Q4 2023 Micron Technology Inc Post Earnings Analyst Call
Okay.
Thank you for standing by and welcome to Micron's Post earnings Analyst call. At this time all participants are in listen only mode. After the Speakers' remarks, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone to remove yourself from the queue simply press star one again and now I'd like to introduce your.
Host for today's program <unk> <unk> Investor Relations. Please go ahead Sir.
Thanks, and welcome to Micron technologies fiscal fourth quarter 2023 sell side analysts call back on the call with me today are assume that Saddam Micron's, Chief business Officer, Manish Bhatia, our EVP of global operations and Mark Murphy our CFO .
A reminder, the matters. We're discussing today include forward looking statements regarding market demand and supply.
<unk> results and other matters.
These forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today, we refer you to the documents we file with the SEC, including our most recent Form 10-K and 10-Q for a discussion of the risks that may affect our future results.
Jonathan we can now open up for Q&A.
Certainly one moment for our first question.
And our first question comes from the line of <unk>.
Ireland sur from Jpmorgan Your question. Please.
Hi, good afternoon, everyone and thanks for taking my question. So within the data center. The team is still anticipating excess customer inventories normalizing beginning of next calendar year.
You've got enterprise cloud Telco data center markets product wise, we've got DDR for DDR five HBM LP DDR and then you have your entire enterprise SSD portfolio.
Either by end market or product types like where are you guys seen the most weakness in areas of slower inventory drawdown and then Conversely on the sequential data center growth here in Q1, what are the areas that are driving strength.
Yes, Harlan thanks for the question so sumit.
Who I announce will be joining the call will join US just in a few minutes. So he hasn't arrived yet we'll have him maybe follow up and answer.
More details of the call to your questions, but we will start off with <unk> can maybe start off with an answer I kind of bucket do you Wanna, Yes, No I was just going to say thanks for the question Harlan and thanks for calling out. The fact that data center is this is not one of Morpheus area. There's a lot of different categories with their own inventory dynamics, playing out I think.
I think it's well known that the some of the higher value segments are the ones that are in shorter supply.
High bandwidth memory for sure today even.
As we.
Stepping more into that over our fiscal year 'twenty four and become part of that we would still expect that to be a relatively constrained area.
Of the market of the data center market DDR five.
As inventories are tighter there and more constrained there even as the industry continues to adopt more DDR five it happening at the crossover point for DDR five.
For the industry should be middle of next year for US, we think it'll be earlier in calendar 'twenty four.
And then some of the LP solutions that we've talked about we've talked about are somewhat.
Customized and we have some of those solutions that are.
Unique with some of our customers in terms of the etsy broadly that the DDR four is where there's more inventory today at least on the DRAM side and then.
And the <unk>.
SSD side.
I think there are.
A couple of different segments that are there there is the classic hyper scalar side of.
Of datacenter and then there are some of the longer tail.
Syed and.
We're seeing differing levels of inventory between those customers, but broadly feeling good about where the.
Both DRAM and NAND are in terms of being able to to see pricing improve in both the markets, including in the data center as we go through 2024.
Okay, perfect well I appreciate the insights there and then Mark can you just true us up on the gross margin impact due to underutilization charges and the associated higher cost inventory. So in other words like what's the current quarterly impact from under utilization here in fiscal Q1, and how do we see that sort of trending going forward.
Yes so.
So in Q1, we're going to see the.
Underutilization charges, specifically idle charges.
Referring to as the <unk> costs that are idle.
We'll be about the same in Q1 as we saw in Q4.
And it may be helpful. At this point since we're on.
On the other side of all this complexity, maybe just kind of summarize.
Yes, yes.
All of the various puts and takes we've seen over the last over the last few quarters.
Yes.
We've had this underutilization.
Uh huh.
You know.
That.
Yeah.
We've we've been sort of increasing at five then over 'twenty than then.
Then approaching 30 as we sit here today and so that's driving those underutilization charges that we saw.
And in the fourth quarter and continue into first and that will continue.
Through fiscal 'twenty, four, but they'll come down as I've said before that will come down gradually and.
Through the year and in part because as we move to lower wafer output.
Over time.
The utilization will increase on that lower wafer output.
Now.
On the on the write downs and the associated sell through.
Yes, we're on the back end of that as well if you recall, we did the $1 4 billion write off in second quarter, we did another $400 million write down in the third quarter.
We realize the benefits of the sell through in the third quarter of under $300 million.
So we came into the fourth quarter was about one $5 billion balance.
And in the fourth quarter, we recognized or had the benefit of about $560 million associated with the sell through of that lower cost inventory.
So we enter fiscal 'twenty four it was about a 1 billion dollar lower cost of inventory lower cost inventory benefit to realize.
Well.
We'll realize about.
$600 million of that in the first quarter, and then the balance and nearly $400 million in the second quarter.
And then that that.
Yes, it will be the GAAP and non-GAAP .
The results will be sorted out at that point.
I think maybe one last thing back to Underutilization.
Yes, I did say.
Because we've talked about this and I just wanted to make sure it's clear in your in your analysis.
I did say that.
We would have about $1 1 billion.
<unk> been.
Impact.
Associated with.
Under utilization.
In fiscal 'twenty three.
And yes.
We recognized about $400 million of that.
Through period costs and the <unk>.
In fiscal 'twenty three.
We wrote down about <unk> $700 million of the $1 1 billion.
About $300 million of that $700 million.
Ran through as inventories.
<unk>.
Yes, thats cleared so that and then there is another 200 that actually got written off associated with the.
Inventory write downs.
So we've got.
Another $200 million left.
Sure.
Our $300 million less debt.
Yes that will clear and.
And early.
Okay, No that's fair.
Very helpful. Thank you.
Yes.
Thank you one moment for our next question.
Okay.
And our next question comes from the line of <unk> <unk> from BMO capital markets. Your question. Please please.
Alright, thank you.
It's confusing I think you had one this last thing it's a bit complicated.
So.
The 500, he has called out from the 700 breakdown.
That's associated with inventory and Thats not part of the inventory write down right.
Which which 500 are you talking about.
Can you just walked us through.
The $1 1 billion impact in fiscal 'twenty three.
Which was from the under.
Under utilization off has 400, you took as period costs.
Meaning 700 bridges with <unk>.
Inventory.
And I thought you said 200 million also associated with inventory.
So that's great.
Yes.
I'm talking to one one is the higher costs associated with under utilization.
$400 million of that was.
Pass through as period costs.
$300 million of it is already cleared and inventories.
And $200 million of it.
I was associated with the inventory write down.
Okay. So that leaves 300 million last that's going to clear with inventories in early 'twenty four.
Also still 121 billion.
The $1 1 billion exactly.
Yes, that's the one that's the $1 $1 billion of work.
Got it got it got it okay.
And then Lynn.
Fact that we have.
The factories are running 30% lower production versus when you started down the path.
The Underutilization overhang should continue until.
You come back.
The mechanics of what causes that.
That gap to close between Underutilization charges being taken and when the factory is getting back to normal loading.
So I'll just maybe I'll start and then Mark can cover the accounting mechanics I'll cover the operational dynamics and then maybe between the two and we'll give you and others a clearer picture so.
As we've said before without this underutilized equipment.
With the desire to be able to continue to migrate towards newer technology nodes to be able to support the product portfolio and to provide better.
Yes.
Performance in.
In the product to our customers.
We have been.
Utilizing more of the underutilized equipment towards converting to new nodes.
Okay.
As you do that you are reducing the capacity baseline of the.
Each factory, where youre implementing that right. So the wafer start capability is coming down.
And then as you're bringing those tools on and fully utilizing them in the longer process step counts of the newer nodes.
Theyre not really being underutilized anymore once they become part of the new reset lower capacity baseline.
So as that happens the amount thats sort of charged off.
Towards underutilization or period costs is lowered gradually.
Because you're utilizing the equipment towards the newer nodes and be utilized towards the newer node, we don't buy new.
New equipment.
To be able to maintain a higher production baseline capacity.
So it helps us offset capex it helps us utilize the equipment that we have for the period costs will gradually go down as Mark has said.
But we do end up with lower production capacity at the end of the day, which obviously isn't as cost effective as if we would have just maintained the full production capacity, while we were doing the conversions, but it's more capital efficient to do it this way.
Well, maybe just add embraced so yes.
Yes, we were just talking about the $1 $1 billion and yes.
Generally the underutilization creates as higher cost per wafer.
And Thats, the $1 1 billion and it's when you enter the severe underutilization periods portion of that is going to be.
Taken immediately to the P&L versus being hung up in inventory, what's going to what's going to happen over time as the wafer capacity comes down.
Those those costs still occur.
It is the baseline of our capacity is reset lower.
More of those costs and can be absorbed into inventory or pass throughs as inventories are pass through and inventories clear.
Versus being carried.
Carrying costs.
Thank you I'll cede the floor. Thanks.
Thank you one moment for our next question.
Okay.
And our next question comes from the line of Chris Daily from Citi. Your question. Please.
Hey, Thanks, guys.
So I guess.
What level of revenue do you need to get to to crank up utilization rates and what revenue level do you need to get to.
Would you be at to get back to full utilization.
Well.
Go ahead, Sean I'll, just start a little bit operationally then you can talk about it from a business perspective just that.
I don't.
I don't I think of it more as we have to see our inventories come down right.
Alright so.
And then we have to see the profitability in the business returned to be able to.
Change the Capex profile that we've guided to right, we've talked about <unk> being down and yet.
We were able to do that while still migrating to new technologies and I was just explaining is to be able to utilize more of the under the previously on USA coming towards that transition to the newer nodes. So it's no longer a new yoga contributing.
Positively towards us being able to make those transitions to the newer nodes. So it's really more about.
How we see our inventories coming down that drives our R. R.
Our need to be able to produce new supply and then the.
<unk>.
The profitability of the business as we see pricing improve.
Then we would look into being able to invest more whether in capex or other areas to be able to manage supply growth supply more than what we're guiding to right now.
Yes, I think I just.
We want to emphasize one thing that when you said then connected back to Sanjay had said earlier as well which is.
As we have redeployed this equipment.
Some other notes to expand upon the nodes.
There is.
Structural reduction of our wafer capacity that is happening this is happening across the industry, because everyone's trying to be reducing capex in an environment with operational cash flow and profitability has been so dramatically impacted.
Industry wide thing that is occurring and the reduction in capacity that is occurring as we do this every month every quarter.
Is going to.
Uh huh.
Transition our situations from more than the utilization to just a reduced amount of wafer capacity, which means that isn't.
The level of.
Switching back all of Underutilization, that's even possible. After we have done we have gone through this transition except maybe on some legacy nodes.
There will still be running under utilization. After we are done with this whole transition so.
So just.
I wanted to make sure that it's clear that.
Ultimately sensor wafer capacity is coming down they won't be.
Switching back of under utilization to create a lot more bit, especially on the leading edge there'll be new capex investment required.
Which of course will require increased.
Increased pricing increase margins improve cash flow improved financial performance for us too.
Justified that capex.
Investment to increase wafer capacity again.
Sure and just a clarification on that guys is there an optimal inventory level in terms of dollars or days youre looking at or trying to get to and then I'll cede the floor.
Yes.
Targeting.
Ultimately we've set our target is.
120 days, which if you look at the current.
If you just assume current Cogs levels lets say $6 billion or so.
We said we'd have.
About $1 billion of what we call strategic stock.
On hand.
So we've got.
One 1 billion and a half or so of inventories that we need to work through we are working through those.
<unk> heard a lot of talk today about supply discipline and really.
Our.
Spending and our transitions are driven by the pricing environment and.
Associated inventory levels in the industry. So we're watching those go down.
We're actively managing our inventories down.
We do believe as we go into the.
Back half of fiscal 'twenty, four that will only have a few weeks of.
Let's call it above target inventory on hand.
And and so we think we'll be in an even better place, but you're already seeing at what we said a long time ago as has transpired in.
That as we said <unk> would peak in the second quarter.
'twenty, three which at which it did and then net dollars at peak in the third quarter, which they did and and so we're just going to continue to monitor it.
And manage it closely.
Yeah. That's helpful. Thanks, guys.
Thank you one moment for our next question.
And our next question comes from the line of Aaron Rakers from Wells Fargo. Your question. Please.
Yes, thanks for taking the questions and doing the follow up call I have two quick ones and Mark I apologize I'm just trying to make sure I've got all the numbers correct here based on what you said it looks like Youre in period Underutilization cost. This last quarter is about $240 million to be about $400 million for the full year is that is that curve.
I just wanted to clarify that.
You are talking period costs in Q4 exactly exactly yes.
<unk> hundred 20.
220, Okay, and then you've got it sounds like three to $2 million to $300 million more to carry through the first half of the year I guess my quick follow up question would be.
Trying to think about the pace of the recovery. Obviously the focus is on gross margin here, but I'm curious of how you think about the pace of operating expenses coming back into the model you've done a good job managing operating expenses as we think about gross margin turning positive fundamentals improving how do you think about bringing opex in or is there a straw.
<unk> thing to consider in Opex, just being structurally lower as we went through this last several quarters.
Well, we see Opex moving up fourth quarter to first and Thats driven by resumption of certain compensation programs that are normal that were.
Reduced during the downturn, our worst of the downturn.
And then we have some timing on R&D related expenditures. So we've guided from $8 42 up to 900 alright.
And then the rest of the year, we haven't guided by quarter, but we said that the year would be up slightly low single digits. So yes.
You do that.
You end up with.
Yeah.
Call It one 2% up.
Yes.
Three seven or below on a full year so were.
Are you going to manage it very tightly we did have a lot of productivity gains through the year and we're going to work our best.
Hold those hold those productivity gains.
And then finally, just one real quick one.
<unk> impact from China is still estimated to be kind of low.
Low double digits is that you didn't change that estimate.
We did not change that estimate.
Yes.
Sure.
We're obviously managing it.
Actively as you say.
The impact has been below that number.
Below that number in the first quarter.
And but no update.
Yes, I just wanted to say thank you got it.
The low double digit number you quoted is what's the total risk that we had said.
So as Mark said.
Impact in China is less than that and then we have had some success and some mitigation factors, which we're continuing to work on.
And.
So obviously that is a net number.
Net of the mitigation that has.
That is lower as well.
Perfect. Thanks, guys.
Thank you one moment for our next question.
And our next question comes from the line of Vivek Arya from Bank of America Securities. Your question. Please.
Thanks for taking my questions I had.
A few as well.
First.
What kind of <unk> market share is contemplated in your outlook for next year and how would you kind of generally characterize the visibility in achieving that because I understand.
The technology strength that you have but when you look at your Korean competitors, they're also.
Talking up their technology capability and their ability to hold onto a lot of this market share. So I'm just curious what is your visibility and confidence in what kind of rough market share assumptions do you have an H b M for next year.
Yes, we have.
<unk>.
We have skipped the hbm's regeneration.
Commercialized HBM two ENB went straight to HBM three in order to.
<unk> ahead.
And.
We are very excited about this technology because the samples that our customers have in their hands has industry, leading head and shoulders above capability.
Versus competitors, both from a performance perspective as well as.
Amazingly good.
Power consumption capability, well below that of our competitors.
So we are very excited about this our customers are very excited very enthusiastic about this.
And so we are now focused on getting the product called.
As we have mentioned we have.
Ben embedded now in the lead.
As the lead driver of <unk>, and our customers Roadmaps and we have.
<unk> focus on qualification.
<unk> high quality high reliability ramp.
We'll start the.
The production ramp up which will start in.
Early calendar 2024, and then become meaningful in fiscal 'twenty, four and then be pretty big in the back half of calendar 'twenty four and then from there on build from there into 2025 and our goal is to ensure that we get.
Yet our HBM share to be <unk>.
Similar to our DRAM supply share and to get there as soon as the hard ramp will allow so.
Thats, what we are focused on.
<unk>.
We have confidence in our plan to execute that.
And for my follow up I think Mark you mentioned gross margin.
You said positive in Q3 or Q4 I just wanted to clarify what was said about gross margin.
How should we think about when EPS turns.
Positive is that Q3 Q4 any.
I imagine it's more Q4 than Q3, but just what was said so.
Expectations affect the right way.
In terms of gross margins for Q3 and Q4.
Yes. Thanks.
So on gross margin.
This is consistent with what we said several quarters, we do expect continued improvement in gross margin quarter to quarter.
We guided this negative 4% out.
Proved off of 500 basis points off of negative 9% in the.
Fourth quarter actuals.
We do expect continued gross margin improvement in the second quarter relative to the first.
We expect pricing to.
Gained momentum in the second half and so.
I expect further improvement on that and just.
Volume leverage in the business.
In the second half and so through the second half so third and fourth quarters, we expect there to be positive gross margin.
And again that pricing effect will be.
Stronger in.
Gross margin improvement.
And as far as profitability, we did not update our profitability, we have said before that.
Expected.
Profitable within.
Second half of.
Fiscal 'twenty four.
And so no update to that but I do think that it is it is notable that.
Last time, we said that gross margin would be positive in the fourth quarter. This time, we are saying that gross margin is positive.
Through the second half so I think that's an incremental improvement as it relates to profitability.
Thank you.
Thank you one moment for our next question.
Thank you and our next question comes from the line of Karl Ackerman from BNP Paribas. Your question. Please.
Yes. Thank you two questions if I may 1st.
I suppose this for.
Many sure Sumit, but.
Just on the CIC restrictions you noted that your data center and networking business.
Impacted by the CIC in the August quarter.
But should we assume that current restrictions are impacting your smartphone business in the November quarter.
Yes.
The CSC impact was meant to be on.
<unk>.
Operators.
And that means that in a largely limited to.
Data center and networking type of products.
That relates to customers, who are deemed to be operators.
So no we don't.
See an impact to the smartphone business.
<unk>.
The impact that we spoke about.
And the data center and networking.
Thank you for that clarification.
Hugh.
You indicate that test and packaging capex could double next year, but I guess I'm just trying to find a baseline here I guess what is your.
Packaging capex in fiscal 'twenty, three perhaps both in absolute terms and maybe relative to the size of fiscal 'twenty two that would be very helpful.
Somebody post in terms of the investment that youre, making relative to the total portion of cubic feet. Thank you.
No I don't think we've broken that out before.
I think.
The color that we've provided.
You know as you think about 'twenty three going to 24 on Capex is that both construction and assembly test are going to be increase.
Increasing.
<unk>.
Meaningfully.
While <unk> will be down.
So you can imagine that the mix of both.
We've said that the total capex number will be slightly above 50.
Fiscal year 'twenty threes number.
So you can imagine that assembly test as a percentages going up.
We can say generally that's.
Typically below 10% and I believe next year it could be above 10%.
I think it's a simple way to frame it car.
Okay. Okay.
A significant portion of that increase is to support the HBM ramp that we are strong HBM ramp that submit was talking about the work.
That our customers are excited about in that work.
Working to put in place.
Thank you.
Yeah.
Thank you one moment for our next question.
And our next question comes from the line of Brian Chin from Stifel. Your question. Please.
Hi, Thanks for letting us ask a few questions.
Maybe kind of doubling back on sort of the.
Output discussion.
Apparently for HBM three over <unk> five to <unk> I think you said, it's a bit bigger than I would've expected.
What else can you can you elaborate on that and more importantly.
As a comparison to your peers in the larger footprint, but then inclusive of that inclusive of the.
Efficiencies in other.
One kind of conversions et cetera.
How much output you. Thank you and the peers are just the industry could take out next year.
Something like 10% reduction.
Dominator of capacity, what's sort of your thoughts.
Sure so.
I'll just clarify are you looking for.
A comment that's on just the HBM effect or are you looking for a.
A comment on sort of overall between the multiple effects, we discussed HBM and.
In DRAM will be.
We will.
Absorb is to give them out of production capacity.
And then you have the.
Wafer.
Production capacity that will be reduced based on the.
Conversion too.
Newer nodes.
Discussed earlier on this call are you looking for a number on both of those are just on the just doesn't really in HBM question, Yes, maybe the all in since there is a couple.
A couple of different attributions right. So maybe all of them, but also maybe that the amount of that is driven by HBM because it should be.
A portion of it as well the HVAC and it sounds like.
Yes, I mean, I think that the.
<unk> number.
Just to give you some some color.
Approximately doubled.
The <unk> per bit.
Is kind of there for for everyone in the industry.
And it.
It's basically it's to drive from a couple of different factors. One is just the the jetpack standard for the the size of the of the interface Die. It's also in terms of the.
What's needed to be able to get to the high performance of the spec.
Gets more complex each generation of HBM.
And.
And then on top of that so that's to begin with and on top of that you have the impact on.
Our overall production capacity, because we have an interface side that needs to be produced and so logic dye that will take up production capacity in the Fabs as well and then you have the.
More complex backend integration.
Overall yields for the product that are a little bit.
Lower than standard products right because of the complexity of the package. So when you put all that together you end up seeing.
More than two X impact there.
And so you can imagine depending on the estimate for.
Overall HBM.
Percentage in bids for the industry, you can that estimate more than <unk> of that coming out just because of HBM.
Right.
Okay and then.
For the.
The duration of capacity as we convert to newer nodes.
Very based on each.
Each.
Supplier, but what we've said is that we are approaching 30% of our.
Wafer starts.
To be reduced from their peak in 2022 levels.
And today most of that is underutilized capacity as we look towards the end of fiscal 'twenty four for US, we're moving to where most of that will be on.
True structural wafer capacity reduction because we have implemented we've taken that equipment and utilize it in newer nodes.
So that just gives you a sense of both of those two and you can projected for others in the industry and how theyre going to take there.
Underutilized equipment repurpose it along with whatever their capex plans ought to be able to end up with structurally lower wafer capacity and that's the statement both for DRAM and NAND, obviously, the HBM is only for DRAM.
Okay, and just to clarify that.
Yeah, 30% unrealized and if you did not increase your wafer starts you could actually approach for utilization rates based on the type of structural.
The consolidation of the footprint.
Maybe I'll say I'll say it again just to make sure I'm clear as we go through the year, we will be taking the equipment that is currently under utilized and converting it to be used in newer technology nodes. It will no longer be underutilized will be part of a lower wafer start baseline, but with a rich.
The mix of the newer node.
Does that make.
Make it clear that make it clear.
I think directionally.
Maybe my follow up really quickly then just.
Is the right way to characterize this as kind of gross margins. So maybe mark but is the right way to characterize the Cisco one and directional fiscal <unk> gross margin guide.
Is that your expectations for improved memory prices as is upward, but somewhat benign is that does that.
Right way to characterize.
Yes, I think it's it's definitely definitively improving.
From the fourth.
And as we talked about as the market is transitioning here there we need to meet the market where it is and there are some deals that have been done which contributed to maybe a muted.
First quarter, and then maybe even into the second quarter.
Price upward trajectory, we think it will be up but by how much.
Prices have been going down for over a year.
They're not going to go back up to the levels, we want in one quarter its going to take a little bit of time.
But the market is clearly.
Recognizing that prices are going up we believe that the second.
Half, we'll see much stronger price improvement relative to the first so we think that strengthen in the second half.
And it will.
We will of course have a favorable effect on that on the <unk>.
Gross margin profitability of the business and cash flows.
Okay. Thank you.
Thank you one moment for our next question.
Okay.
And our next question comes from the line of Quinn Bolton from Needham <unk> Company. Your question. Please.
Hi, guys. Thanks for taking my questions I wanted to follow up on that.
The question or topic of the net reduction in wafer starts as you reallocate the HBM and more advanced nodes.
What role does just improving demand play in that I mean are you assuming that most of that 30%. That's underutilized today gets utilized in these more advanced nodes at constant demand or are you sort of factoring in some improvement in demand as part of that equation.
So I mean, certainly we've said that we do expect there to be robust growth in DRAM and NAND.
Next year in terms of bit growth with DRAM bit growth being higher than the long term CAGR that we've talked about before in NAND being around that long term CAGR. So thats certainly part of our plans, but I think what's important is that the demand for the higher value newer solutions is also growing maybe even bigger as a part of that growth.
So the industry is in the middle of multiple different transitions, whether it's D. <unk> L. P for to L. P. Five HBM, two and three to <unk> all of those newer products are most efficiently produced are only produced on the leading edge nodes. So for us and one beta for example, great.
<unk> strong leadership ahead of well ahead of the rest of the industry great power performance. So we've got it in <unk>, we've got it in LP five we've got it in HBM III E and eventually we will have it in graphics seven so.
It's definitely driven by.
Function that demand will return as inventories have at our customers have normalized in many areas and will normalize.
As we go through the year and the other areas.
But it's also about the demand mix being more towards high value products that are that are best produced on the leading edge nodes and similar for NAND in terms of the performance specs that were seeing with our fee higher onfi performance that we're going to achieve.
Achieve on our 232 layer I think great examples on our.
So with our Uff's proud.
Product that we've launched as well as I think the fastest time certainly in our history, if not the industry's history from introduction of a node to a datacenter SSD shipping in volume to an OEM customer I mean, just shows the demand is there for higher performance lower power and higher quality.
Maybe if I could just add.
The downturn here has been.
Lastly, now over a year.
And.
Over time.
Our products continue to advance customers want the best performance and so we're finding the need for.
To serve those.
Products.
<unk> is one good example.
But we are working to have that.
Product capacity for the latest generation.
And do it in the most capital efficient way, which is as we've said taking equipment from Morgan legacy nodes and so as a result, we ended up with.
Our wafer starts down over time.
The rate and pace of what we do and the supply effects of it are going to be driven by the inventory levels, we see in the industry.
And a level of profitability and it's sort of a pay as you go sort of approach here in the sense that.
Unless we.
Yes, we're going to be constantly looking at the health of alpha of inventories and profitability as we make our capacity decisions.
Got it and then my follow up you gave us very detailed.
A review of the Andrew Lee utilization charges in fiscal 'twenty three at one 1 billion 400 period costs 700 flows through inventory do you have an estimate you can provide for fiscal 'twenty four because it feels like you've got $300 million of inventory charges that hit you in early 'twenty four leftover from fiscal 'twenty, three but I assume that there.
Additional charges underutilization charges that are going to be coming into the model for fiscal fiscal year 'twenty four and I just want make sure I've got that.
Are you thinking about that correctly.
Yeah.
So I'm not going to provide a number because.
And I'll explain why briefly.
Let's remember that we have we have period costs, which include the idle cost. So if you go back to December call I went through various period costs that we have we have idle cost front end idle costs back end and then a whole bunch of other period cost royalties and other things inventory scrap and so forth.
Sure.
So we will always have period costs.
Been elevated because of the Underutilization that we had.
And in 'twenty, three and going into 'twenty four in that Underutilization, it's been so severe that the.
Front end has experienced pretty high.
We call idle charges, which go to period costs.
And that's part of what I gave you on the on that.
On the walk in 'twenty, three and the $1 1 billion.
<unk>.
We will have in the first quarter.
Another $200 million of <unk>.
Idle charges.
Related to the front end related to under utilization.
And we will have.
Charges in the third quarter as well.
The second quarter as well, but over time.
As period costs.
Our idle charges will go down over time.
In part because as we mentioned, we're bringing our wafer capacity down and when we do that the utilization just naturally increases and so.
No.
So those costs will still exist, but they will go into.
Inventories and then pass through the P&L through inventories rather.
Rather than directly through through period chart cost as you're seeing now.
Alright, so listen again again I want to I want to emphasize that the rate and pace of our capacity decisions are going to be driven by where we see inventory levels and the profitability in the industry.
And.
Where we're seeing positive trends relative to last time.
Got it okay. Thank you.
Okay.
Thank you. This does conclude the question and answer session as well as today's program. Thank you, ladies and gentlemen for your participation in today's conference you May now disconnect. Good day.
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