Good afternoon. My name is Karen and I will be your conference facilitator today. At this time I would like to welcome everyone to the Micron Technology's First Quarter 2015 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, Kipp Bedard. Sir you may begin your conference.

Thank you Karen and welcome to Micron Technology's first quarter 2014 financial release conference call. On the call today is Mr. Mark Durcan, CEO and Director; Mark Adams, President; and Ron Foster, Chief Financial Officer and Vice President of Finance. This conference call, including audios and slides is also available on our website at micron.com. In addition, our website has a file containing the quarterly operational and financial information and guidance, non-GAAP information with reconciliation, slides used during the conference call and a convertible debt and capped call dilution table. If you have not had an opportunity to review the first quarter 2014 financial press release, again it is available on our website at micron.com. Our call will be approximately 60 minutes in length. There will be an audio replay of the call accessed by dialing 404-537-3406 with a confirmation code of 48295415. This replay will run through Tuesday, January 13 at 11:30 pm Mountain Time. A webcast replay will be available on the company's website until January 2016. 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. You can also follow us on Twitter @microntech. Now please note the following Safe Harbor statement.

During the course of this meeting we may make projections or other forward-looking statements regarding future events or the future financial performance of the company and the industry. We wish to caution you that such statements are predictions and that actual events or results may differ materially. We refer you to the documents the company files on a consolidated basis from time to time with the Securities and Exchange Commission, specifically the company's most recent form 10-K and form 10-Q. These documents contain and identify important factors that could cause the actual results for the company on a consolidated basis to differ materially from those contained in our projections or forward-looking statements. These certain factors can be found in the Investor Relations section of micron's website. Although we believe that the expectations reflected in the forward-looking statement are reasonable, we cannot guarantee future results, levels of activity, performance or achievement. 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.

I'll now turn the call over to Mr. Mark Durcan, CEO. Mark?

Thanks, Kipp. We had another strong quarter benefiting from continued favorable market conditions and solid execution from the team. We set a new record for quarterly revenue of $4.6 billion. GAAP net income was $1 billion. Free cash flow was $923 million, based on record operating cash flow of $1.6 billion with CapEx of $669 million. The investments we are making in the business are putting us in position to continue generating strong cash flow. We expect continued favorable market conditions for 2015 led by constrained supply in DRAM and solid demand for both DRAM and NAND. Demand growth in our business continues to be driven by our customers rapidly increasing memory content to enable them to enhance the performance of their products, as opposed to strictly unit growth of end systems. The resulting demand outlook remains very encouraging. A few good examples of this growth include mobile DRAM, server DRAM and solid state drives all of which are expected to increase memory content per system by 30% to 50% in 2015. As just mentioned the outlook for DRAM supply remains tight. We continue to expect industry bit growth in the low to mid 20% range in 2015 with the development of advanced process technology proving to be disruptive to wafer production. Our belief is that even with steps taken to address the otherwise declining gross wafer production in DRAM the net wafer output in the industry will stay relatively steady or decline slightly going forward leading to a relative stability of bit supply growth even beyond 2015. As we have said for some time, compared to DRAM we expect the NAND market to have more volatility although very attractive over the long-term. We are projecting industry supply growth in the high 30% to mid-40% range for 2015 with a…

Thanks Mark. The first quarter of fiscal 2015 ended on December 4th. We posted to our website a file containing the financial information I will cover, including GAAP and non-GAAP results, certain key metrics for the first quarter of fiscal 2015, as well as guidance for the second quarter. Our fiscal 2015 contains an extra week, as Mark mentioned, to synchronize our 52 or 53 week fiscal calendar with the August year-end. By policy the extra week falls in our first fiscal quarter. So our first quarter of fiscal 2015 contains 14 weeks while the rest of the quarters will contain the customary 13 weeks. The results for the first quarter include net income of $1.003 billion or $0.84 per share on net sales of $4.573 billion. Gross margin came in at 36%, up about three points compared to the previous quarter. Part of this improvement is coming from higher cost in the fourth quarter related to the Tessera license and last time sale of legacy phase change in memory products that we mentioned on our last call. Our reported income from equity method investments for the first quarter was $124 million substantially all of which is attributable to Inotera. On a non-GAAP basis, net income for the first quarter was approximately $1.1 billion or $0.97 per share. Non-GAAP adjustments resulted in a net increased income of $135 million or $0.13 per share and included the following: The amortization of debt discount and other costs of $38 million includes imputed interest on our convertible notes and the discount on the MMJ installment debt; the loss on restructure of debt of $30 million related to primarily to the repurchase and conversion of convertible notes in the first quarter; the $21 million loss from changes in currency exchange rates particularly for the…

Thanks, Ron. I will cover a review of our Q1 operating performance as well as share commentary on market insights, key segment trends and memory industry dynamics as we enter calendar 2015. Our Computing and Networking Business Unit, referred to as CNBU had an outstanding quarter recording $2.1 billion in revenues. Our operating margins came in at 30% compared to 26% in Q4. CNBU benefited from a slightly higher DRAM prices and lower cost has led to overall [ph] improved operating performance in the quarter. The growing diversification of our end market is reflected in a favorable mix across our computing, server, networking, enterprise and graphic segments. Demand in the PC-client segment remained strong in our first quarter. These shipments in client grew heading into the holidays and pricing held firm in Q1. We commenced volume shipments of our 25 nanometer technology into the client PC tier 1 OEM customer base which resulted in improved cost. Driven by continued growth in cloud computing and data analytics we achieved both record revenue and bit shipments in our sever business. Server DRAM bit growth is forecasted to grow 40% year-on-year. The growth in server-based memory is based on increasing server workloads that require higher DRAM performance and density. Our server business remains a very attractive segment with a demand profile that is less sensitive to price fluctuations in the market. The Networking segment delivered revenue growth of up 5% quarter-on-quarter. Demand remained strong driven by LTE build out in China and other emerging markets. We are optimistic that bandwidth requirements from increased data, audio video and gaming content projected to grow roughly 20% in calendar year 2015 will drive higher demand from Micron's memory products in a business that yields attractive gross margins. Our Graphics business which is another market segment that…

Thanks Mark and we will now take questions from callers. Karen, would you please open the lines at this time. Thank you.

Certainly. [Operator Instructions]. Our first quarter comes from the line of Monika Garg from Pacific Crest.

Hi, thanks for taking my questions. First question on the NAND market. If you look at your cost decline and ASP assumptions, the NAND margins are going down again in the quarter. So the question is why not to delay the conversion to 3D NAND and so that there is a lower bit growth in the market and let the market become even stronger before kind of adding more bits to the market?

Monika, first of all I would point out that the NAND market to us is really long-term very, very attractive. We see a lot of growth there and we think it’s worth investing in. Having said that we believe that 3D is a key enabler to future leading edge products and frankly to long-term success in the business. And therefore as we look at our business we're prepared to invest in it. We haven't said a whole lot about what the rate of our ramp would be or exact timing as to when we would bring on additional supply but we do believe it's important to getting moving down the path and introducing our 3D products into the marketplace and enabling those end applications to use our products. Having said all of that, I think we’ve tried to be pretty clear that there is a discipline in our approach, that we're going to look at the market on an ongoing basis and make sure that we don't disrupt supply and that we think 3D is not something that is likely to be some sort of step function sea change in terms of how Micron or other competitors in the marketplace manage their production and that's because there are trade-offs here. As you point out there is capital investment required, there is clean space and it's not -- while it's enabling and important it's not a massive disruption that we believe will create the oversupply you are alluding to.

Thanks. Just to follow up on the Inotera, could you provide any color on when could we expect the kind of the new -- I guess if you negotiate that agreement with of Inotera, when can we see the impact on the financials. Thanks.

I don't think that there is a lot we can add to what we've already said relatively to Inotera. It's a three year agreement, as we said before; it's renewable on an annual basis. We value the relationship, we think the other parties value the relationship when we think that, that sets a foundation for a reasonable discussion to lead to a long-term beneficial outcome for all parties. But trying to discuss in advance when and what that might look like I don’t think is particularly productive.

Thank you so much.

Thank you. And our next question comes from the line of -- excuse me, Mehdi Hosseini from SIG.

Yes, thanks for taking my question. I have two. On DRAM can you please help me understand the mix between consumer PC, server and mobile and how this mix changed from November into the February quarter? And then on the NAND, it's great to give us an update on the milestones, but I'm still little bit confused what the strategy is. Are you trying to be everything to everyone or are you trying to be more focused on a specific segment of NAND that you are pursuing? Any color there would be appreciated. Thank you.

So I will start with the first question. As it relates to the share in the DRAM segment, it’s best to think of our PC business, the PC DRAM business somewhere in the mid-30% share wise and our mobile DRAM business somewhere in the mid-20% and servers, roughly high-teens. And directionally while these things are really tough to shift in one quarter you see a mild uptick as we start to shift some more capacity over to server in Q1. Mobile was roughly flat and the server business was like in the client business, PC business was maybe down a little bit but that’s roughly how it shifted in the relative size of the share and DRAM.

And Mehdi, this is Mark Durcan. Maybe I will take the NAND piece of that question. At a high level what we said is we want to play in a lot of different application segments for NAND and we acknowledge that takes a lot of resources and then getting the balance of those resources right requires ongoing work and when you do a better job over the next couple of years then we have done over the last couple of years, relative to how we allocate those resources. Having said that, we talked in our commentary, we feel like it’s important for us to be in the mobile NAND segment. We think we have a lot of synergy with our low power DRAM business there and with our customers. We think there is a lot of value added things we can do for them in the mobile segment. We can’t ignore what is a very large and fast growing segment in the market, which is the client SSD piece and we clearly want to be in the enterprise because over the long haul we are going to drive significant value there. So we will continue to put our resources across a number of different applications segment and then allocate our capacity as we see our progress in all of those different segments.

Thank you.

Thank you. Our next question comes from the line of Doug Freedman from RBC Capital Markets.

Hi, guys. Thanks for taking my question. When I look at your guidance it assumes a little bit of challenging environment for you in terms of cost declines. Can you maybe walk us through what is happening at Inotera with the -- migration and what, if any impact that will have on the DRAM cost per bit?

Yes, maybe I will take that. You know as I mentioned, mix is an increasingly important piece of the answer in all these questions because as we move to more value added applications that’s going to drive different bit growth, think about DDR3 to DDR4 there is 10% to 15% die sizes [ph] that are moving to that technology depending on exactly how you are positioned. That’s going to mitigate bit growth in the year but it’s going to probably drive value. The customers certainly see a lot of value in getting a DDR4 today. Likewise as we move to more differentiated products to service networking and higher performance computing and move more of our men in that direction we won’t see the clients we have seen in the past but hopefully we will see value add commence by the customer. You know beyond that I would say there is not a lot structurally that would change here other than you should recognize that Micron today is deploying capital to support a 20 nanometer ramp that is a large productivity step. And any time you deploy capital you don’t get a return spontaneously. It takes a while for that capital equipment to installed and productive and for the load line to be loaded and moved to inventory out in the marketplace. And so you have to contemplate that a little bit as 2015 is an exciting year for us in terms of technology deployments.

Thank you. Our next question comes from the line of Steven Fox from Cross Research.

Thanks, good afternoon. Two questions from me, just to dig in a little bit more on the client SSD market; how much -- can you just sort of go into some color as to how much of the competiveness you are seeing is temporary and then from a Micron standpoint how much gets kind of fixed as you roll out your TLC product or is there other things that you can do to improve margins there? And then secondly, if you can sort of give us a little bit more of a color around the DDR4 timing of the ramp and how that's going to affect your mix and margins because I guess I was on the impression maybe we're going to start to see more in the quarter we're in now. Thanks.

So, on the SSD side, we started to see kind of pre-holiday inventory build at the key customers and we truly do believe it's a temporary piece of the market dynamics in NAND. What we have been saying, as I said over the last week or so is that the NAND price actually stabilized a bit in some sense and some segments has gone up. So relative to the question on TLC competitiveness, as we bring those products to market as I mentioned in my comments early in the second half of calendar year '15 we do expect to be able to compete more favorably and will then be able to drive more of our mix to the TLC SSD client products. At this point as we look at our opportunities there, we're just being careful not to try to compete with lower cost products when we can take these MLC products and trying to pursue better or higher value homes. On the DDR ramp, as I said earlier we're pleased with the ramp, although it still early and we think it's reasonable to see by the end of our fiscal year somewhat in the area of 30% plus or minus of our server bits will be DDR4 and really will let the market dictate what that looks like as far as the ramp and scaling it up.

Thank you. That's very helpful.

Thank you. Our next question comes from the line John Pitzer from Credit Suisse.

Good afternoon, guys. Thanks for letting me ask the question. My first question is just kind of a follow up on the bit production for DRAM. Can you quantify how much slower than the market do you expect to grow this year and I guess importantly given the timing of product transitions, technology transitions would you expect big growth to resume sequentially from the February to the May quarter.

Let me take the last bit of that John then maybe Mark can take the first part, Mark Adams take the first part. I think we will see as we move out in time, a get back to sort of a more normal bit growth rate quarter-over-quarter. As I mentioned just a minute ago when you deploy technology sometimes there is disruptions in manufacturing. In particular you want to make sure you're facilitating all the equipment to have legs out in the time and then as you deploy that technology you don't necessarily get the bits and the output immediately. So yes, we would anticipate being back on a more normal trajectory further out in the year.

And John would you repeat the first half of your question for Mark please.

By how much do you think you'll under grow DRAM bit growth this year? You said you'd under grow industry?

Well, we never held a whole lot of position in that but it kind of depends on the mix of DDR4 we put out into the marketplace and exactly how we progress with some of these specialty products I was talking about. We said sort of for the market in the low to mid 20's and we think we'll probably be 20% plus or minus, a little bit lower.

And then guys on the NAND profitability side, you guys have been working hard over the last 12 months to improve that. One of the arguments was that you were just selling bits into the wrong market and as mix improved you would start to see the margin benefit. You are starting to see that mix improvement, it sounds like in your prepared comments that the move to mobile is accretive but not a big enough move in mix yet to actually drive gross margins higher. Can you help me understand where the mix of mobile in NAND is today and given where you think that mix is going to go, are you confident thinking that February might be the gross margin trough for the NAND?

Let me take the first part of that. I think the first part of your statement was right. We are unhappy with the progress. There is not enough of that yet to be really moving the needle in the overall scheme of things. I would comment that the NAND business generally has been a little tougher for our competitors as well over the last number of quarters. The relative improvement is better than the absolute improvement so to speak when you look at it. And we continue to put the pieces together for the longer term and we think we're making progress doing that.

And I can just make comment on the front part where you talked about the product mix, John. And mind you these things are not necessarily things that shift dramatically in a quarter, but to your point you will see mobile as a percent of our overall NAND business just quarter-over-quarter almost double in terms of the share of the business, up to close to 20, almost slightly 20% slightly below 20% of our NAND business. And then you will see a healthy shift away from our products and component business as we do this and find better homes and we'll continue to look at ways to drive enterprise storage in client SSDs for markets that make sense. Mark made an interesting comment in his prepared statement today that we are finding customers that are not totally invested in TLC for their client-SSDs where they're finding higher performance requirements or just simply reliability issues that they don't want to bet on in TLC. And so we're going to continue to drive our customers to evaluate our higher performing MLC based client SSD storage as we drive that forward as well. And so that should be the trend you see mobile, a shift away from channel and driving more enterprise and high performance client SSD.

Thank you.

Thank you. Our next question comes from the line of Mark Newman from Bernstein.

Hi, yeah, thanks for taking my question. The results on DRAM continue to do very, very well, continue to be more stronger than expected actually. When I think if I could summarize what you're saying, we think that the markets are going to be strong and that's going to continue throughout 2015. But looking at NAND, obviously continues to disappoint I think with gross margins down and looks like you're projecting down again next quarter. So the question really I have for you and some of that you've already talked about but I want to ask more specifically, do you think this is -- this somewhat disappointment on the NAND side I would say or delay in the recovery it seems to be, is it related to the market being worse than expected due to oversupply in the market or is it difficulties on execution? And what kind a timing should we expect for improvement on the NAND side. It seems like the NAND recovery or it seems to be about two quarters off in obviously TLC, SSDs or both have been mentioned as a big part of that solution. Now it seems like you're moving some of your mix to mobile. So I'd like to understand what the updated plan really is to improve the profitability of the NAND. Thanks.

Good, Mark, hey Mark this is Mark Adams, thanks for the question. Couple of things, if you look back over the last couple of quarters on a relative basis, our margins have held pretty stable relative to our competition, actually closing -- incrementally closing the gap a little bit. Now we're not satisfied with that by any stretch but actually those are different data points. This quarter, again gross margin was pretty flat in a relatively tough period for NAND in the market dynamics. So as a backdrop to your question that's what we're up against. When you talked about kind of a confusing our change in strategy, I don't think that's the case. Please don't mix TLC with where the end application products go. You mentioned TLC and now a shift to mobile. Actually mobile enterprise and client SSDs were always part of our strategy and continue to be part of our strategy. TLC is the technology foundation for what we enable low cost solutions in the market and we invest in that. Over the last year, both Mark and myself have made comments to the tune of sampling at the end of the calendar year. That's in place. We've done that. We're in process and starting qualifications. We said components and consumer applications would be shipping late spring, end of the calendar second quarter and we'll be launching client-based SSDs drives of TLC. Those are all tactics to the strategy of deploying TLC where it makes sense in the market. That's not the whole story. Using our DRAM and NAND technology and knowing it could flow from either Elpida combined with our technology in MLC and eventually TLC we're going to launch and develop the mobile market. We're going to continue investing in controllers and firmware and software technology, to advance both enterprise and client SSDs. We don’t see TLC in the enterprise just yet. We will continue to evaluate that path but that’s an end market that has nothing to do with TLC or MLC. On the client side same thing, we are going to still make client MLC drives but in markets that are looking for lower cost alternatives and willing to sacrifice in performance we will deploy TLC. So those areas of mobile and enterprise and client storage are three pillars of where we are investing to drive applications and the technology, whether it be MLC or TLC is the core to how we get there.

Got it, that’s very, very helpful. Which area do you think is more -- how would you order the margins for Micron amongst the businesses in NAND out of client SSD, enterprise SSD, mobile and everything else, how would you order those?

I think the best way to look at it is enterprise SSDs are likely to garner the highest margins, mobile would probably be second and client SSDs third of those three and then there is still healthy in terms of volume, is a components channel out there for consumer applications and embedded application so on and so forth. So that can vary depending on the overall market dynamics.

I see. And then looking forward to later on this year, do we expect that the market is going to become healthier in NAND flash? Do we need to see a healthier market in NAND for margins to get back up significantly higher than this, do you think?

Well as we as it’s always tough to project, I would say I want to caution you. The gut feel right now based on the feedback from our customers is that NAND is going to be relatively tight now. When we talk about this changing business we are in it doesn’t mean that you won’t have small period, temporary periods where there is an oversupply in certain segment of the market whether it be a client SSD issue, whether it be something else and so we think overall with the growth in demand drivers in mobile, enterprise and client that overall we think it’s going to be in pretty shape and the type of demand forecast we are seeing from our customers suggest that things will remain in balance and be pretty positive in the remainder of our fiscal year.

Great, that’s very helpful. Thanks very much.

Thank you Mark. and Karen I think we have time for one more caller.

Thank you. Our final question for today comes from the line of Daniel Amir from Ladenburg.

Thanks a lot, thank you for taking my call. So I was wondering here what is basically changed, maybe from your perspective in the past 90 days, is this more the DRAM business, more the NAND business because it certainly looked like that 90 days ago there was a more of a thought here that the NAND business might be in a change, demand remains pretty solid for DRAM but now you are looking at maybe lower bit growth here. So has something surprised you on the negative side or was this kind of a thought process 90 days ago of the business? Thanks.

Sure, thanks for the question, the way I would answer that is that we don’t see any structural change in the business. On the NAND side we do believe there were some shifting of some capacity from competitors into -- away from certain segments and into the kind of low volume segment that hit pricing a little bit on the spot market and in the client entry level client devices and what have you but we don’t see any structure there we think actually we are very bullish still on the NAND demand side of the business. And in the DRAM piece I think Mark spoke to rationale behind what drove our decisions to making the DRAM capacity long-term decisions in investments. So we still think it’s very good business very stable and ASPs are relatively flat and we are still pretty positive.

All right great, thanks.

Thank you, Daniel. And with that 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 the 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.