Good afternoon. My name is Miquelle, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Micron Technology’s Third Quarter 2007 Financial Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period (Operator Instructions). Thank you. It is now my pleasure to turn the floor over to your host, Mr. Kipp Bedard. Sir, you may begin your conference.

Thank you very much. I would like to welcome everyone to Micron Technology's third quarter 2007 financial release conference call. On the call today is Steve Appleton, Chairman and CEO; Mark Durcan, COO and President; Bill Stover, Vice President of Finance and CFO, and remotely we have Mike Sadler, Vice President of Worldwide Sales. This conference call, including audio and slides, is also available at Micron's website at Micron.com. If you have not had an opportunity to review the third quarter 2007 financial press release, it is also available on our website at Micron.com. Our call will be approximately 60 minutes in length. There will be a taped audio replay of this call available later this evening at 5:30 pm Mountain Time. You may reach that by dialing 973-341-3080 with a confirmation code of 8911074. This replay will run through Thursday, July 5th, 2007, at 5:30 pm Mountain Time. A webcast replay will be available on the Company's website until June 28th, 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. (Recorded Audio) During the course of this meeting, we may make projections or other forward-looking statements regarding future events, or the future financial performance of Company and the industry. We wish to caution you that such statements are predictions, and that actual events or results may differ materially. We refer you to the documents the Company files on a consolidated basis from time to time with the Securities and Exchange Commission; specifically the Company's most recent Form 10-K and Form 10-Q. These documents contain and identify important factors that could cause the actual results for the Company on a consolidated basis, to differ materially from those contained in our projections or forward-looking statements. These certain factors can be found in the Investor Relations' section of Micron's website. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We are under no duty to update any of the forward-looking statements after the date of the presentation to conform these statements to actual results (End of Recorded Audio). I would now like to turn the call over to Mr. Bill Stover.

Thanks, Kipp. Our third quarter, which ended May 31st, was a challenging quarter. Net sales totaled $1.29 billion, and the company reported a net loss of $225 million, or $0.29 per diluted share. Year-to-date, the Company reported a loss of $0.21 per share, on net sales of $4.25 billion. The major factors affecting this quarter's results were, one: significant growth in industry memory supply, which caused average selling price erosion across DRAM and NAND memory; two: noteworthy cost per megabit reductions achieved by the company for its DRAM and NAND devices, which could not keep pace with ASP declines, and three: progress made on reductions and overhead expenditures. Research and development expense levels in the third quarter declined as expected, reflecting the success of the NAND ramp in our Utah IM/Flash wafer fab. R&D expense for the next quarter will likely run between $200 million and $220 million, as we ramp 50-nanometer NAND devices prior to their qualification. Our attention on further reductions in overhead costs is achieving results, as SG&A expenses were down approximately 12% compared to the prior quarter, and approaching a single digit percentage relationship to sales. For the next quarter, we expect SG&A to run between $130 million and $140 million. The dollars in inventory increased $156 million over the quarter. More than two-thirds of the increase was in the form of work in process and raw materials, representative of increased wafer production in Virginia and Utah. Mike will speak to the finished goods inventory status. In the third quarter, the company issued $1.3 billion of convertible debt with a 1.875% coupon. The notes are due in 2014, and are convertible into 91 million underlying common shares. The financing provided a near-term attractive spread and positioned the company well for future growth. Our capital spend forecast for fiscal 2008 is $2.5 billion, with $2 billion of that targeted for 300-millimeter fabs, and three-quarters of that amount targeted for IM/Flash NAND operations. Approximately $500 million of the 2008 forecast is expected to be funded by partner contributions. I will turn the commentary over to Mike.

Thanks, Bill. We continue to see solid demand for our semiconductor memory products. This is driven primarily by strength in the computing industry. We are seeing an improving demand for image sensors as the mobile phone supply chain has recovered from an inventory overhang dating back to last year. Despite the demand strength and encouraging signs pointing to stronger demand in the second half of the calendar year, the memory business in particular has been under profitability pressure due to persistent oversupply. Moving forward, I am optimistic about a more favorable supply/demand balance as we see the impacts of memory content expansion, new end product introductions, seasonal demand upticks, and a slowing industry-wide output growth rate. The computer makers and other consumers of DRAM have a strong appetite for more DRAM. This is a result of robust end markets for products such as PCs and servers. Just as importantly, these products contain rich memory content. Micron increased DRAM bit shipments by about 30% quarter-over-quarter, and this could not have been achieved in a weak demand environment. Even with the demand strength, the 35% quarter-over-quarter DRAM ASP decline overwhelmed the bit growth, resulting in the revenue and profitability decline. On the bright side, at current price levels, the DRAM bill of materials cost for a typical PC are quite low. There is plenty of room for ASP increases that will keep memory pricing at a comfortable level for PC makers, given historical price ranges. Continued Vista operating system penetration and complexity of various computing applications demand the additional memory, and the low pricing is facilitating that expansion. Our specialty DRAM projects, which are geared to non-PC applications, such as mobile phones, automobiles, networking equipment, and a variety of consumer electronics devices are delivering both value to the customer base, and positive…

Thanks, Mike. I just had a couple of brief comments around the introduction of Mark Durcan, who we appointed President and COO. Mark was previously the COO, and before that he was our CTO. And just a note of interest, Mark and I basically started around the same timeframe, 23, 24 years ago. So he has obviously made an enormous amount of contribution to the Company over the years, and he is certainly going to help me out, as we really tackle, you know I think what is a pretty competitive environment as we move forward. So I just wanted to do that introduction, and then I am going to turn it over for questions, and we'll go from there.

Thanks, Steve. Now let's go ahead and take some questions from callers. Just a reminder, if you are using a speakerphone, please pick up the handset when asking a question, so that we can hear you clearly. Is the operator still with us? For those of you who are still on the call, we have lost our operator, and we will get her connected, and we will restart the call shortly.

Thank you. Our first question is coming from Doug Freedman.

Challenging times on the pricing front, so without belittling that, I am very curious as to your comment about the initiative that the Company is taking. If you can take some time and go into some more detail on what type of things you are looking at there to improve the efficiencies and operations of the Company?

Yes, sure. This is Steve. Well, obviously, you talk about details, I don't think we want to give away some things that maybe doing it would be a competitive advantage for us, but we have been, we don't operate in a vacuum, and we have been consistent at looking at the benchmarks, which we compete against from other companies around their technology positioning, which we think by the way, we are in great shape on, also when you look at overhead structure, which is inclusive of R&D and SG&A, and so forth, we just think we need to make changes there, and better align the Company, and make us more efficient. And so we are doing quite a few things on that front. And realistically, it takes a little bit of time to get through that quarter to, and some of it may take a few quarters, but we just have to realign the Company, and make sure that our structure is comparable to those that we are competing against, which we will do, and we have been looking at lots of benchmarks around that, because we think that our technology is very, very good. And when you look at the basic place that we're in for the geometry alignment, the yields, et cetera, we like where we are at. We just aren't cost effective enough in the rest of the things in the Company, and that's what we have got to focus on.

All right, there are other, Steve, if I look at the company, you really have transitioned it over the last two, three years where we now have a real serious image sensor business, we now have a real serious NAND business. Are there other lines of business that you are looking at that might offer higher-margin opportunities than the present core memory market? Is that something that you are looking at? Is that one of the things that is being investigated?

If you are referencing a separate category of semiconductors, the answer would be no. We don't think that we are well-positioned to go after something at the moment that we are not already in. If it has to do with things around the products that we are making, like peripherals, companionships, controllers, et cetera, then sure, we are driving pretty hard on that. Where we are I think looking more and more, is along the lines what you saw occur with Lexar, which is, are there other downstream products, where we can be much more involved in the channel, and try to participate in whatever margin gets generated downstream. So yes, we are doing those kinds of things, and we are also continuing to look at partnerships, where we can have a more cost efficient development structure, whether it be something that’s in the form factor downstream, like in SSD or a card, et cetera, or where we could get more efficient on the cost of developing the basic technology, things like we have done with Intel on the NAND production JV, and so forth. So we are not pursuing a different semiconductor category, but clearly we are still driving pretty hard on getting a, what I would consider to be a economic model, on both product development and what you would think of as your basic semiconductor process and design development.

The one statement in your release that really interests me the most I think was the fact that you said that there are some initiatives that would be affected immediately. Is there anything around that? Is that, are you looking at layoffs or rationalization of, anything you can do to help with the immediate part?

Yeah, clearly, there are, those are what you would think of as the more typical things that companies do. So I think the way to characterize it is we expect to have lower levels in employment after we go through some of these initiatives here in the more immediate term, but I just need to clarify that some things, like IMST, are still expanding as we ramp those facilities, and we would be crazy to try to starve that investment of people to do that work. In other cases, we are looking to just eliminate certain functions, or partner with someone else who can do the function more efficiently than us. And yes, we are doing all those things as well. And that will be more in the immediate term, and obviously some of the things I mentioned earlier will be a little longer term.

All right. Thank you. I guess I will leave it to the rest of the queue to dig into some of the operating details. Thanks, guys.

Thanks.

Thank you. Our next question is coming from Michael Masdea from Credit Suisse.

I assume all of that is factored in there, and that there's no additional spending savings that can be coming on top of that. Is that correct?

Hey, Michael, could you repeat that?

Yeah, sure. Bill gave us guidance for spending on the operating lines for this coming quarter, I just want to make sure, make clear that these initiatives that Steve's talking about aren't going to add any more cost savings to those numbers?

When you say cost savings, this is Steve, when you say cost savings, remember we are already a month into our final quarter, so in fact, it might be worth noting that in the event that we have some restructuring that we do, I suppose there could be some charge there, although we don't think it would be big. But in future quarters, we were very explicit to say what we thought would happen the quarter we are in, because we don't think we can impact it that much, in terms of cost savings by virtue of what I just mentioned, that we will be doing some restructuring. But beyond that, clearly the intent is to improve upon where we are today. So that is not baked into the number that Bill referenced to the quarter we are in.

Got it, thank you. And then Mike, you sound pretty confident on the supply side, the slowing growth. Can you just give us some color on what is driving your thinking and your confidence there?

On the supply side, it is a combination of what we are hearing from our customers, and the concern that they have about enough supply to fuel the demand growth in the second half of the year, and the public announcements made by our competitors through various earnings calls, and analyst conferences, and such.

Great, thanks. The last one from me really is on the cost side. You have had some really good cost reductions. And help us think going forward what is in front of you in terms of potential cost reductions. Should we see a slowing in the cost reductions here, or how do you look at both the NAND and DRAM piece on the cost side?

Mike, this is Mark. I’d say on the DRAM side, I think in terms of probably down mid-single digits Q-over-Q, and NAND generally speaking, continue on that 20% average trend quarter-over-quarter.

Great. Congratulations, Mark, to you too, and thank you very much.

Thanks.

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

Good afternoon, guys. Thanks so much for taking the question. Can you hear me okay.

Yeah, we hear you great.

Great. First question Mike, you commented about the slowing industry supply growth. And I heard your answer to Mike Masdea. So if I think about it from the standpoint of the equipment companies shipments to the DRAM industry are going to be up about 10% to 15% this quarter, that would suggest more supply coming online, not less. Am I thinking about that correctly?

I don't know, I can't specifically tie the DRAM, the capital equipment providers' shipments with output, but I am only kind of paraphrasing what our customers are saying, in terms of supply growth from our competition, as well as probably more relevant, more relevancy would be what the actual manufacturers are saying with respect to their output. As you know, Jim, calendar Q1 was a huge output quarter for everybody in this industry, including ourselves. Calendar Q2, it looks like growth rates are going to come down somewhat from calendar Q1, and the guidance that the competition is providing for the second half of the year is obviously still growth, but down significantly from the rates that we saw in the first part of the year.

Jim, this is Kipp. I can add a little bit to our internal research. One of the things we look at are stepper shipments. If you look at the public reports by a couple of the major ones, here are some of the numbers to keep in mind. They were originally planning on shipping mid-80 steppers in Q1 from one particular company. They shipped 50-some and they are guiding in calendar Q2 as 30-some. So a pretty significant reduction in the anticipated leading edge equipment that you have to have, before you can add significant supply. So that’s another side note to why we think supply is easing going forward.

That is helpful, thank you. My follow-up, if you could just give us, if prices stayed flat from here to the end of the quarter, what would your quarter-over-quarter decline be, say in PC or commodity DRAM, and what would it be in NAND, if any?

Sure, if we saw, so we are three weeks into fiscal Q4, for those of you who don't follow our fiscal calendar that closely, if prices remained flat on the nose from where they are today, in the DRAM arena, we would be down quarter-over-quarter about 20 to 25%. In the NAND Flash, we would be roughly flat, maybe up a couple percentage points.

Thank you very much.

Thank you. Our next question is coming from Shawn Webster from J.P. Morgan. Shawn Webster - J.P. Morgan Chase & Co.: Thank you. Can you guys hear me all right?

Yes, we can, Shawn. Shawn Webster - J.P. Morgan Chase & Co.: Okay, good. Can I circle back up to your CapEx update? I thought I heard that your CapEx guidance was for 2.5, or I think I misheard that. What's your CapEx guidance for fiscal '07?

Actually, the 2.5 reference we provided was for 2008. The $4 billion estimate that we have had for the whole of fiscal year '07 still looks good. Shawn Webster - J.P. Morgan Chase & Co.: Okay, so no change there?

Correct. Shawn Webster - J.P. Morgan Chase & Co.: Okay. Then on the, so you talked about your DRAM bit shipment sequentially, can you give us an update on DRAM production in fiscal Q3, and what to expect for Q4?

Yes. We think Q4 we are going to guide you to low double digits on DRAM bit production. Shawn Webster - J.P. Morgan Chase & Co.: What did you see in Q3?

Mark and his team did a pretty good job, and I believe we were up mid to high teens. Shawn Webster - J.P. Morgan Chase & Co.: Okay. And then same thing for your NAND production? What did you produce in Q3, and what do you expect for Q4?

We are still guiding to 50% plus sequential quarters, and we were well above 70%, 75% actually, for the production in calendar, excuse me, fiscal Q3. Shawn Webster - J.P. Morgan Chase & Co.: Okay. And then turning to the inventory levels, was some of the increase in inventories we saw in your fiscal Q3 a result of the quall of Utah, or --?

That is correct. Shawn Webster - J.P. Morgan Chase & Co.: Okay. And what is the composition of the inventory now and I guess in general buckets, it just makes me a little nervous I guess looking at it because it's so high compared to your own history. What can you tell us to give us some comfort that it's not going to impact your ability to grow your margins in the second half, and maybe tell us what the composition is?

Mike, why don't you start with the finished goods inventory discussion, and we will wrap up with the whip discussion?

I would be happy to. With respect to the finished goods that we are carrying out of fiscal Q3, we have got roughly four weeks of supply of DRAM. That varies by commodity and specialty. But if I kind of aggregate everything, it's about four weeks worth of supply at today's ship rates. In the NAND Flash area, we are hand to mouth, so we are less than one week of supply. On image sensors, we brought inventory down, but we are still right at about a quarter's worth of finished goods inventory.

And on whip, just in broad brush form, keep in mind we are growing fabs here, and we put two pretty big fabs, one is completely on-line compared to previous years, we have got another one that’s about 20 to 25% ramped. So keep in mind that we have got significant wafer input that is going to continue to grow for us through really at least about summer '08 at least. Shawn Webster - J.P. Morgan Chase & Co.: Okay. You talked about; you guys obviously had really substantial bit shipment growth in your DRAM. Can you talk about your, I guess customer tone? I thought I heard you guys’ mention that they were getting eager to perhaps buy components going into the seasonally strong part of the year. How much of the spot price stabilization would you characterize as forward buying, versus changes in the supply environment? Can you help us understand some of the dynamics there?

Hard for me to clearly distinguish between how much of the spot price increases we could contribute to real demand or to an effort by some of our OEM customers to accumulate inventory. By the way there certainly is, I am observing some effort to accumulate inventory on the part of the OEMs. But what we are looking at is actually a stronger demand scenario, primarily because of the seasonal aspects, but also for some of the things I spoke about earlier in the prepared comments. New product introductions, just in general quite a bit more memory content per system. We are looking at a calendar Q3 increase in DRAM demand from our core customers of about 20%. If I were to project forward into Q4, about 15% more above Q3. So quite a bit stronger in terms of demand in the second half, and I would reiterate that the first half was pretty good in terms of demand as well. The issues that we will be facing are really the oversupply, which has been driving the price down. Demand has been quite healthy, and it looks to be even healthier in the second half of the year. Shawn Webster - J.P. Morgan Chase & Co.: Thank you.

Shawn, let me correct one thing I said. I said that production bit growth in the quarter was up mid- to high teens. It was actually up mid- to high 20s. Shawn Webster - J.P. Morgan Chase & Co.: Thanks.

Thank you. Our next question is coming from David Wong from A.G. Edwards. David Wong - A.G. Edwards & Sons: Thank you very much. I am not sure if I was confused, but I thought last quarter you said something about NAND cost per bit going flattish this quarter because of the Lehigh startup? Did that actually happen, and you got even better cost improvements than you expected, or do you have some charges coming at some point in the future?

No, David, your memory is very good. We did say Flash, and we did execute ahead of that. On a timing basis, Lehigh is running about on schedule from a wafer perspective, but we are doing significantly better than anticipated on yields. We think as we move into the next quarter, we will still be able to hit that 20 percentish plus Q-over-Q number. David Wong - A.G. Edwards & Sons: Great. Your CapEx plan for the next fiscal year, a sharp drop from the $4 billion of this year. Can you give us some feel as to what this translates to in terms of NAND bit growth and DRAM bit growth year-over-year?

We're not going to do year-over-year for our fiscal year '08 yet. We will do that later on David, so hang tight for us. David Wong - A.G. Edwards & Sons: Okay. Great. Thank you very much.

Next question, please?

Our next question is coming from Glen Yeung from Citi.

This is Peter for Glen. As you are looking out at module makers, I was wondering if you could talk about what type of activity you have seen between 1 gig and 512 modules, and if you can give us any sense of how box loading is looking to you?

Sure. Earlier, I showed a slide that indicated box loading, we thought today was, this is based on third party data, some were in the neighborhood of 1.2 gigabytes per system. Anecdotally, we are seeing a pretty heavy push from our customers to establish 2 gigabytes as a base. So I guess on the margin, I would expect that we are probably going to be pushing upwards of 1.5 gigabytes on an average basis as we exit calendar 2007. With respect to the module makers, I presume you are referring to the aftermarket providers. 1 gigabyte is the sweet spot for the aftermarket, and we are supporting that with our 78-nanometer 1-gigabit DRAM on a module.

That is helpful. And then on image sensors, if you could talk about, I know last quarter you had lowered your loadings going into this quarter. Could you talk about how inventory could be worked down there, or how you see that potentially progressing? Also in VGA, what are your plans for competing in that space from a cost perspective? And maybe give us some sense of low end versus high end, how that mix is progressing for you?

Sure, sure. I mentioned that we brought our finished goods inventory down on image sensors. We are at about a quarters worth of finished goods inventory. We had crept up slightly higher than that as we exited fiscal Q2. We will take inventories down again in the current quarter. So we are getting back to where we consider to be a comfortable level of finished goods inventory on image sensors. We are continuing to take more market share in the high end, our 5-megapixel sensor has been a hit in the marketplace on a couple of high end phones, and the volumes continue to increase with that particular chip. On the low end of the market, the VGA chip, we have introduced a 1/11" VGA chip, or are in process of introducing it to the market currently, and that is basically going to be our low end cost-aggressive solution, if you will, to trying to attack the low end of the market.

Great. Thank you.

Next question, please.

Our next question is coming from Daniel Amir from WR Hambrecht.

Thanks a lot. Can you comment a bit about how the 50-nanometer transition is going on the NAND side, you made some comments last quarter, that you thought it was going well, can you comment on that, and also relate it to a bit, your MLC production by year end?

Sure. On the 50-nanometer, first of all, that is still running very, very well, ahead of our expectations. We are running 50-nanometer already in both Virginia and in Lehigh and yields are ahead of target, and still on-track to qualify that on a schedule or maybe slightly ahead. On MLC, we said last time we are really in a position where we are just letting the market dictate that. We can run essentially as much as the market demands at this point, and having a full portfolio across all technology nodes and densities. Daniel Amir - WR Hambrecht & Co.: So what type of percentage is it going to be around 50% by production year-end?

We are over 50% at this point, and we can take it up or down with the market. Daniel Amir - WR Hambrecht & Co.: Okay. With regards to your Lexar/Crucial business, since the acquisition, this has been somewhat of a challenging part of your business on the NAND side. Is potential changes that you are going to do here in the business under your organization, is that going to include the Lexar side as well?

Well, actually, I'm not sure where you are getting your reference point. Lexar business for us at least, has dramatically improved from where it was when Lexar was on their own. And in fact, the VP that's been running that has done a great job. And they have really adjusted. In fact, they are ahead of I think where we think we need to go on some of the benchmarks in the component memory business, and their business is coming right in-line. And I would say that that business has been relatively or I will call it flat by virtue of them wanting to get their model cleaned up first, but now that that is happening, they are looking to actually start growing again pretty aggressively. Daniel Amir - WR Hambrecht & Co.: Okay. And the final question, can you comment what is your image sensor mix here on 1-megapixel and above and VGA?

Sure. Let me just do some quick math here. In the quarter that we just completed, at 1-megapixel and above, well, well over half. Probably closer to two-thirds to three-quarters of total unit shipments were 1-megapixel and above. Daniel Amir - WR Hambrecht & Co.: Okay. Thanks a lot.

You bet. Next question, please.

Thank you. Our next question is coming from Gurinder Kalra from Bear Stearns.

Hi, it is Gurinder. I guess, what are your views on the industry-wide, or the transitions going on in the industry from the DRAM back to NAND, and how much does that detract from DRAM supply growth in the second half, and add to NAND supply growth, and how does that going to affect the equilibrium you might be seeing in the NAND market, versus the oversupply in the DRAM market?

Well, Gurinder, I think that, I would just characterize it today as being quite a bit different than it was maybe a few years ago. There are several of us now, obviously two other companies in Korea that have the ability to dial back and forth significantly. So I wouldn't take solace in one versus the other. I would just say now all of us can now dial it quite a bit. And it is hard for us to know exactly what the movement is, but we all do the same calculations on return per square centimeter, selecting our growth margin, etcetera, and how we want to have that product allocated. So I just think that that portfolio, those two in combination will be relatively balanced going forward, and it's primarily going to be, I think the one that takes the most advantage of it, is the one that can see a little bit further into the future, as to how to allocate those wafers. So that is my perspective.

And how easy or hard is it to make these transitions, and what is the hurdle rate for one to actually make this transition back and forth?

Well, the equipment set itself has 90% to 95% cross over. And you can do some things in the fab to make sure you can do that crossover. But let's face it; nobody is going to convert anywhere near, 50%, 60%, 70%, 80% of the capacity back and forth. What we are all really trying to do is move 10% or 20%, or some number like that, back and forth in order to try to get a better balance. So you don't even actually have to have that kind of crossover that exists, in order to achieve what we're trying to do, which is on a relatively lower percentage number basis. And it really does take just the cycle time of a wafer fab, assuming that you have the silicon in stock, which typically most of us do, because of the crossover and the equipment, you don't have to do much different. So it takes somewhere in the neighborhood of probably, I would just say three to four months is probably a good measurement to use for most of us to be able to switch that capacity back and forth.

All right, thanks very much.

Next question, please.

Our next question is coming from Alex Gauna from UBS Investments.

I was wondering if you could characterize what is happening with specialty DRAM, and also particularly looking forward, and as it pertains to the demand on the cellular side?

Sure. This is Mike speaking. There are a vast number of applications that are driving our specialty DRAM business. I will start on what we call the legacy business, which is a variety of items, some automotive business, some networking exposure, some mobile phone. That business is, some of that business is transitioning to more current DRAM interfaces, such as DDR and DDR2, and as a result the revenue level and the unit level for us has been dropping quarter-over-quarter for the past two or three quarters, and we would expect that to continue to be the case. On the other hand, the segment of the market that is growing more rapidly, probably more rapidly than any other segment would be the mobile phone area, and that is a segment that I addressed earlier, where we are trying to attack with our most advanced process technology, the 78-nanometer DRAM process technology. And we are rolling out a series of new products to try and increase our business. In general, our specialty DRAM business declined slightly in fiscal Q3, and we would expect it to decline again slightly in fiscal Q4. We will hopefully get back in a growth mode as we increase our penetration into mobile phone side with the low-powered DRAM products.

Now, what is that slight decline doing to your gross margins, and when would you, at the earliest be hopeful that some of the new mobile DRAM efforts can take hold?

In terms of an impact on our margins, all I would say is that as our specialty DRAM products decline, it does obviously have an adverse impact on our overall DRAM gross margins. I am not going to quantify it for you. In terms of us gaining back share in the low-power DRAM area in mobile phones, that is probably going to be a late 2007 or early 2008 type of phenomenon. We continue to hold a strong market share position in mobile phones with our pseudo-static RAM products, but our share position in the standard low-powered DRAM area in mobile phones is negligible.

Okay. I know you commented on some firming that we have seen in the CMOS imaging sensor. What is the expectation here seasonally going forward, and also with regard to mix? Are we in a position where we should see an up trend now, and if so, how much?

We are going to, certainly, the mobile phone industry is going to ship more phones in the second half of the year, than they did in the first half of the year. I think that is a pretty safe bet, and it is generally in agreement with what any third party prognosticator would provide. We specifically are going to continue to grow our share most assuredly in the high end. So in the 3-megapixel and 5-megapixel area, and in the 8-megapixel area in particular, what that's going to mean in terms of our overall unit shipments, it's difficult to say, but certainly we are growing share in the high end, and with the new VGA chip that I referred to earlier we are hoping to create a renewed market share position for ourselves in the low end.

Okay. Reading between the lines, you are acknowledging that you may have lost some modest share here in the low end. Again, asking the question, when can those share losses turn around, at least with the new product introductions, is that also a late '07/early '08 phenomenon?

I am confident that we have got the design wins to do it, it is just a question of whether we got, whether we are into the particular phone models that are really going to hit, in terms of being market successes. So it is really difficult for me to say, but from a design coverage standpoint, we have got the market blanketed.

Okay. Last one, if I could. With regard to overall inventory, are you in a position, do you think, to bring that down next quarter? Does it need to grow to support seasonal ramp? What is the expectation there?

Mike, would you like to take the finished goods part of that, and we will address the rest of it?

Sure. We are continuing to grow both Flash output and DRAM output pretty significantly in the current quarter, and we are seeing a stronger demand environment. It is difficult really for us to say what is going to happen over the course of the next ten weeks, but output is going to grow tremendously, and it's going to be a challenge in order to basically find homes for all the output as we continue to pump it out.

Kipp has given some indications as to production growth on both the DRAM and the NAND side for the next quarter, next couple of quarters. And those increases would suggest, reflective of Utah and some of the Manassas and text conversion to 300-millimeters, so you're going to see some growth, but modest growth in work in process.

All right, thank you.

You bet. Next question, please.

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

Thank you. Kipp, I was wondering if you might be able to give what you thought the big growth might be with respect to the specialty area, in suggesting that the revenue might be a little lower in the coming quarter?

Yes. We are guiding to a high-single digit, low-double digit bit growth in the specialty DRAM area quarter-to-quarter.

Just to be clear, on the NAND side, notwithstanding the 50% bit growth, you would continue to expect the revenues to be only flattish, is that correct?

We didn't, no, we didn't make any projection for revenues. You will have to make an ASP assumption and then multiply that.

If the ASPs were flat from where they are today, you thought it would be 1 or 2, is that right?

If the ASPs are flat from today, then average selling prices quarter to quarter would be flat to slightly up, and then multiply that times the number of bits you believe we will ship.

Great. I was really just wondering as a financial clarification, it looked like your other income was positive, around the $18 million range. How should we think about that going forward, the other income development?

The other income was a result of some equipment sales this particular quarter, a little bit of exchange gain, and government assistance in our Xi'an operation. Going forward, take a long-term assumption that that is going to be flat. Just no significant amounts there.

Thanks very much, guys.

Tim, just so we are clear for modeling purposes, the formula that I provided for you of course, is only good on 50% of the output, that which Micron is selling itself. Keep in mind the ASP on the Intel portion is different.

Okay. Thank you.

You bet. Next question, please.

Thank you. Our next question is coming from Bill Dezellem from Tieton Capital Management.

Thank you. A couple questions. First of all, relative to the ramp in the NAND process technology going ahead of plan, would you please detail why it is that you believe that that process ramp is ahead of schedule? And then secondarily, Mike, early in your opening comments, I believe you mentioned that customers have concern about supply over the second half of this calendar year. Would you please detail kind of which product categories, meaning NAND, PC DRAM, specialty DRAM, and/or image sensors, where those concerns are specifically directed?

Let me take the first part, and I will hand it back to Mike, Bill. On the 50-nanometer NAND ramp, as we ramped Lehigh, it was gated by two things. One was the equipment installation, and the other, of course, was where we were getting more bits per wafer, a more cost effective answer for the marketplace. So as we have introduced that technology, we really have experienced better-than-expected yields, and therefore have a crossover that we anticipate is going to occur much earlier than possible, than previously estimated. We are also very, very comfortable with the progress we are making relative to some of the intricacies around cycling performance and liability on the NAND Flash. So all put together, we are just very comfortable with the way it's going, and that's been driven by not only a great job by the technology team, but also by the manufacturing team doing a very effective job of transferring the technology from Fab 4 into Manassas and then out to Lehigh.

And Mark, before we switch over to Mike, are you sensing that structurally what you are experiencing is repeatable, or were there some special benefits that you received from these particular process ramps?

We have changed some things structurally internally, relative to how we go about developing and deploying technology as we have transitioned to these new technology nodes rolling out on 300-millimeter fabs. So we have complete alignment now between our 300-millimeter fabs and our R&D operation relative to toolset, which we haven't had historically. And we also I think have better alignment between the manufacturing teams and technology development teams, as to exactly what the methodology is going to be, and what gets transferred exactly and what gets modified, and how that goes about happening. So we have essentially structurally changed how we go about deploying technology, and we are seeing repeatable results across numerous transfers to numerous fabs now.

Bill, this is Mike speaking. On the supply concerns from customers, with respect to the proprietary or non-commodity products, we have a very efficient and effective and transparent information exchange with our customers, such that we understand their demand quite well, they understand our supply capability, thus, we are able to provide them with long-term supply assurance, such that there is not a whole lot for them to worry about. The concerns I was speaking about earlier are specifically on the commodity memory area, basically commodity NAND for the consumer electronic products, and commodity DRAM, primarily for the notebook and desktop PC products, where frankly speaking customers are just uncertain about what the supply environment is going to look like with any level of specificity, thus they are somewhat concerned about supply assurance from the entire supply base, that they move through what they are expecting is going to be a very strong demand period.

Thank you both.

Next question, please.

Thank you. Our next question is coming from Joe Osha from Merrill Lynch.

Hi, guys. Asked and answered, so thanks very much.

Okay. Thanks, Joe. Next question, please.

Thank you. Our next question is coming from Eric Rubel from Miller Tabak Roberts.

Good afternoon. Thanks for taking my question. One, quick one on segment revenue. Could you break out the segment revenue for image sensor, and talk about the segment gross margin?

The revenues for the quarter came in just above 10% of the total, and we have not been giving specific margin information.

Okay. Then if I can ask on, back in September in New York at the Analyst Day, you guys updated us on process at, I believe, 0.11 pixel size 1.75, and a wafer size of about 200-millimeter. Can you update us on how you see that playing out for fiscal 2008 for process, pixel size, and wafer? And I have one more follow-up.

Well, at the leading edge, a lot of our imagers now are transitioning to the 1.75 Micron pixel technology. We previously announced the 1.4 Micron pixel but that will be a bigger part of our production, a little further out in the future. And was the other question on 200-millimeter versus 300-millimeter wafer capacity?

Yes.

300-millimeter wafer capacity obviously continues to increase as a percent of the total as we ramp out Lehigh, and complete the conversion at tech. I think the way to think of it is in terms of…

I am sorry to interrupt, but I am speaking specifically with image sensor, for the image sensor segment, that all of those products were being done on 200-millimeter. Any change on that?

That is right. We continue to manufacture the image sensor on 200-millimeter. There has always been discussion around the industry thinking about running 300-millimeter, in fact I think one of our competitors has done so, I think they are primarily doing that, because they have old 300-millimeter equipment they can't really use anymore for memory. In our particular case, when we look at the cost crossover on that, we don't think it will be cost effective for quite some time. The reason is really a pretty simple one. If you want to go out and buy a piece of a 300-millimeter equipment today then you're going to buy a piece of equipment that can run 50, 60-nanometer type capability, and frankly none of us are running our image sensors on processors that are down at 50 or 60-nanometers, nobody does. So you are paying for the tool, but you're not utilizing it for the capability. In our particular case, I think as many of you know, we run a model where it's on a tool set that as an X minus 1 or X minus 2 generation, and that tool set has already used its life so to speak for us on the memory front, so it's very, very cost effective for us to use it, because in large part it has been depreciated, and it is a tool set that we would have sold for lower cents on the dollar, then actually get use out of it. So, from our perspective, it’s a great model that works for us. And that’s why we continue to do the 200-millimeter. As a follow-on note, there clearly will be a time when we are in that situation for 300 millimeter equipment, and as that occurs, we’ll look at the cost effectiveness of taking 300-millimeter equipment that was running memory, and then transferring it over and running image sensors on it, much like we do today on the 200-millimeter, because we think that’s really the way to get the most cost effective part out.

Thanks for clarifying that, Steve. And if I could just ask, how you’re seeing PC unit growth, how does it look?

Somewhere in the neighborhood of 10% to 12% for the year. I think relative to 2006.

Okay, great. Thanks a lot.

You bet. Next question, please.

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

Yes. Can you…?

Sorry, Krishna, we can't hear you here. Would you mind repeating that, please? And maybe let's go to the next questioner, please. Do we still have the operator with us? Okay, we are pretty close to wrapping up the call anyway, so if you would bare with me, I would like to thank everyone for participating on the call today. If you would 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 and this concludes the Micron Technology's third quarter 2007 financial release. You may now disconnect.