The operator introduces the Micron Technology's First Quarter 2024 Financial Results Conference Call and reminds participants that the call is being recorded. Satya Kumar, Investor Relations, is hosting the call and introduces the CEO and CFO. The call can be accessed through the company's website and will discuss financial results on a non-GAAP basis. Forward-looking statements will be made, and participants are referred to the company's SEC filings for potential risks.

Micron is optimistic about its future growth, driven by the increasing demand for memory in AI servers. The company has exceeded its revenue and EPS guidance for the last quarter and is seeing a strong demand for its products. Micron has also made significant advancements in its technology roadmap and expects to see improved margins and financial performance in the coming years. The company plans to stay disciplined in its supply and capacity investments and predicts record industry TAM in 2025.

The company's leading-edge nodes, such as 1-alpha and 1-beta in DRAM and 176-layer and 232-layer in NAND, have reached mature yields faster than previous nodes. Front-end cost reductions are expected to track in line with long-term expectations. Inventory levels for memory and storage are at or near normal levels for most customers, and demand is closer to end-market demand. Data center customer inventory is improving and expected to approach normal levels in the first half of 2024. The company is ahead of the industry in transitioning to D5 and expects to cross over D5 volume from D4 in early 2024. The use of AI is expanding from the data center to the edge, driving higher capacity, lower power, and increased performance requirements for memory and storage. The company expects to benefit from this trend in AI and experience content growth.

In the data center industry, server unit shipments are expected to increase in 2024 due to a shift towards AI servers. Micron is addressing this demand with a portfolio of data center solutions, including HBM3E, which has received positive customer feedback. Micron is in the final stages of qualifying HBM3E for use in NVIDIA's next-generation platforms and expects to begin volume production in early 2024. This is expected to generate significant revenue for Micron in 2024 and continued growth in 2025, with the potential for HBM market share to match overall DRAM bit share in 2025.

Micron has recently introduced the industry's fastest and lowest latency 128GB high-capacity modules built on their 1-beta node and using a monolithic die. These modules have been validated by leading CPU vendors and are expected to have a significant market opportunity. Micron has also achieved record-high revenue share in data center SSDs and expects to continue this momentum in the future. In the PC market, they anticipate unit volume growth in 2024 and see potential for AI-on-device PCs and increased DRAM and SSD capacities. Micron has also achieved record bit shipments in both client and consumer SSDs, with QLC now comprising the majority of their bit shipment mix.

Micron has announced the release of the Micron 3500 NVMe SSD, which is the world's first performance client SSD with 200 plus layer NAND. This will help handle demanding workloads for various applications. The demand for smartphones is expected to grow in 2024, with leading chipset vendors releasing powerful products supporting on-device large language models. Micron is well-positioned to capture this opportunity with their product portfolio. They are also sampling their next-generation 232-layer NAND and 24Gb LP5x DRAM to support the memory needs of emerging AI models. In the auto and industrial markets, there is an increase in AI at the edge, leading to growth in memory content for AI-enabled devices. Micron's automotive business achieved a new revenue record in fiscal Q1 due to increased demand and volume ramps of new vehicle platforms.

Micron, a leader in the automotive market, is expected to benefit from the growth in memory and storage demand as automotive OEMs expand features in ADAS and in-cabin applications. Their industrial business also saw double-digit growth in fiscal Q1. Industry fundamentals for memory and storage remain strong, driven by the widespread adoption of IoT, AI, and machine learning solutions. Demand for DRAM and NAND is expected to grow in the high-single-digit and high-teens percentage range respectively in calendar 2023. Supply reductions across the industry have enabled a recovery, and Micron will continue to exercise supply and CapEx discipline to maintain its market share. Their fiscal 2024 CapEx is projected to be slightly higher than last year, primarily to support the HBM3E production ramp.

Micron's ramp of HBM production will limit supply growth in non-HBM products and improve the overall DRAM industry supply-demand balance. HBM production consumes more wafer supply and is more complex, resulting in lower overall wafer capacity. Micron plans to strategically divert underutilized equipment to ramp new technology nodes, which will reduce overall wafer capacity. This is an industry-wide practice that will likely constrain industry supply in 2024. Micron's bit supply growth in fiscal 2024 will be lower than demand for both DRAM and NAND, and they expect to decrease inventory levels. They are also working with the US government to receive CHIPS grants for their projects in Idaho and New York, which will help address cost differences compared to overseas expansion.

Micron has opened new facilities in Malaysia and Taiwan to better serve global customers and is expanding its Xi'an facility in China. In the first fiscal quarter, they achieved the first mobile customer qualification of LPDRAM at the Xi'an site. The company's strong global operations, technology, product portfolio, and team position them well for future opportunities. In terms of financial results, Micron exceeded its guidance with revenue, gross margin, and EPS higher than expected. This was due to an improving supply-demand environment and strong execution resulting in higher prices for DRAM and NAND. Total revenue for the quarter was $4.7 billion, with DRAM revenue accounting for 73% of the total. DRAM revenue increased by 24% sequentially, with bit shipments and prices both showing growth. Strong bookings and strategic customer buys in previous quarters limited reported price increases.

In fiscal Q2, Micron's NAND revenue increased by 2% due to strong pricing, offsetting a decline in volumes. The Compute and Networking Business Unit saw a 45% increase in revenue, driven by growth in data center and client shipments. Mobile revenue also showed strength as customer inventories normalized and demand for smartphones increased. The Embedded Business Unit saw strong growth across most end markets, while the Storage Business Unit experienced a decline in revenue due to lower consumer component sales. The consolidated gross margin improved by 10 percentage points due to higher prices and a greater mix of DRAM products. Operating expenses also increased, in line with the company's late November update.

The company had an operating loss of $955 million in fiscal Q1, with an operating margin of negative 20%. Taxes were lower than expected due to an improved outlook for fiscal 2024. Non-GAAP loss per share was $0.95. Cash flows were $1.4 billion, and capital expenditures were $1.7 billion. Ending inventory was $8.3 billion, with strategic stock included. The company had $9.8 billion in cash and investments and $12.3 billion in liquidity. The outlook for the fiscal second quarter is positive, with an expected tightening of supply-demand balance in DRAM and NAND. Leading-edge nodes are oversubscribed for the full year.

The company expects prices to increase in 2024, leading to better financial performance. They are working to minimize customer demand and expect a decrease in bit shipments. Gross margin is expected to improve in the second quarter, and operating expenses will decline. They project a return to operating income in the third quarter and an increase in tax expenses. Capital expenditures will remain consistent and they expect positive free cash flow in the fourth quarter.

The paragraph discusses the company's financial outlook, with expected revenue, gross margin, operating expenses, tax expenses, and loss per share. The company is optimistic about the industry's improvement and their own financial prospects for the fiscal year and beyond. They plan to continue managing the business carefully and focus on optimizing price, productivity, and capital spend. The company also mentions their strong balance sheet and expects to return to profitability and positive cash flow. The CEO concludes by discussing the company's progress in technology and their positioning to take advantage of future opportunities, particularly in the growing field of AI. The paragraph ends by announcing that the floor is open for questions.

The speaker is responding to a question about pricing for DRAM and NAND in the years 2024 and 2025. They state that they expect pricing to continue to improve due to a healthy demand-supply balance, with customer inventories normalizing and data center demand increasing. They also mention that their own inventory is improving and there is tightness on their leading-edge nodes. They expect a healthy pricing environment in both 2024 and 2025.

The healthy dynamics of pricing, profitability, and revenue growth are driven by AI as a dominant demand driver across all end markets. The company is focused on supporting the growth of its HBM business and is excited about its advanced HBM3E offering. The company's HBM supply is sold out for calendar year '24 and they will make necessary investments to support demand. The profitability of NAND and DRAM will determine any potential CapEx investments, and the company remains disciplined in this regard.

Sanjay Mehrotra discusses the company's plans to remain disciplined in regards to profitability in the industry. He also mentions that they are qualified in with the GH200 and H200 at NVIDIA and expect to ramp up production volumes and shipments in the back half of fiscal year '24, with the revenue opportunity continuing to increase in fiscal year '25. He also notes that they expect to reach a level of market share in HBM that aligns with their share in DRAM by calendar year '25, which is an exciting opportunity due to the higher revenue per gigabyte in HBM.

The speaker discusses the higher profitability and growth potential of HBM memory, as well as the tight integration and longer qualification process with customers. They also mention their focus on managing supply and demand to maintain healthy business dynamics in the face of increasing pricing. The first question is about minimizing pull-in and strategic inventory, to which the speaker responds with a mention of previous strategic purchases and their current focus on meeting customer requirements. The second question is about gross margins, directed towards Mark.

The gross margin profile has improved from breakeven to 13% in the first quarter, with a 10-point increase over the previous quarter. This increase is mainly due to price, mix, and favorable cost factors such as lower idle charges and lower-cost inventories. In the second quarter, gross margins are expected to increase by 12 points, driven primarily by price, with some cost benefits from increased leading node production and lower wafer starts. Price appreciation is expected to continue throughout the year.

The company expects to see margin expansion in the second and third quarters due to price appreciation and lower utilization charges. The cross-cycle financial model presented at the Investor Day last May is still relevant for the company's necessary ROI, with a target of 30% operating margins and 10% or higher free cash flow margins once the industry recovers from the current downturn. The current downturn has been steep due to the pandemic and other factors, but the company expects a recovery in 2024.

An analyst asks about the $600 million in prepayments Micron received and if it will continue. The CEO cannot provide specifics due to confidentiality, but mentions the importance of their technology and relationships with partners. The analyst also asks about limiting bit shipments to prevent pull-ins ahead of price increases. The CEO explains that leading-edge supply is already tight, impacting shipments in FQ2, and that seasonality also plays a role.

Sanjay Mehrotra, the CEO of Micron Technology, discusses the potential for high margins in the memory industry, specifically with the use of High Bandwidth Memory (HBM) in AI applications. He believes that the growth of AI and data center accelerators will drive the demand for HBM, leading to a projected CAGR of over 50% in the next few years. This is more than three times the projected CAGR for the DRAM industry.

In 2023, the industry will see the first significant shipments of HBM, which will have a low-single-digit percentage of bits shipped but higher pricing and revenue potential. HBM will continue to grow in demand and be a key component for training and inferencing in Gen AI applications. It takes more wafers to produce the same number of bits as D5, which helps balance the supply and demand of the DRAM industry. Micron aims to align their HBM share with their DRAM share by 2025 and will manage the demand and supply of HBM prudently. Overall, HBM presents a long-term growth opportunity for Micron.

Sanjay Mehrotra, the CEO of Micron, explains that the company's leading-edge DRAM and NAND supply output is oversubscribed for the full year. This is due to high demand from various markets such as PCs, smartphones, and data centers. To maintain profitability, the company will continue to manage its supply carefully and will not make any new investments until the industry reaches a more profitable level.

The company will continue to focus on driving pricing and profitability, managing demand, and allocating resources to bring in a return on investment. The team has achieved record data center market share for two consecutive quarters, thanks to their strong product offerings and vertical integration. They have worked closely with customers to develop a robust and industry-leading product portfolio, with opportunities for growth in the future.

The company has successfully transformed from selling components to providing value-add solutions, leading to revenue opportunities and share gains in the data center SSD market. The transition from floating gate to replacement gate technology in NAND has also played a crucial role in their success. The speaker is excited about Micron's market position and future opportunities in this market.

This summary was generated with AI and may contain some inaccuracies.