Micron Technology, Inc.

Thank you for standing by. Welcome to Microd's fourth quarter 2023 financial call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. To remove yourself from the queue, simply press star 1-1 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Samir Petodia, Investor Relations. Please go ahead, sir.

Thank you, and welcome to Micron Technologies' fiscal fourth quarter 2023 financial conference call. On the call with me today are Sanjay Mehrotra, our president and CEO, and Mark Murphy, our CFO. Today's call is being webcast from our investor relations site at investors.micron.com, including audio and slides. In addition, the press release detailing our quarterly results has been posted on the website, along with the prepared remarks for this call. Today's discussion of financial results is presented on a non-GAAP financial basis, unless otherwise specified. A reconciliation of non-GAAP to GAAP financial measures can be found on our website. We encourage you to visit our website at micron.com throughout the quarter for the most current information on the company, including information on financial conferences that we may be attending. You can follow us on X at MicronTech. As a reminder, the matters we're discussing today include forward-looking statements regarding market demand and supply, our expected results, and other matters. 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 file with the SEC, including 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 to conform these statements to actual results. I'll now turn the call over to Sanjay.

Thank you, Sameer. Good afternoon, everyone. In fiscal Q4, Micron delivered revenue and gross margin above the midpoint of our guidance, with EPS above the high end of the range. These results reflect our strong execution, and we are well positioned to drive significant improvements in our financial performance. We believe pricing has now bottomed. Ongoing demand growth, customer inventory normalization, and industry-wide supply reductions have set the stage for increased revenue, along with improved pricing and profitability throughout fiscal 2024. We continue to expect record industry TAM in calendar 2025 with more normalized levels of profitability. Fiscal 2023 was a challenging year for the memory and storage industry as the revenue TAM reached a multi-year low, resulting in a significant impact to financial performance. Despite this difficult backdrop, the Micron team stayed focused on our strategy, executed well, and accomplished several important milestones. We achieved record annual automotive revenue, record NAND QLC bit shipments for the full fiscal year, and reached record levels in calendar Q2 for revenue share in data center and client SSDs. We were the first in our industry to introduce one beta DDR5 and LP5X DRAM products, and the first to ship HBM3E samples with industry-leading performance and power efficiency. We were also the first to introduce 232-layer NAND SSD products in data center, client, and consumer markets. These accomplishments were underpinned by our leadership technology and continued strong progress in manufacturing execution. We achieved world-class mature yields in record time on our industry-leading 1-beta DRAM and 232-layer NAND technologies. In addition, Micron took several prudent and timely actions to reduce our capex and supply in order to address the market imbalances through the course of fiscal 2023. Our industry-leading technology roadmap continues to progress well. As we have mentioned before, the vast majority of our bids are on leading-edge nodes 1-alpha and 1-beta in DNAM and 176-layer and 232-layer in NAND. We continue to make good progress on one gamma DLAM development using EUV and are on track for production in calendar 2025. Development of our next generation NAND node is also well on track. Now turning to our end markets. Customers continue to reduce their excess inventory for memory and storage in fiscal Q4. Most customer inventories for memory and storage in the PC and smartphone markets are now at normal levels, consistent with our prior forecasts. Inventory levels are normal across most customers in the automotive market as well. Data center customer inventory is also improving and will likely normalize in early calendar 2024. Consequently, we see demand continuing to strengthen, which has led to an inflection in pricing. Some customers have made strategic purchases in DRAM and NAND, to take advantage of unsustainably low pricing as the market begins its recovery. In data center, traditional server demand remains lackluster while demand for AI servers has been strong. Data center infrastructure operators have shifted budgets from traditional servers to higher priced AI servers. Total server unit shipments are expected to decline in calendar 2023 The first year-over-year decline since 2016. We expect total server unit growth will resume in calendar 2024 to help fulfill ever-increasing workload demand. We also expect content growth in both AI and traditional servers. Compared to traditional servers, AI training servers contain significantly higher DLAM and NAND content with greater technology complexity, robust product value, and higher profitability. We believe our data center revenue has bottomed, and we expect growth in fiscal Q1 and increasing momentum through fiscal years 24 and 25 in our data center business. Micron has a strengthening portfolio of solutions optimized for bandwidth, capacity, and power. These include HBM3E, DDR5, and associated high-capacity modules, LPD RAM, and data-centered SSDs. This portfolio of industry-leading products positions us well to capture the opportunities presented by data-centric computing architectures and AI. The introduction of our HBM3e product offering has been met with strong customer interest and enthusiasm. Our HBM3e provides superior bandwidth, power, and capacity for generative AI workloads. We developed this industry-leading design using our one beta technology, advanced TSV, and other innovations that enable a differentiated packaging solution. We have been working closely with our customers throughout the development process and are becoming a closely integrated partner in their AI roadmap. Micron HBM3e is currently in qualification for NVIDIA compute products which will drive HBM3e-powered AI solutions. We expect to begin the production ramp of HBM3e in early calendar 2024 and to achieve meaningful revenues in fiscal 2024. Micron also has a strong position in the industry transition to D5. We expect Micron D5 volume to cross over D4 in early calendar 2024 ahead of the industry. We expanded our high-capacity D5 DRAM module portfolio with a monolithic DAI-based 128-gigabyte module and have started shipping samples to customers to help support their AI application needs. We expect revenue from this product in Q2 of calendar 2024. Last month, we announced the introduction of 128-gigabyte and 256-gigabyte CXL 2.0 memory expansion modules. By leveraging a unique dual-channel memory architecture, we are able to deliver higher module capacity and increased bandwidth. We have shipped samples to several customers and key partners. In data center SSDs, Micron's entire portfolio utilizes 176-layer or 232-layer NAND in production, a testament to our product and technology leadership. We are well positioned to serve the growing demand for fast storage as data-intensive AI applications proliferate. We saw strong demand for our data center NVMe SSDs across our AI-focused, industry-leading 30-terabyte product, as well as our mainstream products. Micron ended the second calendar quarter with a record high revenue share in data center SSDs based on independent industry assessments. We expect to build on this momentum in fiscal 2024. In PCs, we continue to forecast calendar 2023 PC unit volume to decline by a low double-digit percentage year over year, and then grow by a low to mid single-digit percentage in calendar 2024. AI-enabled PCs will drive content growth and an improved refresh cycle over the next two years. In fiscal Q4, we saw strong sequential bid shipment growth at PC OEMs driven by demand for LPD RAM in thin client notebooks. We expect to begin revenue shipments of our industry-leading one beta-based client D5 in fiscal Q1 to PC OEMs. According to third-party analysts, in calendar Q2, we reached record revenue share in client SSDs for PC OEMs as customers adopted our industry-leading solutions. Our 232-layer NVMe client SSD is now qualified at large OEMs and shipping in volume production. Our SSD QLC bit shipment mix reached a new record for the second consecutive quarter with growth in both client and consumer markets. We continue to expand our footprint in the high-end consumer SSD space with the launch of three new products that extends our reach into professional content creators and enthusiast PC gamers. In mobile, we expect calendar 2023 smartphone unit volume to be down by mid-single-digit percentage year over year, and then grow by a mid-single-digit percentage in calendar 2024. Elasticity, along with a mixed shift towards premium phones, with greater capacity is contributing to memory content growth. About a third of smartphones sold today have at least 8 GB of DRAM and 256 GB of NAND, up more than 7 percentage points versus smartphone units a year ago. Similar to our view on PCs, AI-enabled mobile phones could drive content growth and a stronger refresh cycle over time. Longer term, we see generative AI applications executing on handsets. These applications will continue to drive new requirements for higher capacity, lower power, and increased performance in memory and storage. Last, I'll cover the auto and industrial end markets, which contribute to more stable revenue and profitability. Fiscal 2023 marked another record revenue year for our automotive business. Micron continues to lead in automotive market share and quality. Long-term, we expect memory and storage content per vehicle to increase in both ADAS and in-cabin applications. In addition, fast-growing EVs typically contain higher memory and storage content. Our automotive design wind trajectory remains strong. The industrial market showed signs of recovery in fiscal Q4. Inventory levels for memory and storage are stabilizing at distribution partners and at the majority of our customers. We expect the volume recovery that we observed in the second half of fiscal 2023 to continue into 2024. We see strong growth prospects in this market over time as industrial customers continue to adopt and implement IoT, AI, and machine learning solutions. As previously discussed, the CAC, or Cyber Security Administration of China, decision earlier this year has impacted our business, particularly in the domestic data center and networking markets in China. We remain committed to serving our customers in China for those areas of their business not impacted by the CAC decision. While there is near-term impact to our demand due to these challenges in China, We remain focused on maintaining Micron's global market share. Our team's grit and Micron's deep relationships with our customers, underpinned by our technology leadership, increasing product momentum, excellent product quality, and extensive manufacturing and supply chain capabilities, position us well toward these goals. Now, turning to our market outlook, starting with demand. We expect calendar 2023 DRAM bit demand to grow in the mid single digit percentage range. In NAND, our expectations for demand growth this calendar year have increased from high single digits to high teams percentage. These are below the expected long-term bit demand growth gaggers of mid-teens in DRAM and low 20s percentage range in NAND. While calendar 2023 DRAM demand has been in line with expectations, NAND growth expectations have increased due to stronger than expected demand in certain parts of the consumer market and the trend of greater elasticity in per-unit content. While macroeconomic factors remain a risk, we expect robust year-over-year bid demand growth in calendar 2024 for both DRAM and NAND, driven by improving end-market demand normalized customer inventory levels, content growth across products, and ongoing growth in AI. Calendar 2024 BIT demand growth is expected to exceed the long-term CAGR for DLAM and to be near the long-term CAGR for NAND. Turning to supply, significant supply and capex reductions across the industry have helped to stabilize the market and are enabling the recovery that is now underway. we see both DLAM and NAND year-over-year supply growth in calendar 2023 to be negative for the industry. We expect microns year-on-year bid supply growth to be meaningfully negative for DLAM. We also expect to produce fewer NAND bids in calendar 2023 than in calendar 2022. In calendar 2024, we expect industry DLAM and NAND supply growth to be below industry demand growth and meaningfully so for DLAM. We believe calendar 2024 is positioned to be a year of recovery in the memory and storage industry. A sustained period of supply growth less than demand growth will strengthen the pace of recovery. HVM production will be a headwind to industry-based supply growth. Across the industry, the HVM3E die is roughly twice the size of equivalent capacity D5. The HBM product includes a logic interface die and has a substantially more complex packaging stack that impacts yields. As a result, HBM3 and 3E demand will absorb an outsized portion of industry wafer supply. The ramp of HBM3 and 3E production will reduce overall DRAM bit supply growth industry-wide, with particular supply impact on non-HBM products as more capacity is diverted to addressing HBM opportunities. Micron is experiencing a similar impact of our planned HBM3e RAM on our bid supply capability. Micron's bid supply growth in fiscal 2024 is planned to be well below demand growth for both DRAM and NAND, and we expect to decrease our days of inventory in fiscal 2024. We continue to execute to our strategy of maintaining global bid shipment market share for DLAM and NAND while sustaining tight supply and CapEx management discipline. Micron's fiscal 2024 CapEx is projected to be up slightly compared to fiscal 2023 levels. WFE CapEx will be down again year over year in fiscal 2024. We remain focused on carefully managing overall supply growth. In last quarter's earnings call, we communicated that total wafer start reductions in both DRAM and NAND are approaching 30% versus peak 2022 levels. Amid an intense focus on capital efficiency over the last few quarters, we have redeployed a portion of the underutilized equipment to support production ramp of leading-edge nodes in both DRAM and NAND. Given the higher process step count of these leading-edge nodes, Transitioning this equipment results in a significant and structural reduction to our overall wafer capacity in both DRAM and NAND. Due to this structural reduction in capacity, our DRAM and NAND wafer starts will remain significantly below 2022 levels for the foreseeable future. Our industry supply projections assume a similar structural reduction in wafer capacity industry-wide. Lead times to increase this wafer capacity will be long and will depend on improving demand, pricing, and financial performance. We expect underutilization to continue in our legacy nodes well into calendar 2024. We see our demand at leading-edge nodes exceeding our supply in fiscal and calendar 2024, particularly in the second half of the year. Construction CapEx will be elevated to support our plans to build leading-edge memory fabs in Idaho and New York, for which we filed CHIPS applications in August. As we have highlighted before, the requested level of CHIPS grants for our Idaho and New York projects are essential to the viability and global competitiveness of each of these projects. Our CapEx plans assume that a certain level of CHIPS grant funds will be made available to us in fiscal year 2024. Assembly and test CapEx is projected to double year-over-year in fiscal 2024, predominantly driven by investments to support HBM3e production. Our planned fiscal 2024 CapEx investments in HBM capacity have substantially increased versus our prior plan in response to strong customer demand for our industry-leading product. Over the course of calendar 2024, we see accelerating AI-driven opportunities for memory and storage across multiple market segments from the data center to the edge. We are encouraged by the improving industry demand and supply fundamentals. We believe that the CapEx constraints created by the industry profitability environment, coupled with improved inventories, announced supply reductions, and the impact of the HBM ramp on DRAM bit supply growth will create conditions that will increasingly tighten the supply-demand balance, particularly in the second half of our fiscal year. Our Micron team is executing well and is taking prudent and proactive actions to navigate through the near-term environment and position the company to emerge stronger from the current downturn. We look forward to a recovery in our business financials taking shape in fiscal 2024. I will now turn it over to Mark for our financial results and outlook.