Good afternoon. My name is Anthony and I will be your conference operator today. At this time, I would like to welcome everyone to the Micron Technology second quarter 2007 financial release conference call. (Operator Instructions) It is now my pleasure to turn the floor over to your host, Kipp Bedard. Sir, you may begin your conference.

Thank you very much and I would like to welcome everyone to Micron Technology’s second quarter 2007 financial release conference call. On the call today is Steve Appleton, Chairman, CEO and President; Mark Durcan, Chief Operating Office; 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 micron.com. If you have not had an opportunity to review the second quarter 2007 financial press release, it is available again on our website at 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 a confirmation code of 8533070. This replay will run through Tuesday, April 10, 2007 at 5:30 p.m. Mountain Time. A webcast replay will be available on the company’s website until April 10, 2008. We encourage you to monitor our website at micron.com throughout the quarter for the most current information on the company, including information on the 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…

Thanks, Bill. The market presented us with challenges in fiscal Q2 as we managed through a variety of factors, including slow demand attributed to seasonality, inventory overhang in mobile phones, and an oversupplied DRAM market spurred on by industry-wide output growth. We have always felt the impact of demand seasonality in the computing market as the industry tends to experience seasonal demand spikes around the back-to-school and Christmas times, both falling in the second-half of the calendar year. As Micron products have penetrated higher-growth consumer markets, such as mobile phones and personal audio players, exposure to seasonal demand has actually increased. We felt the effect of this in our fiscal Q2. In addition to seasonal impacts, a number of customers in the consumer electronics space, most specifically in mobile phones, exited the holiday period with measurable amounts of finished goods and semiconductor component inventory. The net effect was a reduced appetite from these customers even beyond normal seasonal patterns for Micron products such as NAND flash, low power DRAM including pseudo-static RAM, and image sensors. As a result, we accumulated some inventory in the mobile phone component space in fiscal Q2 and are making output level adjustments in an effort to generally rebalance. We are fortunate in having designed some flexibility into our manufacturing processes such that multiple products with different functionality can be manufactured utilizing a common toolset. On the bright side, with the inventory in place, we are in good shape to be able to support upside business from our customers as they work through their inventories and resume growth. While the mobile phone component revenue level paused in fiscal Q2, our product development efforts have not skipped a beat. In the imaging area, we are continuing to hold position as the technology leader, garnering key design wins…

Thanks, Mike. We would now like to take questions from callers. Just a reminder, if you are using a speaker phone, please pick up the handset when asking a question so that we can hear you clearly. With that, we would like to open up the line.

(Operator Instructions) Our first question is coming from Michael Masdea of Credit Suisse.

What do you think is driving this recent price move in both the NAND and DRAM side and is it sustainable, do you think?

Well, that is the multi-billion dollar question, Michael. On the NAND side, I think we are seeing basically that the demand strength, which really has not dissipated at all but we are seeing that I believe catch up with supply and that has resulted in the price stability, which has actually been in place now for a couple of weeks on the NAND side. On the DRAM side, I think in combination, you know, clearly we are seeing the content growth in the PC area. There is no question about that. Some of that is being driven on the consumer side by the new operating system and other content growth is just being driven by new applications, but I think we are also seeing the effect of the inventory depletion by some of our customers and it has resulted in them getting back into the buying mode again. This is really only a week or so old so it is too early for us to tell whether it is sustainable, but we are quite encouraged that things appear anyway for the time being to have bottomed out and we have everybody back in the taking mode again, which is quite encouraging.

On both the DRAM and the NAND side, give us an idea of what you are expecting in the May quarter in terms of both production and shipment growth.

You bet. Michael, as you probably recall, we do not try to guide you to shipment piece but manufacturing operations are running super right now so our guidance on bit growth for DRAM will be high single digits to low double digits and we are staying consistent with our guidance on bit growth from manufacturing on NAND, which will be north of 50%.

I guess the question, another way to ask it is are you going to need inventory to get there or that is pure production, right?

That is pure production. That’s correct.

Last one for me real quick is the CapEx side. It does not look like you have changed it, unless I missed it. Any thoughts on the CapEx? Any need to change that? Looking to next year, we have seen a pretty high level of CapEx to sales. Do you see that tend to trend down or any early thoughts on that?

Michael, our reference for fiscal year ’07 had been $4 billion and that is still looking good for ’07. With the progression -- completion, really of Manassas and the significant capacity additions that have already been underway at Lehigh, fiscal year ’08 should see a noticeably reduced capital spending profile. We will update you at the next conference call on an ’08 number but you can anticipate that it is noticeably down from the $4 billion.

Thank you. Our next question is coming from Glen Yeung with Citigroup.

We have Intel introducing a new notebook platform next month now. I just wanted to get a sense from you what you think the implications are for DRAM consumption.

I could not speak specifically to the introduction of the new platform but in general, our view of PC demand is pretty strong and we see it getting stronger as seasonal demand periods kick in here as we move throughout the year.

Mike, any inflection points in content per system? Do you think it is a pretty linear trend throughout the course of the year?

I think it is probably going to be linear throughout the year until we start to see the effect of the corporate upgrades to the Vista operating system. In our view, that is really maybe an end-of-this-year phenomena if not a 2008 phenomena, and that is going to result in I believe a pretty significant increase. It will probably get layered in over the course of a year but that will result in a pretty significant increase. I guess another way of saying that is that we have not seen any benefit in the corporate area from Vista upgrades yet on content per system and that is still to come.

Can I just follow up on that statement you made; is there something that suggests to you it will be end of year or early next? Or is it just your speculation on how you think the --

You know, to be perfectly honest with you, I am just basing that on our own experience, and assuming that we are a typical Fortune 500 company with pretty significant IT needs, we are looking at, if I’m not mistaken, end of this calendar year, if not early next year, and probably some of the contributing factors will be budget but also security -- security of the platform itself. That is probably the most significant factor.

Glen, just one other comment there, there are a lot of inter-related software elements that most corporations need to bundle together with that upgrade and I think it is just later this year before a number of those are available.

The other question I had was on the ability to move wafers around between NAND and DRAM and whether or not you had any thoughts to making any changes in your plant and secondarily, if you expect to see any changes in the competition’s plants.

As we have indicated before, we do have flexibility between NAND and DRAM. Of course, we work through those changes with our partner, Intel, as we do share NAND capacity with them but we have made adjustments between NAND and DRAM already and I think we will continue to do that as we see the various markets strengthen or weaken relative to each other.

Great. Maybe just one last quick one, which is your customers are on the tape now talking about price stability in the second-half of the year for DRAM. I know it is hard for you guys to try to forecast that but I just wonder if you can comment on the reasonableness of that outlook based on what we see in terms of supply and demand.

Price stability as opposed to --

Price stability is kind of an odd thing in DRAM, right? But they are on the tape using that language. Let’s sort of put some quotes around that and just get your thoughts there.

Well, there are only two things that contribute to whether price is going up, down or stable and that is relative to the balance of supply and demand. I can really only speak with a lot of knowledge on the demand side and we think, continue to believe that 2007 is going to be a stronger-than-typical year for demand, primarily driven by content per system in the PC area but quite comfortable that we are looking at something north of 60%, 65% in terms of bit growth in demand in 2007. You guys are the best judge of supply and as far as if it is going to be less than 60% or 65%, prices are going up or are going to be stable. If it is going to be significantly more than 60% or 65%, prices are probably going to keep coming down.

Thank you. Our next question is coming from Shawn Webster of JP Morgan.

Thank you. Good afternoon. Can you talk a little bit -- you mentioned earlier that you thought that you saw depletion in the channel inventory. Can you give us an update on what you are seeing? Maybe a little bit more detail there, and then I have a couple of other follow-ups.

Sure. I can’t speak to whether it is the price stability that we have seen in the last week, let’s say, or actual inventory levels being depleted by our customers because I do not see our customers’ inventory levels, but the activity in terms of customers wanting to come in and place pretty significant buys has picked up tremendously just within the last several days, so we are actually looking at customers who have become accustomed to buying day-by-day now looking at layering in forward buys and locking in pricing and so forth. All that anecdotal activity is a pretty good indication to me that our customers believe that things have bottomed out here and they probably feel quite a bit better about the prospect of maybe establishing some inventory buffers today as opposed to when I last spoke to you guys a couple of months ago, which was an entirely different scenario.

Yes, it sounds like it improved. Can you also tell us what your DRAM shipments did in your fiscal Q2?

Sure. Our shipments on a bit basis -- let me make sure I am correct here. I think they were up 10%, 12% quarter over quarter, if I am not mistaken, Q2 versus Q1.

Bit demand, global bit demand in calendar Q1 and Q2?

My assessment would be, and this is directly from polling our customers, that when all is said and done, bit demand in terms of purchases, is going to be down in Q1 versus Q4. In Q2, we are probably looking at growth of -- I am going to give you a pretty wide range, 5% to 15%. That is fresh data right from our customers within the last couple of days.

Thanks. Finally, can you tell us what your sensor -- give us an update on your sensor business and tell us what it did sequentially or what percentage of sales it is now?

In terms of percentage of sales, it is in double digits, between 10% and 15% of total sales. We had negative growth quarter over quarter in both unit shipments and revenues, and I would attribute that to probably three factors, and I will list them in order of significance. Number one would be the impact of the seasonal slowness in demand, if you will, as well as some inventory accumulation to some of our customers occurred, both with mobile phone units themselves as well as semiconductor components. The second would be the increased competitive environment in the CMOS image sensor area. I believe we have lost a bit of market share, as we have seen some pretty aggressive competition from a variety of different players. Number three would be this phenomenon of very low-end mobile phones kind of encroaching on the camera-embedded portion of the mobile phone business. We are basically seeing kind of a near-term retrenchment in camera phone penetration as a result of the growth of the markets, specifically in India and China, of phones without cameras.

Do you feel like you are seeing a bottom in terms of orders and excess inventory out there? How should we think about your sensor business looking forward?

It is going to be tough for us to replicate the kind of growth that we had in place for the last couple of years -- no question about that, as a result of two of those factors that I mentioned earlier, the competitive environment as well as the low-end phones. We are seeing our camera module integrators, we believe now they are flush on inventory. In other words, they have worked off the inventory that they have accumulated through Q4 and the first part of Q1. In terms of whether we can get, how quickly we can get back to the levels we were going out of 2006, difficult to say.

Thank you. Our next question is coming from Nicolas Gaudois of Deutsche Bank.

The first question to follow-up on the image sensors, if you could give us a bit of granularity on what profitability did with revenues down in the quarter, and how should we look at this going into the May quarter? I will have follow-ups. Thank you.

I am going to repeat your question, just so we get it right. I think the question was based on can we give you some trend as to what revenues did from Q1 to Q2 and our expectation for that going forward. Is that correct?

No, it was a question on profitability, on margins effectively in the last quarter and going to the next quarter for the imaging business.

On imaging, we ran low 40% last quarter and we were mid 30’s this quarter.

Great, and next quarter, should we think about this for the business [assuming] a bit of revenue growth maybe or flat for revenues in the May quarter?

Is that question relative to sales or gross margin?

Gross margin.

We are going to stay away from guiding gross margins. It is not something we have historically done for any of our segments.

Fair enough. On the transition to [inaudible] processing orders as expected in your prior quarter. Could you just update us on how fast the transition went so far and maybe revisit the targets you gave us a quarter ago on MLC versus SLC mix by the end of this year?

I think we have said before, Nick, that we would be maybe 50% by the end of the year. At this point, we have transitioned a little bit faster than we had indicated previously and while it is tough to predict exactly where that washes out, it is going to be primarily a market decision going forward. We are fully technologically capable and product portfolio capable to just dial that mix between SLC and MLC.

Thank you. Our next question is coming from Douglas Freedman of AmTech Research.

ASPs, if we could, it looks like DRAM ASPs were down about 15% on the given quarter. If they are flat from here, can you tell us where you would end for the third quarter?

If they are flat from -- if DRAM prices were flat from here through the end of the quarter, they would end up being down 20% to 25% quarter over quarter. We have baked in something more aggressive than that in terms of reductions quarter over quarter into our own projections, but again flat from this point forward, they would be down 20% to 25% quarter over quarter.

Same question on the NAND side, what are you expecting to see there?

Closer to the 5% to 10% down range, if they remain flat. In fact, NAND flash prices have been up over the last week or so. They are continuing to trend up. That is a real difficult one to gauge, but anyway, the direct answer to your question, if they were flat from this point forward, they would be down 5% to 10% quarter over quarter.

All right, terrific. Then, at the winter analyst meeting, I remember seeing an R&D number closer to 250. We are six, eight weeks from there. Now it is in the 200 to 220 range. What has changed there?

It really is a function of the qualification of devices. We had a good qual in Virginia on the MLC device and it is just a function of the wafer processing on pre-qual devices, which now looks like will be noticeably down in the current quarter.

Okay, and then lastly, you had a great quarter on the execution side holding the cash cost of revenues down. What was your utilization in the quarter?

Basically, Doug, we run 100% all the time.

Thank you. Our next question is coming from Daniel Amir from WR Hambrecht. Daniel Amir - WR Hambrecht + Co.: Thanks a lot. A couple of questions here on the image sensor side. What was the percentage of your one-megapixel and above revenue unit and what is the VGA mix right now?

Okay, on the mix by pixel density in the quarter we completed, about two-thirds 1-megapixel and above, and that would be split roughly 50-50 at 1-megapixel one-third, and two and above about one-third. That leaves VGA at about one-third as well. In the quarter that we are in, by the way, I am not sure if you asked the question but in the quarter that we are in, I would anticipate the mix is probably going to be roughly in line with that. You did ask a second question. I did not catch it. Daniel Amir - WR Hambrecht + Co.: You answered both my questions but then the other question is related to the inventory situation on the image sensor, how long do you feel that this is going to take until you are back to more of a normal ordering pattern?

Well, I think you are asking two questions. The normal ordering -- the inventory position, we are heavy, as we mentioned in the opening comments. We are at about a quarter, slightly more than a quarter’s worth of finished goods inventory. We have made adjustments in terms of our wafer inputs to get those back in balance, and our assumptions are we are going to be roughly in balance going out of our current fiscal year, so it is another quarter-and-a-half until we are where we want to be in terms of inventory mix. Now, having said that, lots can change. We have proven that we are not experts at predicting how quickly the business is going to expand or how quickly it may contract due to inventory problems, so that could change. But given the scenario that we are looking at right now, it looks like it is going to be about the end of the fiscal year before we have inventories back in balance of where we would like them to be. Daniel Amir - WR Hambrecht + Co.: Okay, and a final question on the NAND side. I guess you commented a bit about some of the demand drivers that you see for the second-half of the year and some stuff like the solid state drive. What is your prediction right now of the industry NAND bit growth for the year? What is the NAND bit growth at Micron?

Sure. The industry right now is sizing up to be somewhere, on a supply side, somewhere in the neighborhood of 120% to 140%. I will let Mike address what we believe to be perhaps potential demand.

Well, the demand is going to match what supply growth is going to be, so if it is 140% it is going to be 140%. The industry can absorb what the output is. So it is going to be in line with what the supply growth is.

For Micron, we would assume that our bit growth going forward is going to be 50% quarter over quarter as it has been for the previous few quarters.

Thank you. Our next question is coming from Aaron Husock from Morgan Stanley.

Thanks for taking my question. I was wondering if you could comment on how much image sensor pricing was down sequentially in the February quarter. And then also, you mentioned that you felt like your customers had finished working through their excess inventory image sensors. Do you think that business can actually be up sequentially in the May quarter, or are you actually seeing the weakness in end demand for handsets, your largest customer now impacting that?

From a pricing standpoint, we were relatively flat quarter over quarter. I don’t want to misrepresent that. We are reducing prices as we need to in order to remain competitive, but we are continuing to migrate up in terms of pixel density and those higher pixel density chips typically sell at a higher average selling price. In terms of sequential growth in Q3 versus Q2, it is difficult to say. We still have roughly 60 days left in Q3, so it is really difficult for me to say what is going to happen.

Thank you. Our next question is coming from James Covello of Goldman Sachs.

A couple of questions; I guess the pricing stability you are talking about recently, is that contract or spot pricing?

Jim, the spot pricing has ticked up a little bit. You guys can see all the stuff on the web about -- everybody that monitors spot market pricing. It has ticked up a little bit and the contract pricing last time around was relatively flat.

So you think the next round of contract negotiations would be flat or up?

Well, we still have 11 days to go so a lot can happen in the next 11 days. But based on the activity of the last few days, I would think flat to up.

Okay. Now, can I ask a question about that? Because you guys said that the problem was driven by supply, not demand. You said inventory is still a little bit out of balance. There is a lot more supply coming online for the remainder of this year than there has been up until now. First of all, because you have all the NAND to DRAM, and second of all, especially your Taiwanese competitors are just bringing on a tremendous amount of supply the rest of the year, so how would that lead to price stability over the next few quarters?

Again, it is a relative balance of supply and demand. As I said earlier, you guys are presumably in a lot better position to assess the supply situation than we are. All I can really speak to is the demand side and I feel great about the demand profile going forward, particularly in the PC area for DRAM. Again, I will throw those numbers out; if you think supply growth is going to be greater than 60%, 65%, we are probably looking at price pressure. If you don’t, then I think we are looking at a pretty good pricing environment.

I do not want to push on it too much, but if demand has been good in the grand scheme of things so far this year and that is not going to change and the supply is going to get greater, I do not understand how the pricing does not keep coming down.

Sure. What happened in the last two months is that inventory shifted from the buyer basically to the seller -- at least, in our case it did. In January when prices were still either stable or heading up, all of my customers were glad to get their hands on as much product as they possibly could. I don’t know whether they had two or three or four weeks worth of inventory, but in effect what has happened over the last 60 days as prices started to come down is they shifted that inventory burden back to me. I presume they did that to the other DRAM suppliers as well. Now we are seeing, early, granted but the early signs of a shift back in the other direction where they are willing to get their hands on more inventory now as opposed to being concerned about depleting it.

On the cost structure side, you guys said that you believe you have the smallest die size. If I look at your margins relative to your competitor’s margins, your margins are a lot lower. So what is the delta between your smaller die size and the lower margins?

What you are going to see, as we’ve talked about, we are on now a significant cost reduction path to where we have been in the low double digits now. I would challenge you to find somebody who is out-executing that, but in the past what you have seen is really lack of scale and additional costs from ramping new fabs.

I mean, especially on the DRAM side.

Yes, the same holds true. For example, Jim, MTV essentially ran inefficient as we were ramping it up through the last year-and-a-half, and that is now topped off, for example.

Tech Singapore’s migration to 300 millimeters speaks as well to the opportunity yet ahead on the DRAM side.

I’m sorry. I’m missing something. Is it where you want it to be now?

No, we are going to continue to get better at a faster pace.

But I mean -- I understand that there were inefficiencies or lack of scale in the past, but if that is behind us and the die size is as small as it needs to be, there is a big delta in margins.

The other thing I think you need to realize is there is an ongoing technology mix migration as we move more of the manufacturing capacity between technology nodes, so while we I believe from a technology perspective we have the most advanced technology, we do not necessarily have 100% of our capacity there. So we will see an increased surge in productivity as we continue that transition.

Wouldn’t your competitors have that issue too though?

Our competitors are playing in the same environment as us.

Thank you. Our next question is coming from Kevin Rottinghaus from Cleveland Research.

Thank you. Do you have a PC unit number for year-over-year growth that your customers communicate to you, or that you try to target?

They do not, so all I do is use the same data that you guys do. I think we are looking at 8% to 10% PC unit growth rate ’07 versus ’06, something like that.

Did you anticipate coming into the year that maybe the enterprise might not deploy until late in the year? I guess with enterprise being over half of PC, do you think there is any risk there to that number, based upon maybe a slower migration to Vista?

Of course there is risk. Frankly speaking though, for us, what is a lot more relevant in terms of DRAM demand is the amount of memory that is going into a system as opposed to the number of systems that are actually being sold, but of course there is risk. I mean, we are still looking at nine months of the year being forecast and absolutely there is risk.

Do you have a number now for where you think blended DRAM per PC is?

Sure. It is in the neighborhood, if I’m not mistaken, we had a slide pulled up earlier that showed it but I think it is about 1 gigabyte, if I am not mistaken.

Okay, and that is up how much so far this year? Where do you think it ends at the end of 2007?

I think we are pushing 2 gigabytes by the end of 2007, maybe 1.7, 1.8, something like that.

Are there any price assumptions behind the 60% to 65% bit growth for this year? Is there a certain price level or amount of price decline that you have to hit in order to get to that number?

I think the expectations from our customer base were somewhere in the neighborhood of a 30% to 40% annual price decline. Fortunately for them, unfortunately for us, we took that already in the first three months of the year, so we will see going forward.

Thank you. Our next question is coming from Hans Mosesmann from Nollenberger Capital.

Thanks. Most of my questions have been answered, but a question on inventories on your balance sheet. Where do you expect them to be if the bit demand does materialize as you expect?

One thing to keep in mind, there’s two components here. On the finished goods side, if in fact the scenario you talk about unfolds, then inventory can move down, obviously. But on the other hand, keep in mind we are ramping a brand new facility, so you should expect [whip] to continue to move up commensurate with the increased wafer loading in the Lehigh fab.

Thank you. Our next question is coming from John Lau from Jefferies and Company. John Lau - Jefferies & Company: Thanks. Kipp, we spoke a lot about topics but I just wanted to summarize. In terms of the incremental changes in order that you have seen recently, you have mentioned that the DRAM was getting stronger, the NAND had continued to be strong in terms of the demand side, and what did you say about CMOS again?

Demand for CMOS image sensors for us, and I believe for the entire industry, was down in the calendar Q1, which would have been roughly in line with our fiscal Q2. John Lau - Jefferies & Company: Okay, and then going forward, you mentioned that the cost reductions have been quite significant but were not able at this current quarter to stay ahead of the ASP declines. In terms of how we should think about continued cost reductions in the next couple of quarters, would that be in the 30% to 50% range quarter over quarter or has that changed?

I did not quite hear the question. Could you repeat that? John Lau - Jefferies & Company: Yes, sorry if I had a problem with my headset, but in terms of your cost reduction on the NAND flash, i.e. as the ASPs continue to go down, what do you project your cost reductions should be, even on a year-over-year basis?

We have been guiding to 20% sequentially quarter over quarter, which obviously accumulated would put you down 80% year over year. Now, this particular quarter Q3 that we are in, you are going to see something closer to flattish and then a reacceleration in Q4. The reason for the flattish cost per bit reduction in Q3 is relative to the Lehigh fab ramping up. So we are moving, as you mentioned, I think there was an earlier question as to where the R&D cost went, from going from 250 down to our guidance of 200 to 220, that starts to show up relatively rolling through the cost of goods sold model. John Lau - Jefferies & Company: Great, so we can think about in terms of your bit growth in the 50% quarter over quarter rate. You mentioned that the cost is probably going to be down flat and if NAND was to stay flat, you would be down 5% to 10%. Is that just a quick takeaway from the NAND situation?

Yes. John Lau - Jefferies & Company: Great, and then one final follow-up; how long does it take to shift from NAND to DRAM and back to NAND again, if there was an operation that you wanted to execute on your fab side? How long would that typically take to move that around? Would that be months, quarters -- how does that work out?

It depends on the details of how you configure fab. From Micron and at least a couple of our fabs today, it is probably in the order of three to four months.

Thank you. Our next question is coming from Mark Fitzgerald from Banc of America Securities.

Just quickly, I was curious where you are in terms of the 300 millimeter mix for your memory products and where you expect to be by the end of the year, a percent?

Basically, in terms of core DRAM, we have two facilities that run the bulk of that, and that is MTV in Virginia and it is our Singapore fab. Virginia basically is full up now. It has been 100% converted, and I think Mark told me earlier today it is 100% converted to 78 nanometer technology as well. Then, we are also in the process of moving our tech joint venture from 200 millimeter to 300 millimeter with a process shrink in it as well, and that will be largely finished about over the next year.

So in 12 months, you will basically have 100%, or close to 100% of memory on 300 millimeter?

For the core DRAM, I think it is fair to say that we will be pushing that kind of number. Obviously some of the specialty and legacy products will stay behind on some of the older technologies.

Is that what drives the CapEx declines next year? Basically, you are through the 300 millimeter transition?

Partly, yes.

Thank you. Our next question is coming from Manish Goyal of CREF Investments.

My questions have been asked. It would be helpful if you can give some sense for what [depreciation] may look like for fiscal ’08.

First, Manish, ’07 probably runs $1.9 billion and ’08 with the incremental capital we have deployed should be at 2.2.

Thank you. Our next question is coming from Tim Luke of Lehman Brothers.

I was wondering if you could give some color on how you perceive the cost reductions in the DRAM area going forward.

If we look at just core DRAM, we will be low double digits. If you average everything, it will be high single digits to low double digits, quarter to quarter.

Thank you. Also, I was just wondering if you can recap your comments with respect to the NAND roadmap in terms of 70 and 50, and how you perceive that to be positioning you guys versus your competitors.

Well, as we look at our production today, we really are essentially 100% transitioned to the 70-nanometer node with that again dialable SLC to MLC. The 50 nanometer transition will occur throughout the second half of 2007 and into 2008, and on a relative competitive positioning on that, we feel our timing is approximately equivalent to the two leading competitors in the space but we think we are going to have somewhat of a die size advantage relative to them. We believe their nodes, 56 nanometers versus 54.

Thank you. Our next question is coming from Alex Gauna of UBS.

To follow through on that comment on the NAND side, we have been hearing that maybe there are some yield issues with some of your competitors at the 56 nanometer node. Are you hearing the same thing and does that make you nervous with even your own 50 nanometer process in terms of hitting your yield targets on that?

No, really not at all. I do not have much insight into how they are doing from a yield perspective. I can tell you we are very, very comfortable with how our 50 nanometer node is going. What we have heard is that some of the competitors are having trouble with the immersion toolset and the productivity of that and defects associated with it. I can tell you we are not suffering from those problems. We are pretty comfortable with how we are going to progress.

Is there any concern that we should have as a market that your competitors, if they are having problems with this immersion toolset, they solve it and suddenly we find ourselves seeing NAND ASPs reverse? Is there that type of worry out there?

It would be speculation. I cannot answer that for you.

Okay. You made one comment in the prepared remarks about seeing the device market respond to some elasticity demand and accelerated acceptance of NAND into mobile video devices. Can you give us some examples about what exactly you are seeing, what you were referring to, or maybe what timetables you are referring to?

I referred to two application areas in particular. One is in the personal video player space in terms of deploying flash as a storage medium. I believe we are going to see meaningful market impact in the second half of the calendar year. On the solid state disk drive area, I believe that is still a 2008 type of -- maybe even the second half of 2008 until we see a meaningful impact, but several months ago we were looking at about 2009, 2010 in terms of that being a real significant demand driver.

Thank you. Our next question is coming from Krishna Shankar of JMP Securities.

What is your revenue mix by product line, CMOS image sensors, NAND, PC and specialty DRAM?

We ran approximately 50% in core DRAM, approximately high teens in specialty DRAM, high teens in flash, and as Mike mentioned earlier, about 11% in image sensors.

Could you comment on whether you had positive gross margins in the NAND flash area this quarter?

No, we did not.

Do you expect to get there in Q3?

We are not going to guide to that. Sorry, but what we are trying to do is provide you some market intelligence and then you can couple that with your own ASP assumptions along with our guidance. The cost reductions will continue to average 20% a quarter.

My final question is what do you see as the initial demand profile of customer acceptance on Windows Vista in the consumer channel, where it has been marketed first?

It’s great. I think, if I’m not mistaken, I just saw some data out from Microsoft a couple of days ago that the take rate on Vista in the consumer market is faster than any other OS introduction, so on the consumer side, it is great. We just have not seen any meaningful penetration in the corporate side, which as you know is the biggest single piece of the PC market. I think we are going to start to layer later in this year. If not, then in 2008. All systems go with respect to the new OS.

Thank you. Our next question is coming from Bill Dezellem of Tieton Capital Management. Sir, your line is live.

My apologies. Relative to your comments about the recent demand that you are experiencing both in NAND and DRAM, has that been strong enough that you are actually now pulling from inventory and actually selling more than you are able to produce at this point? And then the second question is relative to cost reduction discussion. You talked a fair amount about the next quarter, the fiscal Q3. But beyond fiscal Q3, could you provide us a bit of a roadmap in terms of both the manufacturing front and the financial aspect to the cost reductions?

First of all, on the NAND side with respect to the price stabilization, even the strengthening in the last couple of weeks, we went into that with virtually no NAND flash finished goods inventory. Today, we are sitting with virtually no NAND flash finished goods inventory, so no meaningful impact. I do not have any problem NAND flash. When the prices were half what they are today, it was still pretty easy to sell. Today, it is still the fact so not really a significant change in the profile of our finished goods inventory on NAND flash. In DRAM, this price stabilization is really literally just days old now and we have not seen a meaningful impact on our finished goods inventory.

I am not sure I understood what you were asking in that second question. Can you maybe phrase it slightly different?

Sure. You have discussed that DRAM cost reductions on the core DRAM front here in the fiscal Q3, we can look for low double digits and the NAND, due to the Lehigh ramp, is essentially going to be flat from a financial perspective. I actually would like to move beyond this quarter and get a perspective into the Q4 and fiscal Q1 in terms of what you will be doing in the manufacturing plants that will be bringing costs down and what the financial impact is anticipated to be in those quarters. Could you give us a little further vision rather than what is going to be happening immediately in front of us?

To the extent that I can comment on what happens downstream after the quarter that we are in, as already had been noted, we think it goes flat because we are in a ramp period and we have to shift the product an R&D expense, so to speak, over to a cogs number, but you should expect us to get back on the curve and in fact in NAND, probably reaccelerate as the 50 nanometer takes hold, as Mark described. So on the DRAM side, we will certainly start coming back down that curve in the quarter after the one that we are in, and then on the NAND side, we think it will probably accelerate. Your comments are noted in terms of what happens beyond that but it is hard for us to know exactly what that reduction will be, but again I think it is going to be pretty significant given the profile that we are on for -- not only, by the way, the advantage that we think we have now with the 6F squared device on 78 nanometer but also with the success that we have had, the earlier success on the 50 nanometer on the NAND. We think it looks pretty good after that.

I am not sure how to ask this next question but if you compare the current production costs versus the costs that flowed through the P&L in the fiscal Q2, what is the delta there? Basically, we are trying to understand the impact, what will happen, just as time progresses and product gets out of inventory.

Bill, that is a little bit too detailed for us to get into. We try to answer that for you by giving you comps quarter to quarter, and so your answer is partly in light of the fact that we are talking about double digit cost declines for DRAM and over 20% quarter to quarter on NAND.

Thank you. Our next question is coming from Gus Richards of First Albany Capital.

Yes, quickly, on the 50 nanometer NAND process, how many layers do you need advance of lithography? I have a follow-up.

You know, I think we are going to try to keep that one to ourselves for now and let our competition guess.

Okay, and the follow-up is, given that you are not having problems with immersion, is it safe to assume you are not using it?

I would not say that is safe to assume and again, we are going to keep our technology pretty close to the vest and let everyone else figure that out.

Thank you. Our next question is coming from Edwin Mok of Needham & Company. Edwin Mok - Needham & Company: Just a question on the demand side. You guys mentioned that DRAM, it looks like demand is stabilizing, customers are taking more orders. Are you seeing that more for desktop notebooks or are you seeing that more on the server side?

Server side has actually been pretty stable throughout the turmoil, if you will, over the last couple of months. The revival if you will, or the willingness to take on more deliveries has been on both the desktop and the notebook side. It is difficult for me to distinguish between the two.

Is that it?

There appears to be no further questions, sir.

Great. Thank you very much. We would like to thank everyone for participating on the call today. If you 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 are not historical facts 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 for joining us.

Thank you. This concludes today’s Micron Technology second quarter 2007 financial release conference call. You may disconnect your lines at this time.