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Micron Technology Inc. (MU)

J.P. Morgan 17th Annual Tech/Auto Forum Conference

January 08, 2019, 12:00 PM ET

Company Participants

Sumit Sadana - EVP and Chief Business Officer

David Zinsner - SVP and CFO

Conference Call Participants

Harlan Sur - J.P. Morgan

Presentation

Harlan Sur

Okay, good morning and again, thank you for attending J.P. Morgan 17th Annual Technology Investor Forum here at CES. I'm Harlan Sur, Semiconductor Capital Equipment analyst for the firm. I’m very pleased to have Dave Zinsner, Chief Financial Officer of Micron Technology and we also have Sumit Sadana, Micron's Chief Business Officer here with us today as well.

I've asked Sumit to start us off with maybe a recap of the November quarter results and outlook and maybe a snapshot of what the Micron team is showcasing here at CES. And then we'll kick off the Q&A. So gentlemen, thank you for joining us here this morning. And I will turn it over to you.

Sumit Sadana

Thank you, Harlan. So very quick summary of what we had discussed. Good morning to all of you. Basically the short-term -- I'll just talk about the short-term and the medium to long-term view that we had spoken about last time in the earnings call. And so in the short-term we have a confluence of factors that are affecting the business. We spoke about earlier, the shortage on the PC processor side that's impacting some client volumes. You have seen a lot of data points on the impact, on the mobile business that is happening from unit demand that is somewhat weak, especially on the high-end, as well as inventory related issues.

These inventory related issues we believe are short-term issues that particularly manifest themselves in areas such as graphics, in cloud, in enterprise and largely have come about because the DRAM market had been for many quarters in rising price environment, which caused customers to get very comfortable with an approach of keeping high levels of inventory higher than their normal levels of inventory because prices would keep rising every quarter.

And when they decided that prices are likely to not rise, supply had caught up with demand, they decided to switch to a more of a normalized inventory approach, put that normalized inventory approach particularly in the cloud and enterprise markets came certainly in some of the cloud markets at a time when companies were also looking to optimize some of their infrastructure to improve the utilization of the investments they had made.

So we think that the end demand, meaning our customers' demand, their end demand seems to be in decent shape in multiple markets, where these inventory issues are there except in mobile, where there are still some challenges on the end demand issue. But in a lot of these inventory situations we believe that by the second half of calendar 2019 we should have much better tone to the business.

We expect our own demand what we sell to our customers to pick up in the second half of calendar 2019, driven by in part these inventory issues being resolved in the current calendar quarter and next quarter. And also seasonal improvements in demand patterns, new product cycles, we'll have 5G phones coming out in mobile in 2019. So that will drive business as well.

And longer term, we are extremely excited medium and longer term there are some really strong secular positive trends in the business. We have autonomous driving that's driving significant increases in DRAM and NAND consumption in automotive. Similar trends happening in industrial. We have very early innings of cloud growth taking shape. And we’ll have continued growth in the cloud business for many, many years to come.

AI and machine learning are driving up demand for DRAM and NAND. We had spoken about many of those trends in past discussions. And also AR, VR type of technologies in 5G in mobile are going to be important product drivers with higher average capacities as well.

So we are very positive about that. The demand drivers are diverse, the supply base at least in DRAM is pretty consolidated. And we also have some company level catalysts we are doing a lot to improve our cost competitiveness. We have made great progress there. We're doing a lot to improve our high value solutions.

You can see that in the gross margins that we have been posting in our NAND business that are holding in there in spite of pretty high price declines over the last several quarters. And we also have very, very strong capital return program $10 billion capital return program that has been put in place, because our balance sheet is in the best shape it has been in the history of the company.

Question-and-Answer Session

Q - Harlan Sur

Yes. Thank you for that. Post the earnings call, that's been the consistent message I've seen Sanjay gave some interviews with the media as well. And that's been the consistent message that, that the overall demand trends remain relatively constructive. So if we just look at the near-term and I try to parse out, okay, so looking at calendar year 2016 and calendar year 2019 and your outlook for 16% sort of demand growth.

How much of that is more just your customers accumulated too much inventory. They have to work it down, but demand for them is good. And how much of it is just like you said, there's a couple of segments like mobile that are weak. I mean, can you help us understand is the majority of it just inventory work down by customers in your end markets or is most of it weak demand?

Read the rest of this transcript on seekingalpha.com