Monthly Archives: June 2017

Micron Technology Inc. (NASDAQ:MU)

Q3 2017 Results Earnings Conference Call

June 29, 2017, 04:30 PM ET

Executives

Shanye Hudson - Investor Relations

Sanjay Mehrotra - President and CEO

Ernest Maddock - CFO

Analysts

Harlan Sur - JPMorgan

Wayne Low - Citi

Mark Delaney - Goldman Sachs

David Wong - Wells Fargo

Kevin Cassidy - Stifel

Srini Pajjuri - Macquarie

Romit Shah - Nomura Instinet

Blayne Curtis - Barclays

Joe Moore - MS

John Pitzer - Credit Suisse

Jagadish Iyer - Summit Redstone

C.J. Muse - Evercore

Operator

Good afternoon. My name is Karen, and I'll be your conference facilitator today. At this time, I would like to welcome everyone to Micron Technology's Third Quarter 2017 Financial Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer period. [Operator Instructions] Thank you.

It is now my pleasure to turn the floor over to your host, Shanye Hudson. You may begin the conference.

Shanye Hudson

Thank you, Karen. And welcome to Micron Technology's third fiscal quarter 2017 financial conference call. On the call with me today are Sanjay Mehrotra, President and CEO; and Ernie Maddock, Chief Financial Officer. This conference call, including audio and slides, is also being webcast from our Investor Relations website at investors.micron.com.

In addition, our website contains the earnings press release, which was filed a short while ago, and supplemental information including a reconciliation of GAAP to non-GAAP financial measures, slides for today's conference call and a convertible debt and capped call dilution table. The prepared remarks from today's call will also be added to our website later today.

Today's call will be approximately 60 minutes in length. A webcast replay will be available on our website for a year. We encourage you to monitor our website at micron.com thought the quarter for the most current information on the company, including information on the various financial conferences that we'll be attending. You can also follow us on Twitter, @MicronTech.

As a reminder, the matters we will be discussing today include forward-looking statements based on the environment as we currently see it. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements being made today. We refer you to the documents that the company files with the SEC, specifically our most recent Form 10-K and Form 10-Q for a complete discussion of these important risk factors and other 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 other achievements. We're under no duty to update any of the forward-looking statements after todays date to conform these statements to actual results.

With that, Ill turn the call over to you Sanjay.

Sanjay Mehrotra

Thank you, Shanye. Good afternoon, everyone. I'm pleased to be speaking with you for my first Micron quarterly earnings call and I'm particularly fortunate to be joining at a time when we are able to report record revenues and non-GAAP EPS. These results reflect healthy industry fundamentals, the strength of Micron's diversified technology and product portfolio and our broad customer reach.

Micron also continues to make progress in improving its technology and product competitiveness. The current industry dynamic and the growing strategic importance of Micron's technologies and capabilities make this an exciting time to join the company. The unprecedented amount of data being created stored and processed presents tremendous opportunities for Micron.

Applications like autonomous driving, machine learning and big data analytics all promise to make an enormous impact on our lives. Memory and flash storage are the critical and increasingly strategic elements in every one of these applications.

Market-leading companies from a broad array of industries who provide data center services, automotive applications and mobile solutions, just to name a few, are eager to partner with innovative companies like Micron that can provide leading-edge technology and systems solutions.

Micron is uniquely positioned with the right technologies and capabilities to take a leadership position, and I'm delighted to have the opportunity to help the company maximize this potential.

I will now share some details from each of our business units, followed by technology and operational highlights for the quarter. Finally, I'll share our perspective on current industry supply and demand dynamics.

We had record revenues in all business units this quarter, nearly doubling our company level year-over-year revenue performance. In the Compute and Networking Business Unit, all segments posted significant gains from year ago levels.

Revenue from cloud customers was more than four times higher year-over-year. And we saw increased enterprise demand as analytics workloads are driving more use of in-memory databases and higher server memory content.

We continue to build upon our strong position in graphics and high performance memory technology, with shipments of our 12 gigabits per second GDDR5X, the industry's fastest discrete DRAM, which we successfully ramped to high volume during the quarter. Most CNBU revenue came from 20-nanometer DRAM products, and we also recognized initial revenue on our next generation 1X DDR4 products.

Looking forward, we believe that we are positioned to effectively serve both our traditional OEM customer base, as well as evolving opportunities around tailored solutions for large data center customers.

Our Mobile Business Unit revenue increased slightly quarter-over-quarter with significant margin expansion, driven by lower costs associated with the continued shift to 20-nanometer LPD RAM and a favorable pricing environment. We expect increased demand ahead of anticipated flagship smartphone introductions planned for the fall.

Requirements for multi-camera systems, augmented reality applications and high-resolution displays now dictate 4 and 6-gigabyte LPDRAM densities for a great user experience. This demand aligns well with our 20-nanometer and 1X offerings where we plan to introduce nearly 20 new 1X package-on-package variation in the next 12 months.

We are focused on developing and diversifying our MCP and discrete NAND device offerings, which will position us to well to address the full range of smartphones, from basic entry level smartphones to content rich high-end devices.

Many mobile OEM customers prefer MCPs in their design implementation to address their memory and storage requirements, as MCPs provide a single source for DRAM memory and NAND storage, simplifying system design, validation and supply chain considerations.

We continue to sample our 32-layer MLC and TLC 3D NAND MCP, discrete UFS and e.MMC devices to both chipset partners and handset OEMs.

Revenue shipments of these products will begin later in the second half of this calendar year following completion of qualifications by customers.

Our Embedded Business Unit recorded a 44% increase in revenue year-over-year, driven by strong demand growth across all segments and a better pricing environment. We achieved record quarterly revenue for each of the automotive, consumer and connected home and industrial segments. We saw continued strength in automotive, DRAM and e.MMC NAND with the infotainment and instrument cluster applications driving this record level.

We continue to maintain our strong market share leadership position in automotive, enabled by our focus on a high quality and deep customers relationships and support. Industrial and consumer connected home revenues were led by increased shipments into rapidly growing applications, such as voice-activated home assistance and set-top boxes.

We continue to transition our non-automotive DRAM portfolio onto 20-nanometer designs. Our Storage Business Unit delivered record revenues as sales of our SSD products grew 33% quarter-over-quarter. Sales to cloud and enterprise SSD customers grew appreciably on a combined basis and exceeded revenue from client customers for the first time.

The most significant growth came from our cloud customers, where revenue doubled quarter-over-quarter. Our SSD sales in the quarter were driven primarily by our SATA SSD solutions using our 32-layer TLC 3D NAND.

During the quarter, we had first revenue shipments of our 8-terabyte SSD enterprise class SSD, which is an industry first. Several new OEM and hyperscale customer qualifications are underway for our SATA drives, and in calendar year 2018, we plan to introduce NVMe PCIe offerings using our 64-layer TLC 3D NAND.

On the manufacturing operations front, we continue to make good progress toward achieving meaningful output by the end of our fiscal year on both our 64-layer 3D NAND and our 1X DRAM.

Both of these technologies have already begun revenue shipments and are advancing well in their production yield ramp. We also continue to execute our plans to outfit our assembly operations as part of our DRAM center of excellence in Taiwan.

These DRAM center, in addition to our NAND center of excellence in Singapore, will be essential to our ongoing efforts to optimize costs and improve our flexibility and speed to meet customer needs.

On the technology front, we continue to make solid progress on the development of our third-generation 3D NAND and our next-generation 1y DRAM technologies. Our third-generation 3D NAND will continue to be based on our innovative CMOS-under-the-array architecture.

This architecture, pioneered by Micron, provides the benefits of smaller die size and lower cost. We expect our 1y DRAM to further improve our competitive position in the industry.

Looking at the industry broadly, Micron continues to see a healthy supply and demand environment that creates opportunities across both memory and storage markets.

For calendar 2017, we expect DRAM industry bit supply growth of between 15% and 20%, slightly below our view of demand growth. For NAND, we expect 2017 industry supply growth in the high 30% to low 40% range, constraining what would otherwise be higher demand.

We expect healthy industry demand to persist into 2018, supported by continued strong growth in both DRAM and NAND demand, reflecting broader trends in the data center and mobile markets, as well as increased adoption of SSDs across enterprise, cloud and client PCs.

Finally, after my first two months at Micron, I would like to share some of my priorities. Our execution and competitiveness are my primary focus, particularly accelerating the ramp of new technologies into volume production and introducing new products quickly, both of which are essential to delivering innovative solutions at lower cost and strengthening Micron's business fundamentals.

Micron has a tremendous portfolio of technologies and core capabilities. Our goal is to leverage these to provide high-value products and solutions that improve our revenue mix. We will target high growth opportunities and seek out partnerships with leading companies in the ecosystem to position Micron for long-term success.

We are off to a good start. Our execution and the current business climate are creating more flexibility, which we are leveraging to solidify our foundation through technology, product and manufacturing investments, while also strengthening our balance sheet. I believe that through focus and solid execution, Micron can capitalize on the world's increasing reliance on memory and storage solutions.

Ill now turn it over to Ernie, who will walk through the specifics of our financial performance this quarter.

Ernest Maddock

Thank you, Sanjay. We had a strong quarter with record revenue, non-GAAP EPS and operating cash flow, driven by the continued positive industry environment, additional bit growth from our current technologies and progress on deploying our next-generation technologies into manufacturing.

I will provide an overview of the fiscal Q3 results by technology and business unit, followed by comments on our overall corporate financial performance and guidance for F 'Q4.

DRAM represented 64% of our total revenue with the following segmentation: Mobile was in the mid 20% range. PC was in the low 20% range, down from the prior quarter. Server represented approximately 30%, up from 25% the prior quarter, and specialty DRAM, which includes networking, graphics, automotive and other embedded technologies, was in the mid 20% range.

Our trade NAND revenue represented 31% of total revenue with the following segmentation. Consumer, which consists primarily of component sales to partners and customers, was approximately 40%. Mobile, which includes managed NAND discrete solutions and the majority of our MCPs, was in the mid-teens percent range. SSDs were in the mid 20% range, up slightly from last quarter, and automotive, industrial and other embedded applications were in the high-teens percent range.

Turning to performance by business unit. The Compute & Networking Business Unit reported fiscal Q3 revenue of $2.4 billion, up 25% sequentially due to increased bit shipments, ongoing success in penetrating growing segments like enterprise, graphics and high-performance memory and cloud and a stronger pricing environment.

Non-GAAP operating income was $1.2 billion or 51% of revenue, up from 38% to prior quarter. 20-nanometer products were greater than half of CNBU revenue and were shipped primarily in the enterprise, cloud and client segments.

Revenue growth in the enterprise segment was driven by the continued expansion of DRAM content per server. And in the cloud space, we experienced good sequential bit growth. Both segments also benefited from the current pricing environment. We saw ongoing growth of our 20-nanometer DDR4 products with particular strength coming from the latest industry server platforms.

In networking, we saw shipment and revenue growth bolstered by the continued transition to 20-nanometer, 4-gigabit DDR3 and 8-gigabit DDR4 products. We also continue to see strong interest in our high-performance memory portfolio. This strength was primarily evident in data center networking equipment.

Double-digit client revenue growth was driven by a continued firm pricing environment and product mix optimization, resulting in modestly declining bit shipments. Our 1X nanometer revenue was predominantly in this segment.

Graphics also saw double-digit revenue growth, driven by strength in the game console market, as well as new PC graphics card product launches, including the G5X-based Titan Xp from NVIDIA.

The Mobile Business Unit delivered fiscal Q3 revenue of $1.1 billion, up 4% sequentially, driven primarily by a stronger pricing environment and our non-GAAP operating income was $304 million or 27% of revenue, up from 16% to prior quarter.

The embedded business unit delivered fiscal Q3 revenue of $700 million, up 19% sequentially. Non-GAAP operating income was $256 million or 37% of revenue, up from 33% the prior quarter.

The results were driven by strong bit demand and increased average selling prices of DRAM, combined with record shipments of SLC and MLC NAND in the consumer and connected home segments and record shipments of DRAM and eMMC NAND into the industrial and automotive segments respectively.

The Storage Business Unit delivered fiscal Q3 revenue of $1.3 billion, up 26% sequentially. Non-GAAP operating income was $276 million or 21% of revenue, up from 7% the prior quarter. The results were primarily driven by strong unit growth of SSDs and a stronger pricing environment.

Moving to overall company results. Revenue for the third fiscal quarter was $5.6 billion, up 20% sequentially and driven by primarily stronger DRAM ASPs and higher NAND bit volumes.

On a year-over-year basis, revenue increased 92%, primarily due to a stronger DRAM pricing environment, increased bit volumes in both DRAM and NAND and our focus on higher value-add solutions to improve our product mix.

Examples of this improved mix includes SSDs where year-on-year revenue tripled, while in DRAM bits embedded in high-value solution for enterprise, cloud and graphics customers, together grew at a rate twice our overall DRAM bit output for the same period.

Non-GAAP gross margin for the quarter was 48%, up from 38.5% in the prior quarter, driven by increased DRAM ASPs and cost per bit reductions in both DRAM and NAND.

On a year-over-year basis, non-GAAP gross margin increased 30 percentage points, driven by a stronger DRAM pricing environment, a better product mix and lower cost per bit in both DRAM and NAND. Non-GAAP net income was $1.9 billion or $1.62 per share.

Turning to results by product line. DRAM revenue increased 20% compared to the prior quarter as a result of a 5% increase in bit shipments and a 14% increase in ASPs.

DRAM non-GAAP gross margins for the third quarter increased 10 percentage points sequentially to 54%, driven by a 6% cost per bit reduction and better product mix. As a reminder, we noted last quarter that second half fiscal year 2017 DRAM bit output would be about 10% higher than first half fiscal year 2017.

As we look forward into fiscal 2018, the timing of the 1x technology transition is expected to result in our bit growth at or slightly below industry growth rates over the same period. We consider this bit growth pattern when we provided our 2 year bit growth CAGR earlier this year.

Trade NAND revenue increased 21% compared to the prior year quarter, reflecting a 17% increase in bit shipments and a 3% increase in ASPs. Non-GAAP gross margin was 41%, up 10 percentage points, driven by a 12% cost per bit reduction and better product mix.

As a reminder, we noted last quarter that second half fiscal year 2017 bit growth would be about 30% above first half fiscal year 2017. Based on the timing of technology transitions, we foresee relatively muted bit growth in the first half of fiscal 2018 follow by stronger growth in the second half. Consistent with DRAM, we considered this bit growth pattern when we provided our 2 year bit growth CAGRs earlier in the year.

Non-GAAP operating expenses for the quarter were $600 million, down $12 million from the prior year quarter. The company generated operating cash flow of $2.4 billion in fiscal Q3 compared to $389 million in the year ago period.

During the quarter, we deployed $1.3 billion for capital expenditures, net of partner contributions and free cash flow for the quarter was $1.1 billion as we retired approximately $1 billion of debt via a tender offer for certain of our high-yield notes. We currently expect fiscal year 2017 free cash flow of approximately $3 billion and continue to prioritize the deployment of our cash flow toward advancing our production technology capabilities and reducing our debt.

For fiscal year 2017, we are trending to the upper end of our indicated net CapEx range of $4.8 billion to $5.2 billion. We will provide a fiscal year 2018 CapEx perspective later this year.

We ended the third quarter with cash, marketable investments and restricted cash of approximately $4.9 billion. Our guidance for fiscal Q4 is informed by our view of sustained, healthy supply and demand dynamics, our ongoing work around cost reduction and the improvement of our product mix.

On a non-GAAP basis, we expect the following, revenue in the range of $5.7 billion to $6.1 billion, gross margin in the range of 47% to 51%, operating expenses between $575 million and $625 million, and operating income ranging between $2.2 billion and $2.4 billion. EPS will range between $1.73 and $1.87 per share, based on 1,179 billion [ph] diluted shares.

At our Analyst Day in February, we outlined how our production technology execution and the results in bit growth and cost reductions have enabled us to significantly strengthen our cash flow and financial performance in any market conditions.

We've been reporting our incremental progress each quarter. However, I wanted to share the tremendous progress we've made over the 12-month period ending in fiscal Q3.

During that time, our bit output has been above industry average for both DRAM and trade NAND and our cost per bit has declined approximately 25% and 30% in those technologies respectively.

In addition, we continue to improve our competitiveness by successfully delivering solutions to deliver higher value-add opportunities. Our ability to deliver these results has enhanced our energy and excitement to make further progress, and we look forward to sharing that with you.

With that, I will turn it back to Sanjay.

Sanjay Mehrotra

Follow this link:

Micron Technology's (MU) CEO Sanjay Mehrotra on Q3 2017 Results - Earnings Call Transcript - Seeking Alpha

BLOOMINGTON, Ind. -- Indiana University has announced that it is expanding and reorganizing the university resources devoted to delivering IU innovations to Indiana and the nation.

Effective July 1, technology transfer activities, previously led by the Indiana University Research and Technology Corp., or IURTC, will be moved into the Office of the Vice President for Research.

These activities include receiving and vetting invention disclosures, applying for intellectual property protection, marketing technologies and licensing them to established companies and startups.

"Indiana University has long been a leader in technology transfer activities, recently achieving year-over-year record numbers in patents issued, licensing agreements and generated revenue," IU President Michael A. McRobbie said.

He added that transferring responsibility for this area to the Office of the Vice President for Research would bring technology transfer staff closer to faculty who are making discoveries and inventions that have great commercial potential and need the kinds of services this office will now provide.

The move will facilitate a greater alignment with university priorities and a closer relationship with IU faculty, staff and students. It will also allow technology transfer to take advantage of the greater resources and efficiencies available within the university and to work more seamlessly with corporate and foundation relations and federal research relations, based in the research office.

Technology commercialization directors, managers and operations personnel who previously performed technology transfer duties at the nonprofit IURTC will continue their work as university employees in the research office. They will retain their current office locations at Simon Hall in Bloomington and at 518 Indiana Ave. in Indianapolis.

Technology transfer will also be adding four new positions and promoting existing staff. Bill Brizzard, currently director of technology commercialization in Bloomington, will become executive director. David Wilhite will continue as director of technology commercialization in Indianapolis. Simon Atkinson, associate vice president for research and vice chancellor for research at Indiana University-Purdue University Indianapolis, has been designated to oversee technology transfer and licensing and corporate development within the research office.

In 1997, IU established the Advanced Research and Technology Institute, or ARTI, to handle all IU-related intellectual property, trademarks and business development activities. In 2007, the organization evolved into IURTC. Over the past 20 years, these efforts have contributed to:

With the move of technology transfer into IU, IURTC will take on a greater role in supporting start-up ventures, including finding talent to lead and staff IU innovation-based companies, securing capital to be made available at all development stages, offering mentors and networking opportunities, and developing appropriate startup space and programming.

Vice President for Research Fred H. Cate said, "Our goal is to ensure that IU provides a seamless array of research and innovation services, including attracting the very best faculty, staff and students; supporting their efforts to earn support through competitive grants and foundation and corporate support; ensuring effective compliance with legal requirements; identifying, protecting and licensing intellectual property; and supporting startup companies that involve IU colleagues or intellectual property.

"We couldn't be better served than by the talented professionals whose skill and dedication have contributed to record-breaking results. I am delighted to welcome them to IU and to the research team."

Here is the original post:

Indiana University to expand, reorganize technology transfer and licensing - IU Newsroom