Ladies and gentlemen, thank you for standing by. And welcome to Micron Technology's Fiscal First Quarter 2021 Financial Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session [Operator Instructions]. It is now my pleasure to introduce Farhan Ahmad, Vice President Investor Relations.

Thank you. And welcome to Micron Technology's fiscal first quarter 2021 financial conference call. On the call with me today are Sanjay Mehrotra, President and CEO; and Dave Zinsner, Chief Financial Officer. Today's call will be approximately 60 minutes in length. This call, including the audio and slides, is also being webcast from our Investor Relations Web site at investors.micron.com. In addition, our Web site contains the earnings press release and the prepared remarks filed a short while ago. Today's discussion of financial results will be presented on a non-GAAP financial basis unless otherwise specified. A reconciliation of the GAAP to non-GAAP financial measures may be found on our Web site. As a reminder, a webcast replay will be available on our Web site later today. We encourage you to monitor our Web site at micron.com throughout the quarter for the most current information on the company, including information on the various conferences that we will be attending. You can follow us on Twitter at MicronTech. As a reminder, the matters we will be discussing today include forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today. We refer you to the documents we filed with the SEC, specifically our most recent Form 10-K and 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 after today’s date to conform these statements to actual results. I'll now turn the call over to Sanjay.

Thank you, Farhan. Good afternoon and happy new year, everyone. Micron delivered strong revenue and earnings in the fiscal first quarter. I am proud of the Micron team for continuing our business momentum and putting Micron in a better technology and product position than ever before despite the ongoing challenges posed by the pandemic. We began shipping the industry’s most advanced NAND with 176 layers. And in DRAM, we made good progress on our 1-alpha node and are on track to begin volume production in the first half of calendar 2021. We believe DRAM is past the bottom of the industry cycle and expect improving trends through calendar 2021 as the digitization of the global economy continues, fueled by artificial intelligence, cloud, 5G and the intelligent edge, including smart vehicles. Against this backdrop, Micron is poised to emerge stronger and we are excited about our future. I will start with a quick update on our manufacturing operations. In early December, two separate events affected our Taiwan DRAM operations. The first event was a power outage at our Taoyuan facility, which occurred on December 3rd, the last day of our fiscal first quarter. The second event, a 6.7-magnitude earthquake off the northeast coast of Taiwan occurred on December 10th. The earthquake was felt at both our Taoyuan and Taichung locations. The investments we have made over the last few years in facilities’ redundancy and cleanroom control substantially mitigated the impact of these two events. However, these disruptions have reduced our available fiscal second quarter DRAM supply and negatively influenced our costs in the short term. The expected impact of these events is factored into our outlook. Micron continues to make solid progress on our key goals; first, to deliver industry leading technology and improve our cost structure; second, to bring differentiated…

Thanks Sanjay. Micron delivered very strong fiscal first quarter results with revenues and earnings coming in well above the guidance ranges provided in our last earnings call. We saw an improving business environment through the quarter, and demand and pricing were better than expected for both DRAM and NAND. Total FQ1 revenue was approximately $5.8 billion, down 5% quarter-over-quarter but up 12% year-over-year. Adjusting for the extra week in the prior quarter, revenue increased 3% sequentially, driven by strength in a broad set of markets, including auto, graphics, client, mobile and consumer. FQ1 DRAM revenue was $4.1 billion, representing 70% of total revenue. DRAM revenue decreased 7% sequentially but was up 17% year-over year. Bit shipments were down in the low single-digit percentage range sequentially and ASPs were down in the mid-single-digit percentage range quarter-over-quarter. FQ1 NAND revenue was approximately $1.6 billion, representing 27% of total revenue. NAND revenue increased 3% sequentially and was up 11% year-over-year. Bit shipments increased in the high-teens percentage range sequentially, while ASPs declined in the low-teens percentage range quarter-over-quarter. Half of the decline was attributable to a change in mix, which included a greater portion of components. Now turning to our revenue trends by business unit. Revenue for the Compute and Networking Business Unit was approximately $2.5 billion, down approximately 16% sequentially but up 29% year-over-year. We had solid sequential growth in graphics and client revenues, while data center revenues declined sequentially, coming off a particularly strong quarter for cloud, the loss of the extra week and continued weakness in enterprise. Revenue for the Mobile Business Unit was $1.5 billion, up 3% sequentially and up 3% year-over-year. Mobile demand remains strong as 5G momentum increases and the mobile market recovers from the impact of the pandemic. Revenue for the Storage Business Unit was $911…

Thank you, Dave. Over the last year, Micron delivered strong performance in the face of significant challenges from COVID. I am thankful to the Micron team whose tenacity and resilience enabled us to navigate this challenging period and maintain production at normal levels while continuing to advance our technology and product portfolio. Micron is poised to emerge stronger in calendar 2021 as the world recovers from the pandemic. We are confident in our roadmap to further enhance our competitive position while exercising supply discipline. We are in a better position than ever before, and this has been recognized by our customers. Recently, Micron received supplier awards from multiple customers, including from tier 1 China smartphone OEMs. We also continue to make great strides in advancing our corporate responsibility agenda. In November, Micron published our fiscal year annual diversity, equality and inclusion report, detailing our progress over the year and our commitments for fiscal year 21. In 2020, we increased our female board representation and also made investments to improve representation of all underrepresented groups, including Blacks and Latinx in technical and leadership roles. We expanded our pay equity initiative beyond gender to also include other underrepresented groups and to consider total compensation across pay and equity awards. We are working with industry organizations to establish best practices in supplier diversity and to support the inclusion and competitiveness of diverse suppliers in the semiconductor industry. And finally, we leveraged the power of Micron's influence in the communities where we live and work to advocate for greater social justice and safety globally. We are also proud to report that in November, we were added to the Dow Jones Sustainability Index, joining the ranks of the most sustainable American companies. We aim to build on this recognition as we advance on our sustainability goals this year. Thank you. And now we will open the call for questions.

[Operator Instructions]. Our first question comes from the line of Chris Danely with Citigroup.

In terms of what's impacting you, I guess you can sort of control or fix the power outage and the earthquake, but you also mentioned that there's shortages of nonmemory components out there that are impacting you as well or impacting the memory industry. Can you maybe quantify those and is that issue getting any better or could it get any worse? And could this I guess hinder any sort of upturn in DRAM this year?

So let me be clear that when we're referring to nonmemory component shortages, we were referring to those and our end markets, our customers experiencing certain end market shortages. And yes, without those nonmemory component shortages, yes, the overall demand could have been even somewhat higher. And these nonmemory component shortages that some of our customers are experiencing, they relate to general tightness in the foundry space, logic, 8 inch, 12 inch nodes, there's some of our customers and there is end market hardware are experiencing certain shortages, so that's what we are referring to. Of course with respect to our [old] [ph] supply chain, this is an area given some of the foundry shortages that are existing today, we are continuing to manage our supply chain today. We do not see for this quarter any specific shortages in terms of our ability to supply any nonmemory shortages with respect to our ability to supply product to our customers. Of course as we highlighted in our script, we do see certain shortages in memory, particularly in DRAM across several parts of the market. And with respect to our [whole] [ph] supply chain aspect, we have factored those in the outlook that we have provided. And the supply chain has really excellent operations team and we continue to work with our suppliers, with our partners to make the best assessment in terms of managing our own supply chain. So again, to be clear, we were not pointing to any nonmemory component shortages in this quarter for our own manufacturing supply chain, we were referring more to our customers’ end markets where they're experiencing certain nonmemory component shortages. Of course from the point of view of our own supply chain, we continue to monitor some of the trends that are there in the tech supply chain, there's certain parts of the supply chains running tight, we continue to monitor those in terms of any impact on our business, as well as work closely with our customers to understand those demand trends.

And our next question comes from the line of John Pitzer with Credit Suisse.

Sanjay, I wanted to go back to your comments you made about your expectation for DRAM demand, both this year of high-teens and longer term of mid to high-teens. I'm just kind of curious if you can give us a little bit more insight as to how you're building up those models. And I'll push back a little bit because we've got a very strong gaming console this year. We've got the move to 5G, as Ice Lake grants, we're going to go from six to eight channels in the server market. It seems like the risk to that forecast on demand is for the upside this year. And then conversely, as you think about servers as a percent of your DRAM business over the last five years, it's gone from 15 to 30 approximately. And given what we see around DRAM density going into next generation compute, especially around AI workloads, I would think that the historic 20% bit growth in DRAM demand should be something the industry should be able to maintain. I'm just kind of curious as to why you don't believe that?

So John, I mean we're giving you our best estimates with respect to demand assessment. And you would absolutely right to point out that the end market demands are certainly the demand trends are strong. The trends, the secular trends of AI, 5G, cloud and intelligent edge, including smart vehicles is absolutely strong growth driver for memory and storage in the years to come. Keep in mind for calendar year 2020, particularly in the late part of calendar year 2020, the demand went up strongly. So when we look at DRAM demand growth for calendar year 2020, we said that it is somewhat above 20% in calendar year '20 on a year-over-year basis. So that's what has really adjusting some of our assessment for calendar year '21 in terms of high-teens for the DRAM demand growth. In terms of how we come about these numbers we are always working closely with our customers, our market intelligence team is assessing the end market demand trends. What we see is over the course of next few years for DRAM that stronger than the average of the market would be mobile. 5G will be a long-term growth driver. In 2021, we do expect that 5G phones will be twice of what they were in calendar year 2020, going from 250 million units to 500 million units. And no question that average DRAM content in the 5G phones increases substantially as well, with minimum DRAM in 5G smartphones being 6 gigabyte. Yes, graphics, gaming consoles, new gaming consoles, new gaming graphics cards, also a strong driver and stronger than the average in 2021 of the DRAM growth. So I would be expect to be healthy and strong in 2021 as well based on all the reports that you have seen from various cloud suppliers…

And our next question comes from the line of C.J. Muse with Evercore.

I guess I'd like to focus on cost downs, and you talked about down mid single digits in fiscal '21. And curious what kind of impact is embedded in that number for the disruption that you have seen in the last month? And then as you think about the ramp of 1-alpha and the 40% increase in bit output versus 1z, I would love to hear your thoughts on what kind of acceleration we should see in cost downs on the DRAM side beyond August, and when we really see that that uptick in savings through your 1-alpha ramp? Thank you.

So on the cost downs for this year, as you mentioned, DRAM our expectation is that we see mid single digit cost downs this year that is our -- the cost impacts of the disruptions we experienced at the beginning of this quarter and late last quarter are embedded in that for sure. As you look into more, I should say as we progress through this year and into next year, 1-alpha will become more and more of our volume, that should bode well for our cost declines. And that’s one of the reasons why we think most of the cost decline we'll see in DRAM is really back end, back half of FY21 loaded. But we do expect to see that lead to further cost improvements in FY22 as well.

Our next question comes from the line of Karl Ackerman with Cowen.

Maybe just to follow-up on CJ's question on DRAM cost decline, I'd like to move over to NAND. I appreciate the commentary on NAND cost improvement, which you called out low to mid teens. Is there a way to quantify the cost headwind from your transition to replacement gate? Because I would imagine that would be fairly sizable even in fiscal 2021. And I have a quick follow-up.

So if you looked at last year, FY20, our cost declines were pretty negligible actually on NAND, because of the transition to the first generation of replacement gate. And really the only area where we got any sort of cost declines was in the change over and depreciation for NAND from five to seven years. As we move into the second generation, as we talked about this 176 layer has a particularly good cost structure. And so that will obviously be the big factor in terms of driving our cost declines in the low teens for this year. And again, we're going to be ramping this through the year and into next year. So we do feel like this will be a tailwind for our cost reductions as well. You didn't ask about this but on top of that, as we talked about on the call, we have good momentum in QLC that should be also a good tailwind for NAND costs as well.

You recognized a record of graphics DRAM quarter. Just kind of curious if graphics are now closer to 20% of this segment now. And then I guess, what sort of graphics DRAM demand are you seeing from GPU's used for cryptocurrency mining now that those currencies are now at all time high? Thank you.

So as it relates to graphics that is in single digits overall as part of the industry as well as part of our business, if anything Micros actually leads in the graphic segment. With respect to our leading-edge, high performance power efficient DRAMs, our GDDR6, our GDDR6X products are very well-positioned with industry-leading specification in the graphics market. You know about GDDR6X that would be introduced with the PAM4 interface with twice the data transfer rate of the traditional DRAM memory before. So we are very proud of our leadership in the graphics market and certainly some part of our graphics market addresses the crypto mining applications as well. So that's embedded within our graphics revenue that we talked about. Basically some of the graphics cards that are built using GDDR6 and GDDR6X memory and other graphics memories that we supply are used in crypto mining applications. And crypto mining is just pointing to yet another continuing digitization of the economy, yet another application. It will be an important -- crypto currency will certainly be very important in the future and data mining needs there, crypto mining needs definitely need higher performance memory and Micron DRAM memory, Micron graphics products are well-positioned in that part of the market.

Our next question comes from the line of Timothy Arcuri with UBS.

I just had two. First, Sanjay, I wanted to double click on a prior question. So I understand that the demand was better during the late part of last year, but you also took down your forecast for this year. You were thinking of 20 and now you're up more like high-teens. So is there any component of digestion that you're fearing in mobile? Is that part of it too, or is it just the math that you have the same number of bits off of the higher base last year? And then I had a follow-up for Dave? Thanks.

Yes, it's simply is, Tim, the later of what you just said that it is, the overall demand in 2021, we absolutely based on all the demand drivers that we see, that we describe in our script, we see really continued strong trend of demand in 2021. So it is what you said that 2020 has a higher base, because 2020 demand for DRAM went above 20% with that higher base compared to our prior expectations we have said that high-teens. Nonetheless, let there be no confusion, I mean 2021 overall DRAM demand trend across the board, across our market except for the enterprise where we have said enterprise resense will go away once the pandemic recovery takes fold fully on the economy. But whether it is auto, or it is smartphones, or it is cloud, or graphics, all of these end markets are pointing to strong demand of units, as well as strong demand for average content increases in 2021. So we are very excited about the demand opportunities. And keep in mind this is in the backdrop of CapEx management, disciplined CapEx management in the DRAM industry leading really to a supply environment where we think that the supply growth will be less than the industry demand growth in 2021, which steps up 2021 very nicely for the DRAM fundamentals. And that too with Micron's execution on technology and products continuing to strengthen our position there really very proud and excited about Micron's position with industry leading 1-alpha node now, which of course over the course of next selling quarters will be ramping into production.

Dave, super quick, you didn't buyback any stock. And I know that you bring more cash than maybe you thought, because there was some working capital that was a little sort of worked against you. But why not give -- why not buyback stock given the improving outlook and obviously you're going to generate a lot of free cash flow during the fiscal back half of the year and your stock seems to be higher. So why not buyback any stock during fiscal Q1? Thanks.

Yes, I wouldn't read too much into it. I mean, if you look back over the last couple of years, I think we generated mid $4 billion levels of cash flow. And if you combine the converts and the buybacks, we spent probably closer to $4.7 billion or so on all of that. So we're definitely committed to the buyback. I would expect that our target is certainly just to generate free cash flow for the year. And I think you can expect us to remain committed in terms of returning at least or more than 50% of the free cash flow in the form of buybacks. But one other metric that we do to try to focus on is our net cash, our cash excess of our debt. And of course when we're not generating cash, when we're going to need cash, we eat into that a bit. And so I think just to be cautious, we wanted to make sure that we didn't eat into that net cash balance too much. But I'm not really reflective of any view on the stock price and we remain buyers overtime of the stock.

And our next question comes from the line of Harlan Sur with JP Morgan.

Your cloud business remained relatively healthy for calendar year '20, and I know that the team is expecting strength this year. But maybe more from a near-term perspective. Is that seem to be some growing indications that data center spending is going to start to reaccelerate here in the first half of this calendar year? On top of that, you have some of the new processor ramps that are coming to the market as well. Is the team seen the strength here in Q2 and in your orders or customer forecast? And then can you just give us an update on your DDR5 server products? Are you guys finished with qualification of these new products ahead of the second half adoption cycle?

So with respect to cloud, yes, I mean, compared to our pre-COVID expectations, 2020 was a strong year for cloud and we did well. It was good for the industry and it was good for us as well. And yes, we definitely in 2021 as well continue to see strength in cloud, healthy business environment, healthy demand for cloud and continuing to work with our leading edge technology nodes as we get that ready into production with 1-alpha to get that qualified with our customers. So yes, cloud is long term secular demand driver for our industry. And again, it is the trend of AI and ML and the workloads that are requiring more memory. And you are absolutely right to note that companies are in 2021 introducing new CPU's and compute architectures, which will have more cores, which will have more channels, more DRAM attach rate. And with the end market appetite of need for more memory and the compute architectures and processes enabling greater DRAM attach rate in the servers, yes, this trend of more memory in the cloud environment will continue in this trend it's here to stay for considerable period of time even beyond 2021 timeframe. With respect to DDR5 that is really in the very early innings at this point. We are happy with our product position there. And the DDR5 will start picking up in terms of revenue opportunity later on in 2021.

Thank you, Sanjay.

We’re still in the qualification phases and there’s some revenue opportunity, but we are well position.

Your next question comes from the line of Joe Moore with Morgan Stanley.

You guys continue to have this kind of negative leaning language on NAND, but you did inject that it could improve over the course of this year as people moderate their plans. It seems like the spending a fairly front half loaded and will moderate over the course of the year. What are you looking at there to sort of gauge whether that could get better or worse over the course of the year? And what's the -- am I right to sort of say that there's a little bit more optimism in the way that you phrase that?

So certainly, NAND as traditionally has been the case, has elasticity that is an important part of the NAND market and even elasticity will continue to drive greater content in the various end market applications from the smartphones, to client notebook computers, to data center applications as well. And post the pandemic, we definitely expect that across the tech space, there will be release of pent up demand and that itself for a couple of years is going to drive increasing demand. Overall, when we look at 2021, we expect the demand growth in NAND to be approximately 30%. And our estimation is that supply perhaps somewhat above demand. And as elasticity kicks in, as the post COVID, post-pandemic and what demand environment builds up, as well as with greater focus from the industry in terms of management of the supply then we do believe that NAND fundamentals can strengthen. As far as Micron is concerned, I mean, we definitely are extremely focused on managing our supply growth with discipline. With our 176-layer NAND, we are very excited about our industry first position with this technology, but we manage our supply growth. And we expect that Micron supply -- overall, supply growth will be below the industry demand growth. And of course, we will supplement that with some of the inventory. So that in terms of our shipment growth in 2021, it will be in line with the industry demand growth expectations. But management of the supply, I think is an important factor in the industry in terms of overtime, returning to the healthier levels of the NAND industry along with elasticity and post-COVID NAND demand environment.

Thank you. Your next question comes from the line of Toshiya Hari with Goldman Sachs.

I wanted to ask about CapEx and curious what the internal debate is today at Micron. Obviously, you guys didn't make any changes to your full year budget of $9 billion. But on the DRAM side, Sanjay, is it fair to say given the outlook over the next year or so if there is a bias internally, the bias to the upside from a spending perspective and conversely, on the NAND side have you -- to Joe's question, you've struck this cautionary note over the past couple of quarters. I realize you guys are being fairly prudent and focusing on your transition. But what would you need to see for you to turn conservative from a spending perspective in NAND? Thank you.

So again, I think both for DRAM and for NAND, I think it is extremely important for us at Micron on an ongoing basis to stay disciplined with respect to supply growth, with respect to investments in CapEx to manage our supply grows to be in line with the industry demand growth expectations on a CAGR basis. And this is where our focus is, because that's the best way to generate ROI on our investment. We feel very good about our CapEx discipline and are focused on really driving profitability of the business through increasing our share, not just chasing bit share but increasing the profit share of the industry. And this is where are focused on differentiated solutions, both in NAND as well as in DRAM to strengthen our position, to strengthen the merits of the product portfolio is an important part of our strategy. But with respect to the CapEx discussions, it always is about really discipline on supply growth, staying in line with the demand growth.

And our final question comes from the line of Mitch Steves with RBC Capital Markets.

I wanted to double click, and while I’m sure you're going to get this on all these callbacks. So when you talk about the DRAM impact for Q2 -- the second quarter guide. Can you walk us through kind of the magnitude of the impact, i.e. how much of that 31% kind of midpoint is being negatively impacted by DRAM? Any sort of qualitative answer there would be very helpful. And then secondly as it relates to NAND, it sounds like you guys are a little bit cautious there. Can you maybe talk us through what you guys expect to see from the smartphone market given the fact that we're going to see kind of a elevated Q1 due to the change in product cycles, but then how should we think about kind of 2H, calendar year 2H smartphone demand as you guys see it right now?

So I'll take the first one and Sanjay will take the smartphone question. So yes, of course there was a cost impact, or will be a cost impact in the second quarter associated with this disruption. I wouldn't say it's a massive, it's measured in tens of basis points, not hundreds of basis points that we factored in the quarter.

And with respect to smartphone content growth, certainly with 5G the average content continue to increase in smartphones. We have talked about in the past that how DRAM content in smartphones is 8 gigabyte to 12 to 16 gigabyte, even in certain phones and average content increase in the smartphone market will be in the double digit. And again, in the smartphone, I think it's important to understand that not only is it about the 5G number of units increasing, more than doubling calendar year '20 or calendar year '21 going from 250 million 5G smartphones in '20 to 500 million plus in 2021. But the average content of DRAM is increasing in these 5G phones as well. So that's the multiplicative impact with respect to the DRAM demand growth in the smartphone market. And if you look at the calendar of DRAM content over the course of next three years or so, that CAGR of average content growth in the smartphone market is in the double digits range. So smartphone will continue to be a strong market and we are very well positioned with our NAND and DRAM combination to address the growing opportunities in the smartphone markets. We mentioned in the earnings call prepared remarks that our MCP revenues, MCPs with multi chip packages that include DRAM as well as NAND we are extremely well positioned being the manufacturer of both DRAM and NAND that MCP revenue hit a record in our fiscal Q1 timeframe. So smartphones, continues to be a strong and the largest market for DRAM and NAND and we are really well positioned there and quite excited about the opportunities here, including introduction of our LPGDDR5 and uMCP5 industry leading solutions.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.