Micron Technology Inc. (MU)
Q2 2009 Earnings Call Transcript
April 2, 2009 4:30 p.m. ET

Executives

Kipp A. Bedard – Vice President of Investor Relations
Steven R. Appleton – Chairman & Chief Executive Officer
Mark Durcan – President & Chief Operating Officer
Ronald C. Foster – Chief Financial Officer & Vice President of Finance
Mark W. Adams – Vice President of Worldwide Sales

Analysts

James Covello - Goldman Sachs
Timothy Luke - Barclays Capital
Gary Hsueh - Oppenheimer & Co
Uche Orji - UBS
John Pitzer - Credit Suisse
Shawn Webster - J.P. Morgan
David Wong - Wachovia Capital Markets
Kevin Cassidy - Thomas Weisel Partners
Daniel Berenbaum - Auriga USA
Gee (ph) for Glen Young – Citigroup
Bob Gujavarty - Deutsche Bank Securities
Kevin Vassily - Pacific Crest Securities

Presentation

Operator

Good afternoon. My name is Melissa, and I will be your conference operator today. At this time I would like to welcome everyone to the Micron Technology’s second quarter 2009 financial release conference call. (Operator Instructions) 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’d like to ask a question during this time simple press * then the number 1 on your telephone keypad. If you’d like to withdraw your question press the pound key. Thank you. It is now my pleasure to turn the floor over to your host, Kipp Bedard. Sir, you may begin your conference.

Kipp A. Bedard – Vice President of Investor Relations

Thank you very much and welcome everyone to Micron Technology’s second quarter 2009 financial release conference call. On the call today we have Steve Appleton, Chairman and CEO; Mark Durcan, President and Chief Operating Officer; Ronald Foster, Chief Financial Officer and Vice President of Finance; and of course Mark Adams, Vice President of our Worldwide Sales. This conference call, including audio and slides, is also available on Micron’s website at micron.com. If you have not had an opportunity to review the second quarter 2009 financial press release, it is also available on our website at micron.com. Our call will be approximately 60 minutes in length.

There will be an audio replay of this call accessed by dialing 706-645-9291 with confirmation code of 90736047. This replay will run through Thursday, April 9, 2009 at 5:30 PM Mountain Time. A webcast replay will be available on the company’s website until April 2, 2010. We encourage you to monitor our website again at micron.com throughout the quarter for the most current information on the company, including information of various financial conferences that we will be attending. Please note the following safe harbor statement.

‘’During the course of this meeting, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company and the industry. We wish to caution you that such statements are predictions, and that actual events or results may differ materially. We refer you to the documents the company files on a consolidated basis from time to time with the Securities and Exchange Commission, specifically the company’s most recent Form 10-K and Form 10-Q. These documents contain and identify important factors that could cause the actual results for the company, on a consolidated basis, to differ materially from those contained in our projections or forward-looking statements. These certain factors can be found in the Investor Relations section of Micron’s website. 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 the date of our presentation to conform these statements to actual results.’’

I will now turn the call over to Mr. Ron Foster. Ron.

Ronald C. Foster -- Chief Financial Officer

Thanks Kipp. I will briefly review the summary financial results for the second quarter, which ended March 5, 2009. Revenue for the second quarter decreased 29% compared to the prior quarter. Memory revenues were down 26%, due to an unusually steep memory ASP decline of 20%, driven by overall market weakness. Memory revenues included $33 million in royalty and technology fees. Imaging revenues were down 53% from quarter-to-quarter, primarily due to weakness in the mobile phone market. We ended the second quarter with $932 million in cash and short-term investments. Operating cash flow was $339 million in the second quarter, including a one time benefit of $208 million related to a billing to Intel for the termination of the Boise supply agreement. Financing cash flows for the quarter included offsetting $208 million distribution to Intel for their share of the supply agreement.

Gross margin was minus 27% for the quarter. The declines in memory ASPs during the quarter triggered a $234 million non-cash write-down of memory inventories to estimated market value. Also included in these results is a favorable NRV flow through effect from prior period write-offs of $277 million. Absent the NRV effects in both quarters, memory gross margin was 11% lower quarter-to-quarter. Idle facility charges of approximately $60 million at Inotera and IM Flash Singapore are included in the quarter results. We anticipate that idle facility costs will be somewhat lower in fiscal Q3.

NAND average selling prices declined 13% for the quarter, while NAND cost per gigabyte declined by 23%. These cost declines exclude the NRV effects and idle facility costs associated with IM Flash Singapore. The successful ramp of our industry leading 34-nanometer MLC NAND product was a substantial contributor to this cost reduction. We expect to realize additional cost reductions in the second half of 2009, as 34-nanometer becomes the majority of our NAND wafer shipments. Overall NAND gross margins performance substantially improved quarter-over-quarter, albeit still negative. NAND bit production in the third quarter is forecast to be in the high teens, as a result of a 200- millimeter phase out, offset by rapidly accelerating process node migrations. Continuing production efficiencies, and the 34-nanometer node transition, will lead to a quarterly cost per gigabyte decline, averaging mid to high teens for the second half of fiscal 2009.

Even though DRAM cost per gigabit declined by 12% quarter-over-quarter, DRAM ASPs declined by an unusually high 30% in the same period, due in part to a decrease in the mix of higher ASP specialty DRAM products that service the weak consumer markets. These cost declines exclude NRV effects and idle capacity costs related to Micron’s supply agreement with Inotera. Qimonda has defaulted on its wafer purchase commitment to Inotera. As a result, Inotera has significantly reduced wafer production, triggering the idle capacity charges per our supply agreement. Due to the weak demand for consumer related products, we are phasing out 200-millimeter capacity in Boise and are adjusting all global 200-millimeter capacity to balance with projected future demand. Fiscal Q3 DRAM cost reductions are expected to be in the mid to high single digits, and bit production is forecast to increase in the high single digit range, primarily due to 50-nanometer process node migrations, and relative stability in wafer production. These projections exclude charges associated with idle capacity at Inotera.

Imaging gross margins were down as we experienced a slow down in unit sales and production, driving up per unit costs. Imaging gross margins did, however, remain positive at 2.8%. Progress in reducing our operating cost structure continued in the second quarter. Restructuring programs and spending controls reduced SG&A expense to $90 million. This was below the guidance range of $100 to $105 million and 25% below the prior year period. R&D expense of $168 million was in line with projections, and resulted from ongoing cost management efforts and progress in transitioning products from development to production. We anticipate SG&A expenses to be in the $85 to $90 million range in fiscal Q3 ’09, and R&D expenses to be in the $175 to $180 million range. The increase in R&D expenses is primarily related to product qualifications. We expect the R&D spend to decrease in future quarters. We will continue to proactively manage our cost structure to enable Micron to remain competitive in this environment.

Micron reported a net loss of $751 million or $0.97 per diluted share for the quarter, compared to a loss of $706 million or $0.91 per share in the prior quarter. The net loss includes restructuring charges of $105 million, which incorporates two major items. First, restructuring costs of $17 million related to employee severance. Second, an $87 million non-cash charge for asset write-downs related to the Boise fab phase out. Also, as a result of prevailing market conditions, the company wrote-off all of the $58 million of goodwill previously included in the imaging segment. This eliminates all remaining goodwill on Micron’s balance sheet.