At this time, I would like to welcome everyone to the Micron Technology third quarter financial release conference call. (Operator Instructions) It is now my great pleasure to turn the floor over to your host, Mr. Kipp Bedard. Sir, you may begin your conference.

Thank you very much and welcome to Micron Technology’s third fiscal quarter 2006 financial release conference call. On the call today is Steve Appleton, Chairman, CEO and President; Mark Durcan, Chief Operating Officer; Bill Stover, Vice President of Finance and Chief Financial Officer; and Mike Sadler, Vice President of Worldwide Sales. This conference call, including audio and slides, is also available on Micron’s website at www.micron.com. if you have not had the opportunity to review the third quarter 2006 financial press release, it is also available on our website at www.micron.com. Our call will be approximately 60 minutes in length. There will be a taped audio replay of this call available later this evening at 5:30 p.m. Mountain Time. You may reach that by dialing 973-341-3080 with the confirmation code of 7520673. This replay will run through Friday July 7th, 2006 at 5:30 p.m. Mountain Time. A webcast replay will be available on Micron's website until June 26th, 2007. We encourage you to monitor our website at www.micron.com throughout the quarter for the most current information on the Company, including information on various financial conferences that we will be attending. During the course of this call, 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 on the Company'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 the presentation to conform these statements to actual results. With that, I'd now like to turn the call over to Mr. Bill Stover.

Thanks, Kipp. For Micron, it was a strong operational quarter in a period which seasonally is not usually that strong. Net sales totaled $1.31 billion, and the Company recorded net income of $89 million, or $0.12 per fully diluted share. These quarterly results for the period ended June 1st are the first period to consolidate Tech Semiconductor’s operations and do not yet pick up any results of Lexar Media, for which our acquisition closed on June 21st. Net sales grew 24% over a year ago, and 7% over the immediately preceding quarter. Our diversification effort continues to strengthen as sales of our Digital Clarity Image Sensors now represent 16% total sales. Sales of NAND memory compromised approximately 5% of total sales in the third quarter, including the sale of NAND devices manufactured in IM Flash Technologies to Intel. Gross margin for the third quarter came in at 25%, up from 19% in the immediately preceding quarter and 8% a year ago. The gross margin improvement was principally the result of strategic shifts in product mix to higher margin devices and some strengthening of DRAM average selling prices. Our specialty DRAM and CMOS image sensors continue to rank as our highest gross margin percentage product offering. As this quarter is the transition quarter to consolidation of Tech Semiconductor, it seems appropriate to acknowledge the effect on consolidation. Simply said, there was no significant effect. The margin on products sold in our third quarter that were manufactured at Tech Semiconductor was essentially the same as that enjoyed by the Company under the previous pricing under the supply agreement. On a go-forward basis, since Tech utilizes Micron's designs and processes, Tech's manufacturing cost will inherently be similar to Micron's other wholly-owned operation. As of third quarter end, Micron had cash and investment balances…

Thanks, Bill. We are pleased with demand strength in the various markets that we serve. Our product diversification efforts in memory and imaging are resulting in a desirable mix of revenues in market segments such as desktop and notebook computing, mobile phones, servers, consumer electronics, communications infrastructure, as well as a few other segments. From a demand perspective, moving into what is traditionally a seasonally strong second half of the calendar year, we are optimistic about the Company's prospects. We're not seeing many surprises in the PC market. The industry is experiencing unit growth rates in the low double-digits. When compounded by DRAM content expansion, this calendar year the PC markets are driving DRAM megabit demand growth of around 45% to 50%. This growth rate has been sufficient to move our DRAM ASP up by approximately 20% in the PC space over the past quarter. We are happy with memory content per PC growth and look forward to what will essentially be a step function content increase occurring with the Vista operating system launch in 2007. The DDR 2 interface continues to gain penetration momentum in the PC space. I now estimate the demand profile to be about 3:1 in favor of DDR 2 verses DDR 1. Micron's output is more balanced between the two interface technologies. We maintain the entire DDR 1 product portfolio on advanced processes and are growing market shares in the non-PC markets that still favor DDR 1. We continue to place priority on development and delivery of high density DRAM components and modules for the server space. Recently we were first to market with a 2 gigabyte DDR 2 component on our 78 nanometer technology. We are in the process of moving this device to volume production. This product differentiation strategy brings time market value…

Thanks, Mike. With that we'd like to take questions from callers. With that, we'd like to open up the line.

(Operator Instructions) Your first question is coming from Michael Masdea – Credit Suisse. Michael Masdea – Credit Suisse : Thanks a lot. Maybe for Bill. On Lexar, is there any more detail you can give us on how much you're expecting? Also, given what you said about visibility in the channel, when do you think that sort of overhang in terms of getting that product sold through will be cleared up and we can assume more normal revenue growth for what hits your P&L?

Mike, it's somewhat coincidental, but the volume of product which they had in the channel at the June 21st date, essentially carries them through the August 31st, coincident with the end of our fiscal quarter and year. Beginning with the new fiscal year, it looks like that is when we're going to pick that up. Is that answering your question there, Mike? Michael Masdea – Credit Suisse : Are there any more details you can give us on any of the financials in terms of the impact of Lexar? Or is that it at this point?

At this point we'll just be looking through the allocation of the purchase price. As I indicated in the opening comments, there's quite a significant amount that would end up in the goodwill after the allocation to the assets, brand, channel, intellectual property. Michael Masdea – Credit Suisse : Fair enough. On the DRAM side, actually a little bit of a decline this quarter. Talk about that a little bit, especially in light of what you said about still seeing low double-digit growth for the PC market. Why did we see so little growth in the DRAM space? Following on, it looks like your big growth this year is going to be pretty low for overall DRAM bits; can you give us an update on that number, if you could?

I can start on the production side. We basically guided low single-digits last quarter because we're taking more wafers and moving them into the image sensor space. How that relates to sales, relative to Mike's comments of a pretty decent quarter over quarter, we just didn't have additional bits to ship. We had very little inventory at the end of last quarter. Basically what we produced during the quarter is what we shipped. Mike, would you like to add anything on the marketing side?

Mike, the reduced DRAM bit sales are really just – probably to repeat what Kipp said -- it's just a function of what we produced. Obviously our capacity has been shifted towards more image sensor production and ramping up our NAND flash operation. At the end of the day, at least in the quarter we just completed, the DRAM megabit output did suffer somewhat from the increases in the imaging and the NAND business. From a market standpoint, the market is clicking along about like we expected. We probably saw a DRAM demand increase in our last quarter somewhere between 10% and 15%. We did lose DRAM market share. In the quarter that we're entering, on a polling of our large PC customers, we're looking at DRAM bit growth demand of probably around 15% to 17%. So from a demand standpoint, the market looks pretty darn healthy.

From a guidance perspective, Michael, just for your models, you'll be looking at about mid single-digit bit growth on the PC DRAM, higher than that on both NAND flash and image sensors for Q4. Michael Masdea – Credit Suisse : Just a last question on the image sensor side. There are some concerns out there about handset strength. Maybe someone can talk about what they are seeing from the order perspective. Given the growth you saw, any concerns about inventory in that channel at all?

First of all on the inventory question, none whatsoever. We're flush on inventory. I mean, we get stuff out of our production line and it's gone the next day. So we've got no inventory concerns. Based on a polling out of our customers, the handset customers as well as the camera integrators, I am not concerned at all about inventory in the channel. In the handset market, we're benefiting both from growing number of handset units as well as continued penetration of cameras and handsets. So we're still looking at pretty significant growth. Obviously the last quarter was huge growth for us. As I look out over the course of the next couple of quarters, we're looking at pretty significant growth in both units and revenues on the image sensor side for mobile phone cameras here, at least over the next couple of quarters. Michael Masdea – Credit Suisse : Great, thanks a lot.

Our next question comes from Shawn Webster - JP Morgan. Shawn Webster – JP Morgan: You talked a little bit about the bit growth and PC DRAM. Can you talk about how you see global DRAM shipments in calendar '06? And how you see Micron’s bit supply growing in calendar '06? Could you give us an update on that, and then I have a follow-up question.

Your first question, I presume, was a reference to the overall market in terms of DRAM bit growth. It is probably around 50%. I say that 50% is going to be accurate within plus or minus 5% in terms of demand growth, and supply is going to be in line with that. So a roughly balanced supply/demand environment in calendar 2006 of 50% plus or minus 5%. Our DRAM bit growth in calendar '06. I don't have this specific figure in my hand, but it is going to be less than the market. Kip, can you comment more specifically on that?

Shawn Webster – JP Morgan: Okay. Just to clarify; did you say that you expected end bit demand in calendar Q3 for PCs to be up 15% to 17%?

That's correct. Shawn Webster – JP Morgan: On capital expenditures, it looks like you lowered it from a prior 2.6% to 2.2%. Can you talk to us as to what some of the moving parts there were?

Every year it always seems to be difficult to predict just how the final months are going to play out. It's just timing of acceptance of tools and we have a large volume that are hitting, but honestly it doesn't come down to accepting and getting those capped to the rate that we had thought six months ago. So the 2.6% has been brought down to 2.2%. Shawn Webster – JP Morgan: Was there any change to your fiscal '07 guidance at this point?

At fiscal '07 we're looking at $3.5 billion. As we had previously indicated, there's about $1 billion of that which you can think of as historical Micron; there is $500 million or so that is in the Tech Semiconductor and $2 billion or so is in the IM flash. Shawn Webster – JP Morgan: Turning to NAND, can you tell us what your NAND bit production and NAND bit shipments were sequentially in May?

We're not going to get into bit guidance on NAND flash, we will give you some wafer references. We ran out of our total productive capacity, about 11% was aimed at NAND flash and that will go up a percent or two this quarter, meaning fiscal Q4. Then you'll see a pretty substantial ramp in wafer outs moving into the calendar Q4 area. Shawn Webster – JP Morgan: Thank you very much.

Our next question comes from Jim Covello – Goldman Sachs. Jim Covello – Goldman Sachs: Hey, guys, thanks so much. We got the bit guidance for the next quarter. Any thoughts on ASPs in the different is segments for us?

Well we can't predict what ASPs are going to do going forward. I can tell you, Jim, that in the DRAM environment if we were to see a stable DRAM price from now through the end of our quarter, the overall for the Company, the DRAM average selling prices will be roughly flat quarter over quarter. In other words, they've been relatively stable for the first three weeks of our fiscal Q4. In the NAND flash area, prices in early Q3 for us, they went down; they stabilized somewhat toward the middle of the quarter and they actually trended up a little bit in the latter part of our Q3. If prices were to be flat going forward, for the balance of this quarter in the flash world, they'd be flat to down 5% quarter over quarter. We're expecting flash prices are going to continue to tick up a little bit through our fiscal Q4 and fiscal Q1. Jim Covello – Goldman Sachs: Okay, that's helpful. If I can ask you a quick follow-up. On the image sensor business, I know on the 10-Q you guys break out the margins by product. Can you tell us now what the image sensor margins were this quarter and then what you think the long-term margin target in that business is?

We ran about 40% gross margin, Jim, on image sensors this quarter. I'm not going to make a stab at trying to predict what they'll be long-term. Jim Covello – Goldman Sachs:

Down slightly, 44% last quarter. Jim Covello – Goldman Sachs: I'm sorry, you were talking about gross margins there. I guess without predicting a long-term model, do we think that level is sustainable given the competition?

You're asking me to predict a couple of different things. I can obviously argue a pretty good case for cost reductions we have coming, but trying to predict pricing in this business, like anything else, is pretty difficult. I'll leave that to you experts. Jim Covello – Goldman Sachs: Thanks so much, I appreciate it.

Our next question comes from John Lau – Jefferies & Co. John Lau – Jefferies & Co.: Great, thanks. You gave us an indication with regard to how strong the image sensor market is and the inventory levels for the wireless handsets. I was wondering if you could also give us your market indications about what's happening in the PC market? Especially given that there's a lot of concerns out there of a stall coming. We notice that the pricing has been stable, but we wanted to get your input on that. Thank you.

My visibility on PC inventories, either in the channel or at our customers, would not be of much value. I just don't have visibility into that. I do have pretty good visibility into, of course, our DRAM component and module inventory, whether it be in the hands of the customer or in our own hands, I can tell you that the shelves are bare. We’ve got virtually nothing in stock here at Micron, and when I look out into the Micron-owned inventories at the customer sites, they're basically empty, as well. From our viewpoint, there is no inventory. Now obviously I couldn’t speak for our competitors, nor could I really speak for the channel players. But we're not putting much, if any, Micron product in the channel either. From inventory standpoint, we're in great shape. John Lau – Jefferies & Co.: But, Mike, if you take that thought one step further, the current inventory levels are pretty lean, as you say. Looking into the second half of this year, with the inventories lean at this level, what do you think the supply-demand balance will be for the rest of the year given that you're actually slowing down your wafer starts?

Well, certainly the amount of product that we're going to be putting into the market is going to be less than what the market appetite is, basically. So we're not going to be putting pressure from a supply standpoint on the market. My view is that supply and demand are probably going to be roughly in balance; if anything, I think we're in a situation where there are going to be pockets of market segments where demand is going to exceed supply. In general, we feel quite bullish about the prospects in the DRAM market for the second half of the year. If nothing else, based on the seasonal demand for consumer items, mobile phones, PCs as well as the continued content growth we are seeing. So we feel pretty good about it. John Lau – Jefferies & Co.: Great, thank you very much.

Our next question comes from Glen Yeung – Citigroup. Glen Yeung – Citigroup: We hear you saying we want to make image sensors, more NAND flash, and having to reduce wafers in DRAM to do that. Is there a stair target that you're willing to live with in the DRAM side? Just so we get a sense as to when you may have to stop moving wafers around?

Well, I think that the objectives on market share aren't really specific in terms of a particular percentage. We clearly are willing to accept less and less market share until we've reached an exposure into the PC space that we're comfortable with. I can tell you that it is still significantly less than where that is today. The transition of our wafer portfolio is rapidly occurring away from product that goes into the PC space. You just saw from our release that for the first time in our history, sales of product from Micron into the PC space just dropped below the majority. I would expect that over the next 12 months, maybe 18 months, to probably at least go in half as these other products grow for us. Now it doesn't mean that we're necessarily producing that much less DRAM, because the DRAM we're producing, the low-power DRAM, the pseudo-static RAM and the stuff that goes into wireless and NCPs, that is actually pretty good. In fact, that will continue to grow, in particular when you look at the consumption in the server space. A lot of the product and a lot of the effort we have right now is in that area. So I'm not projecting that our overall DRAM market share will cut down in half. I'm just saying that the stuff that goes into the PC space will drop dramatically. Yes, we'll lose some market share on the DRAM space, but we’re willing to accept that down to the level where we have to have some presence there. But down to the level where we actually would be considering adding more wafers back into the DRAM space for the good markets as they grow. Glen Yeung – Citigroup: Okay. Makes sense. When you look out into the competitive environment, if we're just taking on the DRAM side, is there anyone over which you will lose sleep at night? Are there any players out there where you think boy, these guys are looking to be very aggressive here in terms of adding capacity or trying to gain share or both?

For which space are you talking about? Glenn Young – Citigroup : For the DRAM space.

Well, I don't know anything more than what you know from the public reports on capacity being added. One of the reasons that we're pursuing the strategy we have been is because of irrational capacity that come along, in particular the easiest space to get into is the PC space, because they have the least demand in terms of all of those things that companies like ourselves are capable of doing on the service side; whether it be quality or supply chain, et cetera. I don't see anything particular out there that we're concerned with, other than just the historical behavior, the market is pretty good. They tend to crowd too much capacity into it. Glenn Young – Citigroup : Okay, all right. Well, thanks.

Our next question comes from Eric Gomberg - Thomas Weisel Partners.

I was hoping you could talk a little bit about what is going on in IM flash in terms of the road map? Maybe talk about the densities of the production at this point and where you'd expect it to be over the next couple of quarters? Mark Durcan: As we've said before, we're running primarily 90 nanometer NAND today and well into shipping 72 nanometer SLC products. We did qualify and are sampling 90 nanometer MLC, but primarily, we're focused on the 72 nanometer node and qualifying and shipping 72 nanometer MLC in 2007. With respect to further out, I think we'll wait and talk about nodes beyond that with our partner Intel, probably sometime later this year.

In terms of chip capacity, this is primarily 2 gigabit at this point? Mark Durcan: 2 gigabit and 4 gigabit now moving into the marketplace, also.

Mark Durcan: Well, that's a good question, actually. We have use for all of our current NAND forecasted output, at least in the near term. As a result, we would expect Lexar to continue on their business model with their supply agreements as far as we can see in the future. So we think that actually would be incremental to what we're doing here.

Could you just -- maybe I missed it before -- but talk a little bit about the composition of the inventory? You talked earlier that it's up a little bit. Where is that sitting in terms of product?

Actually, the finished goods inventory is down quarter over quarter. What we have -- it is not much -- but what we have, we have probably an equal distribution of NAND flash, DRAM and virtually no image sensors. We have some inventory in place at the customers, our vendor-owned inventory. Very little in Micron warehouses. Basically there is not much inventory at all. Certainly less than two weeks, probably closer to one week for the finished goods inventory.

If the question in part was looking at the balance sheet and the growth in inventory dollars, the finished goods down as Mike indicated; raw materials flat. The only growth is in the work in process, and that's just as a result of the Tech Semiconductor consolidation, overall throughout the historic Micron operations are actually down.

Very helpful, thank you.

Our next question comes from Tim Luke – Lehman Brothers. Tim Luke – Lehman Brothers : With respect to Lexar, could you give us any framework for how we should think about that in terms of revenue in the fiscal '07 period?

There's not a lot of guidance we can give. You have to keep in mind, we only closed a week ago. You obviously have all of their numbers up until that point in time. Our intent is, of course, to take where they're at and try to grow that business. To the degree we're able to do that, that's something we'll have to look at in the future. But just keep in mind that as Bill said, there won't be any revenues for this quarter by virtue of the way the accounting works, and it will just be incremental after that. Tim Luke – Lehman Brothers : But in terms of SG&A, we are going to model 130 going forward and the R&D you think is going to be fairly flattish going forward?

Yes, both of those are correct. The 130 reference was specifically for Q4 and ten weeks of the quarter, incremental Lexar activity. Tim Luke – Lehman Brothers : Kip, can you just clarify on the 17% bit growth, and how that breaks down? What were you alluding to with respect to 15% to 17% growth?

Sure, that was Mike's reference to the demand profile we see in basically our fiscal Q3 over fiscal Q2, driven by PC units and content. Tim Luke – Lehman Brothers : Okay. Going forward in the coming quarter in terms of bit growth then, how do you see that breaking down between the segments?

Bit growth on a production side from our standpoint? Tim Luke – Lehman Brothers : Yes.

Mid-single digits on PC DRAM and then higher on flash and image sensors.

Higher than that. Tim Luke – Lehman Brothers : Lastly just in terms of accounting. In the May quarter, it looks like there was this non-controlling interest and net loss of 17, and then there seemed to be a pretty high interest income number of 27. How should we think about the interest income number going forward? Is this non-controlling interest and net loss a one-time thing? How should we think about that? Thank you.

Yes, on the interest income. As we’ve indicated, we had some very significant growth in cash and short-term investment balances. It was also indicated that we've got a pretty good capital spend profile ahead of us, including next year's being a bit front loaded in the year. If you look at the next couple of quarters, and thought about $20 million in the interest income, you're probably in the right ballpark, with that tailing off a bit later next year. On the non-controlling interest, the $17 million was virtually all a result of the Tech Semiconductor consolidation and the purchase accounting. If you think about Tech Semiconductor on a go forward basis over a time horizon, it's more likely to be close to breakeven. So not anticipating a significant non-controlling interest charge in any quarter is the right way to look at it. Tim Luke – Lehman Brothers : It will be somewhere lower than $17 million going forward, between that and zero?

Likely. Tim Luke – Lehman Brothers : Thank you very much.

Tim, I just wanted to correct one thing I said before. I guided you to PC DRAM bit growth of mid-single digits. That will actually be flat this next quarter, but costs will actually come down in the mid to single-digit range. Tim Luke – Lehman Brothers : Say that again? Your bit growth in terms of production for PC DRAM will be flat?

Will be flat Q4 over Q3, yes. Tim Luke – Lehman Brothers : And the other areas would be higher than that?

You're going to see growth in the other areas, correct. Tim Luke – Lehman Brothers : Why would you not see bit growth in PC DRAM?

Similar to what we've talked about before. Wafers are still moving into other products; Specialty DRAM, image sensors, NAND. Tim Luke – Lehman Brothers : But you would think that it's a growth quarter in terms of revenue for you.

Well, that would be your own discussion about ASPs. I think Mike's probably described an environment where we're going to ship what we make and so then you'll have to determine what the ASP effect will have on revenues. Tim Luke – Lehman Brothers : NAND's clearly down and DRAM is flat. Thank you. Thank you so much.

Well, that's assuming your ASPs – that’s not what Mike has said. But if that's your takeaway, then we respect that. Tim Luke – Lehman Brothers : Actually you said that if it remained as it is for the rest of the quarter, it would be NAND flat to down 5 and DRAM, if it remains as it is, flat.

Yes, that's giving you a reference point that if those two things happen, then that would be the effect. Mike's not making a prediction on what the market will do for the next few months. Tim Luke – Lehman Brothers : Sure. Sure. Thank you so much for that clarification, Kip.

You bet.

Our next question comes from Joseph Osha – Merrill Lynch. Joseph Osha – Merrill Lynch : Hi, Kipp, I'm sorry, color me confused. Following on the previous question, it sounds like you are saying that approximately half or somewhat less than half of your DRAM business that doesn't go into the PC end market is going to see production growth and presumably shipment growth. Is that correct?

Correct. Joseph Osha – Merrill Lynch : Okay. And you talked about the PC business overall being less than the majority of the revenue. That presumably includes the other non-DRAM businesses. Are you able to give us some color in terms of what the end market composition of what your DRAM business is?

Yes, we can do that. Mike will share that with you here promptly.

From a market segment standpoint, Joe, I can give you some ballpark figures here. I apologize, by the way, this is not necessarily broken out, it doesn't single out DRAM. But in terms of our overall revenue mix, how about if I rank the market segments for you? Desktop and notebook computing would be the largest. Mobile terminals, handsets basically would be number 2. Servers would be number 3. Consumer electronics would be number 4. Then there are a mish mash of segments beyond that. But that's the ranking. Those four that I named are very significant in terms of revenue dollars. Joseph Osha – Merrill Lynch : Okay. Well, then it sounds to me like if your PC business is -- hypothetically assuming that pricing is flat and nobody knows – but if it is then your PC DRAM business doesn't generate any revenue growth. But if you're able to see shipment growth in your non-PC DRAM businesses that would generate revenue growth. Is that correct?

That is a fair assumption. Joseph Osha – Merrill Lynch : Okay. The last question would be then, is the margin on your non-PC DRAM stuff better than your PC stuff? Or the same, or worse?

I can rank them for you like we have in past quarters, Joe. Image sensors are still the highest gross margin followed by specialty DRAM. This quarter, NAND and DRAM flip-flopped; PC DRAM flip-flopped, so PC DRAM is third and NAND fourth. Joseph Osha – Merrill Lynch : Last question, I guess for Bill. Seems like there would have to be some operational and gross margin synergies for Lexar. Would it be fair to say, a year to 18 months out, that the objective is to meet all of Lexar’s NAND requirements with internally sourced wafers? That's the first thing. The second thing is at the operational level, do you have some thoughts about the synergies you might ring out of that as we think about how the integrated model will look? Steve Appleton: First of all, given the growth profile of, I think the NAND demand and given some of the other obligations that we already have in place or that we're working on, I'm not confident that 18 months from now all supply comes internal. However, having said that, as Lexar has noted themselves publicly, they have some pretty good supply relationships now that I think would be advantageous for them that remained in place after the acquisition. So if the Lexar team does their job, that business will grow in addition to the business that we have growing. So we will get operational synergies. There's no question about that. I think we'll be able to bring some efficiencies to that model. But also remember that part of the Lexar business is in controllers and a few other things, which we're actually looking to invest more R&D in what they have been doing, as opposed to less R&D; but get more efficiencies on the operational and the SG&A side. Joseph Osha – Merrill Lynch : Okay. Understood, thanks guys.

Our next question comes from Dave Wong – AG Edwards. Dave Wong – AG Edwards : Thank you very much, can you give us any idea of what gross margins Lexar products are currently selling for? Steve Appleton: It's too early for us to do that, Dave. We just got our hands on it. The thing that I think is important to highlight, and I think this question has come up a number of times, and that is: boy, have you really done enough planning, given we had enough time to know we were going to close on Lexar or not close on Lexar. The fact of the matter is there was some uncertainty until we were able to complete the transaction. As a result, I think this is the first time in my history where both boards approved a transaction and yet there was still uncertainty in the market as to the transaction closing. As a result, we really didn't know whether we were going to be competitors or partners, so to speak, with Lexar right up until the closing. So we couldn't do as much planning -- and frankly we didn't get as much visibility into some of the things that they were working on and developing -- as we would have normally liked to. Obviously we had enough insight to know we wanted to do the deal. But it's just going to take us a little bit of time to get our hands around that. It's just too new to us right now. Dave Wong – AG Edwards : If I could just follow up quickly on that, though. For all of your non-Lexar stuff you had really good margins this quarter, about 25% gross margin. Are there any things, pricing aside, are there any other things that affect gross margin in coming quarter? Are there any special costs? The VTech, there's no effect from VTech now, right? Are there any other factors there?

Sure, we have costs coming down on a multiple of our products. We've got potentially some, as Mike described earlier, some upward trending -- NAND flash ASPs potentially on the quarter, as well. Of course the more allocation comes from the higher margin products, which is image sensors and specialty DRAM, then that is a positive impact on gross margins as well. Dave Wong – AG Edwards : Great, thanks.

Your next question is coming from David Wu – Global Crown Capital. David Wu – Global Crown Capital: Yes, Mike, can you talk a little bit about sensors. I was just wondering two things: number one, your gross margin dropped sequentially. Is that a function of VGA graphics being a bigger percentage of the total? Secondly, roughly how much are these 1.3 and 2 megapixel sensors versus the VGA graphics for you guys?

David, from a mix standpoint in terms pixels, roughly half of the units we ship for VGA sensors have 1, 2, 3 and 5 megapixel sensors. That's ballpark, ballpark half. I think it's safe to say that our margins on VGA sensors are lower than they are on 1 megapixel -- actually the greater pixel density per chip, the greater our margins are. That is a pretty safe general statement. Actually, I may have answered all of your questions there in one sentence. David Wu – Global Crown Capital: Pretty good. Are there going to be shortages still? I think the last time you talked publicly you said you were 15% under shipment.

I think we left some business on the table from a supply standpoint in our fiscal Q3. In fiscal Q4, we are three weeks into fiscal Q4, I think we're about right even with demand, basically. I think we're able to meet the demands of the market in fiscal Q4. With Italy really running full steam now and some capacity additions that we've got planned in Idaho as well as looking at starting sensors in Japan, certainly by fiscal Q1, I think we're going to be in great shape in terms of being able to meet the needs of the market from a supply standpoint. David Wu – Global Crown Capital: At some point would CMOS sensors, possibly be as much as half of your profits at a gross profit level? Because that number keeps going up and your market share keeps going up, so you look at that number and you say, well that's approximately a quarter of the earnings. If you keep that up, it won't be too long before it approaches half.

Was there a question in that? David Wu – Global Crown Capital: Well, I just wonder what your plans are? Because you've got another fab coming up, Japan.

I think our approach is we have, obviously significant capacity in a variety of products worldwide, and we want to optimize that capacity. We'll continue to do that to the improvement of the margin. The only caveat related to that is we do have a partnership with Intel on NAND and we have obligations to continue to invest and ramp that, as we would want to anyhow to substantiate our position in that market. Again, I think as it has already been encapsulated, we expect the imaging business to grow. We'll keep allocating resources to that business as the demand grows with it. We expect the NAND profile to grow rapidly by virtue of the investments we're making in IMFT; and when it comes to the DRAM, we're going to allocate those resources among the best products for return to the Company. It's just going to go wherever it goes and we'll just have to keep our eye on it. David Wu – Global Crown Capital: Okay, well, thank you. Have a good quarter.

Our next question comes from Doug Freedman - AmTech Research. Doug Freedman - AmTech Research : Hey, guys, getting to the bottom of the barrel here, but could you talk about your overall production increase and wafer starts from Q3 to Q4?

You bet. It will be up just a couple percent in terms of wafer outs, Doug. Doug Freedman - AmTech Research : And any plans or update on the scheduling and node at which you are going to convert the Singapore Tech JV to 300 mill?

Can you repeat that again? Doug Freedman - AmTech Research : Mark Durcan: We are building out some space right now. We'll be in pilot line mode later this year on 78 nanometer and that would be a 78 nanometer, 300 millimeter ramp of that. Doug Freedman - AmTech Research : All right. Terrific, thank you.

Your next question is coming from Hans Mosesmann – Moors & Cabot. Hans Mosesmann – Moors & Cabot : Thank you, most of my questions have been answered. I do have a question, though, regarding the multi-chip module solution in the wireless space. Are you saying that there's certain OEMs in the wireless space that are abandoning NOR and going with a NAND/DRAM solution?

No, I would not say it's accurate to say that certain OEMs are abandoning NOR. I think what's happening as new applications are demanding more memory content, all of the OEMs are making decisions to implement NAND-based MCPs in certain phone models, as opposed to NOR-based MCPs. So what you have today is basically every handset manufacturer that I'm aware of with a line-up of NOR-based MCPs as well as a new line-up of NAND-based MCPs. What's typically occurring is that the high-density MCPs are deploying NAND plus low power DRAM, and the lower density MCPs are deploying NOR plus pseudo-static. Hans Mosesmann – Moors & Cabot : One follow-up. These higher-end phones with NAND and DRAM, do they have any kind of NOR in the handset?

In some cases they do. In some cases they have a discreet NOR, in other cases they may be implementing the NOR via an MCP with the DRAM or pseudo-static RAM and a standalone embedded NAND flash chip. So there are a whole variety of different configurations. But in general, the trend is towards more NAND content and less relative NOR content in cell phones, that's a guarantee that's going to occur. You know, it will unfold over the next several years. Hans Mosesmann – Moors & Cabot : Perfect. Thank you very much.

Our next question comes from Michael Lucas - Appaloosa Management. Michael Lucas - Appaloosa Management: Yes, I just wanted to confirm what you said. Where did you say PC shipments are going? 15% to 17% up, did you say?

No, I did not say that. DRAM demand from our PC customers in the calendar Q3 timeframe -- which roughly corresponds with our fiscal Q4 -- will be up quarter-over-quarter 15% to 17%. Now there are two components to that: one is the content per box, and the other of course is the number of boxes. I can’t give you the granularity on that, but overall demand from the PC customer is up 15% to 17% quarter over quarter. Michael Lucas - Appaloosa Management: What is your guys' assumption – do you make any assumptions on what PC shipments will be, or what handsets will be in a given year?

All we do is take the published third-party data. I think in the PC area that is 9% to 12% for the year; and in the handset area, maybe slightly higher than that. Michael Lucas - Appaloosa Management: Do you see a demand from some of these lower-end markets that they want cameras in those phones?

Yes. Michael Lucas - Appaloosa Management: Lastly, I know that the market kind of slows you off a little bit here on revenues, God only knows why. But if everything stayed flat, we would see a margin expansion, based on all of the information you've given out on this call, because your costs are going down? Correct?

That's the right assumption, that's correct. Michael Lucas - Appaloosa Management: How much will the costs go down in each one of those areas in terms of image, DRAM and NAND?

We're not going to give you specifics on each one of those. In general, we’ve guided that PC DRAM, which is the largest portion, will be down mid single-digits. Michael Lucas - Appaloosa Management: Okay. All right. Great, thanks.

Our next question comes from Krishna Shankar – JMP Securities. Krishna Shankar – JMP Securities: Yes, can you give us the gross margins for each of the four segments for the last quarter and this quarter? You mentioned that CMOS was 44% last quarter -- what are gross margins for the other segments?

We don't break those out. We just give you the image sensor and then the corporate. Krishna Shankar – JMP Securities: You said that this year DRAM bit production would be fairly well-balanced with demand at about 50 plus or minus 5. Can you hazard a guess as to what it might be next year, given your knowledge of capital spending in DRAMs?

It looks like, from what's shaping up for spending today, probably a calendar ’07 over ’06 is on production bit growth, probably in the 50% range; maybe a little bit lower. Krishna Shankar – JMP Securities: And with this type of ramp, what could demand growth be, do you think?

There are some pretty positive trends, which I'll let Mike speak to here.

I think, you know, again keeping in mind that PCs now are not driving the whole DRAM market, but it's certainly the majority of the market. In a non-new operating system year, what we're seeing from the PC market is demand growth rates of 45% to 50%. It stands to reason with the new operating system being layered in with 2000, the incremental effect of that is going to be positive, obviously from a demand standpoint. I don't know enough to make a specific prediction, but I think it's safe to say that if a normal year is 45% to 50%, next year with the Vista introduction it certainly stands to reason it will be significantly greater than that. But I couldn't give you a specific figure on that. Krishna Shankar – JMP Securities: NAND demand and supply in the second half of ’06, last year we saw the NANO iPod phenomena which literally shot demand up and pricing really escalated. What's your viewpoint on capacity additions to NAND flash going into the second half of this year versus incremental new market drivers?

I don't know on the capacity side. Of course, I know what we're doing from a capacity standpoint. There's no way I could predict with any precision what's happening from a competitive standpoint. I can say that we have pretty good visibility in the demand. You know, the big drivers of NAND demand, the MP3 audio players, a variety of cards for digital cameras and so forth, hugely dependent upon the seasonal point in the year. We're already seeing significant strength in demand relative to what we were seeing for the past six months. Again, we're quite bullish on demand for the second half of the year on NAND. You guys are probably in a lot better position to estimate what supply growth is going to be and how well that's going to be lined up to support the growing demand. Krishna Shankar – JMP Securities: Final question, you talked about the growth of MCPs with NAND flash and low part DRAM. Would that take away from the growth of add-ins in cell phones where you have these costs, does that take away from the growth of add-in costs on cell phones, or will it be incremental to add-in costs in cell phones?

I don't believe that's going to be the case. We're seeing so much growth going forward, by the way, both non-volatile and volatile memory content in mobile phones, that I would be hard-pressed to say that cards were going take away from embedded growth or vice versa. In the non-volatile area, just next year alone we're looking at probably a tripling of flash memory content per phone. On the DRAM side I think we're easily looking at a doubling of memory content per phone. Tremendous growth from a memory standpoint in mobile phones as we move forward, both from embedded as well as detachable cards. Krishna Shankar – JMP Securities: Great, thank you.

Our next question comes from Thomas Smith – Standard & Poor’s EQ. Thomas Smith – Standard & Poor’s EQ: Yes, following up on phones, I wondered if you had some sort of dollar figure arranged for the addressable markets that you now have in phones? Now that you have sensors and various kinds of memory.

I'm sure we could scratch one up here pretty quickly. But I don’t have it off the top of my head. In terms of the addressable market, considering our image sensor offering and our memory offering, I really don't have one off the top of my head. Thomas Smith – Standard & Poor’s EQ: Okay. Safe to say that it's considerably more than it was a year or two ago, as far as your Company history goes?

Certainly. Let me share a little bit of data with you here. If you take the number of phones that are manufactured this year, I don’t know whether it is 900 million, closer to 900 million or 1 billion -- from a DRAM content standpoint, probably about 25 megabytes of content per phone. From a NAND flash standpoint about 45 megabytes of content per phone. From an image sensor standpoint, probably about 70% penetration and the average selling price of a image sensor in a phone this year is probably about $2, between $2 and $3. You can do your own back-of-the-envelope calculations based on those figures, I think. Thomas Smith – Standard & Poor’s EQ: Okay, great. Thank you.

Our next question comes from Munish Goyal. Munish Goyal - : A couple of questions. It seems like you sound pretty positive about the PC-related DRAM supply/demand equation for the second half of the year. Yet, you are not investing or putting capital. Can you reconcile that for me? Why are you not putting capital for that? Steve Appleton : Munish, it's not a matter of not putting capital. We're putting capital in, we're just not allocating it to produce that particular product. The answer is really pretty simple. Just look at the last seven years, there's only been one or two that have really been okay. We're allocating the resources to products that we think are more differentiated and have a higher gross margin over a sustainable, longer period of time. One thing that I think is worth noting is you can't go out and develop an image sensor customer or MCP customer where they have to design this product in months in advance or maybe a year in advance; finally get it to market and call them up and say sorry, we decided to make some PC DRAM instead. It just doesn’t work that way. So we have commitments to make on these products as we build those businesses. As a result, we're going to allocate the resources to do that rather than just short-term change it. Having said that, it's not that we won't benefit from an improving pricing environment for a product that goes into PCs because as Mike already stated, that's still a big part of our business and we will. Our focus, as we’ve said now for several years, is to develop a more differentiated product. It's not to exit the PC space, it's to lessen our dependence on it and that's what we're…

Well, first of all, we're not running much of anything on 65 nanometer in production. I don’t think there is hardly anybody else that is either. So, obviously, we're working on the technology, but we haven't deployed it. Really, when you think about NAND for us, it's likely to be a 50 nanometer node as opposed to a 65 nanometer node. We are doing that, obviously working on that now as we speak as well. In terms of converting from 200 millimeter to 300 millimeter, interesting enough, our model now greatly leverages the 200 millimeter capacity that we've had in place, even though it's a relatively advanced process node. So will a 200 millimeter capacity that we have today, that we are utilizing for more differentiated products, eventually become 65 nanometer? I don't know. Probably, if you continue to make that product base on the 200 millimeter. The higher probability is that most of your 200 millimeter will eventually convert to 300 millimeter as it becomes less expensive and more applicable to a generation minus one or two or three products portfolio base. Eventually I think all 200 millimeter will convert for products that we probably make. It just takes quite some time for that to happen, and the leverage, the 200 millimeter that we're actually taking out of the facilities that have been running advance processes for NAND and DRAM. So I think the probabilities of 200 millimeter becoming 300 millimeter are actually much higher than 200 millimeter moving all the way to 65 nanometer for most of our product base. Munish Goyal - : Thank you so much.

You bet, and I'd like to thank everyone for participating on the call today. If you will please bear with me, I need to repeat the safe harbor protection language. During the course of this call, we may have made forward-looking statements regarding the Company and the industry. These particular forward-looking statements and all other statements that may have been made on this call that not historical fact are subject to a number of risks and uncertainties and actual results may differ materially. For information on the important factors that may cause actual results to differ materially, please refer to our filings with the SEC, including the Company's most recent 10-Q and 10-K. Thank you very much.

Thank you. This concludes today’s Micron Technology conference call. You may now disconnect your lines at this time and have a wonderful evening.