This summary is based on the third quarter fiscal 2008 earnings call conducted by Micron Technology, Inc. (MU) on June 26, 2008.
President, Chief Operating Officer:
D. Mark Durcan
Chief Financial Officer, Vice President - Finance:
Ronald C. Foster
Vice President - Worldwide Sales:
Michael W. Sadler
Kipp A. Bedard
Key Investors Issues
- EPS were a loss of 30 cents a share compared to a loss of 29 cents a share last year.
- Profit was a loss of $236 million compared to a loss of $225 million in the year-ago period.
- Revenue rose to $1.5 billion from $1.29 billion last year.
Third Quarter Highlights
Revenue increased 10% and gross margins moved into positive territory as megabit sales and cost reductions outpaced the ASP declines.
- DRAM and NAND ASPs declined approximately 5% and 20% on a sequential quarter basis.
- Megabit sales volume increased approximately 10% and 40% per DRAM and NAND flash memory products respectively from second to third quarter. The company continued to make progress in driving down production costs as costs of goods sold per megabit declined about 15% and 25% for DRAM and NAND respectively over the same period.
- Weight per output yield increases and node transitions all contributed to the margin improvement.
- The company recorded a net loss of $236 million or 36 cents per share compared to a non-GAAP loss of $314 million or 41 cents per share in the prior quarter. The GAAP reported loss for the second quarter included a goodwill impairment charge of $463 million.
R&D expenses improved due to cost management efforts and progress moving key development products into production.
- The company expects to maintain the lower run rate of operating expenses with SG&A and R&D expenses estimated to be flat to down from the third quarter to the fourth quarter.
- Operating cash flow was $217 million and $775 million for fiscal year to date.
- The company ended the quarter with $1.6 billion in cash and short-term investments.
- TECH semiconductor entered into a $600 million credit facility to refinance $240 million of outstanding debt and to finance future capital expenditures.
- Capital expenditures totaled $577 million.
- Capital expenditures for fiscal 2008 will be at the upper end of previously projected range of $2.5 billion to $3 billion as the company continues investments in NAND and IMF and DRAM at MTV and TECH. Partners will provide net capital contributions of about $230 million to fund 2008 expenditures.
- In fiscal 2009 capital expenditures of approximately $1.5 billion to $2 billion are anticipated. The company expects about $300 million of this amount in net capital contributions from partners. These capital expenditures do not reflect the previously communicated $550 million capital contribution for Maya which has committed over the 2009 calendar year.
- Depreciation and amortization expense was $513 million and will total approximately $2 billion for the year. In fiscal 2009 depreciation and amortization expense of about $2.25 billion is expected.
In 2007 and early 2008 the company experienced a supply driven semiconductor memory pricing downturn in the face of a relatively strong demand environment.
- From perspective, exiting fiscal third quarter of this year the company is seeing an improved supply-demand balance. This has generally resulted in relative memory price stabilization with an encouraging upward pricing trend across the commodity DRAM product portfolio in particular.
- The computing industry continues to be the largest revenue driver for Micron''s memory products and it is seeing demand in line with normal seasonal expectations.
- The company is starting to see some traction for DDR3 memory in select platforms and would expect penetration as it moves through 2008 and into next year. The company is well positioned in this face with industry leading DDR2 and DDR3 chip sizes on 78 nanometer 300 millimeter wafers. The company begun a transition to 68 nanometer in Singapore facility with initial production shipments and revenue generation occurring in the current quarter ultimately contributing to aggressive cost of goods sold productions.
- Specialty DRAM product portfolio continues to enable solid performance for the company in a variety of non-computing segments such as networking, mobile handsets, and automotive. The company is utilizing installed 200 millimeter capacity to manufacture both image sensors and the vast majority of specialty DRAM products. The company is selective moving high volume and high growth specialty DRAM products into 3 millimeter facilities to achieve further cost reductions and create headroom for supply growth. From a market segment viewpoint the company did see particularly strong unit shipment and revenue growth in both image sensors and low-power DRAM products for the mobile handset market in the third quarter.
- The NAND market still dominated by consumer applications with a strong seasonal component of demand continues to be challenged by excess supply. Technology and scale advancements now moving to an industry leading 34 nanometer process are having a positive effect on cost of goods sold reductions but the oversupplied market environment has continued to drive prices down further. The company is working diligently on strengthening the NAND product portfolio much as it has already demonstrated in the DRAM space to improve selling prices and relative profitability independent of the market environment. To this end the company is ramping up NAND based multi-chip package efforts for the mobile MOAL phone arena. The company has a micro-SD compatible 1 gigabyte chip in the market today and have recently begun shipments of the micro-SD cards with Micron manufactured silica.
- The company has initial single-level cell solid state drives in the evaluation stage with various customers in the enterprise space and will introduce lower cost MLC based solid state drives for the client markets later this year. The company is achieving higher average selling prices in margins via leveraging the Lexar brand and retail channel presence and is continuing down the path of moving more of NAND output through the Lexar operations.
- Bit cost reductions ran substantially ahead of projections led by solid yields and cost cutting in the operations. The ongoing transition of Micron''s NAND and core DRAM products to leading edge capacity continue to pace with 90% of that silica now being built on 300 millimeter wafers. Technology transitions also progressed as well. Tech Semiconductor continued its ramp of the industry''s leading die size 1 gigabit product on 68 nanometer technology while making substantial progress on its conversion to 300 millimeter. They completed the fabrication of their last 200 millimeter wafers and expect to complete the transition during the second half of the year. The company is well positioned with optimized products for the DDR3 transition coming. Recently Micron and Intel announced sample availability of industry leading 34 nanometer 32 gigabit product. That product and process node is now being deployed in IMFT joint venture and will ramp throughout the second half of the calendar year.
- The company closed on the creation of DRAM joint venture Maya. The relationship with Nanya brings many advantages to Micron including joint technology development and licensing of technology as well as the capital efficient capacity associated with the joint venture. Maya will start up its initial manufacturing facility beginning early in the calendar 2009 and ramp throughout the year to an initial target of 10,000 wafers per week. The company anticipates this to be a cost-effective way for Micron to add wafers and support a growing customer demand. Licensing revenue and cost benefits will grow throughout time as Maya grows capacity, Nanya adds or transitions wholly-owned capacity, and as the scope of our R&D cooperation grows.
- The company expects bit production growth as mid to high single digits for DRAMS and mid-teens for NANDs. Cost for bit production should mimic that and be in the mid-single digits for DRAM and mid-teens for NAND.
Key questions from the third quarter earnings call conducted by Micron Technology, Inc. on June 24, 2008.