all of that out, the overall demand is relatively healthy, but you know, I mentioned the server issue. The other aspect is memory and storage inventory at cloud customers is generally high and does need to be worked down. So that is part of what's impacting the demand in the near term. Now you know, we do think that the cloud demand is going to remain better than other segments of the market, even as the economic environment proceeds along the trajectory that most people expect. Because there is going to be a desire from companies to find a way to cut costs, to convert capital expenditures into operating expenditures through the use of cloud, to defer IT CapEx and use cloud more, and things like that.

Net all of that out of the overall demand is relatively healthy but.

I mentioned this other issue the other aspect is memory and storage.

Inventory at.

Cloud customers is generally high end does need to be worked down so that is part of what's impacting the demand in the near term.

Now.

We do think that the cloud demand.

He is going to remain better than other segments of the market, even as the economic environment proceeds along the trajectory that most people expect because there is going to be a desire from companies to find a way to cut costs to convert.

Little expenditure than do operating expenditures.

Expenditures through the use of cloud.

To defer capex and use cloud more and things like that and so that is definitely going to be in.

Sumit Sadana: And so there is definitely going to be an outperformance in terms of cloud demand versus other parts of the market. And then obviously, the whole trend towards digitization of the economy is going to also continue. So we think that this is going to continue to be a good environment. It may have some ups and downs based on the macroeconomic demand, but we are optimistic about how this will play out over time.

Outperformance in terms of cloud demand versus other parts of the market and then obviously the whole trend towards digitization of the economy.

Is going to also continue so we think that this is going to continue to be a good.

Environment. It may have some ups and downs based on the macroeconomic demand, but we are optimistic about how this will play out over time.

[Analyst] (Needham): Thank you very much.

Thank you very much.

Sumit Sadana: Sure.

Sure.

Thank you once again, if you have a question. Please press star 111 moment for our next question.

Our next question comes from the line of Thomas O'malley from Barclays. Your question. Please.

[Analyst] (Barclays): Hey, guys. Thanks for taking my question, and thanks for hosting the call. Mark, this one's for you. You talked about some decisive action on the OpEx side of things. Obviously, you're not seeing that flow through right away; it takes some time. But could you just try to lay out the cadence of what kind of, well, the cadence and the vector of how extreme that could be throughout the year, just as that's a pretty good offset as revenue comes down? Just the shape of that OpEx decrease and how much you could save.

Guys. Thanks for taking my thanks for taking my question and thanks for hosting the call Mark. This one for you you talked about some decisive action on the Opex side of things.

Obviously, you are not seeing that flow through right away. It takes some time, but could you just try to lay out the cadence.

What kind of what the cadence and the vector of how extreme that could be throughout the year just as that's a pretty good offset as revenue comes down just just the shape of that Opex decrease.

How much you could say.

Mark Murphy: Sure, Tom. I, you know, as with CapEx, we did respond quickly in this unprecedented downturn. Yeah, we've got clear line of sight on our spend, and it's in control, and we're projecting it to come down. I think, you know, in Q4, we actually, it may not have been noticed, but we were actually below the low end of the guidance range we provided on OpEx. So I think, you know, some of that was incentive comp. But, but I think, you know, the, the, you know, the actions in the company have already started. We expect to decline sequentially off this billion-dollar level that we guided for Q1, then we would expect a decline through the year as, you know, as the actions take hold and more actions kick in.

Sure Tom.

The Capex, we did respond quickly.

In this unprecedented downturn.

Yes, we've got clear line of sight on our spend and it's in control and we are projecting it to come down I think.

The fourth quarter, we actually it may not have been noticed but we are actually below the low end of the guidance range. We provided on Opex. So I think.

Some of that was incentive comp but.

But I think yes.

Yes, the actions of the company are already started.

We expect to decline sequentially off this billion dollar level that we guided for the first quarter.

And we would expect that decline through the year as you know as.

As the actions take hold and more actions kick in.

Mark Murphy: We would plan to end the year, you know, down closer to the levels that we did in FY 2022, so I would say 3.8 or above. Yeah, the actions are wide ranging. You know, headcount freeze, attrition, other actions. You know, focusing on highest value, and highest probability, projects for development. So, you know, those that are not, we're taking a harder look at, looking at office space, outside services, discretionary spend, and so forth. A lot of actions in flight, you know, more coming, and of course, we would adjust our spend as the market conditions warrant.

We would plan to end the year.

Yeah.

Down closer to the levels that we did in FY 'twenty, two so I would say three eight or above.

Yes, the actions are wide ranging.

Yes, head count frame is attrition other actions.

We are focusing on highest value.

And highest probability projects for development. So those that are not taking a harder look at looking at office space.

Outside services discretionary spend and so forth a lot of actions in flight.

Yes, more coming and of course, we would adjust.

Our spend is as the market.

Conditions warrant.

Mark Murphy: We are clearly trying to balance, you know, the short-term challenges in the business with, you know, retaining the long-term capabilities of the company and, you know, just, just working through that very carefully.

Are clearly trying to balance.

Yes, the short term.

Challenges in the business with <unk>.

Retaining the long term capabilities of the company.

Yes, just just working through that very carefully.

[Analyst] (Barclays): Really helpful. And then, just a follow-up is on the tax rate. You made a comment that it should be $300 million. Were you referring to the total for calendar year 2023 being above $300 million? And if that's the case, is like a 25% tax rate just kind of held consistent through November of 2022 through November of 2023, kind of the right area, or does it need to move around a little bit? Just any color there would be helpful.

Really helpful. And then just a follow up is on the tax rate you made a comment that it should be 300 billion.

Turning to the total for calendar year, 'twenty, three being about $300 million and if that's the case is like a 25% tax rate just kind of help consistent through November of 'twenty. Two through November of 'twenty, three kind of the right area or does it need to move around but just any color there would be helpful.

Mark Murphy: Yeah. So, you know, I think what we said, Tom, was a minimum number of $300. You know, could be above that, and that's a dollar basis for the full year. You know, and so you can assume that as a floor, could be a bit more. And, you know, I won't give you a percent because that'll back into full-year income. But it will be a, you know, strong double-digit rate. And, you know, but we expect that to be, you know, the rate that we're experiencing or we expect to experience in FY 2023, is really driven by two things.

Yes, so yes.

I think what we said Tom was the minimum number of 300, yes could be could be above that.

Thats a dollar basis for the full year.

And so you can assume that as a floor it could be a bit more.

And.

Yes.

<unk>.

I won't give you a percent because that all back and you'll be able to back into full year income but.

The.

It will be.

Strong double digit.

Right.

And but we expect that to be.

Right that we're experiencing or do we expect to experience in FY 'twenty three is really driven by two things.

Mark Murphy: One, it's the introduction of this capitalization and amortization of R&D expenditures, and that, you know, that was a headwind on tax. And then the second thing is just the low levels of profitability, and the way our tax planning works is it's optimized for higher levels of profitability. And so when you get these lower levels of profitability, you, you have, you know, basically sort of some fixed costs or, or fixed taxes at these levels. Now, as you, as you look out in the, in the future years, and we return to more normal levels of profitability, we would expect to be in the low to mid-teens. And that increase from, you know, FY 2022's rate, which was 8%, and, you know, there were some, you know, let's say a, a normalized rate there is 8% to 10%.

It's the.

Introduction of this capitalization and amortization of R&D expenditures in that.

That was the headwind on tax.

Basically sort of some fixed costs are fixed taxes at these levels now as you as you look out in the future years, and we return to more normal levels of profitability, we would expect to be in the low to mid teens and that increase from <unk>.

FY 'twenty twos, right, which was 8%.

Yes, there are some.

Let's say at a normalized rate there is 8% to 10%, yes that.

Mark Murphy: You know, that's several points of increase, as we look forward on a normalized basis, is principally driven by that R&D capitalization and amortization effect. And then also just as, you know, income grows, the GILTI, you know, parts of the US tax reform put some pressure on the rate as more income gets exposed to GILTI.

That several points of increase.

As we look forward on a normalized basis is principally driven by that R&D.

Capitalization and amortization effect and then also just as as income grows.

Guilty.

Parts of the U S tax reform.

Put some pressure on the rate as more income gets exposed to guilty.

[Analyst] (Barclays): Super helpful. Thank you.

Super helpful. Thank you.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Rajvindra Gill from Needham. Your question please.

Thank you one moment for our next question.

And our next question comes from the mind of Raj Bindra Gill from Needham Your question. Please.

[Analyst] (Needham): Yeah, thank you for taking my questions. Yeah, just a follow-up question on the assumption of returning to year-over-year bit growth in the second half of fiscal 2023. Sanjay mentioned, you know, some color around smartphone market and kind of the PC market starting to normalize next year. That kind of assumes that the inventory adjustments that the customers, you know, will take place. I'm also wondering, are there other assumptions that you have kind of built in with respect to those particular end markets as well as the other end markets, to kind of give you confidence that we are going to see kind of this demand inflection point, you know, exiting February quarter?

Yes, Thank you for taking my questions.

Just a follow up question on <unk>.

The assumption of returning to year over year good growth in the second half of fiscal 'twenty three.

Sanjay you mentioned.

Some color around the smartphone market and kind of the PC market is starting to normalize.

Next year.

That kind of assumes that the.

Inventory adjustments at the customers will take place.

Exiting February quarter.

<unk>.

Are the inventory levels at the end market level at a sufficiently low level that.

What gives you confidence that they will start to rebuild.

So any color there in terms of that inflection point would be helpful.

Sumit Sadana: Yeah, I can, I can take that question. So I think, you know, there are a couple of, there are actually several moving parts in the demand environment. You know, of, of course, there is different segments of the market growing at different rates. There is different levels of inventory in the various segments of the market, and the macroeconomic environment is also expected to impact, going forward, these segments in different ways. And then the other important thing to just keep in mind is, number one, the shipments that we are making, currently, to customers, are below the consumption rate of DRAM and NAND, because they are obviously, customers are trying to reduce their own inventories.

Yes, I can I can take that question.

So I think there are.

Couple of that actually several moving parts in the demand environment.

Of course that is.

Different segments of the market growing at different rates.

There is different levels of inventory in the various segments of the market.

The macroeconomic environment is also expected to impact.

Going forward these segments in different ways.

And then the other important thing to just keep in mind.

Is <unk>.

Number one the shipments that we are making.

Currently two customers.

Our below the consumption rate of DRAM and NAND.

Because they are obviously customers are trying to reduce their own inventories now.

Now keep in mind that the PC market and the smartphone market entered.

The down cycle before the other parts of the market and then before the economic environment broadly.

Started to weaken and so we also expect that.

Since these are consumer devices that are pretty essential when the volumes of these devices get down to really low levels.

Yes.

We do think they will stabilize.

And.

That is a good chance of.

Improvement in these volumes.

Countries like China start to open up and.

Forego some of their veto COVID-19.

Lockdown.

Related to vehicles.

We hope we are.

You mean that those lockdowns will.

Improve as we go through our fiscal year. So some time.

Sumit Sadana: So sometime in early next calendar year, we are assuming that, you know, the Chinese economy will start to improve and, there will be some reinvigoration of consumer demand there. So, you know, the last point I will make is the shipments that we are talking about growing in the second half of fiscal 2023 versus the first half of fiscal 2023 have a heavy component of, you know, the consumption that's catching up to what the end demand is, because the inventory correction has largely, we expect, would have largely run its course by the end of our first fiscal half of fiscal 2023.

In early next calendar year, we are assuming that the Chinese economy will start to improve.

And there will be some reinvigoration of consumer demand there.

So.

The last the last one that will make us the.

The shipments.

That we're talking about growing in the second half of fiscal 2023 versus the first half of fiscal 2023.

Have a heavy component of.

The.

Because.

Brian .

Catching up to what the end demand is because the inventory collection and largely we expect would have largely run its course by the end of our first fiscal half.

623, so by the end of the February quarter, Youre expecting that the customer inventories would have been.

Sumit Sadana: So by the end of the February quarter, we are expecting that the customer inventories would have been materially improved because they would have been in inventory improvement mode for many months, up to that point. And if you think about the PC and smartphone segment, they would have been in that inventory improvement mode for the better half of a year.

Materially improve because they would have been in inventory improvement mode for many months after that point.

If you think about the BCN smartphone segment, they would've been in that inventory improvement mode for the better half of a year.

[Analyst] (Needham): Right.

Sumit Sadana: So, I think, you know, those are some of the factors. And then the final thing I will mention in terms of the overall health of the industry, although not directly related to demand itself, is that just like right now, the supply is significantly higher than demand in calendar year 2022. We expect that situation to reverse early in calendar 2023, where we expect that due to the CapEx cuts that we are making and what we expect the industry supply growth to be next year, which is only in the mid-single digit sort of percentage range for DRAM in terms of supply growth.

So I think those are some of the factors and then the final thing I'll mention in terms of the overall health of the industry, although not directly related to the demand itself.

Is that just like right now the supply is significantly higher than demand.

Linda year 'twenty two.

We expect that situation to reverse.

Early in calendar 'twenty three.

We expect that due to the capex cuts that we're making and what we expect the industry supply growth to be next year, which is only in the.

Mid single digit sort of percentage range range for DRAM in terms of supply growth demand growth being.

Sumit Sadana: Demand growth being in our model, you know, in that mid-teens range, we get a situation next year where the inventory starts to come down sharply because the supply growth has fallen well below the demand growth. And so the situation that you have today, you'll see sort of a mirror image of that sometime next year. And it's obviously based on certain assumptions of the macroeconomic environment. If the environment is better, you know, things will get shifted to the left in terms of improvement of shipments. If the environment gets worse than what we are modeling, then obviously things will shift to the right. So, that's sort of how we are looking at it. Hope that helps.

Our model.

In that mid teens range.

We get.

Situation next year, where.

The inventory start to come down sharply because the supply growth has fallen well below the.

The demand growth and so the situation that you have today youll see sort of a mirror image of that.

<unk>.

And its obviously based on certain assumptions of the macroeconomic environment, if the environment is better.

Things will get shifted to the left.

In terms of improvement of shipments of the environment gets worse than what we are modeling then obviously things will shift to the right. So that's sort of how we're looking at it hope that helps.

[Analyst] (Needham): Yeah, that, that's super helpful, to understand those, those splits and takes. And just my follow-up, with respect to the cloud server inventory, you know, you made a distinction between, you know, you know, some portions of cloud being healthy, you know, regardless of the macro, some portions of the cloud, being impacted by the macro. You also mentioned that, you know, the cloud inventory remains high, needs to be worked down... they clearly are kind of waiting for memory pricing to drop further before they start to kind of rebuild. But I want to get, you know, a little more insight on the portions of the cloud business that are being impacted because of the macro.

That's super helpful to understand the puts and takes and just for my follow up with respect to the cloud server inventory.

You made a distinction.

Distinction between.

Some portions of cloud being healthy.

Regardless of the macro some portions of the cloud.

Impacted by by the by the macro.

You also mentioned that the cloud inventory remained remained high it needs to be worked down. They clearly are kind of waiting for memory pricing to drop further before they start to kind of rebuild.

But I wanted to get a little more insight on the portions of the cloud business that are being impacted because of the macro.

[Analyst] (Needham): You know, can you elaborate further? Are you seeing kind of a, you know, an expectation that the hyperscaler customers will reduce infrastructure spending for data center? Or is it just, you know, they already have too much inventory and they're going to wait to rebuild until, you know, prices come down further?

Could you elaborate further.

Are you seeing kind of.

An expectation that the hyperscale customers.

Infrastructure spending for data center.

Or is it just they already have too much inventory and they're going to wait to rebuild until <unk>.

Prices come down further.

Sumit Sadana: Yeah, I mean, I think it's not—I don't view this as customers are waiting to have prices come down in order to buy. I don't feel like that is the mindset they have. I think what has happened is they had a certain amount of demand that they were, you know, buying components for, and then they didn't, they couldn't put together all the servers they needed to put together. And that was mainly due to things like network interface cards and so on, that were in shortage.

Yes, I mean, I think its not I don't view this as customers are waiting to have prices come down in order to buying I don't feel like that is there.

The mindset. They have I think what has happened is they had a certain amount of demand that they were.

Buying components for and then they been there.

They couldn't put together all of the servers they needed to put together.

And.

That was mainly due to things like network interface cards, and so on that were in shortage and so they found out they look at when they can.

Sumit Sadana: And so they found out that, okay, when they can't pull together all the servers they need, they do have built up a high level of inventory of things like DRAM and NAND, that obviously they need to slow down the purchase of because they are only able to build a certain number of servers. So that's one aspect of it.

Together they.

They need they do have.

Built up a high level of inventory of things like DRAM and NAND.

Obviously, they need to slow down the purchase because.

Because they are only able to build certain number of servers. So thats one aspect of it I think the other aspect of it is.

Sumit Sadana: I think the other aspect of it is, in terms of the areas that are somewhat impacted. I mean, if you think about consumer companies who do leverage the cloud infrastructure for their own purposes of you know, expanding into some kind of a hybrid environment or a cloud-only environment, these consumer-facing companies are getting more impacted by the inflationary environment and changing customer consumer behavior in terms of spending patterns, or generally getting more cautious about the macroeconomic environment and the trajectory of their own businesses. And those are the ones that are a little bit more susceptible in the short term in terms of what's happening to the macroeconomic environment. And the companies that are more B2B type of companies have little bit less susceptibility. And of course, these are very generalized statements.

In terms of the areas that.

All are.

Somewhat impacted I mean, if you think about consumer companies, who will do leverage the cloud infrastructure for their own.

Purposes.

<unk>.

Extending into some kind of a hybrid environment or a cloud only environment. These consumer facing company.

Are getting more impacted by the inflationary environment and changing customer consumer behavior in terms of spending patterns.

Generally getting more cautious about the macroeconomic environment and the trajectory of their own businesses and those are the ones.

Our.

A little bit more susceptible in the short term in terms of what's happening to the macroeconomic environment and the companies that are more <unk> type of companies have little bit less.

Susceptibility and of course these are very generalized statements within those sectors companies.

Sumit Sadana: Within those sectors, there are some companies that are very strong, and some companies that are weak. So, at an aggregate level, I would say that, when you put all of that together, the end demand for cloud is still healthy. Of course, if all of the components had been available to put together servers, it would have been even stronger than that, but that's the situation we are in right now. I do think that it's not so much the putting off of purchases for lower prices.

Companies that are very strong and some companies that are weak and so.

Aggregate level I would say that when you put all of that together the end demand for cloud is still healthy.

But of course.

All of the components had been available to put together some of it would have been even stronger than that but that's the situation. We're in right now I do think that.

It's not so much.

Putting off of purchases for lower prices I think once the inventory normalizes.

Sumit Sadana: I think once the inventory normalizes at cloud companies, you know, their purchasing will improve of DRAM and NAND somewhat regardless of, you know, the end demand, because when our shipments fall below their consumption level, that kind of pattern typically corrects itself after X number of months. But you can write what that X is just based on how much inventory each customer has.

At cloud companies, they're purchasing will improve.

<unk> NAND.

Somewhat regardless of.

The end demand because when our shipments fall below their consumption levels that kind of pattern typically correct.

After X number of months.

You can buy.

Just based on how much inventory each customer that.

[Analyst] (Needham): Thank you.

Thank you.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Sidney Ho from Deutsche Bank. Your question, please.

Thank you one moment for our next question.

And our next question comes from the line of Sidney Ho from Deutsche Bank. Your question. Please.

[Analyst] (Deutsche Bank): Great. Thanks for taking the question. So more on inventory, but your own inventory days. It sounds like that is going to go up in the November quarter. Should we be thinking that is the peak level in terms of either dollars or days? And at what point should we be worried about you have to write down the value of the inventory? Is it when gross margin turns negative, and do you expect that to happen in the next few quarters, especially given, especially on the, on the NAND side?

Great. Thanks for taking the question until more on inventory your own inventory days.

Sounds like that is going to go up in the November quarter should we be thinking that as the peak level in terms of EBIT dollars or days and at what point should we be worried about.

The write down that the value of your inventory is it wine gross margin turns negative and do you expect that to happen in the next few quarters, especially given especially on that on the NAND side.

Mark Murphy: Yeah, Sidney. So, you know, we do expect inventory levels to go up substantially in Q1, and days go well over 150. We expect it to stay sort of at those levels into Q2, and then begin to come down as volumes pick up in the back half of the year. And, you know, but remain above our target level for sure through 2023. In fact, you know, it stay probably elevated at that 150 plus through the year. You know, though prices have come down and we have price assumptions in our outlook, you know, we have a robust process internally to monitor the potential exposure on inventories.

Yes, Sidney so.

Yes.

We do expect inventory.

Levels to go up substantially in the first quarter.

Days go well over 150.

We expect it to stay.

Sort of at those levels.

And the second quarter.

And then begin to come down.

As volumes pick up in the back half of the year.

And.

Yes, but remain above our target level for sure through 'twenty three.

In fact.

Yes stay probably elevated at that 150 plus through.

Through the year.

Yes.

Yes, though prices have come down and we have price assumptions in our outlook.

Yes, we have a robust robust process internally to monitor.

The potential exposure on inventories, we review sales volumes customer orders contract prices.

High demand signals seasonal factors other trends.

<unk> the risk based on our assessment.

As we see in our outlook.

We project Maher.

Margins at such levels that we do not see currently any write downs.

We'll obviously continue to monitor.

[Analyst] (Deutsche Bank): Due to lower profit.

Mark Murphy: Due to lower profit. We always, of course, have, you know, inventory adjustments for various reasons that occur every quarter. Yeah, the lower cost of market that you're talking about-

But due to lower due to due to.

Due to lower profit, we always of course have.

Inventory adjustments.

For various reasons that occur every quarter, but but.

Yes, it will lower our cost of market that you're talking about.

[Analyst] (Deutsche Bank): Right.

Mark Murphy: We do. So I think that's where we are.

Yes.

So I think that's that's where we are.

[Analyst] (Deutsche Bank): Okay. Maybe a quick one on the capital spending side. I know you're taking it down to $8 billion. You normally talk about how much of the CapEx is dedicated DRAM versus NAND versus back-end. I wonder if you can give us a breakdown of that. Within the WFE cut, you talk about 50%. Are you cutting more on the DRAM side or on NAND side, or it's about the same?

Okay, maybe a quick one on the capital spending side I know you've taken it down to $8 billion.

Normally talk about how much of the Capex is dedicated DRAM versus NAND versus backend I Wonder if you can give us a breakdown of that and within the W. P. Carey talked about 50% are you cutting more on the DRAM <unk> NAND stylists about to say.

Manish Bhatia: Sure. So I can take that one, Sidney. You know, I'll take the second question first. We're cutting on both. There are reductions on both. And what I'll just, you know, emphasize is that, you know, all of the WFE that we're spending is really going to next generation technologies. Meaning in DRAM, 1-beta and beyond, including even some early spending on 1-gamma. And then on, the NAND side, 232 and beyond. Even though we're slowing down those ramps, still, all of whatever spending we do have in WFE is really going towards the future.

Sure. So I can take that one Sydney.

I think the second question first we're cutting on both their reductions on both.

And what I'll just emphasize is that all of that.

<unk> that we're spending is really going to next generation technologies, meaning and DRAM, one data and beyond including even some early spending on one gamma.

And then on.

The NAND side, $2 32, and beyond even though we are slowing down those those ramps still all whatever spending we do have in Wi Fi is really going towards the future.

Manish Bhatia: And, you know, whenever you get in a situation like this, you always have to make a choice, and typically, what you do is you sort of stop spending on the existing technologies because that's capacity growth, and you pivot your spending towards the future generation so that you're prepared when, you know, when things reverse, that we're gonna have, you know, leading-edge technology, you know, qualified. It's gonna- we're gonna have multiple different products qualified, good yields. And that's sort of what we're investing for now, as well as, you know, generations even beyond those two. In terms of just giving you some, you know, rough breakdown of the overall, you know, $8 billion, I think, you know, we can say that, you know, the WFE is the largest part. It's, you know, more than half.

Yes.

And whenever you get into a situation like this you always have to make a choice and typically what you do is you could have stopped spending on the existing technologies because that capacity growth and you you pivot your spending towards the future generations of the your prepared when when things reverse that we're going to have leading edge technology qualified it's going to if we're going to have multiple different products qualified.

Good yields and Thats sort of what we're investing for now as well as generation that even beyond those two.

In terms of just giving you some rough breakdown of the overall 8 billion I think we can say that.

<unk>.

<unk> is the largest part.

Manish Bhatia: We then have construction spending, which is actually, as we said in the script, above what the levels were in 2022. Construction spending, as you know, tends to be lumpy. It's sort of you build Clean room space. We have been very proactive, you know, over the last several years, before last year, in building Clean room space. If you go back to, you know, our years in 2019 and 2020, and 2021. So 2022 was a lower year. This year, we have more spending, and inclusive of that, spending is, you know, the spending for the US project that we announced in Boise, earlier this month.

More than half.

Over the last several years before last year in building clean room space. If you go back to.

Our years of 19% in 'twenty.

In 'twenty one for 'twenty two is a lower year. This year, we have more spending and inclusive of that spending is.

The spending for the U S project that we announced in Boise.

Manish Bhatia: And then we have spending for technology and development, as well as for assembly and tests, that are sort of the next categories.

Earlier this month.

And then we have spending for for <unk>.

Acknowledging development.

As well as for Assembly and test that are sort of the next category.

[Analyst] (Deutsche Bank): Okay, great. Thank you.

Mark Murphy: Maybe just, Sidney, just to add to something that, yeah, Manish was covering there. So, you know, I think it's noteworthy, as he said, that, you know, there's a sizable construction part of this spend, and, and as, you know, as we cut levels, that becomes a higher percent. That actually is a higher percent in the back half of the year. And I just think it's worth calling out because these are investments for the long term, and we're gonna begin spending monies around, you know, Idaho, for example, and, and that, that is for end of the decade, you know, you know, later in the decade demand. And, you know, I, I just think it's important to call that out because we're, we're, certainly exploring ways to, you know, finance those, expenditures.

Okay, great. Thank you maybe just.

And then maybe Sidney just to add something.

You have an H was covering there so.

I think it's noteworthy that he said that.

<unk>.

There is a sizable construction part of this spend and.

As we cut levels that becomes a higher percent.

It actually has a higher percent in the back half of the year.

And I just think it's worth calling out because these are investments for the long term and we're going to be spending money around.

Idaho for example, and.

That is for end of the decade.

Later in the decade demand.

And.

I just think it's important to call that out because we're certainly exploring ways too.

Finance those.

Mark Murphy: You know, there are certainly government grants that we are working through, that CHIPS Act, for example, and the ITC benefits of that legislation. We would, we would use, of course, you know, as the business improves, our own operating cash flow, our balance sheet, and then other means to, you know, finance those, you know, expenditures.

Expenditures Ed.

Theyre certainly government grants that we are working through that chip Zach for example, and the ITC.

Benefits of that legislation.

We would we would use of course as the business improves our own operating cash flow our balance sheet and then other means to.

Finance those.

Expenditures.

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

Great. Thank you very much.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Krish Sankar from Cowen. Your question, please.

Okay.

Thank you one moment for our next question.

And our next question comes from the line of Krish Shankar from Cowen.

Your question please.

Hey, guys. This is Eddie for Krish. Thanks for.

Squeezing me in.

At your Analyst Day, you gave us 50%.

That mix of DDR five by Q.

<unk> 4043.

Obviously this will be lower but can you share your updated thoughts with us.

Another question please.

Yes.

Yes, I mean definitely the DDR five crossover point.

It's been pushed out largely due to the.

The push out of the schedule of certain new architecture introductions by the CPU vendors and so as we look at the DDR five land it is continuing on the.

EC side, but on the server side the numbers are far lower in 2022, as we look towards the end of 'twenty two far lower than we had originally expected or the industry in duration we expected.

And.

We expect that.

By the.

End of 2023, the DDL fives.

Penetration in the server space to be meaningfully below 50%.

We get to 50% level sometime in 2024.

[Analyst] (Cowen): Great. Thank you. And on cost declines, how should we think about cost declines for 2023 across DRAM and NAND? That's it for me. Thanks.

Great. Thank you and on cost declines how should we think about the cost declined four three across DRAM in them.

That's it for me thanks.

Manish Bhatia: ... Sure. Sure, I can, I, I can take that. I mean, both of them are going to be, Eddie, are gonna be below the long-term CAGR. This year, in fiscal year. Actually, I should say this year. In fiscal year 2022, last year, we performed very well. Both NAND and DRAM at the memory level were above. The cost reductions were better than the long-term CAGR that we have for both, for DRAM, which we've said is high single digits, and for NAND, low teens. So we did better than that in 2022. In 2023, we expect both DRAM and NAND to be below that. Obviously, you know, reduced capital spending and slower technology transitions have a big part in that. The underutilization has a part in that.

Sure sure I can I can take that I mean, both of them.

Are going to be are going to be below the.

The long term CAGR this year in fiscal year actually this year in fiscal year 'twenty two last year, we performed very well, both NAND and DRAM at the memory level were above the cost reductions were.

Better than the long term CAGR or do we have for both for DRAM, which we've said is high single digits and Fernand.

Low teens, so we did better than that in 'twenty two 'twenty.

'twenty three we expect both DRAM and NAND to be below that obviously.

The reduced capital spending and slower technology transitions have a big part in that the Underutilization has a part in that Mark gave some color on the call before about that part.

Manish Bhatia: Mark gave some color on the call before about that part. We have some inflationary headwinds, particularly in Singapore. On the NAND side, we have an inflationary headwind specifically unique there, given the electricity markets there, you know, and that's a challenge for us. DRAM does have some benefit on, you know, FX, given we manufacture in Japan and Taiwan, and both the yen and the Taiwan dollar have weakened recently. So we have some things there. But when you put all that together, we still expect DRAM and NAND both to be below the long-term CAGR for memory level cost reduction in fiscal year 2023, and NAND to be more challenged than DRAM.

We have some inflationary headwinds, particularly in Singapore on.

On the NAND side, we have an inflationary headwinds unique there given we're coming out with the electricity markets, there and Thats a challenge for us.

DRAM does have some benefit on.

FX, given we manufacture in Japan, and Taiwan in both the yen in Taiwan.

Taiwan dollar have have weakened recently, so we have some some things there but.

When you put all that together, we still expect DRAM and NAND both to be below the long term CAGR for.

For memory level cost reduction in fiscal year 'twenty three in and then to be more challenged than DRAM.

Sumit Sadana: Will it be lower than fiscal 2022?

And what would it be lower than fiscal 2022.

Manish Bhatia: Yes. Sorry. Yes.

Yes, sorry, yes, okay, both of them will be below the large competitors, though therefore below.

Sumit Sadana: Okay.

Manish Bhatia: Both of them will be below the long-term CAGR, so therefore below. Let me make sure I'm clear. They will be—they will not reach the long-term CAGR. They will be worse than fiscal year 22, and they'll be less cost reduction, or shallower cost reduction than the long-term CAGR, with NAND more challenged than DRAM.

Let me make sure Im sorry.

Actually.

They will be.

Not reached a long term casualty there'll be worse in fiscal year, 'twenty, two and there'll be.

Less cost reduction.

Our shallower cost reduction than.

The long term CAGR.

With many more challenged the DRAM.

Operator: Thank you. One moment for our next question. And our next question comes from the line of Toshiya Hari from Goldman Sachs. Your question, please.

Okay.

Thank you.

One moment for our next question.

And our next question comes from the line of <unk> Hari from.

Your question please.

Okay.

Hi, Thank you for taking the question.

I had a couple of questions on the demand side.

As your expectations have come down over the past couple of months and this obviously isn't just you guys, but the overall environment has come in.

Which end market or application.

<unk> you the most it sounds like everything is worse, but.

If you can differentiate between the big.

Core end markets that would be helpful and then related to that.

You talked to.

Elevated customer inventory in cloud, but is there is there a significant difference in customer inventory levels across the end markets vis vis what you consider to be normal.

Sumit Sadana: Yeah, I mean, that's, yeah, that's a good question. I think in terms of what surprised us the most, I mean, you know, the smartphone and PC segments, first ones to weaken, and they, you know, weakened sharply, early, in the cycle. You know, we started seeing inventory-related corrections then spread to other segments of the market, and then some segments of the market started to see some end demand erosion alongside inventory correction, and that sort of compounded the demand issue. So in terms of, you know, the pullback of actual purchases, it has been pretty broad-based across all of the segments due to a combination of inventory and end demand concerns. In some segments, the end demand concerns, like cloud, I mentioned, you know, end demand still healthy, but inventory and server issues.

Yes.

Yes, that's a good question.

In terms of <unk>.

<unk> surprised us the most.

The.

The smartphone and PC.

First ones to weaken.

Weaken sharply.

Early.

In the cycle.

And.

We started seeing inventory related corrections, then spread to other segments of the market.

And then some segments of the market started to see some end demand erosion alongside inventory correction and that sort of compounded the.

Demand issue so in terms of.

The pullback of actual purchases.

It has been really broad based across all of the segments due to a combination of inventory and demand concerns.

In some segments the end demand concerns like cloud dimension and demand still healthy but inventory in silver issues.

But generally the pullback has been to the.

Pretty significant across multiple segments I would say that the end demand in automotive still remain.

In very good shape as well.

<unk>.

Pullback in demand in areas like automotive despite the inventory correction is.

Is less pronounced.

Compared to the overall pullback in demand in other areas, but pretty much all segments has been impacted.

Quite a bit.

Sumit Sadana: I think part of this is also coming from the concern, a broadening level of concern among customers about the trajectory of the global economy and the US economy, and just driving that cautionary behavior of needing to manage or wanting to manage free cash flow and inventory levels in a tighter way than they would have in a mode that semiconductor parts are generally in shortage for the last couple of years, and the mindset had been to just accumulate parts and not gauge revenue. And now the mindset is more to protect free cash flow and keep, you know, healthier levels, lower levels of inventory. I think in terms of... Sorry, go ahead.

And.

I think part of this is also coming from the concern of broadening level of concern among customers about the trajectory of the global economy in the U S economy.

<unk>.

And just driving that cautionary behavior of needing to manage or wanting to manage.

Free cash flow and inventory levels in a tighter way than they would have been they were in a more debt semicon.

Semiconductor.

Thoughts on generally in shortage for the last couple of years and the mindset had been to just accumulate.

Parts and not gauge revenue and now the mindset is more to protect free cash flow in and.

Pete.

Healthier levels lower levels of inventory.

I think in terms of.

[Analyst] (Goldman Sachs): Sorry, go ahead. No, please go ahead.

Sorry go ahead, sorry go ahead.

Sumit Sadana: Yeah, I was just going to the other part of your question regarding cloud. I mean, I think in terms of cloud, you know, the only differentiation I wanted to make is, you know, the enterprise versus the cloud part of the data center, you know, overall data center market. The enterprise being, you know, more of the traditional on-prem type of OEM-driven purchasing, that has been weaker than the cloud trend, generally speaking, in terms of differentiating between enterprise and cloud. And I think that at this point, I would not say that inventories are at normal levels in any major segment. I would say that there is some level of excess inventory in most segments, a small amount in some, but more in others.

Please go ahead.

I was just I was just going to the other.

Other part of your question regarding cloud I mean I think.

In terms of cloud.

The only differentiation I wanted to make is the enterprise versus the cloud part of the data center.

Overall data center market.

The enterprise being more of the traditional on Prem type of OEM.

OEM driven purchasing.

That has been.

Weaker than the cloud trend.

Generally speaking in terms of.

Associating between enterprise and cloud.

And I think that.

At this point I would not say that inventories are at normal levels.

Any major segment.

I would say that there is some level of excess inventory in most segments.

A small amount in some but and more than others, but.

Sumit Sadana: But there are definitely customers who have normal levels of inventory. Within each segment, there may be customers who have more normal levels of inventory, but if I look at it from an entire segment level, not easy to identify one where the entire segment is healthy from an inventory perspective at this point. But I do think that, you know, you see that in our shipment numbers, in Q4, our bit shipment declined. In Q1, our bit shipment declined. Small bit shipment declines do happen from time to time, it's very normal on a sequential basis. But bit shipments having two quarters of back-to-back declines in a pretty substantial way typically only happens when, you know, inventory is being liquidated.

But there are definitely customers, who have normal levels of inventory.

Within each segment, there may be customers who have.

More normal levels of inventory, but if I look at it from a segment level.

Not easy to identify one that is in that segment is healthy from an inventory perspective.

At this point, but I do think that.

Youll see that in our shipment numbers.

In FQ4 our bit shipment declined in Q1, a bit shipment declined.

Small bit shipment declines do happen from time to time, it's very normal on a sequential basis, but bit shipments.

Having two quarters back to back declines in activity substantially typically only happens when inventory is being liquidated. So you can.

Sumit Sadana: So you can, you can see that inventory is going down at customers between Q4 and Q1 of our fiscal year. We expect those inventories to keep going down, you know, through the rest of this calendar year and into the early part of calendar 2023, at which point we think they would have reached levels where the ship in volume should start to rebound to meet the ship out volume levels. Of course, all of this is based on assumptions of certain macroeconomic environment that, you know, obviously is ahead of us.

You can see that.

Inventory is going down and customers.

In Q4, and Q1 of our fiscal year, and we expect those inventories to keep going down.

So the rest of this calendar year and into the early part.

Calendar 'twenty three at which point, we think they would've reached.

Reached levels, where the ship in volume should start to rebound to meet the ship out volume levels.

And of course, all of this is based on assumptions of certain macroeconomic environment.

Obviously is ahead of us.

[Analyst] (Goldman Sachs): Great, and thank you for that. As a follow-up on the supply side, so you're cutting WFE by 50% in fiscal 2023. You know, if, for whatever reason, the environment ends up being a lot better or less bad than expected, say, in the second half of your fiscal year, or, you know, your expectations for the early part of fiscal 2024 improve, how flexible can you be with that CapEx with your equipment suppliers? Meaning, can you go back to them and say, "We actually don't want to cut this much. We need tools" or just given where lead times are, would that be difficult? I guess, you know, if you can compare and contrast the flexibility you have today versus, you know, past cyclical inflections, that would be helpful. Thank you.

Alright.

As a follow up on the supply side.

So if you are cutting Wi Fi by 50% in fiscal 'twenty three.

Should we need tools or just given where lead times are would that be would that be difficult. I guess, if you can compare and contrast, the flexibility you have today versus.

<unk>.

Cyclical inflections that would be helpful. Thank you.

Manish Bhatia: Sure, Josh, thanks. That's a nice thing to think about, to try to think about on a day like today, so thank you for giving us that question.

Sure sure. Thanks, and that's a nice thing to think about to try to think about it David like today. So thank you for taking that question Jamie.

[Analyst] (Goldman Sachs): Exactly.

Manish Bhatia: Look, we have, you know, a great relationship with the equipment vendors, some of it over, you know, multiple decades, all the vendors really, you know, whether in the US or Japan or Europe. And, you know, what I'll tell you is that, you know, when they were having supply chain challenges over the last couple of years, we really partnered with them closely to help them get their... You know, figure out how to, you know, keep their shipments up to meet our schedule, doing things like qualifying alternate sources for certain parts so they could ship equipment or even doing the installations in place. So, we've worked with them really well, and I think they appreciate that partnership, and they're working with us now, you know, as we have this difficult period.

So look we have a great relationship with the equipment vendors some of it over.

Multiple decades, all the vendors really whether in the U S or Japan or Europe .

What I'll tell you is that.

We were having supply chain challenges over the last couple of years, we really partnered with them closely to help them get there figure out how to keep.

Their shipments to meet our schedule doing things like qualifying alternate sources for certain parts. So they could ship equipment or even doing the installations in place.

So we've worked with them really well and I think they appreciate that partnership and they are working with US now as we have this difficult period.

Manish Bhatia: And I'm, you know, as I mentioned, we are maintaining, you know, the manufacturing corridors for the ramp-up of these new technologies to get multiple products qualified across them, to improve yield and make sure that when the demand turns around, we'll have the ability to ramp those leading edge, those leading-edge nodes. And, in terms of the flexibility that we'll have, you know, we're, you know, we've exhibited flexibility with them to try and help increase or improve and, you know, keep our ramps on pace in the past. This is obviously a different period, but we can certainly go back to the playbook we had before if we need to expedite shipments again. And certainly, if we did, it would be for leading-edge technology that we would...

As I mentioned, we are maintaining the.

The manufacturing corridor is for the ramp up of these new technologies to get multiple product qualified across them to improve yield and make sure that when the demand turns around we will have the ability to ramp those leading edge.

Those leading edge nodes and.

In terms of the flexibility that we'll have.

Sure.

Exhibited a flexibility with them to try and help increase or improve keep our ramps on pace in the past. This is obviously a different period, but we can certainly go back to the playbook, we had before if we need to expedite shipments again.

Certainly if we did it would be for leading edge technology that we would but I don't think that its something where.

We're going to do it in line with the demand trends.

NAND environment, improving and for now we're kind of.

We are slowing the ramp down through 'twenty, three and looking at 24, when we'll get the majority of the impact from these new these two new technologies, one beta and 230 to bear.

[Analyst] (Goldman Sachs): Makes sense. Thank you so much.

Makes sense. Thank you so much.

Sumit Sadana: Thank you. One moment for our next question. Our next question comes from the line of Hans Mosesmann from Rosenblatt Securities. Your question, please?

Thank you one moment our next question.

And our next question comes from the line of Hans Moseman from Rosenblatt Securities. Your question. Please.

[Analyst] (Rosenblatt Securities): Yeah, thanks. Can you hear me okay?

Yes. Thanks.

Can you hear me okay.

Sumit Sadana: Yes. Yeah, we can hear you.

[Analyst] (Rosenblatt Securities): Okay.

Yes, yes, we can hear you okay. Okay, great and then just a clarification.

Sumit Sadana: Go ahead.

[Analyst] (Rosenblatt Securities): Okay, great. Just a clarification, there's a previous question on DDR5, and I think management indicated that the DDR5 transition and/or crossover had been delayed during the analyst meeting. But now I think that the answer has been that the crossover is going to be well below 50% by the end of 2023. Is that accurate, or did I misunderstand?

Question on DDR five in.

I think management indicated.

The DDR five transition and our crossover had been delayed during the analyst meeting.

But now I think the answer has been that.

The crossover is going to be well below 50% by the end of 2023 is that is that accurate.

Did I misunderstand.

Sumit Sadana: Yes, that is, that is what we said, yeah.

Yes that is.

What we said yes.

[Analyst] (Rosenblatt Securities): And that's a change from what had been implied during the analyst meeting earlier this year?

And Thats a change from what had been implied.

During the analyst.

Meeting earlier this year.

Sumit Sadana: I mean, the DDR5 transition in the server market is heavily driven by the timing of the platform roll out from the CPU companies because, you know, the DDR5 needs and can attach to only certain server platforms. And it also then depends on the rate and pace at which those platforms will be deployed. If the deployment of these platforms is faster than we expect, then of course, you know, we'll be able to take advantage of that because we have an industry-leading DDR portfolio, and we are, we have a share position in DDR5 that's actually higher than our supply share. So we are in a really good position with DDR5, and regardless of what the timing of these ramps in DDR5 are, we are in great position to take advantage of it.

I mean, the DDR fives.

<unk> in the server market is.

Heavily driven by the timing of the platform.

Rollout from the CPU companies, because the DDR five needs.

Needs.

Ken attached to only certain server platforms and it also then depends on the rate and pace at which.

Those platforms will be deployed.

If the deployment of these platforms is faster than we expect then of course.

We'll be able to take advantage of that because we have an industry, leading DDR portfolio in D. R.

We have a share position in DDR find that that should be higher than our supply share. So we had a really good position with <unk> five and regardless of what the timing of these ramps and DDR five yet in great position to take advantage of it.

Sumit Sadana: Our current expectation is that, yes, the 50% point would not have reached by the end of calendar 2023, as we had earlier expected.

Our current expectation is that.

Yes.

50% point would not have reached.

By the end of calendar 'twenty three as we had earlier expected.

[Analyst] (Rosenblatt Securities): What was the earlier expectation? Just to kind of confirm it, the earlier expectation was middle of 2023?

And what was the early expectations just to kind of confirm it the earlier expectation was.

Middle of 2023, no no no. It was never middle It was more like it was going to be towards the end late fourth quarter of 'twenty three now it's pushed into 'twenty four.

Sumit Sadana: No, no, no, it was never middle. It was more like it was going to be towards the end, like Q4 of 2023. Now it's pushed into 2024.

[Analyst] (Rosenblatt Securities): Okay, great. Thanks for the clarification. Very helpful.

Okay, great. Thanks for the clarification very helpful.

Sumit Sadana: Sure.

Sure.

Operator: Thank you. Our final question for today. One moment, please. Our final question comes from the line of Steven Fox from Fox Advisors. Your question, please.

Okay.

Thank you and our final question for today, one moment please.

Our final question comes from the line of Steven Fox from Fox Advisors. Your question. Please hi, Thanks for squeezing me in I just had one question.

[Analyst] (Fox Advisors): Hi. Thanks for squeezing me in. I just had one question. You guys have given a lot of detail on your thoughts on inventories and demand by different segments. I guess the one overall overarching question I had, especially since Sanjay called out China as being important, how much influence do you now, looking back, think that excess purchases out of China influenced this whole cycle up and down? And how sensitive do you think you're gonna be to what's going on in China on any sort of recovery? Thanks.

You guys have given a lot of detail on your thoughts on inventories and demand by different segments. I guess, one overarching question I had especially since.

Sumit Sadana: I think, in terms of China, you know, we do have we do have YMTC selling, NAND to customers for use in, in China, mostly into, lower-end consumer applications. We do have a model of the industry TAM that incorporates, certain levels of growth, of supply from Chinese suppliers. So that's part of how we look at the world in terms of, when we think about supply and demand and balance and so on. And there is no doubt that, particularly, in NAND, but, to a lower extent in DRAM, but particularly in NAND, you know, there has been, supply from YMTC that has added to the supply-demand imbalance, that is currently in the market.

I think.

In terms of China.

Do have.

We do have my mtc selling manned to customers for use in in China.

Most leading to lower than consumer applications.

We do have a model of the industry Tam that incorporates <unk>.

And the levels of growth.

Supply from Chinese suppliers. So that's how we look at the world in terms of.

When you think about supply and demand in balance and so on and there is no doubt that.

But equally.

In NAND.

But to a lower extent in DRAM, but particularly men there has been.

Supply from Brian do you see that has added to the supply demand imbalance.

Currently in the market.

Sumit Sadana: But we do expect that, you know, the overall supply growth next year, even in NAND, will fall meaningfully below the demand growth and the environment to consequently improve once the inventories are in better shape, as we have described in the past.

But we do expect that the.

The overall.

Supply growth next year, even in NAND will fall meaningfully below the demand growth and the environment to consequently improve.

The inventories in better shape as we have described.

[Analyst] (Fox Advisors): Great. Thank you.

Yes.

Great. Thank you.

Operator: Thank you. This does conclude the question and answer session, as well as today's program. Thank you for your participation. You may now disconnect. Good day.

Thank you. This does conclude the question and answer session as well as today's program. Thank you for your participation you may now disconnect good day.

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