Q1 2023 Micron Technology Inc Post Earnings Analyst Call

December 21, 2022

Operator: Good day, and welcome to Micron's post-earnings analyst call. At this time, all participants are in a listen-only mode. After a few brief opening remarks, we will be immediately going into our Q&A session. If you would like to ask a question, please press star one one. You will then hear an automated message advising that your hand is raised. Due to time restraints, we ask that you please limit yourself to one question and one follow-up question. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Farhan Ahmad, Head of Investor Relations.

Speaker 2: You

Operator: Good day and welcome to Micron's Post-Earnings Analyst Call. At this time, all participants are in a listen-only mode. After a few brief opening remarks, we will be immediately going into our Q&A session. If you would like to ask a question, please press star 1, 1. You will then hear an automated message advising your hand is raised.

Operator: Due to time restraints, we ask that you please limit yourself to one question and one follow-up question. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Farhan Ahmad, Head of Investor Relations.

Sumit Sadana: Thank you, and welcome to Micron Technology's Q1 2023 sell-side callback. 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. Today's call is being webcast from our investor relations site at investors.micron.com. As a reminder, the matters we are discussing today include forward-looking statements regarding market demand and supply, our expected results, and other matters. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today. We refer you to the documents we filed with the SEC, including our most recent Form 10-K and 10-Q, for a discussion of the risks that may affect our future results.

Farhan Ahmad: Thank you, and welcome to Micron Technology's Q1 2023 sell-side callback. 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. Today's call is being webcast from our investor relations site at investors.micron.com. As a reminder, the matters we are discussing today include forward-looking statements regarding market demand and supply, our expected results, and other matters. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today. We refer you to the documents we filed with the SEC, including our most recent Form 10-K and 10-Q, for a discussion of the risks that may affect our future results.

Farhan Ahmad: Thank you, and welcome to Micron Technologies first quarter of 2023, Post-Earnings call. On the call with me today are Sumit Sadhana, our Chief Business Officer, Manish Bhatia, our EVP of Global Operations, and Mark Murphy, our CFO.

Speaker 6: On the call with me today are Sumit Sadhana, our Chief Business Officer.

Speaker 7: Manish Barya, our EVP of Global Operations, and Mark Murphy, our CFO .

Farhan Ahmad: Today's call is being webcast from our investor relations site at investors.micron.com.

Farhan Ahmad: As a reminder, the matters we are 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.

Speaker 10: These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today.

Farhan Ahmad: 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.

Sumit Sadana: Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We are under no duty to update any of the forward-looking statements to confirm these statements to actual results. We can now open the call.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We are under no duty to update any of the forward-looking statements to confirm these statements to actual results. We can now open the call.

Farhan Ahmad: Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievement. We are under no duty to update any of the forward-looking statements to conform these statements to actual results.

Speaker 13: We are under no duty to update any of the forward-looking statements to confirm these statements to actual results.

Operator: Thank you. Today's first question will come from the line of Brian Chin with Stifel. Your line is open.

Farhan Ahmad: We can now open the call.

Speaker 15: We can now open the call.

Operator: Thank you. Today's first question will come from the line of Brian Chin with Stiefel. Your line is open.

[Analyst] (Stifel): Hi, hi there. Good afternoon, and thanks for letting us ask a few questions. First, you know, in the prepared remarks, there was discussion of an insurance recovery in the February quarter. Is it fair to assume that's at 100% flow through in the model? And then if I back that out of the guidance, that's what gross margins at around 5.5%, plus or minus, in fiscal Q2?

Brian Chin: Hi, hi there. Good afternoon, and thanks for letting us ask a few questions. First, you know, in the prepared remarks, there was discussion of an insurance recovery in the February quarter. Is it fair to assume that's at 100% flow through in the model? And then if I back that out of the guidance, that's what gross margins at around 5.5%, plus or minus, in fiscal Q2?

Speaker 17: will come from the line of Brian Chin with Stiefel. Your line is open.

Brian Chin: Hi there, good afternoon, and thanks for letting us ask a few questions. First, in the prepared remarks, there was discussion of an insurance recovery in the February quarter. Is it fair to assume that's at 100% fall through in the model? And if I back that out of the guidance that's why gross margin is at around five and a half percent plus or minus in fiscal 2Q?

Speaker 19: In the prepared remarks, there was discussion of an insurance recovery in the February quarter. Is it fair to assume that's at 100% fall through in the model? And if I back that out of...

Mark Murphy: That is correct.

Speaker 20: the guidance. That's what gross margins at around five and a half percent plus or minus in fiscal 2Q.

[Analyst] (Stifel): Okay. Got it. Got it, it's helpful, just that clarification. And maybe while I'm on the clarification, thanks, Mark. I think to one of the questions you said, planning for lower utilization to persist through the balance of the fiscal year. And so are you thinking sort of a range for what that underutilization could look like, like 10 to 20% below full? Or is that sort of, you know, you'll do what needs to be done as you move along through the year? Any sort of additional clarification on that?

Brian Chin: Okay. Got it. Got it, it's helpful, just that clarification. And maybe while I'm on the clarification, thanks, Mark. I think to one of the questions you said, planning for lower utilization to persist through the balance of the fiscal year. And so are you thinking sort of a range for what that underutilization could look like, like 10 to 20% below full? Or is that sort of, you know, you'll do what needs to be done as you move along through the year? Any sort of additional clarification on that?

Mark J. Murphy: That is correct.

Brian Chin: Okay, got it. That's helpful, just that clarification. And maybe while I'm on the clarification, thanks, Mark. I think one of the questions you said planning for lower utilization to persist through the balance of the fiscal year. Are you thinking sort of a range for what that underutilization could look like, like a 10 to 20% below full or is that sort of you'll do what needs to be done as you move forward through the year? Any sort of clarification on that?

Speaker 23: Got it. It's helpful. Just that clarification and maybe while I'm on the clarification. Thanks, Mark.

Speaker 24: I think one of the questions you said planning for lower utilization to persist through the balance of the fiscal year. Are you thinking sort of a range for what that underutilization could look like, like a 10 to 20% below full or is that sort of you'll do what needs to be done as you go forward?

Mark Murphy: Sure. And I could have been more specific, but it was a long answer as it was. I think on the back end, the utilization will improve in the second half of the year as volumes increase.

[Analyst] (Stifel): Okay.

Brian Chin: Okay.

Mark Murphy: On the front end, which is, you know, was the purpose of the announcement and, of course, is the larger effect, to your point, we're assuming 10% to 20% through the balance of the fiscal year.

Mark J. Murphy: --improve in the second half of the year as volumes increase. On the front end, which was the purpose of the announcement and of course is the larger effect, to your point, we're assuming 10-20% through the balance of the fiscal year.

Speaker 26: On the front end, which was the purpose of the announcement and of course is the larger effect, to your point we were assuming 10-20% through the balance of the fiscal year.

[Analyst] (Stifel): Got it. Okay, that's helpful. And then my follow-up, and this I think also relates to a question you were asked, but when you think about the transition to DDR5 next year, and it's tied, you know, in data center, it's tied in client PC, either the various platforms, products, et cetera, progress, it sounds like in mobile as well. But what doesn't that run the risk of impairing some DDR4 inventory at some point here? And also kind of tied to that, when you get, where do you think you can get inventory days back to by the end of the fiscal year? And what level does this need to be back to in order to regain pricing leverage in the industry?

Brian Chin: Got it. Okay, that's helpful. And then my follow-up, and this I think also relates to a question you were asked, but when you think about the transition to DDR5 next year, and it's tied, you know, in data center, it's tied in client PC, either the various platforms, products, et cetera, progress, it sounds like in mobile as well. But what doesn't that run the risk of impairing some DDR4 inventory at some point here? And also kind of tied to that, when you get, where do you think you can get inventory days back to by the end of the fiscal year? And what level does this need to be back to in order to regain pricing leverage in the industry?

Brian Chin: Got it. Okay. That's helpful. And then kind of my follow-up. And this, I think also relates to the question you're asked, but when you think about the transition to DDR5 next year, and it's tied in data centers, tied in client PC, the various platforms, products, etc., Progress sounds like a mobile as well, but doesn't that run the risk of impairing some DDR4 inventory at some point here? And also kind of tied to that, where do you think you can get inventory days back to by the end of the fiscal year? What level does this need to be back to in order to regain pricing leverage in the industry?

Speaker 28: And then kind of my follow up.

Speaker 29: And this, I think, also relates to the question you're asked, but when you think about the transition to DDR5 next year, and it's tied in data centers, tied in client PC, you need the various platforms, products, etc.

Speaker 30: Progress sounds like a mobile as well, but doesn't that run the risk of impairing some DDR4 inventory at some point here? Also tied to that, where do you think you can get inventory days back to by the end of the fiscal year? What level does this need to be?

Speaker 31: back to in order to regain pricing leverage in the industry.

Sumit Sadana: Yeah, I can take that. In terms of the DDR4 versus DDR5, the DDR5 ramp is underway in the client space, and somewhat behind that in the server space will really start ramping in earnest through calendar 2023. The crossover with DDR4 doesn't occur in both segments, client and server, from our estimation right now, till mid-calendar 2024. So there is still substantial level of DDR4 runway in both segments for quite a while. And so we are not so concerned about that particular aspect, although the overall level of inventory is certainly something that we're focused on trying to improve. And so that's sort of the color that I just wanted to provide. What was the other question, sorry, you had asked?

Sumit Sadana: Yeah, I can take that. In terms of the DDR4 versus DDR5, the DDR5 ramp is underway in the client space, and somewhat behind that in the server space, we'll really start ramping in earnest through calendar 2023. And the crossover with DDR4 doesn't occur in both segments, client and server from our estimation right now till mid-calendar 2024. So there is still substantial level of DDR4 runway in both segments for quite a while. And so we are not so concerned about that particular aspect, although the overall level of inventory is certainly something that we're focused on trying to improve. And so that's sort of the color that I just wanted to provide. And what were the other questions you had asked?

Ddr 4 versus 5.

The DDR5 ramp is underway in the client space.

And somewhat behind that in the server space, we'll really start.

in earnest through calendar 2023.

And the crossover with DDR4 doesn't occur in both segments, client and server, from our estimation right now.

till mid-calendar 2024. So there is still substantial level of DDR4 runway.

in both segments for quite a while. And so we are not so concerned about that particular aspect, although

The overall level of inventory is certainly something that we're focused on.

trying to improve.

And so that's sort of the.

[Analyst] (Stifel): Yeah, yeah, thanks. And the other part of that was just, you talked about the days inventory peaking in fiscal Q2, but where do you think you can get inventory days back to by fiscal year end? I think prior guidance was around a hundred and fifty days. And what level, you know, I know it's hard to answer it this way, but what level does it need to get back to in order to regain pricing leverage?

Brian Chin: Yeah, yeah, thanks. And the other part of that was just, you talked about the days inventory peaking in fiscal Q2, but where do you think you can get inventory days back to by fiscal year end? I think prior guidance was around a hundred and fifty days. And what level, you know, I know it's hard to answer it this way, but what level does it need to get back to in order to regain pricing leverage?

The color that I just wanted to provide and what were the other questions you had asked?

Brian Chin: Thanks. And the other part of that was just you talked about the days inventory peaking in fiscal 2Q, but where do you think you can get inventory days back to by fiscal year end? I think prior guidance was around 150 days. I know it's hard to answer it this way, but what level does it need to get back to in order to regain pricing leverage?

You talked about the days inventory peaking in fiscal 2Q, but where do you think you can get inventory days back to by fiscal year end? I think prior guidance was around 150 days. What level – I know it's hard to answer it this way, but what level does it need to get back to in order to regain pricing leverage?

Sumit Sadana: On the pricing part, you know, obviously, as the inventory improves over time, the pricing environment will improve, and the rate and pace of that improvement is heavily dependent on what happens to the supply in the industry. We have provided you a view of what we are doing with supply. We have taken a lot of aggressive actions in 2023, reduced our CapEx, reduced our CapEx further on the WFE side in 2024, and also reduced wafer starts, and highlighted that really the improvement can be accelerated if the supply growth in the industry becomes negative in 2023 calendar year in DRAM and flattish for NAND. So, what will actually happen to our inventory is obviously a function of what happens to the overall industry supply-demand balance, and not simply a function of, you know, what we do.

Sumit Sadana: On the pricing part, obviously, as the inventory improves over time, the pricing environment will improve and the rate and pace of that improvement is heavily dependent on what happens to the supply in the industry. We have provided you a view of what we are doing with supply. We have taken a lot of aggressive actions in '23, reduced our Capex, reduced our Capex further on the WFP side in '24, and also reduced wafer stops, and highlighted that really the improvement can be accelerated if the supply growth in the industry becomes negative in '23 calendar year in D-LAM and flattish for NAN. So what will actually happen to our inventory is obviously a function of what happens to the overall industry supply-demand balance and not simply a function of what we do, but we continue to take appropriate actions through the year.

Obviously.

As the inventory improves over time, the pricing environment will improve.

And the rate and pace of that improvement is heavily dependent on what happens to the supply in the industry. We have provided you a view of what we are doing with supply. We have taken a lot of aggressive actions in 23, reduced our capex, reduced our capex further on the WFP side in 24.

and also reduced wafer stops and highlighted that really the

improvement can be accelerated if the supply growth in the industry

Becomes negative in 23 calendar year in D-LAM and flattish for NAN. So

What will actually happen to our inventory is obviously a function of...

Sumit Sadana: We continue to take appropriate actions through the year.

what happens to the overall industry supply demand balance and not simply a function of you know what we do, but we continue to take

We continue to take appropriate actions through the year.

Mark Murphy: And Brian, on the days, as Sumit said, it's that far out. It's really a function of how the market is recovering. But, you know, we expect days to peak in Q2. So, you know, we're at 214 in Q2, so we'll be above that. And then we expect to remain at elevated levels, but down in days in Q3, and then down days in Q4, closer to 150 than obviously we are today.

appropriate actions through the year.

Mark J. Murphy: And Brian on the days as Sumit said, it's that far out, it's really a function of how the market is recovering, but we expect days to peak in the second quarter. So yeah, we're at 214 in the second quarter, so we'll be above that. And then we expect to remain at elevated levels but down on days in the third quarter and then down on days in the fourth quarter closer to 150 than obviously we are today.

Yeah, we expect days to peak in second quarter. So Yeah, we're at 214 in the second quarter. So we'll be above that and then we expect to remain at Elevated levels but down and days in the third quarter and then down days in the fourth quarter

Operator: Okay. I appreciate all the color. Thank you. Thank you. One moment for our next question. That will come from the line of Joe Moore with Morgan Stanley. Your line is open.

closer to 150 than obviously we are today.

Brian Chin: Okay, I appreciate all the color. Thank you.

Operator: One moment for our next question. And that will come from the line of Joe Moore with Morgan Stanley. Your line is open.

Joseph Moore: Great, thank you. I wanted to make sure I understand the mechanics of any kind of lower of cost or market inventory adjustment you may have to make. Is that a function of overall gross profitability, or do you evaluate that on a product-by-product basis, where if certain products go negative on gross margin, you have to take a charge there?

Joe L. Moore: Great, thank you. I want to make sure I understand the mechanics of any kind of lower cost or market inventory adjustment you may have to make. Is that a function of overall gross profitability or do you evaluate that on a product-by-product basis where if certain products go negative on gross margin, you have to take a charge there?

I want to make sure I understand the mechanics of

any kind of lower of cost or market inventory adjustment you may have to make. Is that a function of overall gross profitability or do you evaluate that on a product by product basis where if certain products go negative on gross margin, you have to take a charge there?

Mark Murphy: Yeah, Joe, we look at a single pool of inventories. So, you know, and that's disclosed thoroughly in our 10-K filing.

Mark J. Murphy: Yeah, so we look at a single pool of inventories and that's disclosed thoroughly in our 10-K filing.

So.

Joseph Moore: Got it. Okay. And then, in terms of the underutilization, is there any thought of pulling that cost forward in time by taking a charge, or that it sounds like it's just gonna be kind of first in, first out on the inventory cost?

Yeah, and that's disclosed thoroughly in our 10K filing.

Joe L. Moore: Got it. Okay. And then in terms of the underutilization, is there any thought of pulling that cost forward in time by taking a charge or it sounds like it's just going to be kind of first in first out on the inventory cost?

Is there any thought of pulling that cost forward in time by taking a charge or that it sounds like it's just going to be kind of first in first out on the inventory cost?

Mark Murphy: No, that charge will be a function of the inventory accounting on the lower of cost or net realizable value.

Mark J. Murphy: Yeah, a charge will be a function of the inventory accounting on the lower of costs or net realizable value.

Joseph Moore: Got it. Okay, great. Thank you.

Sumit Sadana: Thanks.

Mark Murphy: Well, there's some period, there are some period costs, Joe. I think I referred to that as well, but the, the majority is in inventories. But there are some period costs that, you know, drop down in the, in the period that they're incurred.

Joe L. Moore: Okay, great. Thank you.

Mark J. Murphy: Well, there are some period costs, Joe. I think I referred to that as well. The majority is in inventories, but there are some period costs that drop down in the period that they're incurred.

Joseph Moore: Helpful. Thank you.

Manish Bhatia: Joe, just to be clear, you know, for our underutilization, you know, we've taken actions to reduce both DRAM and NAND by 20%. You know, those are happening across all the nodes where we have meaningful output. We are, you know, kind of expecting to continue that until we see market conditions improve. So the numbers that we're giving you are just, you know, sort of the estimates we have right now based on these actions that we've taken.

Manish H. Bhatia: And Joe, just to be clear, for our underutilization, we've taken action to reduce both DRAM and NAN by 20 percent, and those are happening across all of the nodes where we have meaningful output, and we are expecting to continue that until we see market conditions improve. So the numbers that we're giving you are just sort of the estimates we have right now based on these actions that we've taken.

we've taken actions to reduce both DRAM and NAN by 20 percent. And those are happening across all of the nodes where we have meaningful output. And we are expecting to continue that until we see market conditions improve. So the numbers that we're giving you are just sort of

Joseph Moore: Helpful. Thank you.

Operator: Thank you. One moment for our next question. That will come from the line of Steven Fox with Fox Advisors. Your line is open.

the estimates we have right now based on these actions that we've taken.

Joe L. Moore: Thank you.

Operator: Thank you. One moment for our next question. That will come from the line of Steven Fox with Fox Advisors. Your line is open.

One moment for our next question.

That will come from the line of Steven Fox with Fox Advisors. Your line is open.

[Analyst] (Fox Advisors): Hi, just to follow up on that one, in terms of if things got worse from here, is basically the actions from here mainly related to how you manage wafer starts? I would assume there's a point where you don't want to cut it too far into, you know, future growth plans. Secondly, in terms of wild cards for a second half, as you know, you talked about some of the trends you're seeing, positives in PCs and cell phones. I'm just curious, how would you sort of put a, a gaming those in terms of where you're most confident you're seeing improvements off of the bottom and where you still have question marks on end markets? Thanks.

Steven Fox: Hi, just to follow up on that one, in terms of if things got worse from here, is basically the actions from here mainly related to how you manage wafer starts? I would assume there's a point where you don't want to cut it too far into, you know, future growth plans. Secondly, in terms of wild cards for a second half, as you know, you talked about some of the trends you're seeing, positives in PCs and cell phones. I'm just curious, how would you sort of put a, a gaming those in terms of where you're most confident you're seeing improvements off of the bottom and where you still have question marks on end markets? Thanks.

Steven Fox: Hi, just a follow-up that on that one in terms of if things got worse from here is basically the actions from here mainly related to how you manage wait for starts because I would assume there's a point where you don't want to cut it too far into future growth plans.

And then secondly, in terms of wildcards for a second half, you talked about some of the trends you're seeing positives in PCs and cell phones. I'm just curious, how would you sort of put a gain in those in terms of where you're most confident you're seeing improvements off of the bottom and where you still have question marks on end markets? Thanks.

How would you sort of put a game, gaming those in terms of where you're most confident you're seeing improvements off of the bottom and where you still have question marks on end markets? Thanks.

Sumit Sadana: I can-

Manish Bhatia: I can-

Sumit Sadana: Yeah, go ahead.

Manish Bhatia: You take this. I'll take the first part, just in terms of the, you know, future growth plans for CapEx or wafer utilization plans. I think you've seen, Steven, that we, you know, we remain flexible, right? After the last call, we had talked about some, you know, smaller underutilization actions in DRAM and NAND. And then as we saw conditions throughout FY one get worse, we took action, and we, you know, kind of made this the public statement, informed you back in November, that we were gonna go to 20% utilization. And we said then that we're reducing our CapEx view.

Manish Bhatia: I'll take the first part just in terms of the future growth plans for Capex or wafer utilization plans. I think you've seen Steven, that we remain flexible, right? At the last call, we had talked about some things we might have seen happen throughout smaller underutilization actions in [inaudible] NAN and then as we saw conditions throughout Q1 get worse, we took action and we kind of made the public statement informed you back in November that we were going to go to 20% utilization and we said, then that we're reducing our Capex view. So, I think right now, based on the trajectory of recovery that Mark and Sumit outlined, this is our view, but I think we remain flexible to both adjust CAPEX or adjust wafer start and utilization, depending on the trajectory of the improvement in inventories and recovery in our own inventory and as well as demand outlook that we see. Certainly trying to make sure we prioritize maintaining our technology learning for these new nodes, particularly one beta and 232 layer, which are really dynamite nodes.

Smaller underutilization actions and then as we saw conditions throughout get worse, we took action and we kind of made the public statement informed you back in November . Either we were going to go to 20% utilization and we said, then that we're reducing our capex view.

Manish Bhatia: So, you know, I think, you know, right now, based on the trajectory of recovery that Mark and Sanjay outlined, you know, this is our view, but I think we remain flexible to both, you know, adjust CapEx or adjust, you know, wafer start and, and utilization, depending on the trajectory of the improvement in inventories and the recovery in our own inventory, and as well as demand outlook that we see. Certainly, trying to make sure we prioritize maintaining our technology learning for these new nodes, particularly 1-beta and 232-layer, which are really dynamite nodes.

So, you know, I think, you know, right now, based on the trajectory of recovery that Mark and Sanjay outlined, you know, this is our view, but I think we remain flexible to both, you know, adjust CapEx or adjust, you know, wafer start and, and utilization, depending on the trajectory of the improvement in inventories and the recovery in our own inventory, and as well as demand outlook that we see. Certainly, trying to make sure we prioritize maintaining our technology learning for these new nodes, particularly 1-beta and 232-layer, which are really dynamite nodes.

So, I think right now, based on the trajectory of recovery that Mark and Sanjay outlined, this is our view, but I think we remain flexible to both adjust CAPEX or adjust wafer start and utilization, depending on the trajectory of the.

the improvement in inventories and recovery in our own inventory and as well as demand outlook that we see.

Certainly trying to make sure we prioritize maintaining our technology learning for these new nodes, particularly one beta and 232 layer, which are really dynamite nodes.

Sumit Sadana: In terms of end markets, different end markets will behave differently when it comes to the recovery process, and we definitely stay very focused on each segment of the market, each customer, each geography. They all have their own individual dynamics, and we are appropriately planning for inventory as well as our overall projections for growth and support of that growth, based on the individual dynamics that each customer in each segment, in each geography.

Sumit Sadana: And in terms of end markets, different end markets will behave differently when it comes to the recovery process, and we definitely stay very focused on each segment of the market, each customer, each geography, they all have their own individual dynamics, and we are appropriately planning for inventory as well as our overall projections for growth and support of that growth based on the individual dynamics that each customer needs in each segment in each geography.

And we definitely stay very focused on each segment of the market.

Each customer, each geography, they all have their own individual dynamics.

And we are appropriately planning for inventory as well as our overall.

projections for growth and support of that growth.

[Analyst] (Fox Advisors): Fair enough. Thanks for all the color.

Steven Fox: Fair enough. Thanks for all the color.

based on the individual dynamics that each customer needs segmented in each geography.

Operator: ... Thank you. One moment for our next question. That will come from the line of Vijay Rakesh with Mizuho Group. Your line is open.

Steven Fox: Thank you. Fair enough. Thanks for all the color.

Fair enough. Thanks for all the color.

Operator: Thank you. One moment for our next question. That will come from the line of Vijay Rakesh with Mizzou Ho Group. Your line is open.

Vijay Rakesh: Yeah, hi, guys. Just a couple of quick questions. On, as you look out to 2023, I'm just wondering if you look at your key markets, PC, handset, and server, what you are thinking in term or what you're estimating, I guess, in terms of unit growth or, and, you know, content growth, if you could parse that out.

That will come from the line of Vijay Rakesh with Mizzou Ho Group. Your line is open. Now you will come down to the MaYING

Vijay Raghavan Rakesh: Hi guys, just a couple of quick questions. As you look out to 2023, I'm just wondering if you look at your key markets, PC, handset and server, what you are thinking or what you're estimating, I guess, in terms of unit growth and content growth, if you could parse that out.

Sumit Sadana: Sure. Yeah. So in terms of some of these end markets, we also mentioned some of this in our prepared remarks, but on the PC side, after a pretty sharp pullback in calendar 2022, we are estimating in calendar 2023, there's another low to mid single digit percentage reduction in PC units in calendar 2023. That will take the total amount of PC units sold close to where it was in 2019 before the big run-up happened due to COVID in those PC units. So full retracement back pretty much to those levels. On the smartphone side, again, pretty sharp pullbacks in calendar 2022 in terms of units.

Sumit Sadana: Yeah, so in terms of some of these end markets, we also mentioned some of this in our prepared remarks, but on the PC side, after a pretty sharp pullback in calendar '22, we're estimating in calendar '23 there's another low to mid single-digit percentage reduction in PC units in calendar '23, that will take the total amount of PC units sold close to where it was in 2019 before the big run-up happened due to COVID in those PC units, so full retracement back pretty much to those levels.

We also mentioned some of this in our prepared remarks, but on the easy side.

After a pretty sharp pullback in calendar 22, we're estimating in calendar 23 there's another low to mid single digit percentage reduction in PC units. In calendar 23, that will take the total amount of PC units sold.

Close to where it was in 2019 before the big run up happened due to COVID.

in those PC units, so full retracement back pretty much to those levels.

On the smartphone side, again pretty sharp pullbacks in calendar '22 in terms of units. Expecting the stabilization so right now we are modelling flattish to very slightly up unit growth in handsets in 2023, largely driven by strength in the second half of the calendar year, especially as some expectations that China's recovery will start to regain its footing after it goes through some challenging times in the next few months as it recovers from initial phases of COVID through the reopening process. So that's what we have modelled on that front.

Sumit Sadana: Expecting a stabilization, so right now we are modeling flattish to very slightly up unit growth in handsets in 2023, largely driven by strength in the second half of the calendar year, especially as some expectations that China's recovery will start to regain its footing after it goes through some challenging time in the next few months as it recovers from initial phases of COVID through the reopening process. So that's what we have modeled on that front. In servers, we do feel that the growth will continue in content, both in DRAM and NAND. Of course, you know, even in PCs, we expect continued growth in DRAM and NAND content. PC, the penetration of NAND is mostly complete, over 90%, but content growth should continue.

Expecting a stabilization, so right now we are modeling flattish to very slightly up unit growth in handsets in 2023, largely driven by strength in the second half of the calendar year, especially as some expectations that China's recovery will start to regain its footing after it goes through some challenging time in the next few months as it recovers from initial phases of COVID through the reopening process. So that's what we have modeled on that front. In servers, we do feel that the growth will continue in content, both in DRAM and NAND. Of course, you know, even in PCs, we expect continued growth in DRAM and NAND content. PC, the penetration of NAND is mostly complete, over 90%, but content growth should continue.

expecting the stabilization. So right now we are modeling

flattish to very slightly up unit growth in handsets in 2023, largely driven by strength in the second half of the calendar year, especially as

Some expectations that China's recovery will...

start to regain its footing after it goes through some

challenging time in the next few months as it recovers from initial phases of COVID through the reopening process.

In servers, we do feel that the growth will continue in content both in DRAM and NAND. Of course, even in PCs we expect continued growth in DRAM and NAND content. The penetration of NAND is mostly over 90% but content growth should continue. Smartphone content growth with 5G shift should continue. So more handset percentage as a percentage of the total in 5G in '23 versus '22, so that should help content. Server content growth should continue, server unit growth as well.

We do feel that.

The growth will continue in content.

Both in DRAM and NAND. Of course, you know, even in PCs we expect continued growth in DRAM and NAND content....

Sumit Sadana: Smartphone content growth with 5G shift should continue. So more handset percentage as a percentage of the total in 5G, in 2023 versus 2022, so that should help content. Server content growth should continue. Server unit growth as well. I mean, these trends in 2023 compared to historical trends will get impacted on the server side, especially in terms of units, based on the expectation of some level of macroeconomic impact on enterprise demand, both enterprise and cloud. The data center demand will get somewhat impacted, we think, in 2023, but content growth will continue. I think as we look at memory and storage demand, apart from all of these end market trends, there is obviously a pretty significant inventory component at the customers that comes into play.

Smartphone content growth with 5G shift should continue. So more handset percentage as a percentage of the total in 5G, in 2023 versus 2022, so that should help content. Server content growth should continue. Server unit growth as well. I mean, these trends in 2023 compared to historical trends will get impacted on the server side, especially in terms of units, based on the expectation of some level of macroeconomic impact on enterprise demand, both enterprise and cloud. The data center demand will get somewhat impacted, we think, in 2023, but content growth will continue. I think as we look at memory and storage demand, apart from all of these end market trends, there is obviously a pretty significant inventory component at the customers that comes into play.

The penetration of NAND is mostly over 90%.

But content growth should continue. Smartphone content growth with 5G shift should continue. So more handset percentage as a percentage of the total in 5G in 23 versus 22, so that should help content. Server content growth should continue. Server unit growth should continue.

I mean, these trends in '23, compared to historical trends, will get adapted on the server side, especially in terms of units based on the expectation of some level of macroeconomic impact on enterprise demand, both in cloud and for data center demands will get somewhat impacted, we think, in '23, but content growth will continue. I think as we look at memory and storage demand apart from all of these end market trends, there is obviously a pretty significant inventory component at the customers that comes into play. The progress in improving inventory at customers is different by customer and different by segment. PC's and smartphones entered this inventory correction first and have made more progress compared to data center inventory, which is still at pretty high levels right now entering calendar 2023, which is why the DRAM and NAND demand from data center customers is heavily impacted in 2023 because of the level of customer inventory in that segment. So there are these end market trends, and then there is the impact of inventory that ultimately, the interplay between them determines the demand that we see and the industry suppliers on the D-RAM and NAND side.

based on the expectation of some level of macroeconomic impact on enterprise demand, both in cloud and in the cloud.

for data center demands will get somewhat impacted, we think, in 23, but content growth will continue. I think as we look at memory and storage demand apart from all of these end market trends,

Sumit Sadana: The progress in improving inventories at customers is different by customer and different by segment. PCs and smartphones entered this inventory correction first and have made more progress compared to data center inventory, which is still at pretty high levels right now entering calendar 2023. Which is why the DRAM and NAND demand from data center customers is heavily impacted in 2023, because of the level of customer inventory in that segment. There are these end market trends, and then there is the impact of inventory that ultimately the interplay between them determines the demand that we see and the industry suppliers see on the DRAM and NAND side.

The progress in improving inventories at customers is different by customer and different by segment. PCs and smartphones entered this inventory correction first and have made more progress compared to data center inventory, which is still at pretty high levels right now entering calendar 2023. Which is why the DRAM and NAND demand from data center customers is heavily impacted in 2023, because of the level of customer inventory in that segment. There are these end market trends, and then there is the impact of inventory that ultimately the interplay between them determines the demand that we see and the industry suppliers see on the DRAM and NAND side.

There is obviously a pretty significant inventory component at the customers that comes into play. And the progress in improving inventory at customers is different by customer and different by segment.

PC's and smartphones entered this inventory correction first and have made more progress compared to data center inventory, which is still at pretty high levels right now entering calendar 2023, which is why.

The demand

from data center customers.

is heavily impacted in 2023.

because of the level of customer inventory in that segment. So there are these end market trends and then there is the impact of inventory that.

Ultimately, the interplay between them determines the demand that we see.

Vijay Rakesh: Got it. And just a quick question on the DDR5 side. I, I think you mentioned exiting 2023 at 30%. That ramp seems to be a little bit slower. Is that because the price premium or to DDR4, or is it being gated by some of the new product ramps? Thanks.

and the industry suppliers on the D-RAM and NED side.

Vijay Raghavan Rakesh: This is a quick question on the DDR5 side. I think you mentioned exiting 2023 at 30%. That ramp seems to be a little bit slower. Is that because of the price premium to DDR4 or is it being gated by some of the new product ramps?

Sumit Sadana: Well, there should be availability of DDR5 product. It's more driven by the rate and pace at which the DDR5 adoption in the industry happens, based on the ramp of specific CPU platforms. The ramp is continuing on the client side, but really, 2023 is an important year for the server platforms to really embrace and drive volume, and critical mass of some of the newer platforms that are critical for DDR5 adoption in the data center. And so it's a matter of the rate and pace of that more than the availability from a supply perspective.

Sumit Sadana: Well, there should be availability of DDR5 product, it's more driven by the rate and pace at which the DDR5 adoption in the industry happens based on the ramp of specific CPU platforms. The ramp is continuing on the client side, but really 2023 is an important year for the server platforms to really embrace and drive volume and critical mass of some of the newer platforms that are critical for DDR5 adoption in the data center. And so it's a matter of the rate and pace of that more than the availability from a supply perspective.

availability of DDR5 product, it's more driven by the rate and pace at which

The DDR5 adoption in the industry happens based on the ramp of specific CPU platforms.

The ramp is continuing on the client side.

But really 2023 is an important year for the server platforms to

really embrace and drive volume and critical mass of some of the newer platforms that are critical for DDR5 adoption in the data center.

And so it's a matter of the rate and pace of that.

Vijay Rakesh: All right. Thank you.

Operator: Thank you. One moment for our next question. That will come from the line of Sidney Ho with Deutsche Bank. Your line is open.

more than the availability from a supply perspective.

Vijay Raghavan Rakesh: Got it. Thank you.

Operator: Thank you. One moment for our next question. That will come from the line of Sydney Ho with Deutsche Bank. Your line is open.

Sidney Ho: Yeah, thanks for taking my question. Maybe just one more question on the underutilization charges in fiscal 2023, $460. Just want to make sure I understand this. If utilization doesn't go up in the next three quarters, like Mark, you said, 10% to 20%... Does that mean that call it $230 million a quarter will continue in the fiscal Q1, given that there seems to be a lack of when inventory is flushed through to through the income statement? And if kind of, is the $230 a quarter right number to think about, or there's different kind of linearity?

That will come from the line of Sydney Ho with Deutsche Bank. Your line is open.

Sydney Ho: Thanks for taking my question. Maybe just one more question on the underutilization charges in fiscal '23-460. Just want to make sure I understand this. If utilization doesn't go up in the next three quarters, like Mark, you said 10 to 20%, does that mean that, call it $230 million a quarter, will continue in the fiscal Q1 given that there seems to be a [inaudible] of when inventories flush through to the income statement? And is 230 a quarter the right number to think about as there are different kinds of linearity?

Mark Murphy: We are going to 20% underutilization. Let me make that clear. Those underutilization charges, some of them end up in period, but a minority of them. The majority of them, net of the cash costs, you know, the variable, I should say, the variable cost savings that we have. Those net costs, the majority of those are put into inventories. Those inventories clear, those higher cost inventories clear in the second half, primarily, for fiscal 2023. Now, some of those inventories will, because we're underutilized for the balance of the year, some of those charges for 2023 COGS will end up clearing in fiscal 2024.

Mark Murphy: So we are going to 20% underutilization, let me make that clear. Those underutilization charges, some of them end up in period, but a minority of them. The majority of them net of the variable cost savings that we have. Those net costs, the majority of those are put into inventories. Those inventories clear, those higher cost inventories clear in the second half primarily for fiscal '23. Now some of those inventories, because we're underutilized for the balance of the year, some of those charges for '23 COGS will end up clearing in fiscal '24. And as I said on the call, to the extent that volumes are better than we think, more of those higher cost inventories will be pulled into '23. And to the extent that volumes end up being lower than we think, more of those higher cost inventories will be cleared in '24.

We are going to 20% underutilization. Let me make that clear. Those underutilization charges, some of them end up in period, but a minority of them. The majority of them net of the variable cost savings that we have.

for fiscal 23. Now some of those inventories, because we're underutilized for the balance of the year, some of those charges for 23 COGS will end up in quite a few years, certainly all the cases in 2027.

Mark Murphy: You know, as I said on the call, to the extent that volumes are better than we think, more of those higher cost inventories will be pulled into 2023. To the extent that volumes are, end up being lower than we think, more of those higher cost inventories will be, cleared in 2024.

You know, as I said on the call, to the extent that volumes are better than we think, more of those higher cost inventories will be pulled into 2023. To the extent that volumes are, end up being lower than we think, more of those higher cost inventories will be, cleared in 2024.

clearing in fiscal 24.

And, you know, as I said on the call, to the extent that volumes are better than we think, more of those higher cost inventories will be pulled into 23. And to the extent that volumes end up being lower than we think, more of those higher cost inventories will be.

Sidney Ho: Okay. That's, that's clear. Thanks. My follow-up question is on free cash flow. I know for the first quarter, you have -$1.5 billion, if my, if my math is right. How are you thinking about free cash flow for the remainder of the year, Q2, and then maybe for the full, for the full year?

Sydney Ho: Okay, that's clear. Thanks. My follow-up question is on free cash flow. I know for the first quarter you have negative one and a half billion dollars if my math is right. How are you thinking about free cash flow for the remainder of the year Q2, and then maybe for the full year?

Mark Murphy: Well, what, Sidney, can you repeat the question? Sorry.

Sidney Ho: Yeah, sorry.

Mark Murphy: Free cash-

Sidney Ho: It's related to free cash flow for fiscal second quarter and the trajectory for the rest of the year.

Mark Murphy: Sydney, can you repeat the question? Sorry.

Silence.

Sydney Ho: Yeah, so it relates to free cash flow for fiscal second quarter and the trajectory for the rest of the year.

Mark Murphy: Yeah. So, on free cash flow, you know, we did indicate for first quarter what we ended up incurring -$1.5 billion. Now, in the September quarter, we also said at that time that second quarter free cash flow would be challenged, and since we had that earnings call, the conditions have worsened. So income's, you know, down versus what we originally thought. The working capital build is worse in the sense that inventories are higher than we thought from the second quarter. And then the receivables drawdown that we enjoyed in the first quarter will pass, and will be, you know, more flat on AR in the second quarter. And then, CapEx, as we had mentioned before, remains elevated in the second half.

Mark Murphy: Yeah, so on free cash flow, we did indicate for first quarter what we ended up incurring 1.5 billion negative. Now, in the September quarter, we also said at that time that second quarter free cash flow would be challenged. And since we had that earnings call, the conditions have worsened so income is down versus what we originally thought. The working capital build is worse in the sense that inventories are higher than we thought from the second quarter. And then the receivables drawdown that we enjoyed in the first quarter will pass and will be more flat on AR in the second quarter. And then Capex, as we had mentioned before remained elevated in the second half, now down versus the second quarter but it's still around two billion. So we would expect second quarter to be more negative than the first quarter. And then, just as we said before, we would expect free cash flow to improve in the second half relative to the first half as a function of the business environment improving, the volumes increasing, and then the capital investment decreasing in the second half and that's the profile for the year.

Now, in the September quarter, we also said at that time that second quarter free cash flow would be challenged. This is for the requesting side of the conversation today.

And since we had that earnings call, the conditions have worsened. So incomes down versus what we originally thought. The working capital build is worse in the sense that inventories are higher than we thought from the second quarter. And then the receivables drawdown that we enjoyed in the first quarter.

Mark Murphy: Now it's down versus second quarter, but it's still, you know, around $2 billion. So we would expect second quarter to be more negative than the first quarter. And then, just as we said before, we would expect free cash flow to improve in the second half relative to the first half, as a function of the business environment improving, the volumes increasing, and the capital investment decreasing in the second half. You know, and that's the profile for the year.

Now it's down versus second quarter, but it's still, you know, around $2 billion. So we would expect second quarter to be more negative than the first quarter. And then, just as we said before, we would expect free cash flow to improve in the second half relative to the first half, as a function of the business environment improving, the volumes increasing, and the capital investment decreasing in the second half. You know, and that's the profile for the year.

two billion. So we would we would expect second quarter to be second quarter to be more negative than the first quarter and then just as we said before we would expect free cash flow to improve in the second half.

[Company Representative] (Micron Technology): Yeah, and I think Mark mentioned that CapEx will be elevated in second half. I think he meant second quarter?

Farhan Ahmad: Yeah, and I think Mark mentioned that CapEx will be elevated in second half. I think he meant second quarter?

Mark Murphy: I meant second quarter. Yeah.

Multiple speakers: [Sydney Ho] Yeah, and I think Mark, you mentioned that CapEx will be elevated in second half, I think you meant second quarter. [Mark Murphy] I meant second quarter. [Sydney Ho] Second half clearly the CapEx is down quite a bit. [Mark Murphy] Yeah, I did mean second quarter. Thank you.

[Company Representative] (Micron Technology): Second half, clearly, the CapEx is down quite a bit.

Farhan Ahmad: Second half, clearly, the CapEx is down quite a bit.

Mark Murphy: Yeah, I did mean Q2.

[Company Representative] (Micron Technology): Yeah.

Farhan Ahmad: Yeah.

Mark Murphy: Yeah. Thank you.

Sidney Ho: So for the full year, we should be thinking about, still thinking about, negative free cash flow for the full fiscal year?

Quite a bit. Yeah, I did mean second quarter. Yeah.

Sydney Ho: So for the full year, we should still be thinking about negative free cash flow for the full fiscal year.

Mark Murphy: Full fiscal year will be free cash flow negative.

Sidney Ho: Okay. Thank you.

Operator: Thank you. One moment for our next question. That will come from the line of Pierre Ferragu with New Street Research. Your line is open.

Mark Murphy: Full fiscal year will be free cash flow negative.

Sydney Ho: Okay, thank you.

Operator: Thank you. One moment for our next question. That will come from the line of Pierre Ferragu with New Street Research. Your line is open.

Thank you. One moment for our next question.

That will come from the line of Pierre Ferragu with New Street Research. Your line is open.

Pierre Ferragu: Yes, hello. Thanks for taking our question. I just want to make sure that we have the correct COGS assumptions for DRAM and NAND. So if we combine the assumptions on bit growth, on DRAM bit growth down, and then flattish with cost per bit down, say, low single digits for both DRAM and NAND, would it make sense to assume that DRAM COGS will be down, say, mid to high single digits and low to mid single digits for NAND?

Pierre C. Ferragu: Yes, hello, thanks for taking our question. I just want to make sure that we have the correct Cogs assumptions for DRAM and NAND. So if we combine your assumptions on DRAM bit growth down and then flattish with cost per bit down say low single digits for both DRAM and NAND, would it make sense to assume that DRAM Cogs will be down say mid to high signal digits and low to mid signal digits for NAND?

with cost per bit down say low signal digits for both DRAM and NAND, would it make sense to assume that DRAM cogs will be down say mid to high signal digits and low to mid signal digits for NAND.

Mark Murphy: Now, actually, because of these underutilization effects, and some of those absorption of lower volumes and stuff on what we talked about on period costs and back end, you know, DRAM, you know, will be down slightly, and NAND will be up. Now, if we were to strip all those effects out, then, you know, NAND and DRAM would be better, but in this year, it's gonna be a challenge year from a cost standpoint. Now, it's, you know, the cost downs resume in the fourth quarter, but it's challenging in three of the quarters.

Mark Murphy: Now actually, because of these underutilization effects and some of those absorption or vault lower volumes and stuff on what we talked about on period costs and back end, DRAM will be down slightly and NAND will be up. Now, if we were to strip all those effects out, then NAND and DRAM would be better, but this year is going to be a challenge here from a cost standpoint. Now it's the cost downs resume in the fourth quarter, but it's challenging in three of the quarters.

And some of those.

absorption or vault lower volumes and stuff on what we talked about on period costs and back end.

DRAM will be down slightly.

and NAND will be up.

and for...

Now if we were to strip all those effects out then you know NAND and DRAM would be better, but in this year is going to be a challenge here from a cost standpoint. Now it's

The cost downs resume in the fourth quarter, but it's challenging in three of the quarters.

Pierre Ferragu: Okay, very clear.

Mark Murphy: Okay.

Pierre Ferragu: How should we think about 2024?

Mark Murphy: ... haven't commented on 2024.

Pierre C. Ferragu: Okay, very clear. How should we think about 2024?

Manish Bhatia: Okay, thanks.

Operator: Thank you. One moment for our next question. That will come from the line of Tim Arcuri with UBS. Your line is open.

Mark J. Murphy: Haven't commented on 24.

Pierre C. Ferragu: Okay, thanks.

Operator: Thank you. One moment for our next question. That will come from the line of Tim Arcuri with UBS. Your line is open.

Thank you. One moment for our next question.

Timothy Arcuri: Thanks. Mark, I had two sort of sets of questions. The first is, for fiscal Q2, it sounds like the story versus three or so months ago, where you thought that, you know, it would be pretty flat versus fiscal Q1. It sounds like bits are still up, maybe they're up a little less than you thought, but the real delta is more pricing than bits in fiscal Q2, so I wanted to confirm that. And on fiscal Q3, sounds like bits are, you know, gonna be up, just like you thought they would be before. And, you know, fiscal Q3 revenue is up, but I think you had suggested that May quarter would see such a big snapback in bits, that bits would be up year over year in both DRAM and NAND. So is that still the case?

That will come from the line of Tim Arcuri with UBS. Your line is open.

Timothy Arcuri: Thanks. Mark, I had two sets of questions. The first is, for fiscal Q2 it sounds like the story versus three or so months ago where you thought that it would be pretty flat versus fiscal Q1. It sounds like bits are still up, maybe they're up a little less than you thought, but the real Delta is more pricing than bits in fiscal Q2, so I wanted to confirm that. And on the fiscal Q3, it sounds like bits are going to be up just like you thought they would be before, and fiscal Q3 revenue is up, but I think you had suggested that May quarter would see such a big snapback in bits that bits would be up year over year in both DRAM and NAND. So is that still the case? It sounds like probably not, but I just wanted to ask that, and then I had a follow-up. Thanks.

If for fiscal Q2 it sounds like the story versus three or so months ago where you thought that you know It would be pretty flat versus fiscal Q1. It sounds like bits are still up Maybe they're up a little less than you thought but the real Delta is more pricing than bits.

fiscal Q2, so I wanted to confirm that. And on the fiscal Q3, sounds like bits are, you know, going to be up just like you thought they would be before, but and you know fiscal Q3 revenue is up, but I think you had suggested that May quarter would see such a big snapback in bits that

Timothy Arcuri: It sounds like probably not, but I just wanted to ask that, and then I had a follow-up thing.

It sounds like probably not, but I just wanted to ask that, and then I had a follow-up thing.

Bits would be up year over year in both DRAM and NAND. So is that still the case? It sounds like probably not, but I just wanted to ask that and then I had a follow-up. Thanks.

Mark Murphy: Yeah, we're starting to do variances on old forecasts and stuff, which makes it difficult. But Tim, to answer your question generally, I would take away that the profile is roughly the same that we had commented on before, in that, volumes would improve Q1 to Q2, and then you know, and then further strengthen through the year. And then the, you know, the market conditions are challenged in the second quarter, and as there's light at the end of the tunnel on, inventories and supply-demand balance improving, that those conditions would moderate, in the back half of the year.

Mark Murphy: We're starting to do variances on old forecasts and stuff, which makes it difficult. But Tim, to answer your question generally, I would take away that the profile is roughly the same that we had commented on before in that volumes would improve first quarter to second quarter and then further strengthen through the year, and then the market conditions are challenged in second quarter. And as there's light at the end of the tunnel on inventories and supply-demand balance improving that those conditions would moderate in the back half of the year. The profile stays about the same, but to your point, the volumes are a bit lower than we thought when we gave that guide since September, and the market conditions certainly are more challenging in the near-term here.

Volumes would improve first quarter to second quarter and then further strengthen through the year.

And then the market conditions are challenged in second quarter. And as there's light at the end of the tunnel on inventories and supply demand balance improving.

Mark Murphy: So you know, the profile stays about the same, but to your point, the volumes are a bit lower than we thought, when we gave that guidance in September, and the market conditions certainly are more challenging in the near term here.

So you know, the profile stays about the same, but to your point, the volumes are a bit lower than we thought, when we gave that guidance in September, and the market conditions certainly are more challenging in the near term here.

that those conditions would moderate in the back half of the year. The profile stays about the same, but to your point, the volumes are a bit lower than we thought when we gave that guide since September , and the market conditions certainly are more challenging in the near term here. Thank you very much.

Timothy Arcuri: Got it, thanks. And then just last thing: So, I know you're not giving CapEx for fiscal 2024 and just saying that it's lower than what you thought it would, you know, that, that it was gonna be prior to this, but the, the standing guidance is sort of you target like mid-30% of revenue. Is that still the way to think about it, or because of these actions you're taking, that fiscal 2024 CapEx could be below that mid-30% of, you know, revenue target?

Timothy Arcuri: Got it. Thanks. And then just last thing, so, I know you're not giving Capex for fiscal '24 and just saying that it's lower than what you thought it was going to be prior to this, but the standing guidance is sort of you target, like, mid 30% of revenue, is that still the way to think about it or because of these actions you're taking that fiscal '24 Capex could be below that mid 30% of revenue target?

Fiscal 24 capex could be below that mid 30% of revenue target.

Mark Murphy: Boy, Tim, it's early to be giving comments on that. And you know, we do have higher construction spend, which pressures CapEx up. However, we are absolutely committed to free cash flow generation in 2024, so that's going to play a very important role in the level of CapEx spend we have, along with, you know, just the view on the market conditions and various other things, you know, short and long term. Difficult to make the call now.

Multiple speakers: [Mark Murphy] Boy, Tim, it's early to be giving comments on that. We do have higher construction spend, which pressures CapEx up. However, we are absolutely committed to free cash flow generation in 2024, so that's going to play a very important role in the level of CapEx spend we have, along with just the view on the market conditions and various other things, short and long term, so, it's difficult to make the call now. [Manish Bhatia] And as you're aware, the federal funding process is still working for the U.S. CHIPS grants, which will impact our reported Capex for the construction projects that we've targeted here in the US. We will be kicking off some of it this year, but some of it for sure in fiscal '24, so it's still early to comment on that, which is why we gave you some more color on the WFE part which isn't really impacted by that in that timeframe.

the level of CapEx spend we have, along with just the view on the market conditions.

Manish Bhatia: And as you're aware, you know, the federal funding process is still working for the US CHIPS grants, which, you know, will, you know, impact our reported CapEx for the construction projects that we've, that we target here in the US, will be, you know, kicking off some of it this year, but some of it in, for sure, in fiscal 2024. So still early to comment on that, which is why we gave you some more color on the WFE part, which isn't really impacted by that in that timeframe.

various other things, you know, short and long term. So, it's difficult to make the call now. And as you're aware, you know, the federal funding process is still working for the U.S. CHIPS grants, which

Will impact our reported for the construction projects that we've targeted here in the US will be kicking off some of it this year, but some of it in for sure and fiscal 24. so. Still early to comment on that, which is why we gave you some more color on the.

Timothy Arcuri: Hmm. Yeah, okay. Thanks.

Operator: Thank you. One moment for our next question. That will come from the line of C.J. Muse with Evercore ISI. Your line is open.

the WFE part which isn't really impacted by that in that timeframe.

Timothy Arcuri: Yeah, okay. Thanks.

Operator: Thank you. One moment for our next question. And that will come from the line of CJ Muse with Evercore ISI. Your line is open.

And that will come from the line of CJ Muse with Evercore ISI. Your line is open. And that will come from the line of CJ Muse with Evercore ISI.

C.J. Muse: Yeah, thank you for taking the question. I guess first, just a little modeling help for February. You know, I guess based on the comments around mobility, bits accelerating, can I interpret that as roughly bits for NAND growing, perhaps roughly two times as fast as DRAM? Is that kind of the right way to think about it?

CJ Muse: Yeah, thank you for taking the question. I guess first, just a little modelling help for February, I guess based on the comments around mobility bits accelerating, can I interpret that as roughly bits for NAND growing perhaps roughly two times as fast as DRAM? Is that kind of the right way to think about it?

Mark Murphy: Hmm, no.

Manish Bhatia: No.

Sumit Sadana: No. Yeah, I would not just think of NAND growing two times faster than DRAM. I think it's just, you know, definitely our mobile revenue is growing, sequentially from FY1 to FY2. But, we're not providing further guidance on what part of that, is really growing. But as you know, the overall revenue is, it's down quarter on quarter.

No. No. Yeah, I would not just think of. NAND growing two times faster than DRAM. I think it's just Definitely our mobile revenue is growing sequentially from FQ1 to FQ2.

NAND growing two times faster than DRAM. I think it's just

Definitely our mobile revenue is growing sequentially from FQ1 to FQ2.

Sumit Sadana: No, I would not just think of NAND growing two times faster than DRAM. I think it's just definitely our mobile revenue is growing sequentially from FQ1 to FQ2, but we're not providing further guidance on what part of that [inaudible]. But as you know the overall revenue is down quarter to quarter.

We're not providing further guidance on what part of that.

on what part of that.

C.J. Muse: Okay, thank you. I guess maybe a deeper question on the inventory side. You know, I guess where do you think you'll see green shoots first in terms of things returning to normal? And, you know, as that occurs, you know, how do you see kind of the mix playing out for you guys?

which is really cool. But as you know the overall revenue is done.

overall revenue is down quarter to quarter.

CJ Muse: Okay, thank you. I guess maybe a deeper question on the inventory side. I guess where do you think you'll see green sheets first in terms of things returning to normal and as that occurs, how do you see kind of the mix playing out for you guys?

Sumit Sadana: If we look at the overall business and the different parts of the market, the automotive market is the most resilient, but obviously, it's a smaller part of the whole business, and industrial markets probably come next in terms of. relative stability. Now, the PC market and the smartphone markets were the ones that entered this downturn first and those customers have made some [inaudible] so we do expect that those customers will likely end up improving their inventories to a healthier place sooner than for example data center customers will. They do have high levels of inventory and have decided to start improving their inventory position aggressively, relatively late compared to the other segments like PC and smartphones based on the end market demand changes that have been occurring over the past several months.

If we look at the overall.

business and the different parts of the market.

The automotive market is the most resilient, but obviously it's a smaller part of the whole business.

And industrial markets probably come next in terms of.

relative stability.

Now the PC market and the smartphone markets were the ones that entered this downturn first and those customers have made.

Some products, so we do expect that.

Sumit Sadana: sooner than, for example, data center customers will. Do have high levels of inventory and have, you know, decided to start improving their inventory position aggressively, relatively late compared to, you know, the other segments, like PCs and smartphones, just based on the end market demand changes that have been occurring over the past several months. So, we do expect that the PC market is likely to show some stabilization. But just keep in mind that while we are talking about customer inventory, and we are looking at bits of inventory at our customers, our customers are also looking at BIO inventory and how many days of inventory they have.

sooner than, for example, data center customers will. Do have high levels of inventory and have, you know, decided to start improving their inventory position aggressively, relatively late compared to, you know, the other segments, like PCs and smartphones, just based on the end market demand changes that have been occurring over the past several months. So, we do expect that the PC market is likely to show some stabilization. But just keep in mind that while we are talking about customer inventory, and we are looking at bits of inventory at our customers, our customers are also looking at BIO inventory and how many days of inventory they have.

those customers will likely end up improving their inventories to a healthier place.

sooner than for example data center customers will do have

high levels of inventory and have

decided to

Start improving their inventory position aggressively, relatively late compared to

you know, the other segments like PC and smartphones based on the end market demand changes that have been occurring over the past several months.

So we do expect that the PC market is likely to show some stabilization, but just keep in mind that while we are talking about customer inventory and we are looking at bits of inventory at our customers, our customers are also looking at BIO inventory and how many days of inventory they have, and it's obviously compounding their challenge because the forward-looking sales when it weakens due to macroeconomic environment and individual segment trends, then the weakening end market trends does impact their view of what they can do on the inventory front even if bit inventory reduces BIO inventory, they still have more work to do. So those are the dynamics that are playing out and we do expect that these server customers will take longer to get to a healthier place compared to the other segments.

Maybe one final comment following the Ohio 000

the PC market is likely to show some stabilization but just keep in mind that while we are talking about customer inventory and we are looking at

bits of inventory at our customers.

Sumit Sadana: It's obviously compounding their challenge because the forward-looking sales, when it weakens due to macroeconomic environment and such, and individual segment trends, then the weakening end market trends does impact their view of, you know, what they can do on the inventory front. Even if bit inventory reduces, BIO inventory, they still have more work to do. So those are the dynamics that are playing out and we do expect that, you know, these server customers will take longer to get to a healthier place, compared to the other segments.

customers are also looking at

BIO inventory and how many days of inventory they have and

It's obviously compounding their challenge because the forward-looking sales when it weakens due to macroeconomic environment and such.

and individual segment trends, then the weakening end market trends does impact their view of

what they can do on the inventory front.

even if bit inventory reduces DIO inventory, I still have more work to do. So those are the dynamics that are playing out.

inventory reduces. DEIO inventory, I still have more work to do. So those are the dynamics that are playing out and

And we do expect that these server customers will take longer to get to a healthier place.

Operator: Thank you. Thank you. One moment for our next question. That will come from the line of Chris Caso with Credit Suisse. Your line is open.

compared to the other segments.

CJ Muse: Thank you.

Thank you.

Operator: Thank you. One moment for our next question. That will come from the line of Chris Queso with Credit Suisse. Your line is open.

Chris Caso: Yes, thank you. Just maybe a bit of a bigger picture question. And maybe you could give some comparisons to, you know, the last cycle and some of the prior cycles. And you know, what you talk about as a supply-demand balance here is the worst in the last thirteen years. You know, over the last thirteen years, the industry has structurally improved. So what do you think is the reason for the supply-demand balance that's occurred now? Is it solely market conditions, or does anything to do with structural conditions? And you know, what does that mean for future cycles, you know, in terms of how we read this for the bigger picture?

That will come from the line of Chris Queso with Credit Suisse. Your line is open.

Chris Queso: Yes, thank you. Just maybe a bit of a bigger picture question, and maybe you could give some comparisons to the last cycle and some of the prior cycles. What you talk about as the supply-demand balance here is worse than the last 13 years. Over the last 13 years, the industry has structurally improved. So what do you think is the reason for the supply-demand balance that's occurred now? Is it solely market conditions? Is there anything to do with structural conditions? And what does that mean for future cycles in terms of how we read this for the bigger picture?

worse than the last 13 years. Over the last 13 years, the industry has structurally improved. So what do you think is the reason for the supply demand balance that's occurred now? Is it solely market conditions? Is there anything to do with structural conditions?

And what does that mean for future cycles in terms of how we read this for the bigger picture?

Sumit Sadana: Tough to extrapolate based on one data point. Certainly, since the industry consolidated about a decade ago in DRAM, we have had relatively well-contained cycles and relatively healthy, very healthy through cycle profitability, certainly in DRAM, across cycles, since that point. In this particular cycle, definitely there has been a demand shock and a set of exogenous factors that have come together in a way that is quite unusual. So, you know, you've seen forty-year highs in inflation, very rapid increases in interest rates. So macroeconomic environment, certainly, one for the history books in terms of multi-decade, sort of, challenges on that front. You have a war in Europe that has not happened in many, many decades.

Mark J. Murphy: Tough to extrapolate based on one data point. Certainly, since the industry consolidated about a decade ago in DRAM, we have had relatively well-contained cycles and relatively healthy, very healthy through-cycle profitability, certainly in DRAM across cycles since that point. In this particular cycle, definitely there has been a demand shock and a set of exogenous factors that have come together in a way that is quite unusual. So you've seen 40-year highs in inflation, very rapid increases in interest rates, macroeconomic environment certainly one for the history books in terms of multi-decade sort of challenges on that front. You have a war in Europe that has not happened in many, many decades. You have COVID impacts and big shutdowns in China impacting demand in the second largest economy in the world. And then you have a whole host of factors in individual companies and segments as a result of supply chain disruptions, etc. So, there are a lot of moving parts that have hit the markets in these segments. So there has been definitely a pretty significant demand shock.

Certainly, since the industry consolidated about a decade ago in DRAM,

exogenous factors that have come together in a way that is quite unusual. So you know you've seen 40-year highs in inflation, very rapid increases in interest rates, macroeconomic environment certainly.

one for the history books in terms of multi-decade sort of challenges on that front.

Sumit Sadana: You have COVID impacts and big shutdowns in China, impacting demand in the second largest economy in the world. Then you have whole host of factors in individual companies and segments, as a result of supply chain disruptions, et cetera. So there's a lot of moving parts that have hit the markets in these segments. So there has been definitely a pretty significant demand shock. And also included in that demand shock is the other side of all of the inventory buildup that happened when so much of the business went into a shortage, probably the biggest set of shortages in the semiconductor industry in a long time, probably ever. And then customers responded with building inventory in whatever areas they could get their hands on.

You have a war in Europe that has not happened in many many decades.

You have COVID impacts and big shutdowns in China impacting demand in the second largest economy in the world.

And then you have a whole host of factors in individual companies and segments as a result of supply chain disruptions, etc. So, there's a lot of moving parts that have...

hit the markets in these segments. So there has been definitely a pretty significant demand shock.

And also included in that demand shock is the other side of all of the inventory build-up that happened when so much of the business went into a shortage, probably the biggest set of shortages in the semiconductor industry in a long time, probably ever, and then customers responded with building inventory in whatever areas they could get their hands on. So a lot of factors coming together created that demand shock. I think on the supply side, which is now where the burden is on the supply side to respond to that demand shock and cut supply and bring the industry into a healthier place, we have definitely taken pretty aggressive actions. We have got wafer starts in really fast order. We have dramatically reduced Capex in 2023. We have signalled very clearly that we are also reducing WFE CapEx in 2024 from 2023. And we've also responded to the changes in the market environment by lengthening the time between technology node ramps. We've taken a lot of aggressive action from our side and as the rest of the industry hopefully does what it will individually decide to do, we are hopeful that the industry will become healthier as time goes by through calendar '23 and inventories will start to improve slowly from the peak that we are seeing in fiscal Q2.

So much of the business went into a shortage, probably the biggest set of shortages in the semiconductor industry in a long time.

probably ever and then customers responded with building inventory in whatever areas they could get their hands on

Sumit Sadana: So a lot of factors coming together created that demand shock. I think on the supply side, which is now where the burden is on the supply side to respond to that demand shock, cut supply, and bring the industry into a healthier place, we have definitely taken pretty aggressive actions. We have cut wafer starts in really fast order. We have dramatically reduced CapEx in 2023. We have signaled very clearly that we are also reducing WFE CapEx in 2024 from 2023. And we have also responded to the changes in the market environment by lengthening the time between technology node ramps.

So a lot of factors coming together created that demand shock. I think on the supply side, which is now where the burden is on the supply side to respond to that demand shock and cut supply and bring the industry into a healthier place, we have definitely taken pretty aggressive actions. We have

got wafer starts in really fast order. We have dramatically reduced CAPEX in 2023. We have signals.

Very clearly that we are also reducing WFE CapEx in 2024 from 2023.

And we've also responded to the changes in the market environment by lengthening the time between technology node ramps.

Sumit Sadana: We've taken a lot of aggressive action from our side, and, you know, as the rest of the industry hopefully does what it, what it will individually decide to do, we are hopeful that the industry will become healthier as time goes by through calendar 2023, and inventories will start to improve slowly from the peak that we're seeing in fiscal Q2.

We've taken a lot of aggressive action from our side and

You know, as the.

rest of the industry hopefully does what it will individually decide to do. We are hopeful that the industry will become healthier as time goes by through calendar 23 and inventories will start to improve.

Mark Murphy: ... Thank you.

slowly from the peak that we are seeing in fiscal Q2.

Operator: Thank you. One moment for our next question. That will come from the line of Krish Sankar with Cowen. Your line is open.

Chris Queso: Got it. Thank you.

Got it. Thank you.

Operator: Thank you. One moment for our next question. That will come from Krish Shankar with Cowen. Your line is open.

Unknown Speaker: Hey guys, this is Eddie for Krish. You guys have impressive technological leadership, but your competitors have a bigger scale. So NetNet in terms of cost per bit, do you think you're at least at par with competitors? I'm asking because I'm wondering if there's a scenario where competitors become more aggressive on pricing which will further elongate this down cycle. Thank you.

[Analyst] (TD Cowen): Hey, guys, this is Eddie for Krish. You guys have impressive technological leadership, but your competitors have a bigger scale. So net-net, in terms of cost per bit, do you think you're at least at par with competitors? I'm asking because I'm wondering if there's a scenario where competitors become more aggressive on pricing, which will further elongate this down cycle. Thanks, guys.

Eddy Mendes: Hey, guys, this is Eddie for Krish. You guys have impressive technological leadership, but your competitors have a bigger scale. So net-net, in terms of cost per bit, do you think you're at least at par with competitors? I'm asking because I'm wondering if there's a scenario where competitors become more aggressive on pricing, which will further elongate this down cycle. Thanks, guys.

So NetNet in terms of cost per bit, do you think you're at least at par with competitors? I'm asking because I'm wondering if there's a scenario where competitors become more aggressive on pricing which will further elongate this down cycle.

Manish Bhatia: Krish, I can just answer our competitive position. I had given some color on that at our investor day, that, you know, we were certainly trailing in terms of cost competitiveness, you know, a few years ago. But by getting the technology leadership, even at our, you know, lower scale, we've become, you know, very competitive on our costs in both DRAM and NAND. Yes, I won't give specifics in terms of us versus others, but we're definitely, you know, very competitive now, thanks to the technology leadership that we have.

Thank you.

Mark J. Murphy: I can just answer on the competitive position. I had given some color on that at our Investor Day that we were certainly trailing in terms of cost competitiveness a few years ago, but by getting the technology leadership, even at our lower scale, we've become very competitive on our costs in both DRAM and in NAND. And I won't give specifics in terms of us versus others, but we're definitely very competitive now thanks to the technology leadership that we have. And having that technology leadership does give us flexibility in terms of how we manage our business and being able to even as we made the decision to and we just explained to delay the ramp of these new technologies, we expect they're still going to be very, very competitive when they launch when we ramp them as marketing conditions improve and the yields are coming up really nicely on both of them right now. So we feel pretty good about our underlying cost competitiveness and technology competitiveness here and in the future. In fact, they're still going to be very, very competitive when they launch when we ramp them as market conditions improve and they're going to. You know, the yields are coming up really nicely on both of them right now. The scale that we have, we expect to maintain that share through the cycle to be able to make sure that we can maintain the ROI on all of our investments, our R&D investments.

very competitive on our costs in both DRAM and in NAN.

And I won't give specifics in terms of us versus others, but we're definitely very competitive now. Thanks to the technology leadership that we have. And having that technology leadership does give us flexibility in terms of how we manage our business and being able to

Manish Bhatia: You know, having that technology leadership does give us, you know, now flexibility in terms of how we manage our business and being able to, you know, even as we made the decision to, and that we just explained, to delay the ramp of these new technologies, we expect they're still gonna be very, very competitive when they launch, when we ramp them as market conditions improve, and they're gonna, you know, the yields are coming up really nicely on both of them right now. So, you know, we feel pretty good about our underlying cost competitiveness and technology competitiveness here and into the future.

You know, having that technology leadership does give us, you know, now flexibility in terms of how we manage our business and being able to, you know, even as we made the decision to, and that we just explained, to delay the ramp of these new technologies, we expect they're still gonna be very, very competitive when they launch, when we ramp them as market conditions improve, and they're gonna, you know, the yields are coming up really nicely on both of them right now. So, you know, we feel pretty good about our underlying cost competitiveness and technology competitiveness here and into the future.

You know, even as we made the decision to and we just explained to delay.

The ramp of these new technologies, we expect they're still going to be very, very competitive when they launch when we wrap them as marketing conditions improve and they're going to. You know, the yields are coming up really nicely on both of them right now. So. And we feel pretty good about our underlying cost competitiveness and technology competitiveness here and in the future. You know, and, you know.

In fact, they're still going to be very, very competitive when they launch when we ramp them as market conditions improve and they're going to. You know, the yields are coming up really nicely on both of them right now. So. And we feel pretty good about our underlying cost competitiveness and technology competitiveness here and into the future. You know, and, you know, in. We've seen sparkling Ciinde So yes,

Manish Bhatia: You know, in the scale that we have, you know, we expect to, you know, maintain that share through the cycle, as we're to be able to make sure that we can, you know, maintain the ROI on all of our investments, our R&D investments.

You know, in the scale that we have, you know, we expect to, you know, maintain that share through the cycle, as we're to be able to make sure that we can, you know, maintain the ROI on all of our investments, our R&D investments.

the scale that we have, we expect to maintain that share through the cycle.

As we're to be able to make sure that we can.

Sumit Sadana: The one area that I think you know that there is an impact is related to foreign currencies, exchange rates versus the dollar. So definitely the dollar has appreciated a lot versus the Korean won and has also appreciated a lot versus the Japanese yen. We do have some manufacturing in Japan, but not as much as, you know, some other competitors have, for example, in NAND. So there is definitely some competitive impact on costs related to currencies, but, you know, we also feel like the dollar has already come off by 10% in recent weeks from its peak.

maintain the ROI on all of our investments, our R&D investments.

Sumit Sadana: The one idea that I think you know that there is an impact is related to foreign currencies exchange rates versus the dollar, so definitely the dollar has appreciated a lot versus the Korean won and has also appreciated a lot versus the Japanese yen. We do have some manufacturing in Japan, but not as much as some other competitors have for example in NAND. So there is definitely some competitive impact on costs related to currencies, but we also feel like the dollar has already come off by 10% in recent weeks from its peak, and we see the future direction of the Fed slowing down and ultimately stopping. We're hoping that the dollar will start a weakening cycle that would be reversing some of those impacts on a competitive basis on cost, that is due to the currency itself.

Also appreciated a lot versus a Japanese yen. We do have some manufacturing in Japan, but not as much as some other competitors have.

So there is definitely some competitive impact on costs related to currencies, but we also feel like the dollar has already come off by 10% in recent weeks, come its peak. And we did the future direction.

Sumit Sadana: Hopefully, with the future direction of the Fed slowing down and ultimately stopping, we're hoping that the dollar will start a weakening cycle that will be reversing some of those impacts on a competitive basis, on cost that is due to the currency itself.

Hopefully, with the future direction of the Fed slowing down and ultimately stopping, we're hoping that the dollar will start a weakening cycle that will be reversing some of those impacts on a competitive basis, on cost that is due to the currency itself.

the Fed slowing down and ultimately stopping. They're hoping that

the dollar will start a weakening cycle that would be

reversing some of those impacts on a competitive basis on cost.

[Analyst] (TD Cowen): Got it. Thank you. And if I can squeeze one more in. How should we think about the OpEx savings of 150 million? Are they related to production? And should we expect them to come back once utilization goes back to normal?

Eddy Mendes: Got it. Thank you. And if I can squeeze one more in. How should we think about the OpEx savings of 150 million? Are they related to production? And should we expect them to come back once utilization goes back to normal?

That is due to the currency itself.

Unknown Speaker: Thank you. If I can squeeze one more in, how should we think about the OPEX savings of 150 mil? Are they related to production? Should we expect them to come back once civilization goes back to normal?

Mark Murphy: No, they're not related to production at all, being COGS. It's related to R&D and SG&A activities, and clearly, the headcount actions are part of that, but very careful, specific program-related actions. Work with vendors on renegotiating on rate and scope of activities, various other productivity projects and other items in SG&A, as well.

Multiple speakers: [Mark Murphy] No, they're not related to production at all being Cogs related to R&D and SG&A activities, and clearly, the headcount actions are part of that, but very careful, specific program-related actions, work with vendors on renegotiating on rate and scope of activities, various other productivity projects and other items and SG&A well. [Sumit Sadana] And as usual, from Q4 of '23 to 2024, we'll have usual transition that happens in most companies where we have bonus coming back, salary increases, those sorts of things, other than that.

No, they're they're not related to production at all being cogs

related to R&D and SG&A activities, and clearly the headcount actions are part of that, but very careful, specific program-related actions, work with vendors on renegotiating on,

Rate and scope of activities. Various other productivity projects and other items and as well. Thank you. From Q4 of 23 to. 20

[Analyst] (TD Cowen): All right. Thank you.

Eddy Mendes: All right. Thank you.

Sumit Sadana: Good luck. You know, from Q4 of 2023 to 2024, we'll have usual transition that happens in most companies where, you know, we have bonus, coming back, salary increases, those sort of things. But other than that...

24, we'll have usual transition that happens in most companies where you know we have bonus Coming back salary increases those sort of things, but

transition that happens in most companies where we have bonus coming back, salary increases, those sort of things. Other than that.

Operator: Thank you. Thank you all for participating in today's call. This concludes the program. You may now disconnect.

Thank you.

Thank you all for participating in today's call. This concludes the program. You may now disconnect.

You ChelodMEDICINE Good day and welcome to Micron's post earnings analyst call. At this time, all participants are in a listen-only mode. After a few brief opening remarks, we will be immediately going into our Q&A session. If you would like to ask a question, please press star 1-1. You will then hear an automated message advising your hand is raised. Due to time restraints, we ask that you please limit yourself to one question and one follow-up question. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Farhan Ahmad, Head of Investor Relations. Please welcome, Cheetah Ahmad, fading speaker for the

ChelodMEDICINE

Operator: Good day, and welcome to Micron's post-earnings analyst call. At this time, all participants are in a listen-only mode. After a few brief opening remarks, we will be immediately going into our Q&A session. If you would like to ask a question, please press star one, one. You will then hear an automated message advising your hand is raised. Due to time restraints, we ask that you please limit yourself to one question and one follow-up question. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Farhan Ahmad, Head of Investor Relations.

Good day and welcome to Micron's post earnings analyst call.

At this time, all participants are in a listen-only mode. After a few brief opening remarks, we will be immediately going into our Q&A session. If you would like to ask a question, please press star 1-1. You will then hear an automated message advising your hand is raised.

Due to time restraints, we ask that you please limit yourself to one question and one follow-up question. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Farhan Ahmad, Head of Investor Relations. Please welcome, Cheetah Ahmad, fading speaker for the

Thank you and welcome to Micron Technologies first quarter of 2023, CellFights Callback. On the call with me today are Sumit Sadhana, our Chief Business Officer. Manish Barya, our EVP of Global Operations, and Mark Murphy, our CFO . Today's call is being webcast from our investor relations site at investors.micron.com. As a reminder, the matters we are discussing today include forward-looking statements regarding market demand and supply, our expected results, and other matters. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today. We refer you to the documents we filed with the SEC, including our most recent form 10K and 10Q, for a discussion of the risks that may affect our future results. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, and achievements. We are under no duty to update any of the forward-looking statements to confirm these statements to actual results. We can now open the call.

On the call with me today are Sumit Sadhana, our Chief Business Officer.

Sumit Sadana: Today's call is being webcast from our investor relations site at investors.micron.com. As a reminder, the matters we are discussing today include forward-looking statements regarding market demand and supply, our expected results, and other matters. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today. We refer you to the documents we filed with the SEC, 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 are under no duty to update any of the forward-looking statements to confirm these statements to actual results. We can now open the call.

Today's call is being webcast from our investor relations site at investors.micron.com. As a reminder, the matters we are discussing today include forward-looking statements regarding market demand and supply, our expected results, and other matters. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today. We refer you to the documents we filed with the SEC, 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 are under no duty to update any of the forward-looking statements to confirm these statements to actual results. We can now open the call.

Manish Barya, our EVP of Global Operations, and Mark Murphy, our CFO .

Today's call is being webcast from our investor relations site at investors.micron.com.

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

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

We refer you to the documents we filed with the SEC, including our most recent form 10K and 10Q, for a discussion of the risks that may affect our future results. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, and achievements.

We are under no duty to update any of the forward-looking statements to confirm these statements to actual results.

Operator: Thank you. Today's first question will come from the line of Brian Chin with Stifel. Your line is open.

We can now open the call.

Thank you. Today's first question is from We'll come from the line. of Brian Chin with Stifel. Your line is open. Hi there. Good afternoon, and thanks for letting us ask a few questions. First, In the prepared remarks, there was discussion of an insurance recovery in the February quarter. Is it fair to assume that's at 100% fall through in the model? And then if I back that out of the guidance, that's what gross margins at around five and a half percent plus or minus in Cisco 2Q? That is correct. Okay. Got it. It's helpful. Just that clarification and maybe while I'm on the clarification. Thanks, Mark. I'm on the note, but. I think the one of the questions you said planning for. Lower utilization to persist through the balance of fiscal year of the fiscal year. And so are you thinking sort of arrange for what that underutilization could look like? Like a 10 to 20% below full. Or is that sort of you'll go as you'll do what needs to be done as you move along through the year, any sort of additional clarification on that.

We'll come from the line.

of Brian Chin with Stifel. Your line is open.

Hi there. Good afternoon, and thanks for letting us ask a few questions. First,

In the prepared remarks, there was discussion of an insurance recovery in the February quarter. Is it fair to assume that's at 100% fall through in the model? And then if I back that out of the guidance, that's what gross margins at around five and a half percent plus or minus in Cisco 2Q?

Mark Murphy: That is correct.

[Analyst] (Stifel): Okay. Got it. It's helpful, just that clarification. And maybe while I'm on the clarification, thanks, Mark. I think to one of the questions you said, planning for lower utilization to persist through the balance of fiscal year, of the fiscal year. And so are you thinking sort of a range for what that underutilization could look like, like 10% to 20% below full? Or is that sort of, you know, you'll go as you'll do what needs to be done as you move along through the year? Any sort of additional clarification on that?

Brian Chin: Okay. Got it. It's helpful, just that clarification. And maybe while I'm on the clarification, thanks, Mark. I think to one of the questions you said, planning for lower utilization to persist through the balance of fiscal year, of the fiscal year. And so are you thinking sort of a range for what that underutilization could look like, like 10% to 20% below full? Or is that sort of, you know, you'll go as you'll do what needs to be done as you move along through the year? Any sort of additional clarification on that?

That is correct. Okay. Got it. It's helpful. Just that clarification and maybe while I'm on the clarification. Thanks, Mark. I'm on the note, but.

I think the one of the questions you said planning for.

Lower utilization to persist through the balance of fiscal year of the fiscal year. And so are you thinking sort of arrange for what that underutilization could look like? Like a 10 to 20% below full. Or is that sort of you'll go as you'll do what needs to be done as you move along through the year, any sort of additional clarification on that.

Mark Murphy: Sure. I could have been more specific, but it was a long answer as it was. I think on the back end, the utilization will improve in the second half of the year as volumes increase.

Sure, and I could have been more specific, but it was a long answer as it was. I think on the back end, the utilization will improve in the second half of the year as volumes increase. On the front end, which is the purpose of the announcement and of course is the larger effect, to your point we're assuming 10 to 20 percent through the balance of the fiscal year. Got it. Okay. That's helpful. And then kind of my follow up. And this I think also relates to that question you're asked, but when you think about the transition to DDR5 next year and it's tied, you know, in data centers, tied in client PC, you need the various platforms, products, etc. Progress, it sounds like, in mobile as well. But doesn't that run the risk of impairing some DDR4 inventory at some point here? And also kind of tied to that, where do you think you can get inventory days back to by the end of the fiscal year? What level does this need to be?

[Analyst] (Stifel): Okay.

Brian Chin: Okay.

Mark Murphy: On the front end, which is, you know, was the purpose of the announcement and of course, is the larger effect, to your point, we're assuming 10% to 20% through the balance of the fiscal year.

On the front end, which is the purpose of the announcement and of course is the larger effect, to your point we're assuming 10 to 20 percent through the balance of the fiscal year.

[Analyst] (Stifel): Got it. Okay, that's helpful. And then, kind of, my follow-up, and this I think also relates to the question you were asked. But when you think about the transition to DDR5 next year, and it's tied, you know, in data center, it's tied in client PC, in the various platforms, products, et cetera, progress, it sounds like in mobile as well. But doesn't that run the risk of impairing some DDR4 inventory at some point here? And also, kind of tied to that, where do you think you can get inventory days back to by the end of the fiscal year? And what level does this need to be back to in order to regain pricing leverage in the industry?

Brian Chin: Got it. Okay, that's helpful. And then, kind of, my follow-up, and this I think also relates to the question you were asked. But when you think about the transition to DDR5 next year, and it's tied, you know, in data center, it's tied in client PC, in the various platforms, products, et cetera, progress, it sounds like in mobile as well. But doesn't that run the risk of impairing some DDR4 inventory at some point here? And also, kind of tied to that, where do you think you can get inventory days back to by the end of the fiscal year? And what level does this need to be back to in order to regain pricing leverage in the industry?

Got it. Okay. That's helpful.

And then kind of my follow up.

And this I think also relates to that question you're asked, but when you think about the transition to DDR5 next year and it's tied, you know, in data centers, tied in client PC, you need the various platforms, products, etc.

Progress, it sounds like, in mobile as well. But doesn't that run the risk of impairing some DDR4 inventory at some point here? And also kind of tied to that, where do you think you can get inventory days back to by the end of the fiscal year? What level does this need to be?

back to in order to regain pricing leverage in the industry. Yeah, I can take that. In terms of the DDR4 versus DDR5, the DDR5 ramp is underway in the client space. And somewhat behind that in the server space, we'll really start. in earnest through calendar 2023. And the crossover with DDR4 doesn't occur in both segment lines and server from our estimation right now. till mid-calendar 2024. So there is still substantial level of DDR4 runway. in both segments for quite a while. And so we are not so concerned about that particular aspect, although, The overall level of inventory is certainly something that we're focused on trying to improve.

Sumit Sadana: Yeah, I can take that. In terms of the DDR4 versus DDR5, the DDR5 ramp is underway in the client space, and somewhat behind that in the server space, will really start ramping in earnest through calendar 2023. The crossover with DDR4 doesn't occur in both segments, client and server, from our estimation right now, till mid-calendar 2024. So there is still substantial level of DDR4 runway in both segments for quite a while. And so we are not so concerned about that particular aspect, although the overall level of inventory is certainly something that we're focused on trying to improve. And so that's sort of the color that I just wanted to provide. And what was the other question, sorry, you had asked?

Yeah, I can take that. In terms of the DDR4 versus DDR5, the DDR5 ramp is underway in the client space.

And somewhat behind that in the server space, we'll really start.

in earnest through calendar 2023.

And the crossover with DDR4 doesn't occur in both segment lines and server from our estimation right now.

till mid-calendar 2024. So there is still substantial level of DDR4 runway.

in both segments for quite a while. And so we are not so concerned about that particular aspect, although,

The overall level of inventory is certainly something that we're focused on trying to improve.

And so that's sort of the. The color that I just wanted to provide and what were the other questions you had asked? Thank you. Thanks. And the other part of that was just. You talked about the days inventory peaking in fiscal 2Q, but where do you think you can get inventory days back to by fiscal year end? I think prior guidance was around 150 days. What level – I know it's hard to answer it this way, but what level does it need to get back to in order to regain pricing leverage? The pricing part, you know, the – about the days inventory peaking in fiscal 2Q, but where do you think you can get inventory days back to by fiscal year end? I think prior guidance was around 150 days. And what level, I know it's hard to answer it this way, but what level does it need to get back to in order to regain pricing leverage? The pricing part, you know the. Obviously, as the inventory improves over time, the pricing environment will improve. And the rate and pace of that improvement is heavily dependent on what happens to the supply in the industry. We have provided you a view of what we are doing with supply. We have taken a lot of aggressive actions in 23, reduced our capex, reduced our capex further on the WFT side in 24.

[Analyst] (Stifel): Yeah, yeah, thanks. And the other part of that was just, you talked about the days inventory peaking in fiscal Q2, but where do you think you can get inventory days back to by fiscal year end? I think prior guidance was around 150 days. And what level, you know, I know it's hard to answer it this way, but what level does it need to get back to in order to regain pricing leverage?

Brian Chin: Yeah, yeah, thanks. And the other part of that was just, you talked about the days inventory peaking in fiscal Q2, but where do you think you can get inventory days back to by fiscal year end? I think prior guidance was around 150 days. And what level, you know, I know it's hard to answer it this way, but what level does it need to get back to in order to regain pricing leverage?

The color that I just wanted to provide and what were the other questions you had asked?

Thank you.

Thanks. And the other part of that was just.

about the days inventory peaking in fiscal 2Q, but where do you think you can get inventory days back to by fiscal year end? I think prior guidance was around 150 days. And what level, I know it's hard to answer it this way, but what level does it need to get back to in order to regain pricing leverage? The pricing part, you know the.

Sumit Sadana: On the pricing part, you know, obviously, as the inventory improves over time, the pricing environment will improve, and the rate and pace of that improvement is heavily dependent on what happens to the supply in the industry. We have provided you a view of what we are doing with supply. We have taken a lot of aggressive actions in 2023, reduced our CapEx, reduced our CapEx further on the WFE side in 2024, and also reduced wafer starts, and highlighted that really the improvement can be accelerated as the supply growth in the industry becomes negative in 2023 calendar year in DRAM and flattish for NAND. So, what will actually happen to our inventory is obviously a function of what happens to the overall industry supply-demand balance, and not simply a function of, you know, what we do.

Obviously, as the inventory improves over time, the pricing environment will improve.

and also reduced wafer stops and highlighted that really the improvement can be accelerated if the supply growth in the industry Becomes negative in 23 calendar year in B. Ram and flattish for 9. so What will actually happen to our inventory is obviously a function of what happens to the overall industry supply demand balance and not simply a function of you know what we do, but we continue to take appropriate actions through the year. And Brian on the on the days as Sumit said it's that far out it's really a function of how the market is recovering but Yeah, we expect days to peak in second quarter. So you know, we're at 214 in the second quarter, so we'll be above that and then we expect to remain at elevated levels but down in days in the third quarter and then down days in the fourth quarter, closer to 150 than obviously we are today.

improvement can be accelerated if the supply growth in the industry

Becomes negative in 23 calendar year in B. Ram and flattish for 9. so

What will actually happen to our inventory is obviously a function of

Sumit Sadana: But we'll continue to take-

what happens to the overall industry supply demand balance and not simply a function of you know what we do, but we continue to take

But we'll continue to take-

Manish Bhatia: ... appropriate actions through the year.

Mark Murphy: Brian, on the days, as Sumit said, it's that far out, it's really a function of how the market is recovering. But, you know, we expect days to peak in Q2. So, you know, we're at 214 in Q2, so we'll be above that. And then we expect to remain at elevated levels, but down in days in Q3, and then down days in Q4, closer to 150 than obviously we are today.

appropriate actions through the year.

And Brian on the on the days as Sumit said it's that far out it's really a function of how the market is recovering but

Yeah, we expect days to peak in second quarter. So you know, we're at 214 in the second quarter, so we'll be above that and then we expect to remain at elevated levels but down in days in the third quarter and then down days in the fourth quarter, closer to 150 than obviously we are today.

Operator: Okay. I appreciate all the color. Thank you. Thank you. One moment for our next question. That will come from the line of Joe Moore with Morgan Stanley. Your line is open.

Okay, thank you. Thank you. One moment for our next question. And that will come from the line of Jo Moore with Morgan Stanley . Your line is open. Great. Thank you. I want to make sure I understand the mechanics of. any kind of lower of cost or market inventory adjustment you may have to make. Is that a function of overall gross profitability? Or do you evaluate that on a product by product basis where if certain products go negative on gross margin, you have to take a charge there? Yeah, Joey, look at a single pool. thought of pulling that cost forward in time by taking a charge or that it sounds like it's just going to be kind of first in first out on the inventory cost. Yeah, a charge will be a function of the inventory accounting on the lower of costs or net realizable value. Thank you. Okay, great. Thank you.

Thank you. One moment for our next question.

And that will come from the line of Jo Moore with Morgan Stanley . Your line is open.

Joseph Moore: Great, thank you. I want to make sure I understand the mechanics of any kind of lower of cost or market inventory adjustment you may have to make. Is that a function of overall gross profitability, or do you evaluate that on a product-by-product basis, where if certain products go negative on gross margin, you have to take a charge there?

Great. Thank you. I want to make sure I understand the mechanics of.

any kind of lower of cost or market inventory adjustment you may have to make. Is that a function of overall gross profitability? Or do you evaluate that on a product by product basis where if certain products go negative on gross margin, you have to take a charge there? Yeah, Joey, look at a single pool.

Mark Murphy: Yeah, Joe, we look at a single pool of inventories. So, you know, and that's disclosed thoroughly in our 10-K filing.

thought of pulling that cost forward in time by taking a charge or that it sounds like it's just going to be kind of first in first out on the inventory cost.

Mark Murphy: No, that charge will be a function of, of the inventory accounting on the lower of cost or net realizable value.

Yeah, a charge will be a function of the inventory accounting on the lower of costs or net realizable value.

Joseph Moore: Got it. Okay, great. Thank you.

Manish Bhatia: Thanks.

Mark Murphy: Well, there's some period, there are some period costs, Joe. I think I refer to that as well, but the, the majority is in inventories. But there are some period costs that, you know, drop down in the, in the period that they're incurred.

Thank you.

Okay, great. Thank you.

There are some period costs, Joe. I think I refer to that as well. The majority is in inventories, but there are some period costs that drop down in the period that they're incurred. Thank you and Joe and Joe, just to be. Just to be clear for our underutilization, we've. we've taken actions to reduce both DRAM and NAN by 20 percent. And those are happening across all the nodes where we have meaningful output. And we are expecting to continue that until we see market conditions improve. So the numbers that we're giving you are just sort of the estimates we have right now based on these actions that we've taken. we have right now based on these actions that we've taken. Thank you. One moment for our next question.

Joseph Moore: Helpful. Thank you.

Manish Bhatia: Joe, just to be clear, you know, for our underutilization, we've taken actions to reduce both DRAM and NAND by 20%. You know, those are happening across, you know, all the nodes where we have meaningful output. We are, you know, kind of expecting to continue that until we see market conditions improve. So the numbers that we're giving you are just, you know, sort of the estimates we have right now based on, you know, these actions that we've taken.

Thank you and Joe and Joe, just to be. Just to be clear for our underutilization, we've.

we've taken actions to reduce both DRAM and NAN by 20 percent. And those are happening across all the nodes where we have meaningful output. And we are expecting to continue that until we see market conditions improve. So the numbers that we're giving you are just sort of

Joseph Moore: Helpful. Thank you.

Operator: Thank you. One moment for our next question. That will come from the line of Steven Fox with Fox Advisors. Your line is open.

the estimates we have right now based on these actions that we've taken.

we have right now based on these actions that we've taken. Thank you.

One moment for our next question.

[Analyst] (Fox Advisors): Hi, just to follow up that, on that one, in terms of, if things got worse from here, is basically the actions from here mainly related to how you manage wafer starts? And because I would assume there's a point where you don't want to cut it too far into, you know, future growth plans. And then secondly, in terms of wild cards for a second half, as you know, you talked about some of the trends you're seeing, positives in PCs and cell phones. I'm just curious, how would you sort of, sort of put a game- gaming those in terms of where you're most confident you're seeing improvements off of the bottom and where you still have question marks on end markets? Thanks.

Steven Fox: Hi, just to follow up that, on that one, in terms of, if things got worse from here, is basically the actions from here mainly related to how you manage wafer starts? And because I would assume there's a point where you don't want to cut it too far into, you know, future growth plans. And then secondly, in terms of wild cards for a second half, as you know, you talked about some of the trends you're seeing, positives in PCs and cell phones. I'm just curious, how would you sort of, sort of put a game- gaming those in terms of where you're most confident you're seeing improvements off of the bottom and where you still have question marks on end markets? Thanks.

That will come from the line of Stephen Fox with Fox Advisors. Your line is open. Your!! Hi, just to follow up that on that 1 in terms of if things got worse from here is basically the actions from here mainly related to how you manage wait for starts. And because I would assume there's a point where you don't want to cut it too far into future growth plans. And then secondly, in terms of wildcards for a second half, you know, you talk about some of the trends you're seeing positives in PCs and cell phones. I'm just curious. How would you sort of put a game gaming those in terms of where you're most confident you're seeing improvements off of the bottom and where you still have question marks on end markets? Thanks. I think I'll take the 1st part just in terms of the. The future growth plans for capex or or wafer utilization plans. I think you've seen. Steven that we know we remain flexible right after the last call we had talked about some. Smaller under utilization actions and and then as we saw conditions throughout get worse, we took action and we kind of made the public statement informed you back in November . Either we were going to go to 20% utilization and we said, then that we're reducing our capex view.

Hi, just to follow up that on that 1 in terms of if things got worse from here is basically the actions from here mainly related to how you manage wait for starts. And because I would assume there's a point where you don't want to cut it too far into future growth plans.

And then secondly, in terms of wildcards for a second half, you know, you talk about some of the trends you're seeing positives in PCs and cell phones. I'm just curious.

How would you sort of put a game gaming those in terms of where you're most confident you're seeing improvements off of the bottom and where you still have question marks on end markets? Thanks.

Manish Bhatia: I can-

Mark Murphy: Yeah, go ahead.

Manish Bhatia: You take this. I'll take the first part, just in terms of the, you know, future growth plans for CapEx or wafer utilization plans. I think you've seen, Steven, that we, you know, we remain flexible, right? At the last call, we had talked about some, you know, smaller underutilization actions in DRAM and NAND, and then as we saw conditions throughout FY one get worse, we took action, and we, you know, kind of made this the public statement informed you back in November that we were gonna go to 20% utilization, and we said then that we're reducing our CapEx view.

I think I'll take the 1st part just in terms of the. The future growth plans for capex or or wafer utilization plans. I think you've seen. Steven that we know we remain flexible right after the last call we had talked about some.

Smaller under utilization actions and and then as we saw conditions throughout get worse, we took action and we kind of made the public statement informed you back in November . Either we were going to go to 20% utilization and we said, then that we're reducing our capex view.

Manish Bhatia: So, you know, I think, you know, right now, based on the trajectory of recovery that Mark and Sanjay outlined, you know, this is our view, but I think we remain flexible to both, you know, adjust CapEx or adjust wafer starts and utilization, depending on the trajectory of the improvement in inventories and the recovery in our own inventory, and as well as demand outlook that we see. Certainly, trying to make sure we prioritize maintaining our technology learning for these new nodes, particularly 1-beta and 232-layer, which are really dynamite nodes.

So, you know, I think, you know, right now, based on the trajectory of recovery that Mark and Sanjay outlined, you know, this is our view, but I think we remain flexible to both, you know, adjust CapEx or adjust wafer starts and utilization, depending on the trajectory of the improvement in inventories and the recovery in our own inventory, and as well as demand outlook that we see. Certainly, trying to make sure we prioritize maintaining our technology learning for these new nodes, particularly 1-beta and 232-layer, which are really dynamite nodes.

So, I think, you know, right now, based on the trajectory of recovery that Mark and Sanjay outlined, you know, this is our view, but I think we remain flexible to both adjust CAPEX or adjust, you know, wafer start and utilization depending on the trajectory of the improvement in inventories and recovery in our own inventory. will behave differently when it comes to the recovery process. we definitely stay very focused on each segment of the market. each customer, each geography, they all have their own individual dynamics. And we are appropriately planning for inventory as well as our overall. projections for growth and support of that growth. based on the individual dynamics that each customer needs segmented in each geography. Thank you. Fair enough. Thanks for all the color.

Mark Murphy: In terms of end markets, different end markets will behave differently when it comes to the recovery process, and we definitely stay very focused on each segment of the market, each customer, and each geography. They all have their own individual dynamics, and we are appropriately planning for inventory as well as our overall projections for growth and support of that growth, based on the individual dynamics that each customer in each segment, in each geography.

will behave differently when it comes to the recovery process.

we definitely stay very focused on each segment of the market.

each customer, each geography, they all have their own individual dynamics.

And we are appropriately planning for inventory as well as our overall.

projections for growth and support of that growth.

[Analyst] (Fox Advisors): Fair enough. Thanks for all the color.

Steven Fox: Fair enough. Thanks for all the color.

based on the individual dynamics that each customer needs segmented in each geography.

Operator: Thank you. One moment for our next question. That will come from the line of Vijay Rakesh with Mizuho Group. Your line is open.

Thank you.

Fair enough. Thanks for all the color.

Thank you. One moment for our next question. That will come from the line of Vijay Rakesh with Mizzou Ho Group. Your line is open. You are Hi guys, just a couple of quick questions. As you look out to 2023, I'm just wondering if you look at your key markets PC, handset and server, what you are thinking or what you're estimating I guess in terms of unit growth and content growth, if you could parse that out. I'm just interesting to see what your thoughts are there in terms of maybe more of an opening table about where the market is to what extent you are hoarding, okay. Sure, yeah, so in terms of some of these end markets, we also mentioned some of this in our prepared remarks, but on the easy side. After a pretty sharp pullback in calendar 22, we're estimating in calendar 23, there's another low to mid single digit percentage reduction in PC units in calendar 23. That will take the total amount of PC units sold. Close to where it was in 2019 before the big run-up happened due to COVID in those PC units. So, full retracement back pretty much to those levels. On the smartphone side, again pretty sharp pullbacks in Calendly 22 in terms of units. Expecting the stabilization. So right now we are modeling...

Vijay Rakesh: Yeah. Hi, guys. Just a couple of quick questions. On as you look out to 2023, I'm just wondering if you look at your key markets, PC, handset, and server... what you are thinking in term, or what you're estimating, I guess, in terms of unit growth or, and, you know, content growth, if you could parse that out.

Hi guys, just a couple of quick questions. As you look out to 2023, I'm just wondering if you look at your key markets PC, handset and server, what you are thinking or what you're estimating I guess in terms of unit growth and content growth, if you could parse that out. I'm just interesting to see what your thoughts are there in terms of maybe more of an opening table about where the market is to what extent you are hoarding, okay.

Sumit Sadana: Sure, yeah. So in terms of some of these end markets, we also mentioned some of this in our prepared remarks, but on the PC side, after a pretty sharp pullback in calendar 2022, we are estimating in calendar 2023, there's another low to mid single digit percentage reduction in PC units in calendar 2023. That will take the total amount of PC units sold close to where it was in 2019 before the big run up happened due to COVID in those PC units. So full retracement back, pretty much, to those levels. On the smartphone side, again, pretty sharp pullbacks in calendar 2022 in terms of units.

Sure, yeah, so in terms of some of these end markets, we also mentioned some of this in our prepared remarks, but on the easy side.

After a pretty sharp pullback in calendar 22, we're estimating in calendar 23, there's another low to mid single digit percentage reduction in PC units in calendar 23. That will take the total amount of PC units sold. Close to

where it was in 2019 before the big run-up happened due to COVID in those PC units. So, full retracement back pretty much to those levels.

On the smartphone side, again pretty sharp pullbacks in Calendly 22 in terms of units. Expecting the stabilization. So right now we are modeling...

Sumit Sadana: Expecting a stabilization, so right now we are modeling flattish to very slightly up unit growth in handsets in 2023, largely driven by strength in the second half of the calendar year, especially as we have some expectations that China's recovery will start to regain its footing after it goes through some challenging time in the next few months as it recovers from initial phases of COVID through the reopening process. So that's what we have modeled on that front. In servers, we do feel that the growth will continue in content, both in DRAM and NAND. Of course, you know, even in PCs, we expect continued growth in DRAM and NAND content. PC, the penetration of NAND is mostly complete, over 90%, but content growth should continue.

Expecting a stabilization, so right now we are modeling flattish to very slightly up unit growth in handsets in 2023, largely driven by strength in the second half of the calendar year, especially as we have some expectations that China's recovery will start to regain its footing after it goes through some challenging time in the next few months as it recovers from initial phases of COVID through the reopening process. So that's what we have modeled on that front. In servers, we do feel that the growth will continue in content, both in DRAM and NAND. Of course, you know, even in PCs, we expect continued growth in DRAM and NAND content. PC, the penetration of NAND is mostly complete, over 90%, but content growth should continue.

flattish to very slightly up unit growth in handsets in 2023, largely driven by strength in the second half of the calendar year, especially as some expectations that China's recovery will start to regain its footing after it goes through some challenging time in the next few months as it recovers from initial phases of COVID through the reopening process. So that's what we have modeled on that front. Andsellers… We do feel that the growth will continue in content. Both in DRAM and NAND. Of course, you know, even in PCs we expect continued growth in DRAM and NAND content. PC content will continue in new games. Do you, sir? The penetration of NAND is mostly over 90%, but content growth should continue. Smartphone content growth with 5G shift should continue. So more handset percentage as a percentage of the total in 5G in 23 versus 22. So that should help content. Server content growth continues. Server unit growth...

start to regain its footing after it goes through some

challenging time in the next few months as it recovers from initial phases of COVID through the reopening process.

So that's what we have modeled on that front. Andsellers…

We do feel that the growth will continue in content.

Both in DRAM and NAND. Of course, you know, even in PCs we expect continued growth in DRAM and NAND content. PC content will continue in new games. Do you, sir?

Sumit Sadana: Smartphone content growth with 5G shift should continue. So more handset percentage as a percentage of the total in 5G, in 2023 versus 2022, so that should help content. Server content growth should continue. Server unit growth as well. I mean, these trends in 2023 compared to historical trends will get impacted on the server side, especially in terms of units, based on the expectation of some level of macroeconomic impact on enterprise demand, both enterprise and cloud. So data center demand will get somewhat impacted, we think, in 2023, but content growth will continue. I think as we look at memory and storage demand, apart from all of these end market trends, there is obviously a pretty significant inventory component at the customers that comes into play.

Smartphone content growth with 5G shift should continue. So more handset percentage as a percentage of the total in 5G, in 2023 versus 2022, so that should help content. Server content growth should continue. Server unit growth as well. I mean, these trends in 2023 compared to historical trends will get impacted on the server side, especially in terms of units, based on the expectation of some level of macroeconomic impact on enterprise demand, both enterprise and cloud. So data center demand will get somewhat impacted, we think, in 2023, but content growth will continue. I think as we look at memory and storage demand, apart from all of these end market trends, there is obviously a pretty significant inventory component at the customers that comes into play.

The penetration of NAND is mostly over 90%, but content growth should continue. Smartphone content growth with 5G shift should continue. So more handset percentage as a percentage of the total in 5G in 23 versus 22. So that should help content.

Server content growth continues. Server unit growth...

I mean, these trends in 23 compared to historical trends will get adapted on the server side, especially in terms of units. based on the expectation of some level of macroeconomic impact on enterprise demand both in cloud for data center demands will get somewhat impacted, we think, in 23, but content growth will continue. I think as we look at memory and storage demand apart from all of these end market trends, that is obviously a pretty significant inventory component. at the customers that comes into play. And the progress in improving inventory that customers is different by customer and different by segment. PC and smartphones entered this correction first and have made more progress compared to data center inventory, which is still at pretty high levels right now entering calendar 2023, which is why. PC and smartphones entered this toy correction first and have made more progress compared to data center inventory, which is still at pretty high levels right now, entering calendar 2023, which is why the DRAM and NAND demand...

based on the expectation of some level of macroeconomic impact on enterprise demand both in cloud

for data center demands will get somewhat impacted, we think, in 23, but content growth will continue. I think as we look at memory and storage demand apart from all of these end market trends, that is obviously a pretty significant inventory component.

Sumit Sadana: And the progress in improving inventories at customers is different by customer and different by segment. PCs and smartphones entered this inventory correction first and have made more progress compared to data center inventory, which is still at pretty high levels right now entering calendar 2023. Which is why the DRAM and NAND demand from data center customers is heavily impacted in 2023, because of the level of customer inventory in that segment. So there are these end market trends, and then there is the impact of inventory that ultimately the interplay between them determines the demand that we see and the industry suppliers see on the DRAM and NAND side.

And the progress in improving inventories at customers is different by customer and different by segment. PCs and smartphones entered this inventory correction first and have made more progress compared to data center inventory, which is still at pretty high levels right now entering calendar 2023. Which is why the DRAM and NAND demand from data center customers is heavily impacted in 2023, because of the level of customer inventory in that segment. So there are these end market trends, and then there is the impact of inventory that ultimately the interplay between them determines the demand that we see and the industry suppliers see on the DRAM and NAND side.

at the customers that comes into play. And the progress in improving inventory that customers is different by customer and different by segment.

PC and smartphones entered this correction first and have made more progress compared to data center inventory, which is still at pretty high levels right now entering calendar 2023, which is why.

PC and smartphones entered this toy correction first and have made more progress compared to data center inventory, which is still at pretty high levels right now, entering calendar 2023, which is why the DRAM and NAND demand...

from data center customers is heavily impacted in 2023. because of the level of customer inventory in that segment. So there are these end market trends and then there is the impact of inventory that. Ultimately, the interplay between them determines the demand that we see. and the industry suppliers on the D-WAM and MADD side. This is a quick question on the DDR5 side. I think you mentioned exiting 2023 at 30%. That ramp seems to be a little bit slower. Is that because of the price premium to DDR4 or is it being gated by some of the new product ramps? Well, there should be. availability of DDR5 product, it's more driven by the rate and pace at which The DDR5 adoption in the industry happens based on the ramp of specific CPU platforms. The ramp is continuing on the client side.

because of the level of customer inventory in that segment. So there are these end market trends and then there is the impact of inventory that.

Ultimately, the interplay between them determines the demand that we see.

Vijay Rakesh: Got it. Just a quick question on the DDR5 side. I, I think you mentioned exiting 2023 at 30%. That ramp seems to be a little bit slower. Is that because the price premium to DDR4, or is it being gated by some of the new product ramps? Thanks.

and the industry suppliers on the D-WAM and MADD side.

This is a quick question on the DDR5 side. I think you mentioned exiting 2023 at 30%. That ramp seems to be a little bit slower. Is that because of the price premium to DDR4 or is it being gated by some of the new product ramps?

Sumit Sadana: Well, there should be availability of DDR5 product. It's more driven by the rate and pace at which the DDR5 adoption in the industry happens, based on the ramp of specific CPU platforms. The ramp is continuing on the client side, but really, 2023 is an important year for the server platforms to really embrace and drive volume, and critical mass of some of the newer platforms that are critical for DDR5 adoption in the data center. So it's a matter of the rate and pace of that, more than the availability, from a supply perspective.

Well, there should be.

availability of DDR5 product, it's more driven by the rate and pace at which

The DDR5 adoption in the industry happens based on the ramp of specific CPU platforms. The ramp is continuing on the client side.

But really 2023 is an important year for the server platforms to really embrace and drive volume and critical mass of some of the newer platforms that are critical for DDR5 adoption in the data center. And so it's a matter of the rate and pace of that. More than the availability from a supply perspective. the availability from a supply perspective. Thank you. Thank you. One moment for our next question. That will come from the line of Sydney Ho with Deutsche Bank. Your line is open. Yeah, thanks for taking my question. Maybe just one more question on the underutilization charges in fiscal 23-460. Just want to make sure I understand this. If utilization doesn't go up in the next three quarters, like Mark just said, 10-20%, Does that mean that call it 230 million a quarter will continue the fiscal Q1 given that there seems to be a lack of when inventory is flushed through to through the income statement? And it's kind of there's a 230 a quarter right number to think about, or there's a different kind of linearity.

really embrace and drive volume and critical mass of some of the newer platforms that are critical for DDR5 adoption in the data center.

And so it's a matter of the rate and pace of that.

Vijay Rakesh: Got it. Thank you.

Operator: Thank you. One moment for our next question. That will come from the line of Sidney Ho with Deutsche Bank. Your line is open.

More than the availability from a supply perspective.

the availability from a supply perspective. Thank you.

Thank you. One moment for our next question.

Sidney Ho: Yeah, thanks for taking my question. Maybe just one more question on the underutilization charges in fiscal 2023, $460. Just wanna make sure I understand this. If utilization doesn't go up in the next three quarters, like Mark, you said 10% to 20%, does that mean that, call it $230 million a quarter, will continue in the fiscal Q1, given that there seems to be a lack of when inventory is flushed through to the income statement? And if the $230 a quarter is the right, right number to think about, or there's a different kind of linearity?

That will come from the line of Sydney Ho with Deutsche Bank. Your line is open. Yeah, thanks for taking my question. Maybe just one more question on the underutilization charges in fiscal 23-460. Just want to make sure I understand this. If utilization doesn't go up in the next three quarters, like Mark just said, 10-20%,

Does that mean that call it 230 million a quarter will continue the fiscal Q1 given that there seems to be a lack of when inventory is flushed through to through the income statement? And it's kind of there's a 230 a quarter right number to think about, or there's a different kind of linearity.

Does that mean that call it 230 million a quarter will continue the fiscal Q1 given that there seems to be a lack of when inventory is flushed through the income statement? And it's kind of it's a 230 a quarter right number to think about or there's a different kind of linearity. So we've. We are going to 20% underutilization. Let me make that clear. Those underutilization charges, some of them end up in period, but a minority of them. The majority of them net of the variable cost savings that we have. Those net costs, the majority of those are put into inventories. those inventories clear, those higher cost inventories clear in the second half primarily for fiscal 23. Now those some of those inventories will because we're underutilized for the balance of the year some of those charges for 23 cogs will end up clearing in fiscal 24. And, you know, as I said on the call, to the extent that volumes are better than we think, more of those higher cost inventories will be pulled into 23, and to the extent that volumes will end up being lower than we think. more of those higher cost inventories will be cleared in 24.

Mark Murphy: So we are going to 20% underutilization, let me make that clear. Those underutilization charges, some of them end up in period, but a minority of them. The majority of them, net of the cash costs, you know, the variable or the, I should say, the variable cost savings that we have. Those net costs, the majority of those are put into inventories. Those inventories clear, those higher cost inventories clear, in the second half, primarily, for fiscal 2023. Now, those, some of those inventories will, because we're underutilized for the balance of the year, some of those, charges for 2023 COGS will end up clearing in fiscal 2024.

Those net costs, the majority of those are put into inventories.

those inventories clear, those higher cost inventories clear in the second half primarily for fiscal 23. Now those some of those inventories will because we're underutilized for the balance of the year some of those charges for 23 cogs will end up

Mark Murphy: You know, as I said on the call, to the extent that volumes are better than we think, more of those higher cost inventories will be pulled into 2023, and to the extent that volumes end up being lower than we think, more of those higher cost inventories will be cleared in 2024.

You know, as I said on the call, to the extent that volumes are better than we think, more of those higher cost inventories will be pulled into 2023, and to the extent that volumes end up being lower than we think, more of those higher cost inventories will be cleared in 2024.

clearing in fiscal 24.

And, you know, as I said on the call, to the extent that volumes are better than we think, more of those higher cost inventories will be pulled into 23, and to the extent that volumes will end up being lower than we think.

Sidney Ho: Okay, that's, that's clear. Thanks. My follow-up question is on free cash flow. I know for the first quarter, you have negative $1.5 billion, if my, if my math is right. How are you thinking about free cash flow for the remainder of the year, Q2, and then maybe for the full, for the full year?

more of those higher cost inventories will be cleared in 24.

Okay, that's clear. Thanks. My follow-up question is on free cash flow. I know for the first quarter you have negative one and a half billion dollars. My math is right. How are you thinking about free cash flow for the remainder of the year Q2 and then maybe for the full year? Well, Cindy, can you repeat the question? Yeah, sorry. It relates to free cash flow for fiscal second quarter and the trajectory for the rest of the year. Yeah. So, on free cash flow, I'm going to repeat the question. We did indicate for first quarter what we ended up incurring, 1.5 billion negative. Now, in the September quarter, we also said at that time that second quarter free cash flow would be challenged. And since we had that earnings call, the conditions have worsened. So incomes down versus what we originally thought. The working capital build is worse in the sense that inventories are higher than we thought from the second quarter. And then the receivables drawdown that we enjoyed in the first quarter will pass and will be more flat on AR in the second quarter. And then CAPEX, as we had mentioned before, remains elevated in the second half. Now it's down first to second quarter, but it's still. you know, around 2 billion. So we would expect second quarter to be second quarter to be more negative than the first quarter. And then just as we said before, we would expect free cash flow to improve in the second half.

Mark Murphy: Well, what, Sidney, can you repeat the question? Sorry.

Sidney Ho: Yeah, sorry.

Mark Murphy: Free cash-

Sidney Ho: So it's related to free cash flow for fiscal Q2 and the trajectory for the rest of the year.

Well, Cindy, can you repeat the question? Yeah, sorry. It relates to free cash flow for fiscal second quarter and the trajectory for the rest of the year. Yeah. So, on free cash flow, I'm going to repeat the question.

Mark Murphy: Yeah. So, on free cash flow, you know, we did indicate for first quarter what we ended up incurring -$1.5 billion. Now, in the September quarter, we also said at that time that second quarter free cash flow would be challenged, and since we had that earnings call, the conditions have worsened, so income's, you know, down versus what we originally thought. The working capital build is worse in the sense that inventories are higher than we thought from the second quarter. And then the receivables drawdown that we enjoyed in the first quarter will pass, and will be, you know, more flat on AR in the second quarter. And then, CapEx, as we had mentioned before, remains elevated in the second half.

We did indicate for first quarter what we ended up incurring, 1.5 billion negative.

Now, in the September quarter, we also said at that time that second quarter free cash flow would be challenged. And since we had that earnings call, the conditions have worsened. So incomes down versus what we originally thought. The working capital build is worse in the sense that inventories are higher than we thought from the second quarter.

And then the receivables drawdown that we enjoyed in the first quarter will pass and will be more flat on AR in the second quarter. And then CAPEX, as we had mentioned before, remains elevated in the second half. Now it's down first to second quarter, but it's still.

Mark Murphy: Now it's down from Q1 to Q2, but it's still, you know, around $2 billion. So we would, we would expect Q2 to be, Q2 to be, more negative than Q1. And then, just as we said before, we would expect free cash flow to improve in H2, relative to H1, as a function of the business environment improving, the volumes increasing, and the capital investment decreasing in H2. You know, and that's the profile for the year.

Now it's down from Q1 to Q2, but it's still, you know, around $2 billion. So we would, we would expect Q2 to be, Q2 to be, more negative than Q1. And then, just as we said before, we would expect free cash flow to improve in H2, relative to H1, as a function of the business environment improving, the volumes increasing, and the capital investment decreasing in H2. You know, and that's the profile for the year.

you know, around 2 billion. So we would expect second quarter to be second quarter to be more negative than the first quarter. And then just as we said before, we would expect free cash flow to improve in the second half.

relative to the first half as a function of the business environment improving, the volumes increasing, and then the capital investment decreasing in the second half. And that's the profile for the year. Yeah, and I did mark that graphics will be elevated in. Full fiscal year will be free cash flow negative. free cash flow negative. Okay, thank you. Thank you. One moment for our next question. That will come from the line of Pierre Ferragu with New Street Research. Your line is open. Yes, hello, thanks for taking your question. I just want to make sure that we have the correct Cogs assumptions for DRAM and NAM. So if we combine your assumptions on the growth on DRAM, it grows down and then flattish with cost per bit down, say low single digits for of facts.

[Company Representative] (Micron Technology): Yeah, and I think Mark mentioned that CapEx will be elevated in second half. I think he meant second quarter.

Farhan Ahmad: Yeah, and I think Mark mentioned that CapEx will be elevated in second half. I think he meant second quarter.

Mark Murphy: I meant Q2. Yeah.

[Company Representative] (Micron Technology): Second half, clearly, the CapEx is down quite a bit.

Farhan Ahmad: Second half, clearly, the CapEx is down quite a bit.

Mark Murphy: Yeah, I did mean Q2.

[Company Representative] (Micron Technology): Yeah.

Farhan Ahmad: Yeah.

Mark Murphy: Yeah. Thank you.

Sidney Ho: For the full year, we should be thinking about, still thinking about negative free cash flow for the full fiscal year?

Mark Murphy: Full fiscal year will be free cash flow negative.

Sidney Ho: Okay, thank you.

Operator: Thank you. One moment for our next question. That will come from the line of Pierre Ferragu with New Street Research. Your line is open.

Full fiscal year will be free cash flow negative.

free cash flow negative. Okay, thank you.

Thank you. One moment for our next question.

Pierre Ferragu: Yes, hello. Thanks for taking our question. I just want to make sure that we have the correct COGS assumptions for DRAM and NAND. So if we combine the assumptions on bit growth and on DRAM bit growth down, and then flattish with cost per bit down, say, low single digits for both DRAM and NAND, would it make sense to assume that DRAM COGS will be down, say, mid to high single digits and low to mid single digits for NAND?

That will come from the line of Pierre Ferragu with New Street Research. Your line is open.

Yes, hello, thanks for taking your question. I just want to make sure that we have the correct Cogs assumptions for DRAM and NAM. So if we combine your assumptions on the growth on DRAM, it grows down and then flattish with cost per bit down, say low single digits for

Mark Murphy: Now, actually, because of these underutilization effects, and some of those absorption or value lower volumes and stuff on what we talked about on period costs and back end, you know, DRAM, you know, will be down slightly, and NAND will be up. Now, if we were to strip all those effects out, then, you know, NAND and DRAM would be better, but in this year, it's gonna be a challenge year from a cost standpoint. Now, it's you know the cost downs resume in the fourth quarter, but it's challenging in three of the quarters.

of facts.

effects and some of those devastating events we saw absorption or vault lower volumes and stuff on what we talked about on period costs and back end. DRAM will be down slightly. and will be up. Now if we were to strip all those effects out then you know NAND and DRAM would be Better but in this year is going to be a challenge here from the cost standpoint now. It's it's You know the the cost downs resume in the fourth quarter but it's challenging in three of the quarters. Okay, very clear. How should we think about 2024? Haven't commented on 24. Okay, thanks. Thank you. One moment for our next question. That will come from the line of Tim Arcuri with UBS. Your line is open. Thanks. Mark, I had two sets of questions. The first is,

absorption or vault lower volumes and stuff on what we talked about on period costs and back end. DRAM will be down slightly.

and will be up.

Now if we were to strip all those effects out then you know NAND and DRAM would be Better but in this year is going to be a challenge here from the cost standpoint now. It's it's You know the the cost downs resume in the fourth quarter

Pierre Ferragu: Okay, very clear.

Mark Murphy: Okay.

Pierre Ferragu: How should we think about 2024?

Mark Murphy: Okay.

Pierre Ferragu: How should we think about 2024?

but it's challenging in three of the quarters. Okay, very clear. How should we think about 2024?

Mark Murphy: I haven't commented on 2024.

Pierre Ferragu: Okay, thanks.

Operator: Thank you. One moment for our next question. That will come from the line of Tim Arcuri with UBS. Your line is open.

Haven't commented on 24.

Okay, thanks.

Thank you. One moment for our next question. That will come from the line of Tim Arcuri with UBS. Your line is open.

Timothy Arcuri: ... Thanks. Mark, I had two sort of sets of questions. The first is, for fiscal Q2, it sounds like the story versus three or so months ago where you thought that, you know, it would be pretty flat versus fiscal Q1. It sounds like bits are still up, maybe they're up a little less than you thought, but the real delta is more pricing than bits in fiscal Q2. So I wanted to confirm that. And on fiscal Q3, sounds like bits are, you know, gonna be up, just like you thought they would be before. But, and, you know, fiscal Q3 revenue is up, but I think you had suggested that May quarter would see such a big snapback in bits, that bits would be up year over year in both DRAM and NAND. So is that still the case?

Thanks. Mark, I had two sets of questions. The first is,

If for fiscal Q2, it sounds like the story versus three or so months ago where you thought that you know It would be pretty flat versus fiscal Q1. It sounds like bits are still up Maybe they're up a little less than you thought but the real Delta is more pricing than bits in In fiscal Q2, so I wanted to confirm that and on fiscal Q3 Sounds like bits are you know going to be up just like you thought they would be before but and you know fiscal Q3 Revenues up, but I think you had suggested That May quarter would see such a big snapback in bits that bits would be up year over year in both DRAM and NAND So is that still the case? It sounds like probably not but I just wanted to ask that then I had a follow-up thing We're starting to do variances on old forecasts and stuff, which makes it difficult. But Tim, to answer your question generally, I would take away that the profile is roughly the same that we had commented on before in that... Volumes would improve first quarter to second quarter and then further strengthen through the year. And then the market conditions are challenged in second quarter. And as there's light at the end of the tunnel on inventories and supply demand balance improving, that those conditions would moderate in the back half of the year. The profile stays about the same, but to your point, the volumes are a bit lower than we thought when we gave that guide since September , and the market conditions certainly are more challenging in the near term here. Got it. Thanks. And then just last thing. So, I know you're not getting capex for fiscal 24 and just saying that it's lower than what you thought it would, you know. That it was going to be prior to this, but the, the standing guidance is sort of you target, like, mid 30% of revenue. Is that still the way to think about it or because of these actions you're taking that.

Sounds like bits are you know going to be up just like you thought they would be before but and you know fiscal Q3 Revenues up, but I think you had suggested That May quarter would see such a big snapback in bits that bits would be up year over year in both DRAM and NAND So is that still the case? It sounds like probably not but I just wanted to ask that then I had a follow-up thing

Timothy Arcuri: It sounds like probably not, but I just wanted to ask that, and then I had a follow-up. Thanks.

It sounds like probably not, but I just wanted to ask that, and then I had a follow-up. Thanks.

Mark Murphy: Yeah, we're starting to do variances on old forecasts and stuff, which makes it difficult. But Tim, to answer your question generally, I would take away that the profile is roughly the same that we had commented on before, in that, volumes would improve Q1 to Q2, and then you know, and then further strengthen through the year. And then the, you know, the market conditions are challenged in Q2, and as there's light at the end of the tunnel on, on you know, inventories and supply-demand balance improving, that those conditions would moderate, in the back half of the year.

We're starting to do variances on old forecasts and stuff, which makes it difficult. But Tim, to answer your question generally, I would take away that the profile is roughly the same that we had commented on before in that...

Volumes would improve first quarter to second quarter and then further strengthen through the year.

And then the market conditions are challenged in second quarter. And as there's light at the end of the tunnel on inventories and supply demand balance improving, that those conditions would moderate in the back half of the year.

Mark Murphy: So you know, the profile stays about the same, but to your point, the volumes are a bit lower than we thought when we gave that guidance in September, and the market conditions certainly are more challenging in the near term here.

So you know, the profile stays about the same, but to your point, the volumes are a bit lower than we thought when we gave that guidance in September, and the market conditions certainly are more challenging in the near term here.

The profile stays about the same, but to your point, the volumes are a bit lower than we thought when we gave that guide since September , and the market conditions certainly are more challenging in the near term here.

Timothy Arcuri: Got it, thanks. And then just last thing. So, I know you're not giving CapEx for fiscal 2024 and just saying that it's lower than what you thought it would, you know, that it was gonna be prior to this. But the standing guidance is sort of you target like mid-30% of revenue. Is that still the way to think about it, or because of these actions you're taking, that fiscal 2024 CapEx could be below that mid-30% of, you know, revenue target?

Got it. Thanks. And then just last thing. So, I know you're not getting capex for fiscal 24 and just saying that it's lower than what you thought it would, you know. That it was going to be prior to this, but the, the standing guidance is sort of you target, like, mid 30% of revenue. Is that still the way to think about it or because of these actions you're taking that.

fiscal 24 capex could be below that mid 30% of revenue target. Boy, Tim, it's early to be giving comments on that. We do have higher construction spend, which pressures CAPEX up. However, we are absolutely committed to free cash flow generation in 2024, so that's going to play a very important role in the level of CAPEX spend we have along with Yeah, just the view on the market conditions and various other things, you know, short and long term. So, typical to make the call now. And as you're aware, you know, the. The funding federal funding process is still working for the US chips grants, which. Will impact our reported for the construction projects that we've targeted here in the US will be kicking off some of it this year, but some of it in for sure and fiscal 24. so. Still early to comment on that, which is why we gave you some more color on the. The part, which isn't really impacted by that in that timeframe. Yeah, okay. Thanks. Yeah, okay, thanks. Thank you. We have time for our next question. And that will come from the line of CJ Muse with Evercore ISI. Your line is open. Click the capture button to download the link to the post it's created. Yeah, thank you for taking the question. I guess first just a little modeling help for February . I guess based on the comments around mobility but it's accelerating. Can I interpret that as roughly bits for NAN growing perhaps roughly two times as fast as DRAM? Is that kind of the right way to think about it? No.

Mark Murphy: Boy, Tim, it's early to be giving comments on that. And, you know, we do have higher construction spend, which pressures CapEx up. However, we are absolutely committed to free cash flow generation in 2024, so that's going to play a very important role in the level of CapEx spend we have, along with, you know, just the view on the market conditions and various other things, you know, short and long term. So, difficult to make the call now.

Boy, Tim, it's early to be giving comments on that. We do have higher construction spend, which pressures CAPEX up. However, we are absolutely committed to free cash flow generation in 2024, so that's going to play a very important role in the level of CAPEX spend we have along with

Manish Bhatia: As you're aware, you know, the funding, federal funding process is still working for the US CHIPS grants, which, you know, will, you know, impact our reported CapEx for the construction projects that we've, the target here in the US will be, you know, kicking off some of it this year, but some of it in, for sure in fiscal 2024. So still early to comment on that, which is why we gave you some more color on the WFE part, which isn't really impacted by that in that timeframe.

Yeah, just the view on the market conditions and various other things, you know, short and long term. So, typical to make the call now. And as you're aware, you know, the. The funding federal funding process is still working for the US chips grants, which.

Timothy Arcuri: Hmm. Yeah. Okay, thanks.

Operator: Thank you. One moment for our next question. That will come from the line of C.J. Muse with Evercore ISI. Your line is open.

Yeah, okay. Thanks.

Yeah, okay, thanks. Thank you. We have time for our next question.

And that will come from the line of CJ Muse with Evercore ISI. Your line is open. Click the capture button to download the link to the post it's created.

C.J. Muse: Yeah, thank you for taking the question. I guess first, just a little, modeling help for February. You know, I guess based on the comments around mobility, bits accelerating, can I interpret that as, as roughly bits for NAND growing perhaps roughly two times as fast as DRAM? Is that kind of the right way to think about it?

Yeah, thank you for taking the question. I guess first just a little modeling help for February . I guess based on the comments around mobility but it's accelerating. Can I interpret that as roughly bits for NAN growing perhaps roughly two times as fast as DRAM? Is that kind of the right way to think about it? No.

Mark Murphy: Mm, no.

Manish Bhatia: No.

Sumit Sadana: No. Yeah, I would not just think of NAND growing two times faster than DRAM. I think it's just, you know, definitely our mobile revenue is growing sequentially from FY21 to FY22. But we're not providing further guidance on, on what part of that is really growing. But as you know, the overall revenue is, it's down quarter on quarter.

part of that. But as you know, the overall revenue is done. Okay, thank you. I guess maybe a deeper question on the inventory side. You know, I guess where do you think you'll see green sheets first in terms of... things returning to normal and as that occurs, how do you see kind of the mix playing out for you guys? If we look at the overall. Michael Mystic. business and the different parts of the market. The automotive market is the most resilient, but obviously it's a smaller part of the whole business. And industrial markets probably come next in terms of. Now the PC market and the smartphone markets were the ones that entered this downturn first and those customers have made. some progress, so we do expect that those customers will likely end up improving their inventories to a healthier place sooner than, for example, data center customers will to have high levels of inventory and have... decided to start improving their inventory position aggressively, relatively late compared to the other segments like PCs and smartphones based on the end market demand changes that have been occurring over the past several months. So we do expect that the PC market is likely to show some stabilization, but just keep in mind that while we are talking about customer inventory and we are looking at And those are thewater bits of inventory at our customers. Our customers are also looking at BIO inventory and how many days of inventory they have and it's obviously compounding their challenge because the forward looking sales when it weakens due to macroeconomic environment and so on.

But as you know, the overall revenue is done. Okay, thank you. I guess maybe a deeper question on the inventory side. You know, I guess where do you think you'll see green sheets first in terms of...

things returning to normal and as that occurs, how do you see kind of the mix playing out for you guys?

Sumit Sadana: If we look at the overall business and the different parts of the market, the automotive market is the most resilient, but obviously it's a smaller part of the whole business. Industrial markets probably come next in terms of relative stability. Now, the PC market and the smartphone markets were the ones that entered this downturn first, and those customers have made some progress on inventories. So we do expect that, you know, those customers will likely end up improving their inventories to a healthier place sooner than, for example, data center customers will, who do have high levels of inventory and have, you know, decided to start improving their inventory position aggressively, relatively late compared to, you know, the other segments, like PCs and smartphones.

If we look at the overall.

Michael Mystic.

business and the different parts of the market.

The automotive market is the most resilient, but obviously it's a smaller part of the whole business.

And industrial markets probably come next in terms of.

Now the PC market and the smartphone markets were the ones that entered this downturn first and those customers have made.

some progress, so we do expect that

those customers will likely end up improving their inventories to a healthier place sooner than, for example, data center customers will to have high levels of inventory and have...

decided to start improving their inventory position aggressively, relatively late compared to the other segments like PCs and smartphones based on the end market demand changes that have been occurring over the past several months.

Sumit Sadana: Just based on the end market demand changes that have been occurring over the past several months. So, we do expect that the PC market is likely to show some stabilization. But just keep in mind that while we are talking about customer inventory, and we are looking at bits of inventory at our customers, our customers are also looking at BIO inventory and how many days of inventory they have. And, it's obviously compounding their challenge because the forward-looking sales, when it weakens due to macroeconomic environment and such, and individual segment trends, then, then the weakening end market trends does impact their view of, you know, what they can do on the inventory front. Even if bit inventory reduces, BIO inventory, they still have more work to do. So those are the dynamics that are playing out.

Just based on the end market demand changes that have been occurring over the past several months. So, we do expect that the PC market is likely to show some stabilization. But just keep in mind that while we are talking about customer inventory, and we are looking at bits of inventory at our customers, our customers are also looking at BIO inventory and how many days of inventory they have. And, it's obviously compounding their challenge because the forward-looking sales, when it weakens due to macroeconomic environment and such, and individual segment trends, then, then the weakening end market trends does impact their view of, you know, what they can do on the inventory front. Even if bit inventory reduces, BIO inventory, they still have more work to do. So those are the dynamics that are playing out.

So we do expect that the PC market is likely to show some stabilization, but just keep in mind that while we are talking about customer inventory and we are looking at And those are thewater

bits of inventory at our customers. Our customers are also looking at BIO inventory and how many days of inventory they have and it's obviously compounding their challenge because the forward looking sales when it weakens due to macroeconomic environment and so on.

and individual segment trends, then the weakening end market trends does impact their view of what they can do on the inventory front. even if bit inventory reduces DIO inventory, I still have more work to do. So those are the dynamics that are playing out. even if bit inventory reduces DIO inventory, I still have more work to do. So those are the dynamics that are playing out and... And we do expect that these server customers will take longer to get to a healthier place compared to the other segments. Thank you. Thank you. One moment for our next question. That will come from the line of Chris Queso with Credit Suisse. Your line is open. Yes, thank you. Just maybe a bit of a bigger picture question. And maybe you could give some comparisons to the last cycle and some of the prior cycles. And what you talk about is the supply demand balance here is the worst in the last 13 years. Over the last 13 years, the industry has been in a very bad position. has structurally improved. So what do you think is the reason for the supply demand balance that's occurred now? Is it solely market conditions? Is there anything to do with structural conditions? And you know what does that mean for future cycles? You know in terms of you know how we read this for the bigger picture. Tough to extrapolate based on one data point. Certainly, since the industry consolidated about a decade ago in DRAM,

even if bit inventory reduces DIO inventory, I still have more work to do. So those are the dynamics that are playing out.

even if bit inventory reduces DIO inventory, I still have more work to do. So those are the dynamics that are playing out and...

Sumit Sadana: We do expect that, you know, these server customers will take longer to get to a healthier place, compared to the other segments.

And we do expect that these server customers will take longer to get to a healthier place compared to the other segments.

Operator: Thank you. Thank you. One moment for our next question. That will come from the line of Chris Caso with Credit Suisse. Your line is open.

Thank you. Thank you. One moment for our next question.

That will come from the line of Chris Queso with Credit Suisse. Your line is open.

Chris Caso: Yes, thank you. Just maybe a bit of a bigger picture question. And maybe you could give some comparisons to, you know, to last cycle and some of the prior cycles. And you know what you talk about as a supply-demand balance here is the worst in the last 13 years. You know over the last 13 years, the industry has structurally improved. So what do you think is the reason for the supply-demand balance that's occurred now? Is it solely market conditions, or is anything to do with structural conditions? And you know what does that mean for future cycles, you know, in terms of, you know, how we read this for the bigger picture?

Yes, thank you. Just maybe a bit of a bigger picture question. And maybe you could give some comparisons to the last cycle and some of the prior cycles. And what you talk about is the supply demand balance here is the worst in the last 13 years. Over the last 13 years, the industry has been in a very bad position.

has structurally improved. So what do you think is the reason for the supply demand balance that's occurred now? Is it solely market conditions? Is there anything to do with structural conditions? And you know what does that mean for future cycles? You know in terms of you know how we read this for the bigger picture.

Sumit Sadana: Tough to extrapolate based on one data point. Certainly, since the industry consolidated about a decade ago in DRAM, we have had, relatively well-contained cycles and relatively healthy, very healthy through cycle profitability, certainly in DRAM, across cycles, since that point. In this particular cycle, definitely there has been a demand shock and a set of exogenous factors that have, come together in a way that, is quite unusual. So, you know, you've seen 40-year highs in inflation, very rapid increases in interest rates. So macroeconomic environment, certainly, one for the history books in terms of multi-decade, sort of, challenges on that front. You have a war in Europe that has not happened in many, many decades.

Tough to extrapolate based on one data point.

Certainly, since the industry consolidated about a decade ago in DRAM,

We have had relatively well-contained cycles and relatively healthy, very healthy through-cycle profitability, certainly in DRAM across cycles since that point. In this particular cycle, definitely there has been a demand shock and a set of... exogenous factors that have come together in a way that is quite unusual. So you know you've seen 40-year highs in inflation, very rapid increases in interest rates, so macroeconomic environment certainly. One for the history books in terms of multi-decade sort of challenges on that front. You have a war in Europe that has not happened in many many decades. You have COVID impacts and big shutdowns in China impacting demand in the second largest economy in the world. And and and then you have whole host of factors and individual companies and segments as a result of supply chain disruptions, etc. So There's a lot of moving parts that have hit the market in these segments. So there has been definitely a pretty significant demand shock. And also included in that demand shock is the other side of all of the inventory build up that happened when... So much of the business went into a shortage, probably the biggest set of shortages in the semiconductor industry in a long time. probably ever, and then customers responded with building inventory in whatever areas they could get their hands on. So a lot of factors coming together created that demand shock. I think on the supply side, which is now where the burden is on the supply side to respond to that demand shock and cut supply and bring the industry into a healthier place.

exogenous factors that have come together in a way that is quite unusual. So you know you've seen 40-year highs in inflation, very rapid increases in interest rates, so macroeconomic environment certainly.

One for the history books in terms of multi-decade sort of challenges on that front.

Sumit Sadana: You have COVID impacts and big shutdowns in China, impacting demand in the second largest economy in the world. And then you have whole host of factors, individual companies, and segments as a result of supply chain disruptions, et cetera. So there's a lot of moving parts that have hit the markets in these segments. So there has been definitely a pretty significant demand shock. And also included in that demand shock is the other side of all of the inventory buildup that happened when so much of the business went into a shortage, probably the biggest set of shortages in the semiconductor industry in a long time, probably ever. And then customers responded with building inventory in whatever areas they could get their hands on.

You have a war in Europe that has not happened in many many decades.

You have COVID impacts and big shutdowns in China impacting demand in the second largest economy in the world. And and and then you have whole host of factors and individual companies and segments as a result of supply chain disruptions, etc. So

There's a lot of moving parts that have hit the market in these segments. So there has been definitely a pretty significant demand shock. And also included in that demand shock is the other side of all of the inventory build up that happened when...

So much of the business went into a shortage, probably the biggest set of shortages in the semiconductor industry in a long time.

probably ever, and then customers responded with building inventory in whatever areas they could get their hands on. So a lot of factors coming together created that demand shock. I think on the supply side, which is now where the burden is on the supply side to respond to that demand shock and cut supply and bring the industry into a healthier place.

Sumit Sadana: So a lot of factors coming together created that demand shock. I think on the supply side, which is now where the burden is on the supply side to respond to that demand shock and cut supply and bring the industry into a healthier place, we have definitely taken pretty aggressive actions. We have cut wafer starts in really fast order. We have dramatically reduced CapEx in 2023. We have signaled very clearly that we are also reducing WFE CapEx in 2024 from 2023. And we have also responded to the changes in the market environment by lengthening the time between technology node ramps.

reducing WFE CapEx in 2024 from 2023. And we have also responded to the changes in the market environment by lengthening the time between technology node ramps. We've taken a lot of aggressive action from our side and We've taken a lot of aggressive action from our side and as the... rest of the industry hopefully does what it will individually decide to do. We are hopeful that the industry will become healthier as time goes by through calendar 23 and inventories will start to improve slowly from the peak that we're seeing in. Q2. Got it. Thank you. Thank you. One moment for our next question. That will come from the line of Krishankar with Cowen. Your line is open. Shrivastava Bj blessed of the Hey guys, this is Eddie for Krush. You guys have impressive technological leadership, but your competitors have a bigger scale. So NetNet in terms of cost per bit, do you think you're at least as far with competitors? I'm asking because I'm wondering if there's a scenario where... competitors become more aggressive on pricing, which will further elongate this down cycle.

And we have also responded to the changes in the market environment by lengthening the time between technology node ramps.

Sumit Sadana: We've taken a lot of aggressive action from our side, and, you know, as the rest of the industry hopefully does what it will individually decide to do, we are hopeful that the industry will become healthier as time goes by through calendar 2023, and inventories will start to improve slowly from the peak that we're seeing in fiscal Q2.

We've taken a lot of aggressive action from our side and

We've taken a lot of aggressive action from our side and as the...

Chris Caso: Got it. Thank you.

Operator: Thank you. One moment for our next question. That will come from the line of Krish Sankar with Cowen. Your line is open.

Q2. Got it. Thank you. Thank you. One moment for our next question.

That will come from the line of Krishankar with Cowen. Your line is open. Shrivastava Bj blessed of the

Hey guys, this is Eddie for Krush. You guys have impressive technological leadership, but your competitors have a bigger scale. So NetNet in terms of cost per bit, do you think you're at least as far with competitors? I'm asking because I'm wondering if there's a scenario where...

competitors become more aggressive on pricing, which will further elongate this down cycle.

whether it has become more aggressive on pricing, which will further elongate this down cycle. Chris, I can just answer a competitive position. I had given some color on that at our investor day that. You know, we were certainly trailing in terms of cost competitiveness a few years ago. But by getting the technology leadership, even at our lower scale, we've become. You know, very competitive on, on our costs in both and. And I won't give specifics in terms of us for others, but we're definitely very competitive now. Thanks to the technology leadership that we have. And, you know, that having that technology leadership does give us, you know. on both of them right now. So we feel pretty good about our underlying cost competitiveness and technology competitiveness here and in the future. And in the scale that we have, we expect to maintain that share through the next few months. through the cycle as we're to be able to make sure that we can. maintain the ROI on all of our investments, our R&D investments. The one idea that I think you know that there is an impact is related to foreign currencies exchange rates versus the dollar. So definitely the dollar has appreciated a lot versus the Korean won and has... Also appreciated a lot versus a Japanese yen. We do have some manufacturing in Japan, but not as much as you know some other competitors have

Manish Bhatia: So, Krish, I can just answer our competitive position. I had given some color on that at our investor day, that, you know, we were certainly trailing in terms of cost competitiveness, you know, a few years ago. But by getting the technology leadership, even at our, you know, lower scale, we've become, you know, very competitive on our costs in both DRAM and in NAND. And, yes, I won't give specifics in terms of us versus others, but we're definitely, you know, very competitive now, thanks to the technology leadership that we have.

Chris, I can just answer a competitive position. I had given some color on that at our investor day that. You know, we were certainly trailing in terms of cost competitiveness a few years ago. But by getting the technology leadership, even at our lower scale, we've become.

You know, very competitive on, on our costs in both and. And I won't give specifics in terms of us for others, but we're definitely very competitive now. Thanks to the technology leadership that we have. And, you know, that having that technology leadership does give us, you know.

Manish Bhatia: You know, having that technology leadership does give us, you know, now flexibility in terms of how we manage our business and being able to, you know, even as we made the decision to, and that we just explained, to delay the ramp of these new technologies. We expect they're still gonna be very, very competitive when they launch, when we ramp them as market conditions improve, and they're gonna. You know, the yields are coming up really nicely on both of them right now. So, you know, we feel pretty good about our underlying cost competitiveness and technology competitiveness here and into the future.

Manish Bhatia: You know, and you know, in the scale that we have, you know, we expect to, you know, maintain that share through the cycle, you know, as we're to be able to make sure that we can, you know, maintain the ROI on all of our investments, our R&D investments.

on both of them right now. So we feel pretty good about our underlying cost competitiveness and technology competitiveness here and in the future. And in the scale that we have, we expect to maintain that share through the next few months.

through the cycle as we're to be able to make sure that we can.

maintain the ROI on all of our investments, our R&D investments. The one idea that I think you know that there is an impact is related to foreign currencies exchange rates versus the dollar. So definitely the dollar has appreciated a lot versus the Korean won and has...

Also appreciated a lot versus a Japanese yen. We do have some manufacturing in Japan, but not as much as you know some other competitors have

For example, in NAND. So there is definitely some competitive impact on costs related to currencies, but we also feel like the dollar has already come off by 10% in recent weeks, come its peak, and hopefully the direction of the Fed slowing down and ultimately stopping. we think about the OPEX savings of 150 mil, are they related to production and we expect them to come back once civilization goes back to normal? No, they're not related to production. That'll all be in cogs. related to R&D and SG&A activities, and clearly the headcount actions are part of that, but very careful, specific program-related actions, work with vendors on renegotiating on, Rate and scope of activities. Various other productivity projects and other items and as well. Thank you. From Q4 of 2023 to 2024, we'll have usual transitions that happened in most companies. We have bonus coming back, salary increases, those sort of things. In that usual transition, from Q4 of 2023 to 2024, we'll have usual transition that happens in most companies where we have bonus coming back, salary increases, those sort of things, but other than that, we just do it originally. Thank you all for participating in today's call. This concludes the program. You may now disconnect.

[Analyst] (TD Cowen): Got it. Thank you. And if I can squeeze one more in. How should we think about the OpEx savings of $150 million? Are they related to production? And should we expect them to come back once utilization goes back to normal?

Eddy Mendes: Got it. Thank you. And if I can squeeze one more in. How should we think about the OpEx savings of $150 million? Are they related to production? And should we expect them to come back once utilization goes back to normal?

we think about the OPEX savings of 150 mil, are they related to production and we expect them to come back once civilization goes back to normal?

No, they're not related to production. That'll all be in cogs.

related to R&D and SG&A activities, and clearly the headcount actions are part of that, but very careful, specific program-related actions, work with vendors on renegotiating on,

Rate and scope of activities. Various other productivity projects and other items and as well.

[Analyst] (TD Cowen): All right. Thank you.

Eddy Mendes: All right. Thank you.

Sumit Sadana: We'll have usual transition, you know, from Q4 2023 to 2024. We'll have usual transition that happens in most companies where, you know, we have bonus coming back, salary increases, those sort of things, but other than that...

Thank you. From Q4 of 2023 to 2024, we'll have usual transitions that happened in most companies. We have bonus coming back, salary increases, those sort of things.

In that usual transition, from Q4 of 2023 to 2024, we'll have usual transition that happens in most companies where we have bonus coming back, salary increases, those sort of things, but other than that, we just do it originally.

Manish Bhatia: Thank you. Thank you all for participating in today's call. This concludes the program. You may now disconnect.

Thank you all for participating in today's call. This concludes the program. You may now disconnect.

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