Micron Technology, Inc.

Good afternoon. My name is Lateef, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Micron's second quarter 2021 financial release conference call. All lines have been placed on mute to prevent any background noise. After the speaker remarks, there will be a question and answer period. If you would like to ask a question during this time, please press 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 Second 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 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 the gap to non-gap financial measures can be found on our website. As a reminder, our 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 the statements made today. We refer you to the documents we filed with DSCC, specifically our most recent Form 10-K and 10-Q, for a discussion of risks that may affect our future results. Although we believe 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 statement to conform these statements to actual results. I'll now turn the call over to Sanjay.

Thank you, Farhan. Micron delivered strong FQ2 results above our original projections driven by solid execution and higher-than-expected demand across multiple N markets. The D-NAN market is in severe shortage, and the NAN market is showing signs of stabilization in the near term. The execution from the Micron team and these strengthened conditions enabled us to set revenue records for mobile MCPs and automotive products and to reach normal levels of inventory ahead of schedule. Following last quarter's introduction of 176-layer NAND into volume production, in FQ2, we began volume production on our one alpha DRAM node, solidifying our technology leadership in both DRAM and NAND. We are in an excellent position to capitalize on the strong demand for memory and storage driven by artificial intelligence and 5G across the data center, the intelligent edge, and user devices. I'll start with an update on our operations. The Micron team is doing everything we can to meet customer demand, despite the challenges of the pandemic, non-memory component shortages in the electronics industry, and disruptions that occurred in our Taiwan fabs in December. We are confident that our COVID-19 safety protocols will allow us to continue at full production levels, and we are encouraged to see vaccines become increasingly available around the world. Micron has been able to mitigate the impact of broad electronics industry shortages to our production output through our proactive supply chain and inventory management strategies. Investments made over the last several years in facilities infrastructure allowed us to minimize lost output caused by the power outage and earthquake at our Taiwan operations in December. Recently, due to the drought in central Taiwan, there has been a reduction in the water supply for one of our DRAM SAP sites. To mitigate the water shortage, we are accelerating our water conservation efforts and have secured alternative sources of water. At this time, we do not see an impact to DRAM production output. However, this is a developing situation that we are monitoring closely for the next several months. Now turning to technology and products. We continue to make solid progress on our key goals. First, to deliver industry-leading technology and improve our cost structure. Second, to bring differentiated products to market and improve our product mix. And third, to grow our share of industry profits while maintaining stable bid share. I'm proud to report that Micron was one of the top 20 U.S. patent registrants in 2020. This achievement attests to the brilliant innovation of our teams and is proof of the tenacious focus we have placed on technology and product leadership over the past several years. Our industry-leading 1-alpha DLAM and 176-layer NAND nodes are in volume production and are ramping on plan. We expect these nodes to be our workhorse for fiscal year 22, fueling our bid growth and contributing to our long-term cost reduction goals. Across both DRAM and NAND, we target our long-term cost reductions that are in line with the industry. In products, Micron is on track to support customers as they begin to introduce DDR5 in the fiscal second half of 2021. We are also driving an increased mix of QLC NAND, which helps to make SSDs more cost-effective and accelerates the replacement of HDDs with SSDs. QLC SSD adoption continues to grow, and we achieved a record-high QLC bitmix in SQ2. Earlier this month, Micron took a decisive step to exit 3D cross-point development and manufacturing. As mentioned on our recent 3D Crosspoint update call, Micron is prioritizing investment toward other memory solutions that use the Compute Express Link, or CXL, and we are excited about addressing this market opportunity with differentiated products. Most of the R&D teams previously working on 3D Crosspoint have already been transitioned to other programs, including accelerating introduction of CXL-enabled memory products. This change will allow Micron to better address future needs of our data center customers and also drive higher ROI and shareholder value. We are running an open process to identify the best acquirer for the Lehigh Fab, which provides an excellent location for advanced foundry, logic, and analog semiconductor manufacturing, and expect to finalize the sale within calendar 2021. We anticipate that the overwhelming majority of the highly skilled Lehigh manufacturing team will find strong career opportunities with the buyer. Turning to end markets, in data center, AI and data-centric workloads will drive long-term growth, with memory and storage becoming an increasing portion of server BOM costs. Micron is positioned for success in this market with a broad portfolio of high-quality and power-efficient products. Enterprise demand, which had been anemic for the last few quarters, is starting to improve as IT budgets increase in anticipation of economic recovery. Enterprise DRAM bit shipments grew sharply quarter-over-quarter but were still down year-over-year. Cloud DRAM bit shipments also grew quarter over quarter, and we anticipate robust demand from U.S. hyperscale customers, especially as we enter the second half of calendar 2021. In data center SSDs, revenue declined sequentially as customers in certain segments reduced their higher-than-average inventory levels. We are continuing to expand our data center NVMe SSD portfolio with internally developed controllers and have new product introductions planned in the coming quarters. In PC, we continue to benefit from the remote work and learning trend that drove healthy notebook and Chromebook demand in fiscal Q2. Micron delivered record PC DRAM bit shipments despite pockets of non-memory component shortages experienced in the PC OEM supply chain. We also began sampling 1-alpha based DDR4 products. In client SSDs, we are on track to begin customer qualification of our next generation client SSDs using 176-layer NAND in the fiscal second half of 2021. By the end of calendar 2021, we expect to cover multiple segments of the market including consumer, value OEM and premium OEM with our 176 layer based client portfolio. In graphics, revenue declined quarter over quarter from an exceptional fiscal first quarter which benefited from the launch of new gaming consoles. Nevertheless, fiscal second quarter revenue grew significantly year over year Micron has an excellent position in this market with a broad product portfolio and deep customer partnerships. In mobile, revenue grew 21% sequentially driven by strong execution coupled with better than seasonal demand due to continuing recovery in smartphone volumes. We achieved record MCP revenue and nearly tripled our LP5 revenue sequentially. We have also begun sampling the industry's first 1-alpha LPD RAM and 176-layer NAND with mobile customers. Smartphone unit sales in China have been robust, and 5G momentum is continuing. In auto, we delivered a second consecutive record revenue quarter as auto manufacturing recovers around the globe and as memory and storage content per vehicle continues to grow. We have more demand than we can supply, and we are working diligently with our customers to address their memory and storage needs. We are also advancing our product portfolio targeted for automotive applications. In FQ2, we completed qualification of our auto-grade LP5 and began sampling the industry's first automotive LP5 that is hardware evaluated to meet the most stringent automotive safety integrity level, ASIL-D. Turning to the market outlook, calendar 2021 is shaping up to be a solid year and our overall outlook across DRAM and NAND has improved since our last earnings call with broad strength across nearly all end markets. The pandemic has driven changes in our economy that we believe will not only benefit us this year, but also serve to accelerate the digital transformation of the economy and drive new opportunities for Micron. Recovery from the pandemic and pent-up demand are expected to drive strong demand growth in markets such as enterprise, cloud, desktop PCs, mobile, auto, and industrial. Data center demand is expected to be strong in calendar 2021, particularly in the second half of the calendar year, due to a combination of factors. First, enterprise demand has started to come back as the economy recovers and is expected to further strengthen through the calendar year. Second, our opportunity at cloud service providers will continue to strengthen through calendar 21, driven by robust demand for their solutions and offerings, as well as secular growth in AI and data-centric workloads. And finally, the introduction of new CPUs will support more memory channels and higher-density modules contributing to increases in server memory content across both cloud and enterprise. Forecasts for calendar 2021 PC unit sales have increased from three months ago and are expected to approach an average of 1 million units per day. There is robust demand in notebook PCs, especially Chromebooks. We also expect the desktop market to improve as workers gradually return to the office this year. Mobile unit sales are expected to show robust growth this year, and we also expect to benefit from higher content in 5G phones, which are forecast to double in calendar 2021 to more than 500 million units. Auto unit sales are expected to grow significantly from last year, while secular memory and storage content growth trends remain strong as EVs proliferate. The strong demand across various end markets combined with disruptions at certain logic and foundry semiconductor producers has resulted in a shortage of these non-memory ICs for our customers, and we believe memory demand would have been even greater without these shortages. In DRAM, due to the stronger demand, we now expect calendar 2021 bid growth at 20% above our prior forecast of high teens. This growth builds on calendar 2020 bid growth, which was in the lower 20s percent range. As a result of disciplined CapEx investments since the start of the pandemic, we expect industry DRAM supply to be below demand. As a result of the strong demand and limited supply, the DRAM market is currently facing a severe undersupply, which is causing DRAM prices to increase rapidly. We see the DRAM market tightening further through the year. In NAND, we now expect calendar 2021 bid growth to be in the low to mid-30% range, above our prior expectation of 30%. While we are seeing stabilization in near-term pricing, the elevated levels of industry capex are a cause for concern, and more capex cuts are needed to allow for healthy NAND industry profitability. Long-term, we expect a DRAM bid demand growth CAGR of mid to high teens and a NAND bid demand growth CAGR of approximately 30%. Turning to micron supply, we target our long-term bid supply growth CAGR to be in line with the industry bid demand growth CAGR for both DRAM and NAND. However, there can be year-to-year variability caused by no transition timing. In both DRAM and NAND, we expect our calendar 2021 bid supply growth to be below the industry demand growth, and we have used our inventory to add to our bid shipment growth this year. We are targeting fiscal 2021 capex to be approximately $9 billion to support our long-term goal of maintaining a stable share of industry bid supply. I will now turn it over to Dave.