Micron Technology, Inc.

Good afternoon. My name is Cherie, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Micron's fourth quarter 2020 financial release conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, please press the star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. In order to allow as many analysts to ask a question as possible, please limit yourself to one question. Thank you. It is now my pleasure to turn the floor over to your host, Farhan Ahmad, Vice President of Investor Relations. You may begin your conference.

Thank you, and welcome to Micron Technologies' Fiscal Fourth Quarter 2020 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 relation website at investors.micron.com. In addition, our website 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 GAAP to non-GAAP financial measures may be found on our website. As a reminder, a webcast replay will be available on our website later today. We encourage you to monitor our website at micron.com throughout the quarter for the most current information on the company, including information on the various financial 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 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 confirm these statements to actual results. I'll now turn the call over to Sanjay.

Thank you, Farhan. Good afternoon, everyone. Micron delivered solid fiscal fourth quarter revenue and profitability, driven by strength in DRAM shipments to cloud, PC, and game console customers. As I reflect on the fiscal year 2020 accomplishments, I'm extremely proud of our Micron team whose dedication and tenacity enabled the new Micron to deliver customer value and healthy financial results throughout fiscal 2020. In DRAM, we introduced the industry's first 1Z nanometer node. We were first to market with mobile LP5 products and shattered industry performance records with our graphics GDDR6X innovation. In NAND, we began shipping our first replacement gate-based products and drove significant increases in our QLC mix. In addition, in fiscal Q4, we already achieved our high-value solutions mix target. We are entering fiscal 2021 with momentum in our product portfolio and confidence in our technology roadmap and manufacturing capabilities. This year, COVID-19 presented a real-life stress test of the new Micron's resilience. Thanks in large part to the commitment and innovation of our team members around the globe, we continued to operate our fabs at normal capacity and achieved record production from our assembly and test facilities in Xi'an, Taiwan, and Singapore. Stringent, industry-leading safety protocols have enabled us to gradually return to work on site. As of today, almost three-quarters of Micron team members are back on site with our manufacturing operations running close to fully staffed levels. The new Micron is also making solid progress toward our goals to bring differentiated industry-leading products to our customers and to improve our product mix and cost structure so that we can grow our share of industry profits, all while maintaining stable bid share. In DRAM, we are leading the industry in one Z nanometer production mix, and this node was a significant contributor to our fiscal fourth quarter sales. We are making good progress on our next generation one alpha node, which remains on track for introduction in fiscal 2021. We are further strengthening our DRAM product portfolio. This quarter, we announced GDDR6X, the world's fastest discrete graphics memory solution and the first to power system bandwidth up to 1 terabyte per second. GDDR6X is a great example of close customer collaboration on differentiated technology that significantly improves the end-user experience. Our innovative GDDR6X memory is featured in the NVIDIA GeForce RTX 3090 and 3080 graphics cards, that deliver an immersive real-life gaming experience. Our strength in graphics DRAM also positions as well for the data center market, where growth in GPU computing is being driven by AI workloads. We are also excited about our progress with high bandwidth memory to serve the fast-growing AI market and remain on track to commence volume shipments by the end of this year. In NAND, we are on track for replacement gate to make up a meaningful portion of our NAND output by the end of calendar 2020. Our 128-layer first-generation RG NAND technology entered volume production in fiscal Q3 2020. And in fiscal Q4, we began shipping RG-based consumer SSDs. We are also making good progress on our second-generation RG node which we expect to introduce into volume production during fiscal 2021. This industry-leading technology will be broadly deployed across our product portfolio and drive NAND cost reduction later in fiscal 2021 and into fiscal 2022. We are also driving product innovations and cost reduction through an increased mix of QLC NAND. Our QLC innovations offer PC customers a more cost-effective high-capacity SSD solution, and data center customers a highly effective HDD replacement option with a compelling value proposition. We are leading the industry with the broadest portfolio of QLC SSDs across client, consumer, and data center, and are seeing QLC adoption accelerate. Our mix of QLC SSD bits more than doubled quarter over quarter, surpassing our expectations. Fiscal 2020 has been an extraordinary year for our high-value solutions, which now make up around 80% of our quarterly NANBES, achieving the goal we had set for ourselves ahead of schedule. We are now intensifying our focus on profitability enhancement through further improvements to our product mix within our high-value solutions portfolio. Over the next several quarters, we will be introducing a slate of new SSD and mobile NAND products that leverage increased vertical integration using our internally developed controllers and our industry-leading second-generation replacement gate TLC and QLC technology. Turning to end markets, fiscal 2020 was a strong year for our SSD business. We expanded our NVME portfolio and continued our SATA market leadership. Fiscal Q4 SSD revenue almost doubled year over year, led by data center SSD sales. Client SSD average capacities grew almost 30% quarter over quarter, driven by QLC growth. Consumer SSD had another record quarter in volume shift, with NVMe bits more than doubling quarter over quarter. Turning to data center memory and networking, the data center market continues to be a growth engine for Micron, and this year, COVID-19 accelerated this growth, specifically in cloud. Leveraging our industry-leading 1Z DRAM, Micron executed well to drive robust sequential growth in cloud DRAM bit shipments, which more than doubled year over year in fiscal Q4. Meanwhile, traditional on-premise enterprise demand was weaker in fiscal Q4 with lower IT investment from businesses due to the impact of the pandemic. Looking ahead, the data center market is expected to start its transition to DDR5 in the second half of fiscal 2021, and we have begun sampling DDR5 server modules to customers. In networking, 5G deployments, particularly in Asia, drove healthy DRAM bit growth quarter over quarter. In mobile, Micron is well positioned to win in the 5G era as a supplier to all the major smartphone manufacturers with an outstanding portfolio of industry-leading low-power DRAM and managed NAND solutions. We have been diversifying and broadening our mobile business for some time, and achieved a record number of design wins in fiscal Q4. We are also excited about our product momentum in mobile MCP solutions, which combine DRAM and NAND solutions into one efficient package. The smartphone market has been impacted by the pandemic in a meaningful way in calendar 2020, but as we look ahead to calendar 2021, we expect a rebound in smartphone unit volumes coupled with robust average capacity growth across both DLAM and NAND solutions. 5G handset volumes could grow to approximately 500 million units in 2021 from around 200 million units in calendar 2020, and these 5G products feature higher memory and storage content to enable enhanced consumer experiences. In the PC market, the work-from-home trend drove strong demand for notebooks with pockets of non-memory component shortages in the supply chain. Desktop PC sales are weak due to pandemic-driven changes to customer buying patterns. In graphics, GDDR6 shipments to support next-generation gaming consoles, in addition to the initial shipments of our breakthrough GDDR6X product, helped drive strong quarter-over-quarter and year-over-year bid growth. We expect this market to drive growth for us in fiscal 2021. DRAM and NAND content growth continues to be a secular trend in the automotive market, supported by advanced infotainment systems and increased automation in cars. COVID-19 has significantly impacted both auto production and demand in fiscal 2020, but we saw a strong recovery towards the end of fiscal Q4, and expect sequential growth in sales of our products into the automotive market in FQ1. Economic recovery from the sharp recession in calendar Q2 is underway, but the pace has been limited by the continuation of the pandemic. Smartphone, auto, and consumer end markets have started to recover, and we see further demand improvements ahead. Cloud and laptop demand continues to be healthy, supported by the work from home and shop from home trends. Gaming demand is robust. However, our short-term outlook has weakened due to a combination of factors. First, the ongoing pandemic is taking a toll on certain segments of the economy. Consequently, enterprise demand has weakened due to lower IT spending and somewhat higher inventories at certain customers. In addition, due to the previously announced U.S. administration restrictions on Huawei, we halted shipments to Huawei on September 14. Huawei has been a large customer at approximately 10% of fiscal Q4 sales. Given that we only had one month's notice before halting shipments, we had limited ability to shift supply to other customers. As a result, we expect a negative impact to fiscal Q1 sales and to a lesser extent, fiscal Q2 sales. Our well-established relationships with mobile customers worldwide will allow us to offset the impact of these restrictions by the end of fiscal Q2. Now turning to our industry outlook. We now estimate that calendar 2020 industry DNAM bid demand growth is likely to be in the mid-teens percent range, while NAND bid demand growth is likely to be in the mid-20s. Due to the shift of industry production capacity to a more efficient 16 gigabit die, we are seeing industry supply constraints for 8 gigabit based DRAM products. We are optimistic that overall market demand will improve throughout calendar 2021, following the seasonal patterns of the first calendar quarter. We are very excited by the combination of growth drivers coming into alignment for the industry for calendar 2021, These growth drivers include economic recovery from the pandemic, new CPU architectures, which are enabling higher server content, cloud, AI, and machine learning growth, robust mobile demand driven by 5G, and strength in gaming and automotive. We expect calendar 2021 industry DLAM bed demand growth of approximately 20%. We further expect that disciplined industry capex will result in improving DLAM market conditions and industry profitability throughout calendar 2021. Calendar 2021 industry NAND bid demand growth is expected to be approximately 30%. Unless industry capex moderates from current levels or demand exceeds our expectations, we see a risk of challenging NAND industry profitability levels. Turning to micron supply, we target our bid supply growth CAGR to be in line with industry bid demand growth CAGR for both DRAM and NAND. However, there can be year-to-year variability caused by node transition timing. For example, we expect our DRAM bid supply growth to be above industry demand in calendar 2020, but to moderate to less than industry demand in calendar 2021. In NAND, we expect our bid supply growth in calendar 2020 to be well below the industry demand due to our ongoing RG transition. In calendar 2021, we expect our NAND bid supply growth to be somewhat below the industry demand, and we plan to use inventory to support a bid shipment growth that is in line with the industry demand. For fiscal 2021, we expect DRAM cost reduction in the mid-single-digit percent range with somewhat higher levels of cost reduction on a like-for-like basis. Our higher mix of LP5 graphics and our early RAM of high-bandwidth memory will impact overall DRAM costs. We anticipate NAND cost reduction in the low-to-mid-teens percent range even after accounting for the cost impact of our mixed shift as we continue our focus on optimizing our high-value solutions portfolio. We are targeting fiscal 2021 capex to be approximately $9 billion to support our long-term goal of maintaining stable share of industry bid supply, which will be achieved through no transitions alone and without a net increase to wafer starts. This CapEx target is significantly lower than our pre-COVID expectations and reflects our continued commitment to exercise supply discipline while staying focused on deploying our leading-edge technology nodes, which deliver strong ROI. Within this CapEx envelope, SAP building CapEx will remain elevated relative to historical levels. We are also continuing investments in back-end assembly and test capacity that do not impact BIT growth but have strong ROI. Should demand expectations change, we remain flexible to adjust our BIT supply growth to align with BIT demand growth using CAPEX and utilization of levers. Despite COVID-19's broad impact on our lives and the business environment, we believe it has accelerated demand growth in some parts of the markets we serve. This is certainly true in cloud deployments, where some trends that would have taken two to four years to develop have been accelerated into months and will likely persist into the future. As we look ahead, we remain extremely excited about the growth and health of our diverse end markets, which will benefit from powerful secular technology trends, including AI, 5G, and IoT. These trends will enable the data economy and increase the importance of DRAM and NAND, supporting a long-term DRAM bit demand growth CAGR of mid to high teens and a NAND bit demand growth CAGR of approximately 30%. I'll now turn it over to Dave to provide our financial results and guidance.