Micron Technology, Inc.

Good afternoon. My name is Josh, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Micron's third quarter 2021 financial release conference call. All lines have been placed on mute to prevent any background noise. After the speakers are marked, there will be a question and answer session. 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 Third 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 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 at 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 Form 10-K and 10-Q that we filed with the SEC 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, everyone. We delivered outstanding results in SU3. Our strong execution enabled us to achieve the largest sequential EPS improvement in our history and to set multiple revenue records. NAND hit record revenue propelled by record mobile MCP, consumer SSD, and client SSD revenues. Our embedded business exceeded $1 billion for the first time with record revenue across automotive and industrial markets. We also achieved key technology and product milestones with our industry-leading 1-alpha DRAM and 176-layer NAND, reaching a meaningful portion of our bid production and QLC NAND, accounting for a majority of our client SSD bid shipments. We expect DRAM and NAND supply to remain tight into calendar 2022 as the global economy rebounds. The strong demand for memory and storage across the data center, intelligent edge, and user devices puts Micron in the best position ever to fully capitalize on these exciting opportunities. We continue to make solid progress on our goals to deliver industry-leading technology and improve our cost structure, to bring differentiated products to market and improve our product mix, and to grow our share of industry profits while maintaining stable bid share. I will start with an update on our operations. Despite shortages across the semiconductor ecosystem in various assembly materials and assembly capacity, Micron delivered record assembly output this quarter, which helped fuel our strong revenue performance. Our assembly and test success was the result of a strategic decision we made several years ago to increase our captive footprint and strengthen relationships with suppliers and partners. We successfully mitigated the impacts of the drought in Taiwan with no reduction in our production output. Taiwan's rainy season has begun, bringing with it sufficient water supply to support our manufacturing requirements. While the drought in Taiwan is behind us, the rise in COVID-19 cases in Malaysia, India, and Taiwan are a risk to our manufacturing operations and R&D activities in these regions. We are also working with local governments to facilitate on-site testing and vaccination for Micron team members where possible. Additionally, in order to protect Micron team members at our Muar, Malaysia back-end facility, we temporarily reduced our on-site workforce early in FQ4, which reduced output levels. We have since started bringing back team members to the site as the situation has improved. While we ramp back toward full production levels in Moar, we will utilize our global supply chain, including subcontractor partners, to meet our customer commitments and minimize any disruption to delivery schedules. Earlier this year, we announced our decision to exit 3D cross-point development and manufacturing and to reprioritize our R&D investments toward new CXL-enabled memory solutions. CXL, or Compute Express Link, is a new industry standard interface that will significantly change data center architecture through high-performance connectivity between compute, memory, and storage. We are developing exciting CXL-enabled products and will have more to share on our roadmap in the future. As part of our exit from the 3D Crosspoint business, we announced our intent to sell our Lehigh Utah FAB. Today, I'm pleased to report that Micron has reached an agreement to sell the FAB to Texas Instruments in a transaction that we expect to close later this calendar year. We see this transaction as positive for our team members the Lehigh community, and our shareholders. The Lehigh site has been an important part of the Micron network and responsible for many technology and manufacturing innovations across NAND and 3D cross-point products. Texas Instruments will offer all Lehigh team members the opportunity to become TI employees at the Lehigh site upon closing. After the sale closes, we will be able to eliminate the remaining underloading costs we were incurring at Lehigh, enhancing our efficiency and strengthening our profitability. Dave will provide additional details. Now for an update on technology and products. Our industry-leading 1-alpha DRAM and 176-layer NAND process technologies are now in production and ramping according to plans. These nodes accounted for a meaningful portion of our bid production in FQ3 and are on track to become a meaningful portion of our revenue in FQ4. We expect that by end of calendar 2021, the combination of one alpha and one Z DRAM nodes will represent the majority of our DRAM bid production. And at the same time, 176 layered NAND will be the majority of our NAND bid production. In fiscal year 22, we expect these workhorse nodes to fuel bit growth and provide us with good front-end cost reduction on a like-for-like basis. However, there are two factors that will create cost headwinds for us next fiscal year. The first is driven by our strategic portfolio migration toward more advanced and higher-value products, such as DDR5 memory, high-density server modules, and SSDs. While this portfolio shift helps us increase profit share, it will also impact our costs next fiscal year. The second cost headwind is driven by several actions we have taken in our supply chain to increase resilience and provide business continuity to our customers across all product lines. While these actions will allow us to capitalize on robust market demand, they will also impact our costs. We are on track to support customers as they begin to introduce DDR5 enabled platforms in the second half of calendar 2021. DDR5 was designed to meet modern data center requirements, including improved performance through doubling of memory bandwidth and improved reliability and efficiency through integration of on-die ECC. DDR5 features a larger die size compared to DDR4. limiting DRAM industry supply growth and cost reduction as it ramps, starting from the second half of calendar 2021. In storage, we introduced the industry's first UFS 3.1 solution for automotive applications this quarter. We also announced volume production of client PCIe Gen 4 SSDs built on the world's first 176-layer NAND, and available in a variety of form factors. We are delivering 176-layer NAND in volume to OEM and channel customers across multiple markets and have several products in customer qualifications. We are also driving an increased mix of QLC NAND, which brings down the cost of SSDs, accelerating the replacement of hard drives. QLC SSD adoption continues to grow and we delivered record QLC SSD revenue and BitMix in FQ3. Turning to end markets, in the data center, integration of AI into data-centric workloads will drive long-term growth, with memory and storage becoming an increasing portion of server bomb cost. Propelled by the transition to DDR5, strong capabilities in graphics memory and the introduction of HBM and NVMe SSD product offerings, Micron's strong product roadmap across DRAM and NAND solutions positions us for success in the data center. We will enhance our NVMe SSD portfolio with the introduction of new products with internally designed controllers in the coming months. In the fiscal third quarter, data center DRAM revenue grew quarter over quarter driven by strong demand from cloud customers and increases in module density. Data center SSD bit shipments and revenue grew sequentially, driven by both cloud and enterprise. Data center demand is expected to be strong in the second half of the calendar year as cloud demand picks up and enterprise demand improves due to broad economic recovery. In addition, we expect that the new CPUs featuring more memory channels will accelerate server memory demand starting later this year and continuing into 2022. The PC market continues to benefit from the trend toward greater mobility as people embrace a work or learn from anywhere culture. Industry expectations for calendar 2021 PC unit demand growth have increased to the high teens, driven by robust notebook sales and the recovery in the desktop market. In the fiscal third quarter, we achieved several customer qualifications for our OneAlpha-based DDR4 products across various PC platforms. Our client SSD bit shipments were up sharply quarter over quarter and year over year. In graphics, bit shipments increased sequentially and year over year, driven by strong next-generation game console and graphics card shipments. Micron has an excellent position in the graphics market with a broad product portfolio and deep customer partnerships. Mobile business achieved record MCP quarterly revenue. We made strong progress with our 1-alpha LP DRAM products and 176-layer UFS 3.1-enabled solutions. We have already completed customer qualifications for some of these products. While COVID-19 has softened mobile demand in parts of Asia, supply shifts to address stronger demand in other regions are keeping the global market in tight supply-demand balance. Mobile unit sales are expected to show healthy growth this year with some variability across geographies, driven by an expected doubling of 5G units in calendar 2021 to more than 500 million units. These 5G phones also feature rich content demanding significantly higher DRAM and NAND. We are also encouraged to see bold OEM innovation in new devices like gaming smartphones featuring 18 gigabyte of DRAM. Our automotive business delivered a third consecutive record quarter, driven by continued manufacturing recovery and increased LPDDR4 and EMMC content for in-vehicle infotainment and driver assistance applications. Auto unit sales are expected to grow significantly from last year. Auto memory and storage content growth trends remain strong, particularly as EVs, which have significantly higher memory and storage content requirements, grow much faster than the broader auto market. We are continuing to see record automotive and industrial segment demand, Yet, despite our best efforts, we may be unable to meet all the demand from these customers over the next few months due to certain non-memory semiconductor component shortages in our supply chain. Turning to our market outlook, while the pandemic remains a risk factor, calendar 2021 is shaping up to be a strong year fueled by the macroeconomic recovery combined with secular drivers such as AI and 5G, that are creating sustained demand increases across broad end markets. As a result, our expectations for calendar 2021 DRAM and NAND bid growth have increased since our last earnings call, and we now expect calendar 2021 DRAM bid demand growth to be somewhat above 20% and NAND bid demand growth in the mid 30% range. There is currently unmet demand for DRAM and NAND due to end market strength. This unmet demand would have been even larger had it not been for the non-memory component shortages influencing our customers' ability to manufacture their products, particularly in the PC, automotive, and industrial markets. These shortages can cause variability in demand patterns as customers experience challenges sourcing matched set of non-memory components. We are hopeful that foundry capacity coming online can begin to alleviate some of the component shortages in the second half of calendar 2021 and support robust memory and storage growth. Additionally, as a result of strong end market demand trends, the lessons of the pandemic and ongoing geopolitical uncertainty, some customers will change their inventory management strategy from just-in-time to just-in-case and increase the target level of what they consider normal inventory levels. Long-term, we see 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 are targeting to align our long-term bid supply growth CAGR with the industry bid demand growth CAGR across DRAM and NAND. However, we expect 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 bid demand growth, and we have used our inventory to add to our bid shipment growth this year. Before handing over to Dave, I have one more important announcement to share regarding our DRAM technology and manufacturing strategy. Based on our assessment of the progress EUV has been making and aligned with our technology strategy and industry-leading DRAM scaling roadmap, we plan to insert EUV into our DRAM roadmap starting in the 2024 timeframe. Micron has placed purchase orders for multiple EUV tools from ASML as part of a long-term volume agreement. The prepayments for these systems will contribute towards the fiscal year 21 and fiscal year 22 capex. We have increased our fiscal year 21 capex to be somewhat above $9.5 billion, mostly from areas that do not impact calendar year 21 and calendar year 22 bid growth, such as these EUV prepayments, construction spending, and other R&D and corporate items. I will now turn it over to Dave.