Q1 2024 Micron Technology Inc Post Earnings Analyst Call
Thank you for standing by.
Okay.
Thank you for standing by welcome to Micron's post.
Earnings aimless call. At this time all participants are in listen-only mode. After the speaker's presentation there will be a question and answer session. As a reminder to ask a question during the session you'll need to press star one one on your telephone. As a reminder today's program is being recorded and now I'd like to introduce your host with today's program, Satya Kumar Investor Relations. Please go ahead there.
Speaker Change: Earnings Analyst call at this time, all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session. As a reminder, that ask a question. During the session you will need to press star one on your telephone as a reminder, today's program is being recorded and now I'd like to introduce your host for today's program such a Kumar Investor Relations. Please go ahead Sir.
Speaker Change: Okay.
Thank you and welcome Micron Technologies' fiscal first quarter 2024 post-earnings analyst call.
Sachin Kumar: Thank you and welcome to Micron technologies fiscal first quarter 2024 post earnings analyst call.
On the call with me today are Sumit Siddhana, Micron's Chief Business Officer, Manish Bhatia, EVP of Global Operations, and Mark Murphy, our CFO .
Speaker Change: On the call with me today are Sumit Sudano, Mike Cox Chief Business Officer finished Battier EVP of our global operations and Mark Murphy our CFO.
As a reminder, the matters we're discussing today include forward-looking statements regarding market demand and supply. Market trends and drivers are expected results and guidance in other matters.
Speaker Change: As a reminder, the matters. We're discussing today include forward looking statements regarding market demand and supply market trends and drivers of our expected results and guidance and other matters.
These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made today.
Speaker Change: Forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made today.
We refer you to documents we file with the SEC, including our most recent form 10K and upcoming 10Q for a discussion of risks that may affect our future results.
We refer you to documents, we filed with the SEC, including our most recent Form 10-K and upcoming 10-Q for a discussion of risks that may affect our future results.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements to conform these statements to actual results. We can now open up for Q&A. Certainly, one moment for our first question.
Speaker Change: We believe that the expectations reflected in the forward looking statements are reasonable we cannot guarantee future results levels of activity performance or achievements, we're under no duty to update any of the forward looking statements to conform the statements to actual results. We can now open up for Q&A.
Speaker Change: Certainly one moment for our first question.
Speaker Change: And.
Speaker Change: Our first question.
comes from the line of Ambrishavastava from BMO. Your question?
Speaker Change: It comes from the line of.
Speaker Change: I am Bruce <unk> from BMO Your question. Please.
Right. Excuse me. Thank you. I had a couple of clarifications. Just want to make sure I was.
Speaker Change: Hi, excuse me.
Speaker Change: Thank you I had a couple of clarification just want to make sure I understand the.
Same pages.
with prior comments. Just talking about the data center inventory cleaning out by first step 24, that seems to be
Speaker Change: The prior comments and just talking about the data center inventory cleaning out by first cap rate for that seems to be.
I think prior comments were in the beginning of the year and kind of related to that is that it's my understanding correct that now it's pushed out to 1st February 4. And then is that a common because of the strategic buys that you guys have seen. So it is a micron specific comment. Or is that a industry wide comment that you made. And then I had a quick follow up.
Speaker Change: Extended per Se I think prior comments, we're in the beginning of the year.
Speaker Change: And kind of related to that is that is my understanding correct that now it's pushed out to first half 'twenty four.
Speaker Change: And then is that a comment because of the strategic buys that you guys have seen series of micron specific comment or is that a industry wide comment that you made and then I had a quick follow up.
Yeah, hi Ambrish. Yes, so on the data center side.
Speaker Change: Yes, Hi, I'm rich.
Speaker Change: Yes, so on the data center side.
There are, you know, some customers whose inventory will be normalized, let's say in the Q on time frame, there may be some who will get into Q2 before their inventory is normalized. That's why we be said.
Speaker Change: There are some customers, whose inventory will be normalized let's say in the Q1 timeframe there may be some moving.
Speaker Change: Get into Q2 before their inventories normalize that's why we.
Being said sometime in the first half.
because certain customers have
Speaker Change: Because.
Speaker Change: Certain customers have.
experienced some lower end market growth in the last many months.
Speaker Change: Experienced some lower end market growth in the last many months.
and consequently their consumption of the inventory has been slower and that is what may bleed into Q2 from Q1 and I'm talking about calendar Q1, Q2 for 2024 and it's nothing much to do with any of the strategic buys so much and it's more to do with the
Speaker Change: And consequently, their consumption of the inventory has been slower and that is what may bleed into Q2 from Q1 and I'm talking about calendar Q1 Q2 for 2024.
Speaker Change: And it's nothing much to do with any of the strategic buys so much and it's more to do with the.
a total extent of the DRAM and NAND inventory at large data center.
Speaker Change: Total extend the DRAM and NAND inventory.
Speaker Change: At large data center customers. So we.
So we believe it'll be mostly normalized in the first half.
Speaker Change: We believe it will be more.
Speaker Change: Mostly normalized in the first half.
more robust buying patterns coming in in the second half and then as the overall data center general purpose compute growth accelerates which you have seen.
Speaker Change: More robust buying patterns coming in in the second half and then as the overall data center general purpose compute growth accelerates.
Speaker Change: Which you have seen.
Speaker Change: General purpose servers.
actually fail, are likely to fall for calendar 2023 at a double-digit rate. Serve a unit volume for general purpose needs.
Speaker Change: Actually fail unlikely to fall for calendar 2023 at a double digit rate.
Speaker Change: So the unit volume for general purpose needs.
I, you know, we expect that to stabilize in 2024 be sort of flattish general purpose server unit volumes and then grow from that point on so second half of 24 calendar year and then calendar 25, you know, more robust growth along all of those.
Speaker Change: We expect that to stabilize.
And 2024 be sort of flattish general purpose server unit volumes and then grow from that point on.
Speaker Change: So second half of 'twenty four calendar year, and then calendar year 'twenty five more robust growth along all of those fronts.
Got it, got it. Thank you. So, so I was correct a bit of a push out, but not a micron specific comment. That's more industry comment for my follow up. Maybe from an issue.
Speaker Change: Got it got it. Thank you. So so I was correct a bit of a push out but not a micron specific comment that's more of an industry comment.
Speaker Change: A follow up maybe from a niche.
As we think about cost down, I think you guys have been talking about high single digit for I think a couple years from when it used to be mid-teens DRAM cost down. Just trying to understand with HBM, higher packaging cost, stacking, does that change you did give guide for 24, which is high single digit, but beyond that, does DRAM now start to come lower than that in terms of cost down?
Speaker Change: As we think about cost down I think you guys have.
I've been talking about high single digit for pick up a couple of years.
Speaker Change: When it used to be mid teens DRAM costs down.
Speaker Change: Centered HBM.
Speaker Change: Higher packaging costs stacking.
Speaker Change: That change you did give guide for 'twenty, four which is high single digit but beyond that does.
Speaker Change: DRAM now start to come lower than that in terms from Costco.
Yeah, thanks. Um, you know, for front end, you're right. We did say mid to high single digits was our long term expectation for front end or memory level.
Speaker Change: Yes, thanks rich.
Speaker Change: For front.
Speaker Change: And you're right, we did say mid to high single digits.
Speaker Change: <unk>.
Speaker Change: Long term expectation for front end or memory level cost.
cost reduction, and that factors in a few different things. One, of course, is technology and how technology is getting more challenging, cadence of technology that's capable for the industry and for us.
Speaker Change: Reduction and that factors in a few different things one of course is technology and the technology is getting more challenging cadence of technology, that's capable for the industry and for us.
And yes, there is an element of mix of technology. Certainly, we're transitioning from DDR4 to DDR5, and DDR5.
Speaker Change: And yes, there is an element of mix of technology, certainly we are transitioning from DDR afford to DDR five and five.
has some structurally larger die sizes. And so, you know, some cost increases as we move there. And yes, as HBM penetration grows in the industry, we've said, you know, for the industry in HBM3E, the die size is double. So, you know, even within the front-end cost, which is what we were guiding to, we do see that, you know, the industry's cost reduction capability will be coming down somewhat from what we had seen previously. All right, thank you.
Speaker Change: Has some structural a higher larger die sizes and so.
Speaker Change: Some cost increases as we move there and yes as HBM penetration grows in the industry We've said.
For the industry and <unk> III E. The die sizes double so even within the front end cost, which is what we were guiding to we do see that.
The industry's cost reduction capability will be coming down somewhat from what we had seen previously.
Speaker Change: Got it thank you.
Speaker Change: Thank you one moment for our next question.
And our next question comes from the line of Thomas O'Malley from Barclays. Your question, please.
Speaker Change: And our next question comes from the line of Thomas O'malley from Barclays. Your question. Please.
Thanks for taking my question. At the risk of splitting hairs here, if I look at your deck from last quarter, you talked about DRAM calendar, your 24-bit demand exceeding the long-term CAGR. Now you're saying closer to near the long-term demand.
Thomas O'malley: Good afternoon, guys. Thanks for taking my question at the risk of splitting hairs here. If I look at your deck from last quarter, you talked about DRAM calendar year, 'twenty four bit demand exceeding our long term CAGR.
Thomas O'malley: Now you are saying closer to near the long term demand.
Thomas O'malley: Is that the server side, that's causing that downtick and if you put yourself back in the position of last quarter as pricing improved enough, where you would expect that that would offset that debt down.
Thomas O'malley: Downtick in demand when Youre looking at revenue and free cash flow kind of for the full year in other words came out more than offset what youre seeing is a slight downtick in demand. Thank you.
Thomas O'malley: Our overall.
expectation of demand for 2024 at the aggregate.
Thomas O'malley: Expectation of demand for 2024.
At the aggregate level, hasnt really changed that much but.
Hasn't really changed that much, but you may have noticed that we have taken up our view of 2023.
Thomas O'malley: You may have noticed that we have taken up our view of 2023.
demand growth in DRAM from mid-single-digit to high-single-digit. And so it's really a movement of some bits across the, you know, year-end boundary. And that's what increased some of the bits in 2023, and hence, you know, with that higher base.
Demand growth in DRAM from mid single digit to high single digits and so it's really a movement of some bets across the.
Thomas O'malley: Year end boundary.
And that's what increased some of the bids in 2023 and hence.
Thomas O'malley: Higher base year on year growth in 2024.
The year-on-year growth in 2024 is on a percentage basis not as high as it used to be earlier. With that said.
Thomas O'malley: On a percentage basis, not as high as it used to be earlier with that said.
You know, we have definitely a more confident and optimistic view about pricing than we did three months ago. And we do expect the pricing to – and you've seen that in our guidance in terms of –
Thomas O'malley: We.
Thomas O'malley: Definitely.
More confident and optimistic view about pricing than we did three months ago.
Thomas O'malley: And we do expect the pricing to and you've seen that in our guidance in terms of.
revenue as well as gross margin for FQ2, and we do expect pricing to continue to improve for 2024, throughout calendar 24, and our financial results to improve alongside, mainly driven by the fact that, you know, the leading edge nodes for both DRAM and NAND are oversubscribed for the full year.
Thomas O'malley: And as well as gross margin for FQ, two and we do expect pricing to continue to improve for 2024.
Thomas O'malley: Our calendar 'twenty, four and our financial results to improve alongside.
Thomas O'malley: Mainly driven by the fact that the leading edge nodes for both DRAM and NAND are oversubscribed for the full year.
And so I don't see any kind of an impact.
Thomas O'malley: And.
And so I don't see any kind of an impact on the change that you were mentioning on a revenue basis. The revenue change should be a positive.
on the change that you were mentioning on a revenue basis, the revenue change should be a part.
Helpful and then just a just a quick follow up. You obviously started the year on the DRAM side very strong from a bit perspective. You're guiding
Speaker Change: Helpful. And then just just a quick follow up you obviously started the year on the DRAM side very strong from a bid perspective.
Speaker Change: Youre guiding.
slightly down, I would say, for the next two quarters, for February and May. Can you talk about just how severe that downtick may be? And when you look at what you're talking about for mid-team's demand, kind of near the long-term category, I mean, it would require a pretty big downtick, at least from your supply perspective, to get there. So just kind of help frame out those next two quarters. Is it stepping down materially from February and May off of that, or just the linearity of those bit declines?
Speaker Change: Slightly down I would say for the next two quarters for February May could you talk about just how severe.
Speaker Change: That downtick, maybe and when you look at what Youre talking about mid teens demand kind of near the long term CAGR I mean that would require a pretty big downtick at least from.
Speaker Change: Your supply perspective to get there. So just kind of help frame out those next two quarters is it.
Speaker Change: Stepping down materially from February and May off of that or just just the linearity of those declines would be really helpful. Thank you.
Yeah, yeah, I can provide a little bit of color on that. So, um.
Speaker Change: Yes, yes.
Speaker Change: Yes, I can provide a little bit of color on that so.
So if you just go back to our 2023.
Speaker Change: So if you just go back to our 2023.
fiscal year. Our bids bottomed in FQ1 of 2023. Our revenue bottomed in FQ2. And so throughout the fiscal 2023, our bids have been growing.
Speaker Change: Fiscal year, our bids bottomed in Q1 of 2023 revenue bottomed in FQ, two and so throughout the fiscal 2023, our bids have been growing.
through the course of the fiscal year, and we entered 2024, you know, at a pretty good run rate of bids compared to where 2023 started on a fiscal year basis. And then, as you noted, you know, in Q1, our bid growth was pretty strong in DRAM.
Speaker Change: Through the course of the fiscal year and we enter 2024.
Speaker Change: At a pretty good run rate a bit compared to their 2023 started on a fiscal year basis and then as you noted in Q1, our bit growth was pretty strong in DRAM. So.
So we actually don't need a huge amount of sequential growth in 2024 to have pretty robust year-on-year bid growth, fiscal 24 over fiscal 23, because of those base effects.
Actually don't need a huge amount of sequential growth in 2024 to have pretty robust year on year bit growth fiscal 'twenty photo of a fiscal 'twenty three because of those base effects.
With that said, if you just look at the environment right now.
Speaker Change: With that said if you just look at the environment right now.
Our leading edge supply is obviously pretty constrained due to all of the history of CapEx cuts that, you know, we have gone through, the industry has gone through. And so our leading edge bids are fully subscribed. We do have oversubscribed. You know, we do have...
Speaker Change: <unk> edge supply is obviously pretty constrained due to all of the history of Capex cuts that we have gone through the industry has gone through.
And so our leading edge bid.
Speaker Change: We are fully subscribed we do have oversubscribed, we do have.
you know, some inventory that we will obviously use to supplement our sales, supplement our production in twenty twenty four. But with that said.
Speaker Change: Some inventory that we will obviously.
Speaker Change: Used to supplement our sales.
Speaker Change: Supplement our production in 2024.
But with that said.
We have also some seasonality that typically occurs in CQ1 for the consumer portions of our business.
Speaker Change: We have also some seasonality that typically occurs in CQ, one for the consumer portions of our business.
And we have, you know, not enough supply of leading edge bits in this timeframe. So, that's, those are all of the things that are coming together to cause our bit shipments in DRAM to be, and NAND both to be.
Speaker Change: And.
Speaker Change: And we have not enough supply of leading edge bits in this in this timeframe. So that's those are all of the things that are coming together to cause our bit shipments in DRAM to be and then both to be.
down a little bit in FQ2 sequentially. On the DRAM side, not growing in FQ3 either, will likely be down in FQ3. NAND, you know, we'll see where things stand in FQ3, but we do expect both DRAM and NAND to have some modest.
Speaker Change: Down a little bit in FQ2 sequentially.
On the DRAM side.
Speaker Change: Not growing in Q3, either will likely be down in Q3.
Speaker Change: NAND.
Speaker Change: We'll see where things stand in F Q3, but we do it.
Speaker Change: Expect both DRAM and NAND to have some modest sequential growth in Q4, and we do expect pricing to be the prime driver throughout each of those quarters for revenue margins financial performance.
sequential growth in FQ4, and we do expect pricing to be the prime driver throughout each of those quarters for revenue, margins, financial performance throughout that time horizon. Extremely helpful. Thank you, guys.
Speaker Change: Throughout that time horizon.
Speaker Change: Extremely helpful. Thank you guys.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Okay.
Our next question comes from the line of Joe Moore from Morgan Stanley . Your question, please. Great. Thank you. Um, I wonder if you could give us some sense of the relative profitability of NAND versus DRAM at this point. I know you had mentioned in the call that the DRAM mix was still helpful to gross margins. But I would have thought with the increase in price that you saw in NAND that you're starting to get close. Can you just give us some sense of how close the two quantities are?
Speaker Change: Our next question comes from the line of Joe Moore from Morgan Stanley. Your question. Please.
Joe Moore: Great. Thank you I Wonder if you could give us some sensitive.
Joe Moore: The relative profitability of NAND versus DRAM at this point I know you had mentioned in the call that <unk>.
Joe Moore: Mix was still helpful to gross margins, but I would have thought with the <unk>.
Increase in price that you saw in NAND that you are starting to get close can you just give us some sense of how close the two clients are.
Joe Moore: Yes.
Yeah, I mean, the profitability of DRAM at a gross margin level is definitely higher than that of NAND. You know, this is a continued trend that has been in place for quite some time, where DRAM profitability throughout the cycle tends to be higher than NAND profitability.
Joe Moore: The profitability of DRAM at the gross margin level.
Joe Moore: Is definitely higher than that of NAND.
Joe Moore: This is continuing the trend that has been in place for quite some time, where DRAM profitability.
Joe Moore: Throughout the cycle tends to be higher than NAND profitability.
With that said, NAND did decline at an industry gross margin level more than even DRAM in this downturn. So we do expect that because it declined more from an ASP perspective and from a gross margin perspective, the bounce will obviously have to be steeper in NAND in order to restore some level of acceptable ROI.
Joe Moore: With that said non bid decline at an industry gross margin level.
Joe Moore: More than even DRAM and this.
Joe Moore: In this downturn. So we do expect that because of the declined more from a ASP perspective and from a gross margin perspective, the bounce will obviously have to be steeper in NAND in order to restore some level of.
Acceptable Ottawa.
Joe Moore: So the.
Joe Moore: Pace of.
Price increases in NAND to dig out of that hole will have to be just mathematically bigger, but we are
Price increases in land to dig out of that hole will have to be just mathematically bigger.
Joe Moore: But we are.
seeing tightness in both DRAM and NAND, especially on the leading edge nodes. They are in shortage in both DRAM and NAND. And so both of those should continue to improve. But just because NAND has a deeper hole to dig out of, its absolute, its percentage increases will just be higher.
Joe Moore: Seeing tightness in both DRAM and NAND, especially on the leading edge nodes there.
Joe Moore: Shortage in both DRAM and NAND and so both of those.
Joe Moore: Should continue to improve but just because <unk> has a deeper hole to dig out of its absolute.
It's percentage increases will be higher.
Speaker Change: Great that's helpful and then for.
Speaker Change: Unrelated follow up I Wonder if you look at the high capital spending in memory in China, obviously severe limitations on what they are allowed to spend money on.
Related follow up, I wonder, you know, if you look at the high capital spending in memory in in China, obviously severe limitations on what they're allowed to spend money on, you know, but but you might have geopolitical incentive to use those bits.
But but you might have geopolitical incentive to use those bits in devices, where you wouldn't ordinarily use trailing edge, but can you just give us some sense of how you guys perceive that supply coming out of China to be relative to the global supply demand.
devices where you wouldn't ordinarily use trailing edge bits. Can you just give us some sense of how you guys perceive that supply coming out of China to be relevant to the global supply demand?
Speaker Change: Sure sure sure so I think.
Speaker Change:
correctly highlight that the technologies that are in production in China are behind the leading edge nodes in the industry.
Speaker Change: Correctly highlight that.
Speaker Change: <unk> technologies that are.
Speaker Change: In production in China are.
Speaker Change: Behind the leading edge nodes in the industry.
<unk>.
Speaker Change: We.
You know, so we do have modeled the supply for both DRAM and NAND as part of the global demand that we see or global supply against the global demand models that we have. And we do model them being able to continue. However, you know, their, you know, impact on the market, given the fact that they're trailing is is.
Speaker Change: So we do have modeled.
Speaker Change: The supply for both DRAM and NAND as part of the global demand that we see with global supply against the global demand models that we have when we do model them being able to continue however.
Speaker Change: Their.
Speaker Change: Impact on.
Speaker Change: The market <unk>.
Given the fact that they're trailing is.
commensurate with that position, both based on the ability for those technologies to generate supply, as well as their ability to compete in higher-end applications when they have nodes that are less competitive in terms of features or performance. And, you know, for example, as industry transitions to more complicated products like HBM or others. Great. Thank you very much.
Speaker Change: Commensurate with that with that position both based on their the ability for those technologies to generate supply as well as their ability to compete and higher end applications. When they have nodes that are less.
Speaker Change: Less competitive in terms of features our performance and for example, the industry transitions to more complicated products like HBM or or others.
Great. Thank you very much.
Speaker Change: Yeah.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Okay.
Speaker Change: And.
Our next question comes from the line of Quinn Bolton from Needham and Company. Your question, please. Hi guys, so thanks for taking my question. I guess maybe more, just wanted to ask a question on the front end cost reductions in fiscal 24 for mid to high school digits and DRAM and low double digits and NAND. I thought previously, you guys thought that the cost reduction.
Speaker Change: Our next question comes from the line of Quinn Bolton from Needham <unk> Company. Your question. Please.
Quinn Bolton: Hi, guys. Thanks for taking my question I guess, maybe Mark just wanted to ask a question on the front end cost reductions in fiscal 'twenty four for mid to high single digits in DRAM in low double digits in night I thought previously you guys thought that the cost reductions in fiscal 'twenty four it might be affected by under utilization charges.
in fiscal 24 might be affected by underutilization charges and those costs flowing through inventory and through COGS. And so I guess I'm wondering, can you clarify, is that inclusive of underutilization charges or is that just front-end wafer and excludes any utilization or underutilization effect?
Quinn Bolton: And those costs flowing through inventory through Cogs, and sorry, I guess I am wondering can you clarify is that inclusive of.
Quinn Bolton: And utilization charges or is that just front end wafer and.
Quinn Bolton: Excludes any utilization or underutilization effect.
Quinn Bolton: Yes.
Yeah, it does include the underutilization effect. And Clint, it's a good question. And in the case of DRAM, it's all in. But operationally, we do expect FY24 to be a year of improved efficiencies across the factories. As we've talked about.
Speaker Change: It does include the Underutilization effect and Glenn it's a good question.
Speaker Change: And it's in the case of DRAM, it's all in so.
Speaker Change: But operationally.
Speaker Change: Yes, we do expect FY 'twenty four to be a year of improved efficiencies across the factories.
Speaker Change: As we've talked about.
You know, we've got structurally lower capacity as we migrate idle tools from lagging to leading nodes.
Speaker Change: Yes.
Speaker Change: We've got structurally lower capacity as we migrate idled tools from lagging.
To leading nodes.
Now, there's still some underutilization in those lagging nodes, but we will see the idle charges decrease.
Now there are still some underutilization is lagging nodes, but we will see the idle charges decrease.
through the year and starting in second quarter. And between that and then just the tech node migrations, more of the capacity going to leading nodes, we're going to see that positively affect the fronting cost reductions for both DRAM and NAND. So you're seeing that happen here, incrementally positive to the view we had before.
Speaker Change: Through the year and in.
Speaker Change: Starting in second quarter and between that and then just the tech node migrations more of the capacity going into leading nodes.
We're going to see that positively affect the front end cost reductions for both DRAM and NAND, So youre seeing that.
Speaker Change: Seeing that happen here incrementally positive to the view we had before.
Yeah, we've covered it quite a bit over the past year, so I'm not going to go through all that, but in summary, some of the underloading effect, as you know, hits COGS as period costs, while some of it is not.
Speaker Change: Yes, we've covered it quite a bit over the past year, so I'm not going to go through all that but in summary.
Speaker Change: Some of the underlying effect as you know hits Cogs as period costs.
Speaker Change: While some of it is absorbed.
And the part that's absorbed is in the higher cost inventory. So in fiscal Q2, we'll have much lower idle related period costs. And again, it's mostly related to this increased utilization from, you know, and the idle costs remaining will be mostly legacy node related.
And the part that's absorbed as the higher cost inventory so in fiscal Q2, we.
Speaker Change: We will have much lower Idaho related period costs and again, it's mostly related to this increased utilization.
Speaker Change: From.
Speaker Change: Yeah, and the idle costs remaining will be mostly legacy node.
And then you'll have this portion of under load that's in inventories is higher cost.
Speaker Change: <unk>.
Speaker Change: And then Youll have this portion of under load.
Speaker Change: And inventories as higher costs.
And as we move through the year, this this will clear and become less of an effect. So in total, we end up with what what we communicate today, which is.
Speaker Change: And as we move through the year this will clear and become less of an effect. So.
Speaker Change: In total we ended up with what we communicated today, which is.
you know, front-end costs, and in the case of BRAM, all-end costs mid-to-high single digits down for 24. Now, in NAN, you know, we said, you know, low teens in front-end costs down, which, you know, we will see, but because of more of a mixed shift,
Speaker Change: Front end costs and in the case of DRAM all in costs mid to high single digits down for 24.
Speaker Change: Now in NAND, yes.
Speaker Change: He said.
Low teens and front end costs down.
Speaker Change: Which we will see because of more of a mix shift.
On components to modules, we'll see below 10% more of mid-to-high single-digit cost downs for NAND all-in, just for your modules.
Speaker Change: On components and modules.
Speaker Change: We will see below 10% more of mid to high single digit cost downs for NAND all in.
Speaker Change: Just for your for your modeling.
got it that that's helpful and I guess this follow-up question just wanted to come back to the question that was asked on the call about HBM 3e if you guys have 10% better form performance
Speaker Change: Got it that's helpful. And then I guess follow up question just wanted to come back to the question that was asked on the call about HBM. Three if you guys have 10% better performance, 30% better power.
better power. Do you think, do you expect to be sole sourced on the SKUs you win or to the extent that there are multiple sources, will the customer have to de-rate your HBM to have similar performance across the two?
Speaker Change: Do you think do you expect to be sole sourced on the Skus you win or to the extent that there are multiple sources will the customer have to derate, you're HBM to.
Speaker Change: Have similar performance across the two skus.
Yeah, I mean, it's a good question. Are customers...
Yeah, I mean, it's a good question our customers.
have been amazed at the capabilities that we have created with HPN3e versus HPN3e.
Speaker Change: Have been amazed at the.
Speaker Change: Capabilities that we have created with HP and <unk> versus.
you know, what others have been able to do with this product and this is.
Speaker Change: What others have been able to do with this product and this is this has been part of our strategy to leapfrog HP in three and <unk> III <unk> first to market with that create the world class product better than anyone else and so this is spanning out our customers have different.
This has been part of our strategy to deepfrog HPM3 and go to HPM3DB first to market with it, create a world-class product better than anyone else.
And so, this is spanning out our customers have a different approaches that they are assessing and how to take advantage of this capability on the performance and power side in terms of what type of products they.
Speaker Change: Roaches.
Speaker Change: They are assessing and how to take advantage of this capability on the performance and power side in terms of.
Speaker Change: What type of products.
use our HBM in, what kind of SKUs do they create with that, what kind of multi-sourcing strategy do they have to support their whole portfolio, and while we are working with them on our designs and integration of our designs with their GPUs, we are not at liberty to discuss those strategies, and we will leave it at that. Understood. Thank you.
Speaker Change: Use our HBM in.
Speaker Change: What kind of Skus do they create with that what kind of multi sourcing strategy do they have to support the whole portfolio.
Speaker Change: And while we are working with them.
Speaker Change: On.
Speaker Change: <unk> designs and integration of our designs for their Gpus, we are not at Liberty to on.
Speaker Change: Discuss those strategies.
Speaker Change: And.
Speaker Change: B.
Speaker Change: Yeah.
Speaker Change: Understood. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Man.
Our next question comes from the line of Vijay Rakesh from Mizzow. Your question please. Yeah, hi. I had a question on your, when you look at your DRAM and NAND CAPEX.
Speaker Change: Our next question comes from the line of Vijay Rakesh from Mizuho. Your question. Please.
Vijay Rakesh: Yeah, Hi, Christian on you when you look at the DRAM and NAND.
Vijay Rakesh: Capex in the coming to the debate on the bit supply.
Can you talk to what your wafer capacity would be exceeding calendar 23?
Talk to walk your wafer capacity would be exiting calendar 'twenty, three and how you see that exiting calendar 'twenty four.
I think what we've given, Vijay, I think we've given guidance mainly on sort of fiscal year to fiscal year. So if you allow me to do that, we've said that, you know, the
Vijay Rakesh: I think what we've given the day I think we've given guidance mainly on sort of fiscal year to fiscal year. So if you.
Speaker Change: Yes allow me to do that we've said that.
Speaker Change: <unk>.
Speaker Change: The.
The we were our way for capacity for both the airman and a way for output capacity was approaching 30% below our prior peak levels as we began this fiscal year and the majority of that.
Speaker Change: We were our wafer capacity for both DRAM and NAND wafer output capacity was approaching 30% below our prior peak levels as we began this fiscal year.
Majority of that.
Speaker Change: Was underutilization of.
was underutilization of equipment.
Speaker Change: Equipment.
And as we transition through the year, and as Mark noted earlier, we'll be utilizing some of that underutilized equipment towards transitioning to the leading edge nodes, one beta and 232 layer NAND. And as we do that throughout the year, by the time we exit fiscal year or beginning of the next fiscal year, fiscal 25, the majority of that reduction
Speaker Change: And as we transition through the year and as Mark noted earlier, we will be utilizing some of that underutilized equipment towards transitioning to the leading edge nodes, one beta and 232 layer <unk> NAND.
Speaker Change: And as we do that throughout the year by the time, we exit fiscal year or beginning of the next fiscal year fiscal 'twenty five the majority of that.
Speaker Change: Reduction.
We will be.
actually the derated capacity or reduction in capacity due to the longer process cycle times and the equipment being utilized for more complex nodes.
Speaker Change: Actually the de rated capacity a reduction in capacity due to the longer process cycle times and the equipment being utilized for more complex nodes.
We haven't really, and the production capacity will be down meaningfully from our peak levels, but we haven't really given specifics on how much it'll just be meaningfully down even as a result of this.
Speaker Change: We haven't really.
Speaker Change: And the.
Speaker Change: The production capacity will be down meaningfully from our peak levels, but we haven't really given specifics on how much. It will just be meaningfully down even as a result of this.
And we still will have some underutilization, primarily on legacy nodes, going through into Typical 25 as well.
And we still will have some underutilization, primarily on legacy notes going through.
Speaker Change: Fiscal 'twenty five.
Speaker Change: Got it and then the man said very similar.
I'm sorry, those are all about DRM and NAND comments, yeah. OK, got it. Yeah, by the beginning of 25, I think, yeah. Yeah, sorry, go ahead. No, I was just going to say, by the beginning of 25, we would expect that the majority of the reduction in capacity came from converting equipment to the newer nodes versus a decision we've taken on under-utilizing and idling equipment.
Speaker Change: I'm sorry that was a those are all about DRAM and NAND commentary, Okay got it yes by the beginning of 'twenty five.
Speaker Change: Yeah, Yeah, sorry go ahead.
Speaker Change: I'm just gonna say by the end of 'twenty five we would expect that the majority of the reduction in capacity came from converting equipment to the newer nodes versus a decision we've taken on underutilized and idling.
Speaker Change: Got it and then on the <unk> side.
And then on the HBM side, any similar commentary on what your capacity would be on HBM within
Speaker Change: A similar commentary on what your capacity would be on HBM.
Within DRAM I guess.
Speaker Change: Exiting fiscal 'twenty versus fiscal 'twenty four 'twenty five.
You know, we haven't provided much detail other than to say that we expect our share of HBM to intercept our share of the overall DRM market sometime in calendar year 25.
Speaker Change: We havent provided much detail other than to say that we expect our.
Speaker Change: Our share of HBM to intercept the our share of the overall DRAM market some time in calendar year 'twenty five.
So that gives you some sense of sort of where we are, where we have to go. As you know, we have not had as large a share. So we're starting from a trailing position. We had some capacity and some production on HBM2e to get good learning, but the HBM3e will be a steep ramp. We have,
Speaker Change: So that gives you some sense of sort of where we are where we have to go as you know we have not had a larger share. So we're starting from a from a.
Speaker Change: Trailing position, we had some <unk>.
Speaker Change: Capacity and some production on <unk> to get good learning, but <unk> will be a it will be a steep ramp.
We have.
Speaker Change: Good alignment in agreement with the equipment suppliers and we have.
good alignment agreement with the equipment suppliers, and we have a plan to be able to meet several hundred million dollars of revenue within fiscal year 24, which I think we talked about in the script.
Speaker Change: Our plan to be able to meet.
Several hundred million dollars of revenue within fiscal year, 'twenty, four which I think we've talked about in the script.
And then, of course, that will position us well to be able to grow, continuing into fiscal year 25, towards that goal of being able to intercept our overall industry market share sometime in calendar year 25.
Speaker Change: And then of course that will position us well to be able to grow continuing into fiscal year 'twenty five.
Speaker Change: Words that goal of being able to intercept for our overall industry market share sometime in calendar year 'twenty five.
And, Vijay, maybe I'll add just maybe a CapEx-related comment on profile. So we gave an estimate $7.5 to $8 billion per CapEx.
And Vijay maybe I'll I'll add I'll add just maybe a capex related comment on profile. So we gave we gave an estimate at seven 5% to $8 billion or Capex.
based on the guidance we gave for the first half capex and the second half capex will be a bit higher than the first half and that's a function of HBM spend and also greenfield capacity spend.
Based on the guidance, we gave for the first half capex in the second half Capex will be.
Speaker Change: A bit higher than the first half and that's a function of HP HBM spend and also greenfield capacity spend.
Certainly, you know, we've made some grant assumptions on.
Speaker Change: Certainly.
Speaker Change: We've made some.
Speaker Change: Grant assumptions on size and timing and of course, that's reflected in our guidance. So if that were to change materially then it may affect our numbers, both capex and cash flow and just a slight.
And timing, and of course, that's reflected in in our guidance. So if that were to change materially, then it may affect our numbers, both capex and and cash flow. Right? And just a slight clarification about the greenfield capacity, but it's really greenfield facilities to support future capacity. Yes, end of decade related demand. Sorry. Great. Thank you. Thank you. Thank you. 1 moment for.
Good clarification about greenfield capacity, but is really greenfield facilities to support future capacity, yes end of decade.
Speaker Change: <unk> demand alright.
Alright, great. Thank you. Thank you.
Speaker Change: Yeah.
Speaker Change: The Q1 moment for our next question.
Speaker Change: And our next question comes from the line of Sidney Ho from Deutsche Bank. Your question. Please.
Great. Thanks for the question. So, just to follow up to a couple of questions from the last two questions. What was the idle charges in fiscal Q1, and what are you baking in for fiscal Q2 in your gross margin 13% guidance? And why would idle charges come down when bid shipment is expected to decline somewhat in fiscal Q2 and again in Q3? Is it just the use of underutilized equipment for no transition that you guys just talked about?
Sidney Ho: Great. Thanks for the question. So just a follow up to a couple of questions.
Sidney Ho: The last two questions. One was the ideal charges in fiscal Q1, and what are you baking in for fiscal Q2 gross margin 30, 13% guidance.
Sidney Ho: And why would Idaho charges come downward bit shipment is expected to decline somewhat in fiscal Q2 and again in Q3 is it just the use of underutilized equipment for new transition that you guys just talked about.
Yeah, so Sidney, the idle charges in Q1 were $165 million. So that's down from over $220 million in the fourth quarter. They'll go down significantly first quarter.
Speaker Change: So sidney the idle charges in Q1.
Speaker Change: $165 million, that's down from over 220% in the fourth quarter.
Speaker Change: They will go down significantly.
First quarter to second quarter and again. This is this is a function of utilization is going up and the network.
And again, this is a function of utilization is going up in the network, and underutilization is going to largely reside in legacy nodes. And again, as we talked about last call and this call, that's happening in part because we've redeployed some legacy node equipment to leading nodes and the actual, the wafer outputs down. So the denominator in the utilization.
Speaker Change: And Underutilization is going to largely reside in legacy nodes and again as we talked about last call and this call.
Speaker Change: That's happening in part because.
Speaker Change: We've redeployed some legacy note equipment to leading nodes and the actual the wafer output down so as denominator and utilizations.
larger or smaller.
Speaker Change: Larger.
For smaller so.
Yeah, so again, the idle charges are related to when utilization is under a certain.
Yes, so again.
Speaker Change: Idle charges are related to.
Speaker Change: When utilization is under a certain level.
you cannot capitalize those costs in inventory. So since utilization is increasing, we pass that level for leading node and
Speaker Change: You cannot capitalize those costs and inventory so.
Since utilization is.
Speaker Change: Increasing we.
Speaker Change: Past that level for bleeding.
Speaker Change: Leading node and.
you know, and have idle charges remaining to flag.
Speaker Change: Our remaining have idle charges remaining two lagging nodes.
And maybe just a little follow up on the second part of your question on bit shipments and timing of bit shipments, keep in mind the process cycle time in fab as we transition to these newer nodes is longer, so the cycle time in the fab is longer, right, as we make these transitions. So you're converting to a node, more complex, better technology, but it is longer cycle time in the fab. And then we're also, and Mark mentioned particularly for NAND.
Speaker Change: And maybe just a little follow up on the maybe just a little follow up on the second part of your question on bit shipments in timing a bit shipments keep in mind.
Speaker Change: The profit cycle time in fab as we transitioned to these newer nodes is longer so the cycle time in the fab is longer as we make these transitions so you're converting to a node more complex better technology, but it is longer cycle time in the fab and then we're also.
Speaker Change: And Mark mentioned, particularly Fernand.
transitioning and targeting our portfolio towards higher value solutions.
Speaker Change: Transitioning in targeting our portfolio towards higher value solutions. Those hardware solutions also have longer cycle time in assembly and test.
those higher value solutions also have longer cycle time in assembly and test.
So that's why when we say we're constrained on leading-edge nodes, it's not immediately when you're talking about leading-edge technology into leading-edge high-value products. The cycle time for us to be able to deliver more bid shipments is longer than maybe it was last year when we had more.
Speaker Change: So.
Speaker Change: That's why when we say, we're constrained on leading edge nodes, it's not.
Immediately when you are talking about leading edge technology into leading edge high value products.
A good time for us to be able to deliver more.
Speaker Change: Bitumen is longer than maybe it was last year, when we had more of a component focus.
Now that that's super helpful, maybe my follow up question is, if I look at DRM ASP, it was up slightly in fiscal Q1. That's kind of expected. I think previously you said it was limited by customers, strategic buys occurred in prior quarters.
Speaker Change: Got it that's Super helpful. Maybe my follow up question is if I look at DRAM ESP. It was up slightly in fiscal Q1, that's kind of expected I think previously you said there was limited by customers strategic buys occurred in prior quarters.
Is there any way you can help us think what would have been, what a gross margin would have been without the headwinds from these strategic buys? And if you look at fiscal 2Q, part of the quarter is still within that, we'll probably see the same headwind, right, because most of these pre-buys have been ended at the end of the calendar year. Is it fair that there will be another step up in fiscal Q3 that is above and beyond market trends that we should be thinking about? Thanks. Yeah.
Is there any way you can help us think what would have been one.
Speaker Change: Gross margin would have been without the headwinds from <unk> strategic buys and if you look at Cisco <unk> part of the quarter is still within that we'll probably see the same headwind right because most of these people.
Speaker Change: <unk> happen.
Speaker Change: At the end of the calendar year is it fair that there will be another step up in fiscal Q3 that is above and beyond market trends that we should be thinking about thanks.
Speaker Change: Yes, so yes, it is true that.
Fiscal Q1 did get impacted by some strategic buys in terms of pricing realized, but keep in mind that those strategic buys were implemented or agreed upon in CQ3. And further, FQ1 has the effect.
Speaker Change: Fiscal Q1.
Speaker Change: Did get impacted by some strategic buys in terms of pricing realized but keep in mind that those strategic buys were implemented or agreed upon in.
Speaker Change: See Q3, and further FQ1 has the effect.
of September in there, which is part of CQ3 pricing, which was still under pressure, and then two months of CQ4, where we did better. The other aspect was we came into FQ1 with robust bookings, even beyond the strategic buys. And these robust bookings included pricing.
Speaker Change: <unk> of September.
Speaker Change: In there, which is part of CQ, three pricing, which was still under pressure.
And then two months of Q4.
Speaker Change: Where we did better.
Speaker Change: Other aspect was we came into Q1.
Speaker Change: <unk>.
Speaker Change: Robust bookings even beyond the strategic buys.
Speaker Change: And these robust bookings included pricing.
that had been negotiated earlier, before the inflection happened. So we knew based on those robust bookings, we were able to then use those robust bookings to
Speaker Change: That had been negotiated.
Speaker Change: Earlier before the inflection happens so we knew based on those robust bookings we've been able to then use those robust bookings too.
push pricing higher than we had originally expected and so CQ4 pricing ended up
Speaker Change: Push pricing higher.
Speaker Change: When we had originally expected.
Speaker Change: And so Q4 pricing ended up.
becoming much better than we had originally planned because of that, and of course you're seeing that our FQ2 guidance on revenue is going up substantially from 4.7 billion in FQ1 to 5.3
Speaker Change: Becoming.
Speaker Change: Better than we had originally planned.
Speaker Change: Of that and of course, you are seeing that our FQ2 guidance on revenue.
Is going up substantially from <unk>.
Speaker Change: $4 7 billion.
Speaker Change: Q1 to $5 3 billion.
plus minus 200 million without the benefit of bit growth, right? Because bit growth is not a driver in those.
Speaker Change: Plus minus 200 million.
Speaker Change: Without the benefit of bit growth, alright, because bit growth is.
Not a driver in those numbers.
And yes, December is one month of CQ4 in RSQ2. And then we'll have two months of CQ1 in there, in RSQ2, January and February . But all of the
And yes December is.
Speaker Change: In one month of Q4 in our FQ2 and then we'll have two months of CQ1 in there and I'll ask you to January and February.
But all of the.
Expectation that we have right now is for continued increases in pricing. So, for a lot of the customers for whom we do pricing negotiations on a calendar quarter basis, you know, every fiscal quarter we'll have this effect of one month, previous quarter, two months, next quarter, and, you know, that's how it will flow into our P&L. Okay, great. Thanks. Bye.
Speaker Change: Expectation that we have right now is for continued increases in pricing so far.
Speaker Change: All of the customers for whom we do pricing negotiations on a calendar quarter basis.
Speaker Change: Every fiscal quarter, we will have this effect of one month previous quarter two months next quarter.
Speaker Change: And that's.
Speaker Change: That's how it can flow into our into our P&L.
Speaker Change: Okay, great. Thanks.
Thank you one moment for our next question.
Speaker Change: Okay.
Our next question.
Speaker Change: Comes from the line of Vivek Arya.
Vivek Arya: From Bank of America. Your question. Please.
from Bank of America. Your question please.
Thanks for taking my questions. I had two as well. The first one on just the concept of the pricing improvement. You know, historically, the memory industry has had a challenging time forecasting pricing for more than, you know, one plus quarter, but now you're suggesting pricing can continue to improve, not just in the current quarter, but I think I heard for two more quarters. And the main reason I heard was tightness and leading edge, which I assume you mean your supply type.
Vivek Arya: Thanks for taking my questions I had two has been the first one on <unk>.
The concept of the pricing improvement historically, the memory industry has had a challenging time forecasting pricing for more than.
Vivek Arya: One one plus quarter, but now youre, suggesting pricing can continue to improve not just in the current quarter, but I think I heard for two more quarters then.
The main reason I heard was tightness in leading edge, which I assume you mean your supply tightness.
in a leading edge. So if you could just give us more color, what's giving you the visibility that pricing can continue to improve for several quarters? Because when I think of leading edge, I'm reminded of the data center, but that's the segment you are saying is most over supplied, at least in the near term. So just help us understand what is helping drive that confidence and visibility that pricing can continue to improve for several quarters.
Vivek Arya: Leading edge. So if you could just give us more color whats, giving you the visibility that pricing can continue to improve for several quarters, because when I think of leading edge.
Vivek Arya: Reminded of the data center, but Thats. The segment you are saying is most over.
Vivek Arya: <unk> at least in the near term can you just help us understand what is helping drive that.
Confidence and visibility that pricing can continue to improve for several quarters.
Yeah, yeah, I think the pricing outlook we can think of from two angles, you know, one is the demand side and one is the supply side. I think on the supply side, you have seen that the industry has had a challenging time with.
Speaker Change: Yeah, Yeah, I think the pricing outlook, we can think of from two.
Speaker Change: Angles, one is the demand side and one is the supply side I think on the supply side you have seen that the industry has had a challenging time with.
with margins and, you know, so many announced CapEx cuts, underutilization, et cetera. So, the supply has been impacted quite a bit. We have also spoken in our last
Speaker Change: With margins and so many announced capex Scott on the utilization et cetera. So the supply has been <unk>.
Speaker Change: Impacted quite a bit.
We have also spoken.
Our last.
earnings call as well as in this current earnings call about how underutilization is going to morph into, you know, lower capacity. And so, the overall capacity is getting impacted by all of these capital-efficient approaches to moving tools from the underutilized older nodes to newer nodes. And so, you know, we have constrained capacity overall. And then, of course, HBM
Speaker Change: Earnings call as well as in this current earnings call about how under utilization is going to morph into lower capacity and so the overall capacity is getting.
Speaker Change: Getting impacted by all of these capital efficient approaches to moving tools from the underutilized older nodes to newer nodes and so we have constrained capacity overall and then of course HBM.
ramp that is taking place in the industry. We have mentioned to you the more than 2 to 1 trade ratio if we manufacture one bit of HBM.
Speaker Change: Ramp that is taking place in the industry. We have mentioned to you the more than two to one trade ratio.
Speaker Change: If we manufacture one bit of HBM.
based on the end-to-end use, you know, we end up with more than two bits lost of DDR5 in the process. So, all of those things are pressuring supply.
Speaker Change: Based on the end to end yields.
Speaker Change: We ended up with more than two bits lost of DDR five.
Speaker Change: In the process so.
Speaker Change: So all of those things are pressuring capacity pushing supply.
and when you get to lower amount of overall capacity,
Speaker Change: And.
Speaker Change: And when you get to lower amount of.
Overall capacity.
And then you decide at some point that the ROI just.
Speaker Change: And then you decide at some point that the.
Speaker Change: Ottawa justifies increasing Capex, obviously, you have to first reached that point, where you can.
increasing CAPEX. You obviously have to first reach that point where you can, you know, justify increasing CAPEX. From that point, you have two lead times and then you have
Speaker Change: Just to find premium capex from that point.
Speaker Change: Have to lead times, and then you have all of the cycle time of the front end and backend, which typically is $4 five to five months, depending on the complexity of the product that cycle time, So total cycle time, let's say scanner.
all of the cycle time of the front-end and back-end, which typically is, you know, four and a half to five months, depending on the complexity of the product, that cycle time. So, tool cycle time, let's say,
scanners and so on, nine months, five months for fab front-end and back-end. You are at 14 months.
Speaker Change: Scanners, and so on nine months five months for Fab front end and backend.
Speaker Change: You are at 14 months.
before output can be impacted once capacity needs to be increased. So it's a long cycle time to increase capacity and get those bits in the hands of customers and in terms of products that we need. So there is that supply timeline and supply impacts that are happening in the industry.
Speaker Change: Before output can be impacted.
Speaker Change: Once capacity needs to be increased so it's a long cycle time to increase capacity.
Speaker Change: And get those bits in the hands of customers and in terms of products that they need. So so there is there is that supply timeline and supply impacts that are happening in the industry on the demand side.
On the demand side, we have mentioned multiple drivers in our earnings call and other policies.
Speaker Change: We have mentioned multiple drivers in.
Speaker Change: In our earnings call in other public comments about what's driving the demand in the short term, we have normalized inventory in smartphones and Pcs auto and industrial continue to grow robustly from a demand perspective. So these things are helping drive and of course into the app.
about what's driving the demand in the short term. You know, we have normalized inventory in.
Smartphones and PCs, auto and industrial, continue to grow robustly from a big demand perspective. So these things.
are helping drive and of course you know the average capacity increase is happening across the board. So these things are driving big demand.
Speaker Change: <unk> capacity increase is happening across the board. So these things are driving demand.
Uh, and yes, you're right. The data center is, um.
Speaker Change: And yes, you are right the data center is.
certainly not yet normalized in terms of inventory. But keep in mind that data center is not the only user of leading edge technology products. These, for example, when we think about smartphones and when we think about.
Speaker Change: Certainly not yet normalized in terms of inventory, but keep in mind, the datacenters not the only user of leading edge technology products. These.
Speaker Change: For example, when we think about smartphones and when you think about.
PCs, they all use leading-edge technology.
Speaker Change: <unk>, they all use leading edge technology.
We have spoken about DDR5, transition from DDR4, most of our DDR5.
Speaker Change: We have spoken about DDR five transition from DDR for most of our DDR five is in leading edge nodes.
is in leading-edge nodes, and so that's one example. All of our client and data center SSDs, we have mentioned how we have reached a second consecutive record in data center SSD. That's all leading-edge nodes. And so, you know, it's not just the data center that is using leading-edge nodes. It's also, you know, multiple other parts of the market.
Speaker Change: And so.
Speaker Change: That's one example of our <unk>.
Speaker Change: <unk> 10 data Center Ssds, we mentioned, how we Havent reached a second consecutive record in data Center SSD that's all.
Speaker Change: Leading edge nodes and so.
Speaker Change: It's not just the data center that is using leading edge nodes. It's also multiple other parts of the market.
Speaker Change: And.
And then, you're right, we don't usually forecast pricing. This time around, we did, you know, talk about our expectation of pricing increasing throughout calendar 24. I mentioned the supply side of it. The other aspect is.
Speaker Change: And then you're right, we don't usually forecast pricing this time around we did.
Speaker Change: Talk about our expectation of pricing increasing throughout calendar 'twenty four.
Speaker Change: Mentioned the supply side of it. The other aspect is we are seeing this tightness in leading edge, even before data center has become a material purchaser.
We are seeing this tightness and leading edge even before data center has become a material purchaser of DRAM and NAND. They are still in inventory consumption mode. So their purchases of DRAM and NAND are still below their consumption, right? So they are consuming DRAM and NAND from inventory more. And so.
Speaker Change: DRAM and NAND they are still in inventory consumption more severe purchases of DRAM and NAND are still below their consumption right. So they're consuming DRAM and NAND from inventory more and so.
Once their inventory normalizes, they will become a more active purchaser of DRAM and in the second half.
Speaker Change: Once that inventory normalizes, they will become a more active purchaser of DRAM and NAND in the second half.
So, starting in sometime first half and certainly second half of calendar 2024, so that will become an additional driver and all of our 2024 numbers don't require.
Speaker Change: So starting in sometime first half and certainly second half of calendar 2024, so that will become an additional driver.
Speaker Change: And.
All of our 2024 numbers don't require.
very dramatic growth in PC units or smartphone units or even in a general purpose server unit.
Speaker Change: A very dramatic growth in D C. United saw smartphone units or even general purpose server units.
Our growth expectations are all very modest in these areas. So any kind of uptick, especially later in calendar 24, will just add to demand. In an environment where supply is not easy to come about in this timeframe, given this.
Speaker Change: Our growth expectations are all very modest in these areas. So any kind of uptick, especially later in calendar 'twenty forward will just add to demand in an environment, where supply is not easy to come about in this timeframe. Given this timeline I mentioned on when supply can be.
timeline I mentioned on, you know, when supply can be added. So, the last point I was
Speaker Change: So.
Speaker Change: The last point I'll mention is.
You know, this has been a very unusual decline for the whole industry, you know, certainly most challenging in 15 years, but unusual in the aftermath of the COVID upswing that happened, which needed to be worked off, et cetera. So, there has been an impact to industry balance sheets. There has been an impact to.
This has been a very unusual decline for the whole industry.
Speaker Change: Certainly most challenging in 15 years, but unusual in the aftermath of the Covid upswing that happened, which needed to be worked off et cetera. So there has been an impact to industry balance sheets, there hasn't been an impact too.
Speaker Change:
to the overall ROI and, you know, certainly from a Micron perspective, we are going to be very focused on ensuring supply discipline, ensuring we invest based on improving ROI and ensuring, you know, we do.
Speaker Change: Two the overall Ottawa and.
Speaker Change: Certainly from a micron perspective, we are going to be very focused on ensuring supply discipline, ensuring we invest based on improving ROI.
Speaker Change: And ensuring we do.
think very carefully about supply-demand balance and how we make our own plans. So when I put all of these factors together, that's what gives us confidence about, you know, a little bit more extended timeline where we provided our guidance and view of our expectation of pricing strengthening throughout 2025.
Speaker Change: Think very carefully about supply demand balance and how we make our own plants. So when I put all of these factors together, that's what gives us.
Speaker Change: Confidence about a little bit more extended timeline maybe provided.
Speaker Change: <unk> and Buell, our expectation of pricing strengthening.
Speaker Change: Throughout 2024.
Speaker Change: That's very helpful. And then maybe as a follow up actually two clarifications for Mark. So one is on the chips grant.
Very helpful. And then maybe as a follow up actually to clarifications for for Mark. So one is on the chips grant, you know, what has been contemplated for many other companies. It's about, you know, 1020% of.
Mark Murphy: What has been contemplated for many other companies, it's about 10% to 20% of Capex would that suggest gross capex could be higher next year.
CAPEX, so that suggests, you know, gross CAPEX could be higher next year, right? And I don't know whether that means that WSE will also be higher on a gross basis, even on a net basis maybe, so I don't know if there's any issue there. And the other clarification, Mark, I don't know if you have already spoken to it, but the drivers of gross margin expansion in Q3 and Q4, is it just pricing, or is there anything else, maybe you mentioned, but perhaps I didn't catch it.
Mark Murphy: And I don't know whether that means FWS C will also be higher on a gross basis, even though on a net basis, maybe so I don't know if there is any issue there and the other clarification Mark I don't know if you have already spoken to it but.
The drivers of gross margin expansion in Q3, and Q4 is it just pricing or is there anything else, maybe you mentioned, perhaps I didn't catch it before thank you.
Yeah, Vivek, on your on your first question, you know, we, as we disclosed, we did submit applications for CHIPS funding for two FAB expansion areas in the U.S. Those negotiations are underway and we're not able to disclose any more at this time. We've made assumptions, as I mentioned earlier.
Yes, and in fact on your on your first question.
Mark Murphy: Yes.
Mark Murphy: As we disclosed we did submit applications.
For chips funding or two.
Mark Murphy: Tab expansionary.
Mark Murphy: Expansion areas in the U S.
Mark Murphy: Those negotiations are underway and we were not able to disclose any more at this time, we've made assumptions as I mentioned earlier about grant timing and size.
about grant timing and size based on our understanding of potential there, but nothing else to disclose at this time. On drivers... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...
Mark Murphy: Based on our understanding.
Mark Murphy: <unk> potential there but.
Mark Murphy: Nothing else to disclose at this time.
Mark Murphy: On drivers of gross margin expansion.
Through the year, it's it's going to be, you know, we didn't provide any color other than it will expand. We believe here 2nd to 3rd and 3rd to 4th that will be almost exclusively price in the 2nd to 3rd there will be some.
Mark Murphy: Through the year.
Mark Murphy: It's going to be we didn't provide any color other than.
Mark Murphy: Well expand we believe for the year second to third and third to fourth.
Mark Murphy: That will be almost exclusively price in the second or third there will be some.
net cost benefit, so that'll be a bit muted because.
Mark Murphy: Net cost benefit that will be a bit muted because.
we will lose that lower cost inventory benefit, which we, that inventory last clears in the second quarter. And then in the, and then we'll see price appreciation again and that will be the largest factor again in the fourth quarter gross margin expansion.
We will lose that lower cost inventory Benny.
Mark Murphy: Benefit which we.
Mark Murphy: <unk>.
Tori last clears in the second quarter and then in the.
Mark Murphy: And then we will see price appreciation again and that will be the largest factor again in the fourth quarter gross margin expansion.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Thank you.
And this does conclude the question and answer session, as well as today's program. Thank you everyone for your participation. You may now disconnect. Good day.
Speaker Change: And this does conclude the question and answer session as well as today's program. Thank you everyone for your participation you may now disconnect good day.
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Thank you for standing by. Welcome to Micron.
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Speaker Change: Thank you for standing by welcome to Micron's Post earnings Analyst call. At this time, all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session. As a reminder to ask a question. During the session you will need to press star one on your telephone as a reminder, today's program is being recorded and now I'd like to introduce.
earnings analyst call. At this time all participants are in listen-only mode. After the speaker's presentation there will be a question and answer session. As a reminder to ask a question during the session you'll need to press star 1 1 on your telephone. As a reminder today's program is being recorded and now I'd like to introduce your host for today's program Satya Kumar Investor Relations. Please go ahead sir.
Speaker Change: Your host for today's program Satya Kumar Investor Relations. Please go ahead Sir.
Thank you and welcome to Micron Technologies Fiscal First Quarter 2024 Post-Earnings Analyst Call.
Thank you and welcome to Micron technologies fiscal first quarter 2020 post earnings analyst call.
On the call with me today are Sumit Siddhana, Micron's Chief Business Officer, Manish Bhatia, EVP of Global Operations, and Mark Murphy, our CFO .
On the call with me today are Sumit, Sedona, Micron's Chief business Officer.
Speaker Change: But here EVP of our global operations and Mark Murphy our CFO.
As a reminder, the matters we're discussing today include forward-looking statements regarding market demand and supply, market trends and drivers, our expected results and guidance, and other matters.
Mark Murphy: As a reminder, the matters. We're discussing today include forward looking statements regarding market demand and supply market trends and drivers of our expected results and guidance and other matters.
These forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made today.
Mark Murphy: These forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made today.
We refer you to documents we filed with the SEC, including our most recent Form 10-K and upcoming 10-Q for a discussion of risks that may affect our future results.
Mark Murphy: I refer you to documents, we filed with the SEC, including our most recent Form 10-K and upcoming 10-Q for a discussion of risks that may affect our future results.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We are under no duty to update any of the forward-looking statements to conform these statements to actual results. We can now open up for Q&A. Certainly. One moment for our first question.
Mark Murphy: 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.
Mark Murphy: We are under no duty to update any of the forward looking statements to confirm these statements to actual results. We can now open up for Q&A.
Speaker Change: Certainly one moment for our first question.
Speaker Change: And.
Speaker Change: Our first question.
comes from the line of Ambrish Shavastava from BMO. Your question.
Speaker Change: Comes from the line of Bruce <unk> from BMO. Your question. Please.
Hi, excuse me. Thank you. I have a couple of clarifications just want to make sure I was
Bruce: Hi, excuse me. Thank you I had a couple of clarification just wanted to make sure I understand.
Bruce: St pages.
With prior comments, I'm just talking about the data center inventory cleaning out by 1st, temporary for that seems to be.
The prior comments.
Talking about the data center inventory cleaning out by first chapter a four that seems to be.
I think prior comments were in the beginning of the year. And kind of related to that is that is my understanding correct that now it's pushed out to First Chapter 24? And then is that a comment because of the strategic buys that you guys have seen? So it is a Micron-specific comment, or is that a industry-wide comment that you made? And then I had a quick follow-up.
Bruce: Extended versa I think prior comments were in the beginning of the year and.
Bruce: And kind of related to that is that is my understanding correct that now it's pushed out to first half 2004.
Speaker Change: Is that a comment because of the strategic buys that you guys have seen citizen micron specific comment or does that industry wide comment that you made and then I had a quick follow up.
Yeah. Hi, Ambrish. Yes. So on the data center side.
Speaker Change: Yes, Hi, I'm rich yes.
Speaker Change: Yes, so on the data center side.
There are some customers whose inventory will be normalized, let's say in the Q1 timeframe, there may be some who will get into Q2 before their inventory is normalized. That's why we said.
Speaker Change: There are some customers, whose inventory will be normalized let's say in the Q1 timeframe there may be some who the.
Get into Q2 before their inventories normalize that's why we.
Speaker Change: Being said sometime in the first half.
because certain customers have
Speaker Change: Because.
Speaker Change: Certain customers have.
experienced some lower end market growth in the last many months.
Speaker Change: Experienced some lower end market growth in the last many months.
and consequently their consumption of the inventory has been slower, and that is what may bleed into Q2 from Q1, and I'm talking about calendar, you know, Q1, Q2 for 2024, and it's nothing much to do with any of the strategic buys so much, and it's more to do with the…
Speaker Change: And consequently, their consumption of the inventory has been slower and that is what may bleed into Q2 from Q1 and I'm talking about calendar Q1 Q2 2024.
Speaker Change: And it's nothing much to do with any of the strategic buys so much and it's more to do with the.
total extent of the DRAM and NAND inventory at large data center customers.
Speaker Change: Total extend of the DRAM and NAND inventory.
Speaker Change: At large data center customers. So we.
So we believe it'll be mostly normalized in the first half.
Speaker Change: We believe it will be.
Speaker Change: Mostly normalize the first half.
more robust buying patterns coming in the second half and then as the overall data center general purpose compute growth accelerates, which you have seen.
Speaker Change: More robust buying patterns coming in in the second half and then as the overall data center general purpose compute growth accelerates.
Speaker Change: Which you have seen.
Speaker Change: General purpose servers.
actually fail, are likely to fall for calendar 2023 at a double-digit rate, serve a unit volume for general purpose needs.
Speaker Change: Actually fail unlikely to fall for calendar 2023 at a double digit rate.
Speaker Change: So the unit volume per general purpose needs.
I, you know, we expect that to stabilize in 2024, be sort of flattish general purpose server unit volumes, and then grow from that point on, so second half of 24 calendar year, and then calendar year 25, you know, more robust growth along all of those.
Speaker Change: Hi.
Speaker Change: <unk> that to stabilize.
Speaker Change: In 2024 be sort of flattish Jennifer episode of a unit volumes and then grow from that point on.
Speaker Change: So second half of 'twenty four calendar year, and then calendar year 'twenty five more robust growth along all of those fronts.
Got it, got it. Thank you. So, so I was correct a bit of a push out, but not a micron specific comment. That's more industry comment for my follow up. Maybe from an issue.
Speaker Change: Got it got it. Thank you. So so I was correct a bit of a push out but not a micron specific comment that's more of an industry comment from a follow up maybe from a niche.
As we think about cost down, I think you guys have been talking about high single digit for I think a couple years from when it used to be mid-teens DRAM cost down. Just trying to understand with HBM, higher packaging cost, stacking, does that change? You did give guide for 24, which is high single digit, but beyond that, does DRAM now start to come lower than that in terms of cost down?
As we think about costs down I think you guys have been talking about high single digit for.
Speaker Change: Pick up a couple of years from when it used to be mid teens DRAM cost down.
Speaker Change: Trying to understand with HBM.
Speaker Change: Higher packaging costs stacking does that change you did give guide for 'twenty, four which is high single digit but beyond that does.
Speaker Change: DRAM now start to come lower than that in terms from Costco.
Yeah, thanks, Amrish. You know, for front end, you're right. We did say mid to high single digits was our long term expectation for front end or.
Speaker Change: Yeah. Thanks rich.
Speaker Change: For front end Youre right, we did say mid to high single digits was our <unk>.
Speaker Change: Long term expectation for front end or memory level.
cost reduction and that factors in a few different things. One of course is technology and how technology is getting more challenging, cadence of technology that's capable for the industry and for us.
Speaker Change: Cost reduction.
Speaker Change: Production and that factors in a few different things one of course is technology and the technology is getting more challenging cadence of technology, that's capable for the industry and for us.
And yes, there is an element of a mix of technology. Certainly, we're transitioning from DDR4 to DDR5 and, you know, DDR5.
Speaker Change: And yes, there is an element of mix of technology, certainly we are transitioning from DDR four to DDR five and five.
has some structurally larger die sizes, and so, you know, some cost increases as we move there. And, yes, as HBM penetration grows in the industry, we've said, you know, for the industry in HBM3E, the die size is double. So, you know, even within the front-end cost, which is what we were guiding to, we do see that, you know, the industry's cost reduction capability will be coming down somewhat from what we had seen previously. Bye. Thank you.
It.
Speaker Change: Has some structural a higher larger die sizes and so.
Speaker Change: Some cost increases as we move there and yes as HBM penetration grows in the industry We've said.
For the industry and HBM III E. The die sizes double so even within the front end cost, which is what we were guiding to we do see that.
The industry's construction capability will be coming down somewhat from what we had seen previously.
Got it thank you.
Thank you one moment for our next question.
And our next question comes from the line of Thomas O'Malley from Barclays. Your question, please.
Speaker Change: And our next question comes from the line of Thomas O'malley from Barclays. Your question. Please.
Thanks for taking my question. At the risk of splitting hairs here, if I look at your deck from the last quarter, you talked about DRAM calendar, your 24-bit demand exceeding the long-term category. Now you're saying closer to near the long-term demand.
Good afternoon, guys. Thanks for taking my question at the risk of splitting hairs here. If I look at your deck from last quarter, you talked about DRAM calendar year, 'twenty four bit demand exceeding the long term CAGR.
Speaker Change: Now you are saying closer to near the long term demand is that the server side, that's causing that downtick and if you put yourself back in the position of last quarter has pricing improved enough, where you would expect that that would offset that.
Is that the server side that's causing that downtick? And if you put yourself back in the position of last quarter, has pricing improved enough where you would expect that that would offset that downtick in demand when you're looking at revenue and free cash flow kind of for the full year? In other words, you know, can that more than offset what you're seeing as a slight downtick in demand? Thank you.
Speaker Change: Don't take in demand when Youre looking at revenue and free cash flow kind of for the full year in other words came out more than offset what you are seeing is a slight downtick in demand. Thank you.
Speaker Change: Our overall.
expectation of demand for 2024 at the aggregate.
Speaker Change: Our expectation of demand for 2024.
Speaker Change: The aggregate debt level Hasnt really changed that much but you may have noticed that we have taken up our view of 2023.
hasn't really changed that much, but you may have noticed that we have taken up our view of 2023.
demand growth in DRAM from mid-single-digit to high-single-digit. And so it's really a movement of some bits across the, you know, year-end boundary. And that's what increased some of the bits in 2023, and hence, you know, with that higher base.
Demand growth in DRAM from mid single digit to high single digits and so it's really a movement of some bets across the year end boundary.
Speaker Change: And that's what increased some of the bids in 2023, and hence at that higher base.
The year-on-year growth in 2024 is on a percentage basis not as high as it used to be earlier. With that said.
Speaker Change: The year on year growth in 2024.
Speaker Change: <unk> is on a percentage basis, not as high as it used to be earlier with that said.
You know, we have definitely a more confident and optimistic view about pricing than we did three months ago. And we do expect the pricing to, and you've seen that in our guidance in terms of
We have definitely.
Speaker Change: More confident and optimistic view about pricing than we did three months ago.
And we do expect the pricing to and you've seen that in our guidance in terms of.
revenue as well as gross margin for FQ2, and we do expect pricing to continue to improve for 2024, throughout calendar 24, and our financial results to improve alongside, mainly driven by the fact that, you know, the leading edge nodes for both DRAM and NAND are oversubscribed for the full year.
Speaker Change: Revenue as well as gross margin for FQ, two and we do expect pricing to continue to improve for 2024.
Speaker Change: Throughout calendar 'twenty, four and our financial results to improve alongside.
Speaker Change: Mainly driven by the fact that the leading edge nodes for both DRAM and NAND are oversubscribed for the full year.
And so I don't see any kind of an impact.
Speaker Change: <unk>.
Speaker Change: And so I don't see any kind of an impact on the change that you were mentioning on a revenue basis. The revenue change should be a positive.
on the change that you were mentioning on a revenue basis, the revenue change should be a positive.
Helpful and then just a just a quick follow up. You obviously started the year on the DRAM side very strong from a bit perspective. You're guiding
Speaker Change: Helpful. And then just just a quick follow up you obviously started the year.
Speaker Change: On the DRAM side very strong from a bid perspective.
Speaker Change: Youre guiding.
slightly down, I would say, for the next two quarters, for February and May. Can you talk about just how severe that downtick may be? And when you look at what you're talking about for mid-team's demand, kind of near the long-term category, I mean, it would require a pretty big downtick, at least from your supply perspective, to get there. So just kind of help frame out those next two quarters. Is it stepping down materially from February and May off of that, or just the linearity of the declines?
Speaker Change: Slightly down I would say for the next two quarters for February May could you talk about just how severe.
Speaker Change: That downtick, maybe and when you look at what Youre talking about for mid teams demand kind of near the long term CAGR I mean, it would require a pretty big downtick at least from.
Speaker Change: Your supply perspective to get there. So just kind of help frame out those next two quarters is it.
Speaker Change: Stepping down materially from February and May off of that or just just the linearity of those declines.
Speaker Change: It would be really helpful. Thank you.
Yeah, yeah, I can provide a little bit of color on that. So.
Speaker Change: Yes, yes.
Speaker Change: Yes, I can provide a little bit of color on that so.
So if you just go back to our 2023.
Speaker Change: So if you just go back to our 2023 fiscal year, our bids bottomed in Q1 of 2023 revenue bottomed in Q2.
fiscal year. Our bids bottomed in FQ1 of 2023. Our revenue bottomed in FQ2. And so throughout the fiscal 2023, our bids have been growing.
Speaker Change: So throughout the fiscal 2023, our bits have been growing.
through the course of the fiscal year, and we entered 2024, you know, at a pretty good run rate of bids compared to where 2023 started on a fiscal year basis. And then, as you noted, you know, in Q1, our bid growth was pretty strong in DRAM.
Speaker Change: Through the course of the fiscal year and we enter 2024.
Speaker Change: Had a pretty good run rate of bits compared to their 2023 started on a fiscal year basis, and then as you noted in Q1, our bit growth was pretty strong in DRAM. So <unk>.
So we actually don't need a huge amount of sequential growth in 2024 to have pretty robust year-on-year bid growth fiscal 24 over fiscal 23 because of those base effects.
Speaker Change: We actually don't need a huge amount of sequential growth in 2024 to have pretty robust year on year bit growth fiscal 'twenty photo over fiscal 'twenty three because of those base effects.
With that said, if we just look at the environment right now.
That said if you just look at the environment right now.
Our leading edge supply is obviously pretty constrained due to all of the history of CapEx cuts that, you know, we have gone through, the industry has gone through. And so our leading edge bids are fully subscribed. We do have over-subscribed, you know, we do have...
Speaker Change: Our leading edge supply is obviously pretty constrained due to all of the history of Capex Scott.
Speaker Change: We have gone through the industry has gone through.
Speaker Change: And so our leading edge bids.
Speaker Change: Fully subscribed we do have oversubscribed, we do have.
you know, some inventory that we will obviously use to supplement our sales, supplement our production in 2024. But with that said.
Speaker Change: Some inventory that we will obviously.
Speaker Change: Used to supplement our sales.
Speaker Change: Supplement our production in 2024.
Speaker Change: But with that said we.
We have also some seasonality that typically occurs in CQ1 for the consumer portions of our business.
Speaker Change: Also some seasonality that typically occurs in CQ, one for the consumer portions of our business.
And we have, you know, not enough supply of leading edge bits in this timeframe. So, that's, those are all of the things that are coming together to cause our bit shipments in DRAM to be, and NAND both to be.
And.
Speaker Change: And we have <unk>.
Speaker Change: Not enough supply of leading edge bits in this in this timeframe. So that's those are all of the things that are coming together to cause our bit shipments in DRAM to be and then both to be down a little bit in FQ2 sequentially.
down a little bit in FQ2 sequentially. On the DRAM side, not growing in FQ3 either. We'll likely be down in FQ3. NAND, we'll see where things stand in FQ3, but we do expect both DRAM and NAND to have some modest.
Speaker Change: On the DRAM side.
Speaker Change: Not growing in that Q3, either will likely be down in Q3.
Speaker Change: <unk> NAND.
Speaker Change: We'll see where things stand in Q3, but we do it.
Expect both DRAM and NAND to have some modest sequential growth in Q4, and we do expect pricing to be the prime driver throughout each of those quarters for revenue margins financial performance.
Speaker Change: Throughout that time horizon.
Speaker Change: Extremely helpful. Thank you guys.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Okay.
Our next question comes from the line of Joe Moore from Morgan Stanley . Your question, please. Great. Thank you. Um, I wonder if you could give us some sense of the relative profitability of NAND versus DRAM at this point. I know you had mentioned in the call that the DRAM mix was still helpful to gross margins. But I would have thought with the increase in price that you saw in NAND that you're starting to get close. Can you just give us some sense of how close the two quantities?
Speaker Change: Our next question comes from the line of Joe Moore from Morgan Stanley. Your question. Please.
Joe Moore: Great. Thank you I Wonder if you could give us some sensitive.
Joe Moore: The relative profitability of NAND versus DRAM at this point I know you had mentioned in the call that the.
Mix was still helpful to gross margins, but I would have thought with the <unk>.
Joe Moore: The increase in price that you saw in NAND that youre starting to get close can you just give us some sense of how close the two qualities are.
I mean, the profitability of DRAM at a gross margin level is definitely higher than that of NAND. This is a continued trend that has been in place for quite some time, where DRAM profitability throughout the cycle tends to be higher than NAND profitability.
Yes.
Joe Moore: The profitability of DRAM at the gross margin level.
Joe Moore: Is definitely higher than that of NAND.
Joe Moore: This is continuing the trend that has been in place for quite some time, where DRAM profitability.
Joe Moore: Throughout the cycle tends to be higher than NAND profitability.
With that said, NAND did decline at an industry gross margin level more than even DRAM in this downturn. So we do expect that because it declined more from an ASP perspective and from a gross margin perspective, the bounce will obviously have to be steeper in NAND in order to restore some level of acceptable ROI.
Joe Moore: With that said non bid decline at an industry gross margin level.
Joe Moore: More than even DRAM in this.
Joe Moore: And this downturn so we do expect that because of the decline more from a <unk>.
Joe Moore: ASP perspective, and from a gross margin perspective, the bounce will obviously have to be steeper in NAND in order to restore some level of.
Joe Moore: Acceptable Ottawa.
Joe Moore: So the.
Pace of.
Price increases in NAND to dig out of that hole will have to be just mathematically bigger, but we are
Joe Moore: Price increases in NAND to dig out of that hole will have to be just mathematically bigger.
Joe Moore: But we are.
Seeing tightness in both DRAM and NAND, especially on the leading edge nodes, they are in shortage in both DRAM and NAND. And so both of those should continue to improve. But just because NAND has a deeper hole to dig out of, its absolute, its percentage increases will just be high.
Joe Moore: Seeing tightness in both DRAM and NAND, especially on the leading edge nodes there.
Joe Moore: Shortage in both DRAM and NAND and so both of those.
Joe Moore: Should continue to improve but just because <unk> has a deeper hole to dig out of its absolute.
Joe Moore: It's percentage increases would just be higher.
Great, that's helpful. And then for unrelated follow up, I wonder, you know, if you look at the high capital spending in memory in in China, obviously severe limitations on what they're allowed to spend money on, you know, but but you might have geopolitical incentive to use those bits.
Great. That's helpful. And then unrelated follow up I Wonder if you look at the high capital spending in memory in China, obviously severe limitations on what they are allowed to spend money on.
Joe Moore: But but you might have geopolitical incentive to use those bits in devices, where you wouldn't ordinarily use trailing edge, but can you just give us some sense of how you guys perceive that supply coming out of China to be relevant to the global supply demand.
devices where you wouldn't ordinarily use trailing edge bits. Can you just give us some sense of how you guys perceive that supply coming out of China to be relevant to the global supply demand?
Speaker Change: Sure sure sure. So I. Thank you.
correctly highlight that the technologies that are in production in China are behind the leading edge nodes in the industry.
Speaker Change: Correctly highlight that.
Speaker Change: <unk> technologies that are.
Speaker Change: In production in China are.
Speaker Change: Behind the leading edge nodes in the industry.
Speaker Change: And we.
Speaker Change: <unk>.
So, we do have modeled the supply for both DRAM and NAND as part of the global demand that we see, or global supply against the global demand models that we have, and we do model them being able to continue. However, their impact on the market, given the fact that they are trailing, is significant.
Speaker Change: So we do have modeled.
Speaker Change: Supply for both DRAM and NAND as part of the global demand that we see with global supply against the global demand models that we have when we do model them being able to continue however.
Speaker Change: There are no impact on.
Speaker Change: The market given the fact that they're trailing is.
commensurate with that position, both based on the ability for those technologies to generate supply, as well as their ability to compete in higher-end applications when they have nodes that are less competitive in terms of features or performance. And, you know, for example, as industry transitions to more complicated products like HBM or others. Great. Thank you very much.
Speaker Change: Commensurate with that with that position both based on their the ability for those technologies to generate supply as well as their ability to compete in higher end applications. When they have nodes that are.
Speaker Change: Less competitive in terms of features our performance and for example, the industry transitions to more complicated products like HBM or or others.
Speaker Change: Great. Thank you very much.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Okay.
Speaker Change: And.
Our next question comes from the line of Quinn Bolton from Needham & Company. Your question please.
Speaker Change: Our next question comes from the line of Quinn Bolton from Needham and company. Your question. Please.
Hi guys, so thanks for taking my question. I guess maybe more. Just wanted to ask a question on the front end cost reductions in fiscal 24 for mid to high school digits and DRAM.
Quinn Bolton: Hi, guys. Thanks for taking my question I guess, maybe Mark just wanted to ask a question on the front end cost reductions in fiscal 'twenty four for mid to high single digits in DRAM in low double digits in night I thought previously you guys thought that the cost reductions in fiscal 'twenty four it might be affected by under utilization charges.
Low double digits in NAND, I thought previously you guys thought that the cost reduction
in Fiscal 24 might be affected by underutilization charges and those costs flowing through inventory and through COGS. And so I guess I'm wondering, can you clarify, is that inclusive of underutilization charges or is that just front-end wafer and excludes any utilization or underutilization effect?
Speaker Change: And those costs flowing through inventory through Cogs, and so I guess I'm wondering can you clarify is that inclusive of.
Speaker Change: 100 realization charges or is that just front end wafer and.
Speaker Change: Excludes any utilization or underutilization effect.
Yeah, it does include the underutilization effect. And Clint, it's a good question. And it's in the case of DRAM, it's all in. So, but operationally, you know, we do expect FY24 to be a year of improved efficiencies across the factories. You know, as we've talked about.
Speaker Change: Yes.
Speaker Change: It does include the Underutilization effect and Glenn it's a good question.
Speaker Change: In the case of DRAM, it's all in so.
Speaker Change: But operationally.
Speaker Change: Yes, we do expect FY 'twenty four to be a year of improved efficiencies across the factories.
Speaker Change: As we've talked about.
You know, we've got structurally lower capacity as we migrate idle tools from lagging to leading nodes.
Speaker Change: Yes.
Speaker Change: We've got structurally lower capacity as we migrate idled tools from lagging.
Speaker Change: Leading nodes.
Now, there's still some underutilization in those lagging nodes, but we will see the idle charges decrease.
Speaker Change: Now there are still some underutilization is lagging nodes, but we will see the <unk>.
Speaker Change: Idle charges decrease.
through the year and starting in second quarter. And between that and then just the tech node migrations, more of the capacity going to leading nodes, we're going to see that positively affect the front end cost reductions for both DRAM and NAND. So you're seeing that happen here, incrementally positive to the view we had before.
Speaker Change: Through the year and.
Speaker Change: And starting in second quarter and between that and then just the tech node migrations more of the capacity go into leading nodes.
Speaker Change: We're going to see that positively affect the <unk>.
Speaker Change: Front end cost reductions for both DRAM and NAND, so youre seeing that.
Speaker Change: Seeing that happen here incrementally positive to the view we had before.
You know, we've covered it quite a bit over the past year, so I'm not going to go through all that, but in summary, some of the underloading effect, as you know, hits COGS as period costs, while some of it doesn't.
Speaker Change: Yes, we've covered it quite a bit over the past year, so I'm not going to go through all that but in summary.
Speaker Change: Yes, some of the underlying effect as you know hits Cogs as period costs.
Speaker Change: Some of it is absorbed.
And the part that's absorbed is in the higher cost inventory. So in fiscal Q2, we'll have much lower idle related period costs. And again, it's mostly related to this increased utilization from, you know, and the idle costs remaining will be mostly legacy node related.
Speaker Change: And the part that's absorbed is at a higher cost of inventory so in fiscal Q2.
Speaker Change: We'll have much lower Idaho related period costs and again, it's mostly related to this.
Speaker Change: The increase utilization.
From.
And the idle costs remaining will be mostly legacy node.
And then you'll have this portion of under load that's in inventories is higher cost.
Speaker Change: <unk>.
And then Youll have this portion of under load.
Speaker Change: And inventories as higher costs.
And as we move through the year, this will clear and become less of an effect. So, in total, we end up with what we communicated today, which is
Speaker Change: And as we move through the year this will clear and become less of an effect. So.
Speaker Change: In total we ended up with what we communicated today, which is.
you know, front-end costs. And in the case of DRAM, all-in costs, mid- to high-single digits down for 24. Now, in NAND, you know, we said, you know, low teens and front-end costs down, which, you know, we will see. But because of more of a mixed shift,
Front end costs and in the case of DRAM all in costs mid to high single digits down for 24.
Speaker Change: Now NAND, yes, we said.
Low teens and front end costs down.
Speaker Change: Which we will see but because of more of a mix shift.
On components to modules, we'll see below 10% more of mid-to-high single-digit cost downs for NAND, all-in, just for your modules.
Speaker Change: On components to modules.
Speaker Change: We will see below 10% more of mid to high single digit cost downs for NAND all land.
Speaker Change: Just for your for your modeling.
Got it, that's helpful. And then I guess this follow-up question, just wanted to come back to the question that was asked on the call about HBM 3E. If you guys have 10% better performance, 30% better power, do you think, do you expect to be sole-sourced on the SKUs you win? Or to the extent that there are multiple sources, will the customer have to derate your HBM to have similar performance across the two?
Speaker Change: Got it that's helpful. And then I guess follow up question just wanted to come back to the question that was asked on the call about HBM. Three if you guys have 10% better performance, 30% better power.
Speaker Change: Do you think do you expect to be sole sourced on the Skus you win or to the extent that there are multiple sources will the customer have to derate, you're HBM to.
Speaker Change: Have similar performance across the two skus.
Yeah, I mean, it's a good question. Our customers have been amazed at the capabilities that we have created with HPN3e versus.
Speaker Change: Yes, I mean, it's a good question our customers.
Speaker Change: Have been amazed at the.
Capabilities that we have created with HP and <unk> versus.
you know, what others have been able to do with this product and this is.
What others have been able to do with this product and this is this has been part of our strategy to leapfrog HP and three in global HV in three <unk> first to market with that create the world class product better than anyone else and so this is spanning out our customers have different.
This has been part of our strategy to leapfrog HBM3 and go to HBM3 EB first to market with it, create a world-class product better than anyone else.
And so this is panning out. Our customers have different approaches that they are assessing in how to take advantage of this capability on the performance and power side in terms of what type of products they.
Speaker Change: Broaches that they are assessing and how to take advantage of this capability on the performance and power side in terms of.
Speaker Change: What type of products they use.
use our HBM in? What kind of SKUs do they create with that? What kind of multi-sourcing strategy do they have to support their whole portfolio? And while we are working with them on our designs and integration of our designs with their GPUs, we are not at liberty to discuss those strategies and we will leave it at that.
Speaker Change: Use our HBM in.
Speaker Change: What kind of Skus do they create with that what kind of multi sourcing strategy do they have to support the whole portfolio.
Speaker Change: And while we are working with them.
Speaker Change: On.
Speaker Change: <unk> designs and integration of our designs with their Gpus, we are not at Liberty to.
Speaker Change: Discuss those strategies.
Speaker Change: And.
Speaker Change: B B.
Speaker Change: Okay.
Understood. Thank you.
Speaker Change: Okay.
Thank you. One moment for our next question.
Thank you one moment for our next question.
Speaker Change: Okay.
Speaker Change: Hi, Dan.
Our next question comes from the line of Vijay Rakesh from Mizzou. Your question, please. Yeah. Hi. I had a question on your – when you look at your DRAM and NAND CAPEX, how do you manage that? I mean, how do you manage that? Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah.
Speaker Change: Our next question comes from the line of Vijay Rakesh from Mizuho. Your question. Please.
Vijay Rakesh: Yeah, Hi, Ana Christian on you when you look at their DRAM and NAND.
Vijay Rakesh: Capex in the coming to the debate on the bit supply.
Can you talk to what your wafer capacity would be exceeding calendar 23?
Vijay Rakesh: Can you talk to what your wafer capacity would be exiting calendar 'twenty three and how you see that exiting calendar 'twenty four.
Um, you know, I, I think what we've given the, I think we've given guidance mainly on sort of fiscal year to fiscal year. So if you allow me to do that, we've, we've said that, um, you know, the, uh.
Speaker Change: I think we've given the day I think we've given guidance, mainly on sort of fiscal year to fiscal year. So.
Speaker Change: Yes allow me to do that we've said that.
Speaker Change:
Speaker Change: The.
The way for capacity for both the airmen and we for output capacity was approaching 30% below our prior peak levels as we began this fiscal year and the majority of that.
Speaker Change: We were our wafer capacity for both DRAM and NAND wafer output capacity was approaching 30% below our prior peak levels as we began this fiscal year.
Speaker Change: Majority of that.
Speaker Change: Was underutilization of equipment.
was underutilization of equipment.
Speaker Change: Equipment.
Speaker Change: And as we transition through the year and as Bart noted earlier, we'll be utilizing some of that underutilized equipment towards transitioning to the leading edge nodes, one data and 232 layer.
Speaker Change: NAND and as we do that throughout the year by the time, we exit fiscal year or beginning of the next fiscal year fiscal 'twenty five the majority of that.
Speaker Change: Production will.
Speaker Change: We will be.
actually the derated capacity or reduction in capacity due to the longer process cycle times and the equipment being utilized for more complex nodes.
Speaker Change: Actually the de rated capacity a reduction in capacity due to the longer process cycle times and the equipment being utilized for more complex nodes.
We haven't really, and the production capacity will be down meaningfully from our peak levels, but we haven't really given specifics on how much it will be meaningfully down, even as a result of this.
Speaker Change: We haven't really.
Speaker Change: The production capacity will be down meaningfully from our peak levels, but we haven't really given specifics on how much you'll just be meaningfully down even as a result of this.
And we still will have some underutilization, primarily on legacy nodes, going through into fiscal 25 as well.
Speaker Change: And we still will have some underutilization, primarily on legacy nodes going through.
Speaker Change: Fiscal 'twenty five.
Got it and then the man said very similar.
I'm sorry, those are all about DRM and NAND comments, yeah. OK, got it. Yeah, by the beginning of 25, I think, yeah. Yeah, yeah. Sorry, go ahead. No, I was just going to say, by the beginning of 25, we would expect that the majority of the reduction in capacity came from converting equipment to the newer nodes versus a decision we've taken on under-utilizing and idling equipment.
I'm sorry that was a those are all about DRAM and NAND commentary, Okay got it by the beginning of 'twenty five.
Speaker Change: Yeah, Yeah, sorry go ahead.
Speaker Change: Just to say by the end of 'twenty five we would expect that the majority of the reduction in capacity came from converting equipment to the newer node versus a decision we've taken on underutilized and idling equipment.
And then on the HBM side, any similar commentary on what your capacity would be on HBM, you know, within DC?
Speaker Change: Got it and then on the HBM side any similar commentary on what your capacity would be on HBM.
Speaker Change: Within DRAM I guess.
Speaker Change: Exiting fiscal 'twenty versus fiscal 'twenty four 'twenty five.
You know, we haven't provided much detail other than to say that, you know, we expect our share of HBM to intercept our share of the overall DRM market sometime in calendar year 25.
Speaker Change: We havent provided much detail other than to say that we expect our.
Speaker Change: Our share of HBM to intercept the our share of the overall DRAM market some time in calendar year 'twenty five.
So that gives you some sense of sort of where we are, where we have to go. As you know, we have not had as large a share. So we're starting from a trailing position. We had some capacity and some production on HBM2e to get good learning, but the HBM3e will be a steep ramp. We have,
Speaker Change: So that gives you some sense of sort of where we are where we have to go as you know we have not had a larger share. So we're starting from a from a.
Speaker Change: Trailing position, we had some <unk>.
Speaker Change: Capacity and some production on <unk> to get good learning, but <unk> will be a it will be a steep ramp.
Speaker Change: We have.
alignment agreement with the equipment suppliers and we have a plan to be able to meet several hundred million dollars of revenue within fiscal year 24 which I think we talked about in the script.
Speaker Change: Good alignment agreement with the equipment suppliers and we have.
Speaker Change: Our plan to be able to meet.
Speaker Change: Several hundred million dollars of revenue within fiscal year, 'twenty, four which I think we talked about in the script.
And then, of course, that will position us well to be able to grow, continuing into fiscal year 25 towards that goal of being able to intercept our overall industry market share sometime in calendar year 25.
Speaker Change: And then of course that will position us well to be able to grow continuing into fiscal year 'twenty five towards that goal of being able to intercept or our overall industry market share sometime in calendar year 'twenty five.
And Vijay, maybe I'll add just maybe a CapEx related comment on profile. So we gave an estimate $7.5 to $8 billion per CapEx.
Speaker Change: And Vijay maybe I'll I'll I'll add I'll add just maybe a capex related comment on profile. So we gave we gave an estimate at seven 5% to 8 billion our capex.
based on the guidance we gave for the first half capex and the second half capex will be a bit higher than the first half. And that's a function of HBM spend and also greenfield capacity spend.
Speaker Change: Just on the guidance, we gave for the first half capex in the second half Capex will be.
Speaker Change: Higher than the first half and that's a function of HP HBM spend and also greenfield capacity spend.
Certainly, you know, we've made some grant assumptions on.
Certainly.
Speaker Change: We've made some.
Speaker Change: Grant assumptions on size and timing and of course, that's reflected in our guidance. So if that were to change materially then it may affect our numbers, both capex and cash flow.
And timing, and of course, that's reflected in in our guidance. So if that were to change materially, then it may affect our numbers, both capex and and cash flow, right? And just a slight clarification. Greenfield capacity, but it's really Greenfield facilities to support future capacity. Yes, end of decade related demand. Sorry. Great. Thank you. Thank you. Thank you. 1 moment for.
Yes, good clarification about greenfield capacity, but really greenfield facilities to support future capacity, yes end of decade related demand alright.
Speaker Change: Alright, great. Thank you. Thank you.
Sure.
Speaker Change: Thank you one moment for our next question.
And our next question comes from the line of Sidney Ho from Deutsche Bank. Your question. Please.
Great. Thanks for the question. So, just to follow up to a couple of questions from the last two questions, what was the idle charges in fiscal Q1, and what are you baking in for fiscal Q2 in your gross margin, 30, 13% guidance? And why would idle charges come down when bid shipment is expected to decline somewhat in fiscal Q2 and again in Q3? Is it just the use of underutilized equipment for no transition that you guys just talked about?
Great. Thanks for the question. So just a follow up to a couple of questions.
The last two questions. One was the idle charges in fiscal Q1, and what are you baking in for fiscal Q2, and your gross margin 30, 13% guidance.
Speaker Change: And why would Idaho charges come downward bit shipment is expected to decline somewhat in fiscal Q2 and again in Q3 is it just the use of underutilized equipment for new transmission Digest you guys just talked about.
Yeah, so Sidney, the idle charges in Q1 were $165 million. So that's down from over $220 million in the fourth quarter. They'll go down significantly first quarter.
Speaker Change: Yes, so sidney the idle charges in Q1.
$165 million, that's down from over 220 in the fourth quarter.
Speaker Change: They will go down significantly first.
Speaker Change: First quarter to second quarter and again. This is this is a function of utilization is going up and the network.
And again, this is a function of utilization is going up in the network, and underutilization is going to largely reside in legacy nodes. And again, as we talked about last call and this call, that's happening in part because we've redeployed some legacy node equipment to leading nodes and the actual – the wafer output's down, so the denominator in the utilization –
Speaker Change: And Underutilization is kind of largely reside in legacy nodes and again as we talked about last call and this call.
Speaker Change: That is happening in part because.
Speaker Change: We've redeployed some legacy note equipment to leading nodes and the actual the wafer output is down so the denominator and utilizations.
larger or smaller.
Speaker Change: Larger.
For smaller so.
Yeah, so again, the idle charges are related to when utilization is under a certain.
Speaker Change: Yes, so again.
Speaker Change: Idle charges are related to.
Speaker Change: When utilization is under a certain level.
you cannot capitalize those costs in inventory. So since utilization is increasing, we pass that level for leading node and...
Speaker Change: You cannot capitalize those costs and inventory so.
Speaker Change: Since utilization is.
Speaker Change: Increasing we.
Speaker Change: Past that level for.
Speaker Change: Leading node and.
you know, and have idle charges remaining to wax.
Speaker Change: Our remaining have idle charges remaining two lagging nodes.
And maybe just a little follow up on the second part of your question on bit shipments and timing of bit shipments, keep in mind the process cycle time in fab as we transition to these newer nodes is longer, so the cycle time in the fab is longer, right, as we make these transitions. So you're converting to a node, more complex, better technology, but it is longer cycle time in the fab. And then we're also, and Mark mentioned, particularly for NAND.
Speaker Change: And maybe just a little follow up on the maybe just a little follow up on the second part of your question on bit shipments in timing a bit shipments keep in mind.
Profit cycle time in fab as we transition to these newer nodes is longer so the cycle time in the fab is longer as we make these transitions so you're converting to a node more complex better technology, but it is longer cycle time in the fab and then we're also.
Speaker Change: And Mark mentioned, particularly Fernand.
transitioning and targeting our portfolio towards higher value solutions.
Speaker Change: Transitioning in targeting our portfolio towards higher value solutions those higher value solutions also have longer cycle time in assembly and test.
those higher value solutions also have longer cycle time in assembly and test.
So that's why when we say we're constrained on leading-edge nodes, it's not immediately when you're talking about leading-edge technology into leading-edge high-value products. The cycle time for us to be able to deliver more bid shipments is longer than maybe it was last year when we had more.
Speaker Change: So.
Speaker Change: That's why when we say, we're constrained on leading edge nodes.
Immediately when youre talking about leading edge technology into leading edge high value products.
Speaker Change: The time for us to be able to deliver more.
Bitumen is longer than maybe it was last year, when we had more of a component focus.
That's super helpful. Maybe my follow-up question is, if I look at DRM ASP, it was up slightly in fiscal Q1. That's kind of expected. I think previously you said it was limited by customers, strategic buys occurred in prior quarters.
Speaker Change: Got it that's Super helpful. Maybe my follow up question is if I look at DRAM ESP. It was up slightly in fiscal Q1, that's kind of expected I think previously you said there was limited by customer strategic buys occurred in prior quarters.
Is there any way you can help us think what would have been, what the gross margin would have been without the headwind from these strategic buys? And if you look at fiscal 2Q, part of the quarter is still within that, we'll probably see the same headwind, right, because most of these pre-buys have been at the end of the calendar year. Is it fair that there will be another step up in fiscal Q3 that is above and beyond market trends that we should be thinking about? Thanks. Yeah.
Speaker Change: Is there any way you can help us think what would have been one.
Speaker Change: Gross margin would have been without the headwinds from <unk> strategic buys and if you look at Cisco <unk> part of the quarter is still within that we'll probably see the same headwind right because most of these pre.
Speaker Change: <unk> happen.
Speaker Change: At the end of the calendar year is it fair that there will be another step up in fiscal Q3 that is above and beyond market trends that we should be thank you Bob.
Bob: Yes, so yes, it is true that.
Fiscal Q1 did get impacted by some strategic buys in terms of pricing realized, but keep in mind that those strategic buys were implemented or agreed upon in CQ3. And further, FQ1 has the effect.
Fiscal Q1.
Bob: Did get impacted by some strategic buys in terms of pricing realized but keep in mind that those strategic buys were implemented or agreed upon in.
Bob: See Q3, and further FQ1 has the effect.
of September in there, which is part of CQ3 pricing, which was still under pressure, and then two months of CQ4, where we did better. The other aspect was we came into FQ1 with robust bookings even beyond the strategic buys. And these robust bookings included pricing.
Bob: <unk> of September.
Bob: In there, which is part of C Q3 pricing, which was still under pressure and then two months of Q4.
Bob: Where we did better on the other.
Bob: Other aspect was we came into Q1.
Bob: With.
Bob: Robust bookings even beyond the strategic buys.
And these robust bookings included pricing.
that had been negotiated earlier, before the inflection happened. So we knew based on those robust bookings, we were able to then use those robust bookings to
Bob: That had been negotiated.
Bob: Earlier before the inflection happens so we knew based on those robust bookings we were able to then use those robust bookings too.
push pricing higher than we had originally expected, and so CQ4 pricing ended up
Bob: Push pricing higher.
Than we had originally expected.
Bob: And so Q4 pricing ended up.
becoming much better than we had originally planned because of that. And of course, you're seeing that our FQ2 guidance on revenue is going up substantially from $4.7 billion in FQ1 to $5.3
Becoming <unk>.
Bob: Much better than we had originally planned.
Bob: Because of that and of course, you are seeing that our FQ2 guidance on revenue is going up substantially from.
Bob: $4 7 billion.
Bob: In FQ, one to $5 3 billion.
plus minus 200 million without the benefit of bit growth, right, because bit growth is not a driver in those.
Plus minus 200 million.
Without the benefit of bit growth alright, because bit growth is it's not a driver in those numbers.
And yes, December is, you know, one month of CQ4 in RFQ2, and then, you know, we'll have two months of CQ1 in there, in RFQ2, January and February . But all of the...
Bob: Yes December is.
One month of Q4 in our FQ2 and then.
Bob: We will have two months of CQ, one in there and I'll ask you to January and February.
Bob: But all of the.
Expectation that we have right now is for continued increases in pricing. So, for a lot of the customers for whom we do pricing negotiations on a calendar quarter basis.
Bob: Expectation that we have right now is for continued increases in pricing. So for a lot of the customers for whom we do pricing negotiations on a calendar quarter basis.
every fiscal quarter, we'll have this effect of one month, previous quarter, two months, next quarter, and that's how it will flow into our P&L. Okay, great, thanks. Thank you. One moment for our next question.
Bob: Every fiscal quarter, we will have this effect of one month previous quarter two months next quarter.
Bob: And that's that's how it will flow into our into our P&L.
Okay, great. Thanks.
Okay.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Okay.
Speaker Change: Our next question.
Speaker Change: Comes from the line of Vivek Arya.
Vivek Arya: From Bank of America. Your question. Please.
Thanks for taking my questions. I had two as well. The first one on just the concept of the pricing improvement. Historically, the memory industry has had a challenging time forecasting pricing for more than one plus quarter. But now you're suggesting pricing can continue to improve, not just in the current quarter. But I think I heard for two more quarters. And the main reason I heard was tightness and leading edge, which I assume you mean your supply type.
Vivek Arya: Alright, Thanks for taking my questions I had two has been the first one on.
Vivek Arya: Just the concept of the pricing improvement.
Vivek Arya: Particularly the memory industry has had a challenging time forecasting pricing for more than.
Vivek Arya: One one plus quarter, but now youre, suggesting pricing can continue to improve not just in the current quarter, but I think I heard or two more quarters then.
Vivek Arya: The main reason I heard was tightness in leading edge, which I assume you mean your supply tightness.
in a leading edge. So if you could just give us more color, what's giving you the visibility that pricing can continue to improve for several quarters? Because when I think of leading edge, I'm reminded of the data center, but that's the segment you are saying is most over supplied, at least in the near term. So just help us understand what is helping drive that confidence and visibility that pricing can continue to improve for several quarters.
Leading edge. So if you could just give us more color whats, giving you the visibility that pricing can continue to improve for several quarters, because when I think of leading edge I'm reminded of the data center, but thats. The segment you are saying is most over supplied at least in the near term can you just help us understand what is helping drive that.
Vivek Arya: Confidence and visibility that pricing can continue to improve for several quarters.
Yeah, yeah, I think the pricing outlook we can think of from two angles, you know, one is the demand side and one is the supply side. I think on the supply side, you have seen that the industry has had a challenging time with.
Speaker Change: Yes, I think the pricing outlook, we can think of from two angles. One is the demand side and one is the supply side.
Speaker Change: I think on the supply side, you have seen that the industry has had a challenging time with.
with margins and, you know, so many announced CapEx cuts, underutilization, et cetera. So, the supply has been impacted quite a bit. We have also spoken in our last
Speaker Change: With margins and so many announced capex Scott on the utilization et cetera. So the supply has been.
Speaker Change: Impacted quite a bit.
Speaker Change: We have also spoken.
Speaker Change: Our last earnings call as well as in this current earnings call about how on the utilization is going to morph into lower capacity and so the overall capacity is getting.
earnings call as well as in this current earnings call about how underutilization is going to morph into lower capacity. And so the overall capacity is getting impacted by all of these capital-efficient approaches to moving tools from the underutilized older nodes to newer nodes. And so we have constrained capacity overall. And then, of course, HBM
Speaker Change: Getting impacted by all of these capital efficient approaches to moving tools from the underutilized older nodes to newer nodes and so we have constrained capacity overall and then of course HBM.
ramp that is taking place in the industry. We have mentioned to you the more than 2 to 1 trade ratio if we manufacture one bit of HBM.
Speaker Change: <unk> that is taking place in the industry. We have mentioned to you the more than two to one trade ratio.
Speaker Change: If we manufacture one bit of HBM.
based on the end-to-end yields, we end up with more than two bits lost of DDR5 in the process. So, all of those things are pressuring supply.
Speaker Change: Based on the end to end yields.
Speaker Change: We ended up with more than two bits lost of DDR five.
In the process so.
Speaker Change: So all of those things are pressuring capacity crushing supply.
and when you get to lower amount of overall capacity,
Speaker Change: And.
And when you get to lower amount of.
Speaker Change: Overall capacity.
And then you decide at some point that the ROI just.
Speaker Change: And then you decide at some point that.
Ottawa justifies increasing Capex, obviously, you have to first reached that point, where you can justify increasing capex from that point you have to lead times and then you have all of the cycle time of the front end and back end, which typically is.
increasing CapEx, you obviously have to first reach that point where you can, you know, justify increasing CapEx. From that point, you have two lead times, and then you have all of the cycle time of the front end and back end, which typically is, you know, four and a half to five months, depending on the complexity of the product, that cycle time. So, tool cycle time, let's say,
Speaker Change: $4 five to five months, depending on the complexity of the product that cycle time, so it looks like some time lets say scanner.
scanners and so on, nine months, five months for fab front end and back end. You are at 14 months.
Speaker Change: Scanners, and so on nine months five months for Fab front end and backend.
Speaker Change: You are at 14 months.
before output can be impacted once capacity needs to be increased. So it's a long cycle time to increase capacity and get those bits in the hands of customers and in terms of products that we need. So there is that supply timeline and supply impacts that are happening in the industry.
Before output can be impacted.
Speaker Change: Once capacity needs to be increased so it's a long cycle time to increase capacity.
Speaker Change: And get those bits in the hands of customers and in terms of products that they need. So there is there is that supply timeline and supply impacts that are happening in the industry.
On the demand side.
We have mentioned multiple drivers in our earnings call and other...
Speaker Change: We have mentioned multiple drivers.
Speaker Change:
Speaker Change: In our earnings call in other public comments about what's driving the demand in the short term, we have normalized inventory in smartphones and Pcs auto and industrial continue to grow robustly from a demand perspective. So these things are helping drive and of course, you know the average capacity.
about what's driving the demand in the short term. You know, we have normalized inventory in.
are helping drive and of course you know the average capacity increase is happening across the board. So these things are driving bit demand.
Speaker Change: Increases happening across the board. So these things are driving demand.
Uh, and yes, you're right, the data center is, um.
And yes, you are right the data center is.
certainly not yet normalized in terms of inventory, but keep in mind that data center is not the only user of leading-edge technology products. These, for example, when we think about smartphones and when we think about
Speaker Change: Certainly not yet normalized in terms of inventory, but keep in mind, the datacenters not the only user of leading edge technology products. These.
Speaker Change: For example, when we think about smartphones and when we think about.
PCs, they all use leading-edge technology.
Speaker Change: Pcs, they all use leading edge technology.
We have spoken about DDR5, transition from DDR4, most of our DDR5.
Speaker Change: We have spoken about DDR five transition from DDR for most of our DDR five is in leading edge nodes.
is in leading-edge nodes. And so that's one example. All of our client and data center SSDs, we have mentioned how we have reached a second consecutive record in data center SSD. That's all leading-edge nodes. And so, you know, it's not just the data center that is using leading-edge nodes. It's also, you know, multiple other parts of the market.
Speaker Change: So that's.
Speaker Change: That's one example of our client and data Center Ssds, We mentioned, how we had reached a second consecutive record in data Center SSD that's all.
Leading edge nodes and so.
Speaker Change: It's not just the data center that is using leading edge nodes. It's also multiple other parts of the market.
Speaker Change: And.
And then, you're right, we don't usually forecast pricing. This time around, we did, you know, talk about our expectation of pricing increasing throughout calendar 24. I mentioned the supply side of it. The other aspect is.
Speaker Change: And then you're right, we don't usually forecast pricing this time around we did.
Talk about our expectation of pricing increasing throughout Ken.
Speaker Change: The 24.
Speaker Change: You mentioned the supply side of it. The other aspect is we are seeing this tightness in leading edge, even before data center has become a material purchases there.
We are seeing this tightness and leading edge even before data center has become a material purchaser of DRAM and NAND. They are still in inventory consumption mode. So their purchases of DRAM and NAND are still below their consumption, right? So they are consuming DRAM and NAND from inventory more. And so...
Speaker Change: DRAM and NAND they are still in inventory consumption more severe purchases of DRAM and NAND are still below their consumption right. So they're consuming DRAM and NAND from inventory more and so.
Once that inventory normalizes, they will become a more active purchaser of DRAM and NAND in the second half.
So, starting in sometime first half, you know, and certainly second half of calendar 2024, so that will become an additional driver and all of our 2024 numbers don't require.
Speaker Change: So assumptions starting in sometime first half and certainly second half of calendar 2024, so that will become an additional driver.
Speaker Change: And.
Speaker Change: All of our 2024 numbers don't require.
very dramatic growth in PC units or smartphone units or even in a general purpose server unit.
Very dramatic growth in <unk>, so our smartphone units or even general purpose server units.
Our growth expectations are all very modest in these areas. So, any kind of uptick, especially later in calendar 24, will just add to demand. In an environment where supply is not easy to come about in this timeframe, given this.
Speaker Change: Our growth expectations are all very modest in these areas. So any kind of uptick, especially later in calendar 'twenty four will just add to demand in an environment, where supply is not easy to come about in this timeframe. Given this timeline I mentioned on when supply can be.
timeline I mentioned on, you know, when supply can be added. So, the last point I will...
Got it so.
Speaker Change: The last point I'll mention is.
You know, this has been a very unusual decline for the whole industry, you know, certainly most challenging in 15 years, but unusual in the aftermath of the COVID upswing that happened, which needed to be worked off, et cetera. So, there has been an impact to industry balance sheets. There has been an impact to.
Speaker Change: This has been a very unusual decline for the whole industry.
Speaker Change: Certainly most challenging in 15 years, but unusual in the aftermath of the Covid upswing that happened, which needed to be worked off et cetera. So there has been an impact to industry balance sheets, there hasn't been an impact too.
to the overall ROI and, you know, certainly from a Micron perspective, we are going to be very focused on ensuring supply discipline, ensuring we invest based on improving ROI and ensuring, you know, we do.
Speaker Change: Two the overall Ottawa and <unk>.
Certainly from a micron perspective, we are going to be very focused on ensuring supply discipline, ensuring we invest based on improving ROI.
Speaker Change: And ensuring we do.
think very carefully about supply-demand balance and how we make our own plans. So when I put all of these factors together, that's what gives us confidence about, you know, a little bit more extended timeline where we provided our guidance and view of our expectation of pricing strengthening throughout 2025.
Speaker Change: Think very carefully about supply demand balance and how we make our own clients. So when I put all of these factors together, that's what gives us.
Speaker Change: Confidence about a little bit more extended timeline maybe provided.
Speaker Change: Guidance in view of our expectation of pricing strengthening.
Speaker Change: Throughout 2024.
Very helpful. And then maybe as a follow up, actually two clarifications for for Mark. So one is on the chips grant. You know, what has been contemplated for many other companies. It's about, you know, 1020% of.
Speaker Change: That's very helpful. And then maybe as a follow up actually two clarifications for Mark. So one is on the chips grant.
Mark Murphy: What has been contemplated for many other companies, it's about 10% to 20% of Capex go back to the desk gross capex could be higher next year right.
CAPEX, so that suggests, you know, gross CAPEX could be higher next year, right? And I don't know whether that means if WSE will also be higher on a gross basis, even on a net basis maybe, so I don't know if there's any issue there. And the other clarification, Mark, I don't know if you have already spoken to it, but the drivers of gross margin expansion in Q3 and Q4, is it just pricing or is there anything else? Maybe you mentioned that, perhaps I didn't catch it.
And I don't know whether that means the FWS C will also be higher on a gross basis, even though on a net basis, maybe so I don't know if there is any issue there and the other clarification Mark I don't know if you have already spoken to it but.
Mark Murphy: The drivers of gross margin expansion in Q3, and Q4 is it just pricing or is there anything else, maybe you mentioned, perhaps I didn't catch it before thank you.
In fact, on your first question, as we disclosed, we did submit applications for CHIPS funding for two FAB expansion areas in the U.S. Those negotiations are underway and we're not able to disclose any more at this time. We've made assumptions, as I mentioned earlier, about grant timing and timing of funding.
Speaker Change: Yes, and in fact on your on your first question.
Speaker Change: As we disclosed we did submit applications.
Speaker Change: For chips funding or two.
Speaker Change: Tab expansionary.
Speaker Change: Expansion areas in the U S.
Speaker Change: Those negotiations are underway and we are not able to disclose any more at this time, we've made assumptions as I mentioned earlier about grant timing and size.
based on our understanding of potential there but nothing else to disclose at this time.
Based on our understanding of.
Speaker Change: <unk> potential there but.
Speaker Change: Nothing else to disclose at this time.
Speaker Change: On drivers of gross margin expansion.
through the year. It's going to be, you know, we didn't provide any color other than it will expand, we believe, through the year, second to third and third to fourth. That will be almost exclusively price in the second to third. There will be some
Speaker Change: Through the year.
Speaker Change: It's going to be we didn't provide any color other than.
Speaker Change: Well expand we believe for the year second to third and third to fourth.
Speaker Change: That will be almost exclusively price in the second or third there will be some.
net cost benefit, so that'll be a bit muted because
Speaker Change: That cost benefit that will be a bit muted because.
we will lose that lower cost inventory benefit, which we, that inventory last clears in the second quarter. And then in the, and then we'll see price appreciation again, and that will be the largest factor again in the fourth quarter gross margin expansion.
Speaker Change: We will lose that lower cost inventory Benny.
Speaker Change: Benefit which we.
Speaker Change: That inventory last clears in the second quarter and then in the.
Speaker Change: And then we will see price appreciation again and that will be the largest factor again in the fourth quarter gross margin expansion.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change #100: Thank you.
And this does conclude the question and answer session as well as today's program. Thank you everyone for your participation. You may now disconnect. Good day.
Speaker Change #100: And this does conclude the question and answer session as well as today's program. Thank you everyone for your participation you may now disconnect good day.