Good afternoon. My name is Jonathan, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Micron Technology's First Quarter 2016 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 Ivan Donaldson, sir you may begin your conference.

Thank you, Jonathan. Welcome to Micron Technology's first quarter of 2016 financial release conference call. On the call today is Mark Durcan, CEO and Director; Mark Adams, President and Ernie Maddock, Chief Financial Officer. This conference call, including audio and slides is also available on our Web site at micron.com. In addition, our Web site 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've not had an opportunity to review the first quarter of 2016 financial press release, it is also available on our Web site at micron.com. Our call will be approximately 60 minutes in length. There'll be an audio replay of the call accessed by dialing 404-537-3406 with a confirmation code of 86772006. This replay will run through Wednesday, December 30th at 11:30 PM Mountain Time. A webcast replay will be available on the Company's Web site until December 2017. 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 might, will be attending. You can also follow us on Twitter @microntech. 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 Web site. 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. Thank you. I'll now turn the call over to Mark Durcan.

Thank you, Ivan. For fiscal Q1 2016, Micron posted total revenue of $3.35 billion with gross margins of 25%, non-GAAP net income of $249 million and non-GAAP earnings per share of $0.24, all within our guided range. In addition, our non-GAAP operating income was 246 million and our operating cash flow was $1.1 billion. Our results were primarily impacted by continued weakness in the PC DRAM segment. In addition, pricing pressure was also present in the client SSD and certain eMCP segments. As for Micron's execution, we are on-track with the qualification of several new technologies, including 20-nanometer DDR4 and low-power DDR4, as well as our 3D NAND products. These products and technology transitions can be disruptive to the manufacturing environment in the short-term, but we believe they will pay dividends going forward as our product portfolio will be better positioned to address market demand. While current market conditions and our financial results have been challenging, we remain confident and we're focused on deploying our advanced technology in order to drive enhanced operational leverage for the Company. Taken together expected market conditions and new product qualifications will continue to create challenges in the near-term. However, we still expect to see stronger bit growth and cost reductions commencing in the second half of fiscal 2016. These advancements in our technology deployment, as well as our new system level solution products we're developing and deploying will improve our long-term competitive position and drive enhanced financial results. Reflecting on market conditions, we believe that DRAM industry bit supply growth will be in a low 20% range in 2016, in line with demand and that industry fundamentals will remain healthy over the long-term. Demand continues to diversify driven by the mobile cloud server and embedded segments, which together balance maturing PC demand. The DRAM…

Thank you, Mark. I will begin by reviewing our DRAM and Non-Volatile businesses, followed by an update on each of our four business units. And close with commentary on our operations and technology deployment activities. Let's begin with DRAM, which represented 58% of our total revenue in fiscal Q1. While PC DRAM average selling prices remained under pressure, we saw more stable pricing in our other market segments, where demand remained relatively healthy. We continue to ramp 20-nanometer DRAM technology and move production to DDR4 and LPDDR4 to meet customer demand. As a percentage of DRAM revenue in fiscal Q1, mobile was in a low-30% range similar to Q4. The PC segment was in the mid-20% range, up slightly from prior quarter. The server business was in the high-teens percent range from the low-20% last quarter. And especially, DRAM which includes networking, graphics, automotive and other embedded technologies was in the low-20%, similar to last quarter. In our Non-Volatile Memory business, trade revenue represents 34% of total revenue in fiscal Q1. Performance was consistent with our expectations making early progress on our 3D RAM and customer qualifications. As a percentage of trade, Non-Volatile Memory revenue in fiscal Q1, consumer which includes our memory cards, USB and components was approximately 50% up from mid-40s in Q4. Mobile including MCPs was in the high-teens percent range from low-20s last quarter. SSDs were in the mid-teens percent range similar to last quarter and Automotive and Industrial Multimarket segment or AIM and other embedded applications were in the mid-teens percent range similar to Q4. Moving on to our business units, Micron's Compute and Networking business unit posted fiscal Q1 revenue of $1.14 billion down 12% from the prior quarter with non-GAAP operating income of $21 million or 2% of revenue. CMBU was impacted by…

Thanks Mark. Consistent with the direction that we shared last quarter commentary around the P&L will focus on our non-GAAP results. Please refer to the non-GAAP reconciliation slides posted on our Web site. As Mark Durcan noted earlier, revenue for the first quarter was $3.35 billion coming in at the low-end of our guided range. Overall, our revenues were impacted by declining pricing particularly in the PC DRAM segment, partially offset by volume increases in both the DRAM and Non-Volatile Trade segments. Gross margin ended the quarter at 25.3%, consistent with our guidance and non-GAAP net income for the first quarter was $249 million or $0.24 per share, slightly above the midpoint of our guided range. During the quarter, we benefited from a better than anticipated tax provision, as well as favorable results from our equity method investments offset by lower than expected operating income. As a reminder, Micron includes both amortization of acquisition intangibles and stock compensation expense in our non-GAAP reporting. Taken together these two items represent an additional $0.04 per share for the recently completed quarter. Now let's look at the results by product line. DRAM revenue decreased approximately 10% compared to the fourth quarter of fiscal 2015 primarily as a result of lower average selling prices. During the quarter, we saw further market adoption of DDR4 DRAM products, in both mobile and non-mobile segments. DRAM gross margin was in the upper-20% range, lower than our previous quarter as a result of decreases in average selling prices that outpaced decreases in per bit costs. Our Non-Volatile Trade revenue decreased slightly compared to the fourth quarter of 2015, due to decreased average selling price that outpaced increases in sales volume. Gross margin remained relatively flat in the low-20% range as decreases in per bit cost to offset selling…

Thank you, Ernie. As many of you know Kipp Bedard will be transferring out of the Investor Relations leadership role over the next few weeks. So, I wanted to take just a minute today to thank him for all his contributions to the team over the last 32 years. Kipp has not only been a great leader of Investor Relations for Micron, but a selfless team member, whose contributions internally through the years rivaled his well-recognized excellence externally. I've always been able to count on Kipp, Kipp's honesty and thoughtful input on all manner of issues facing the Company, and in good times and bad he is and always has been all about Micron and the team. I think it's fair to say that Micron would not be the Company it used to be without Kipp. So, we will truly miss our good friend.

Mark thank you very much for the kind words. It's been my honor and privilege to represent you and the entire Micron team into the public markets over the past three decades. For that opportunity and experience I am truly grateful. Thank you all for a very exciting and fulfilling career.

Thank you, Kipp. Let me finish on this topic by saying, we're very fortunate to have a very capable Ivan Donaldson in-house and ready to step into the lead IR role. I think most on the call already know Ivan and then he too has a thorough understanding of the Company, the industry along with the skills to excel in this role. I certainly expect that if he steps in, he will hit the ground running and thought Kipp is leaving behind some very big shoes to fill, Ivan's preparation and dedication, make him an easy choice for this role. To summarize our call today, we're in the midst of some challenging market conditions but we remain confident in the long-term health of the industry and in our strategy to succeed. This confidence drives our long-term investment perspective and we expect to see stronger bit growth and cost reductions starting in the second half of the year. Operationally, we're laser focused on execution related to the deployment of leading-edge DRAM and 3D NAND, as well as advanced controller development. Operator we're ready for Q&A.

Certainly. [Operator Instructions] Our first question comes from the line of Kevin Cassidy from Stifel. Your question please.

Gross margins coming down again quarter-over-quarter even with -- you just point to transition to 20-nanometer and DDR4, I guess if you could help us with some of the moving parts on the gross margins for those products, the 20-nanometer, how much lower costs are you expecting as that becomes 100% of the Inotera output and also what is DDR4 versus DDR3 cost and gross margins?

So, first of all, I think it's important to recognize that, although Inotera's output will be, the wafer starts will be about 80% by year-end it takes a while to sort of move those through the overall system and deliver them into the marketplace and so you wouldn't get the full benefit of that 20-nanometer cost reduction as we move into our fiscal Q2. And in terms of other overall factors there was clearly continued pressure on PC DRAM and as we have talked about for some time, 20-nanometer doesn't get you to lower cost immediately whether from Inotera or out of any other fab as a result of startup costs and getting those ramps to scale. And then finally, DDR4 cost which is getting to be an increasingly important part of the mix are clearly a little bit higher than DDR3 and that creates some pressure as well. So those are the general characteristics of the margin trends there.

Okay. And just as a follow-up also on NAND flash, there was a conversion to TLC or can you say what percentage of your output was TLC versus MLC and is that expected to help gross margins going forward?

Our TLC output is about 10% plus or minus. We have more capabilities for upside volume if we so chose, that portion of the market has been super-competitive both in components and in TLC-based client center SSDs. So we've moved some of our capacity that we initially targeted TLC toward some higher value sockets, which really allowed us to insulate against pricing pressure although a bit better than the market.

I think longer term it's fair to say that as we ramp 3D, we would expect that penetration to begin to increase again.

Thank you. Our next question comes from the line of Harlan Sur from JPMorgan. Your question please.

Assuming another year of relatively muted demand trends in DRAM in 2016, does it make sense to accelerate your move to 1X DRAM technology to drive acceleration in your cost curve and I guess the same question on potentially accelerating the move to TLC and 3D NAND transitions within your NAND business because it just seems like the team is continuously fighting this uphill battle on the cost front?

Yes, you know we have said for some time that really it's absolutely imperative that we not necessarily have an identical technology profile to others in the market, but certainly narrow the gap relative to the deployed advanced technology, that enables a couple of things, one is it make sure that we have timely introduction of the right products for our customers. But additionally, it makes sure that we don't have a situation in the marketplace that competitors can take advantage of and drive increased market share due to a different profile relative to manufacturing efficiency. So, yes we think it's strategically important that we narrow this gap; we're focused on it and we believe that with demand growth that we see in the marketplace it can absorb that incremental capacity as we make those transitions, as long as others in the marketplace don't add too many incremental new wafers.

Okay, thanks for that. And then a better mix of enterprise and datacenter SSD I think would drive the nice offset to the price aggressiveness you're currently seeing on the client side, so if you could just give us an update on your enterprise SSD progress, you know you talked about rolling out your datacenter M500 Series, you also talked about rolling out your 600 Series with Seagate, how big is enterprise flash as a percent of your total NAND business? And can you just give us any view on that growth outlook for enterprise looking into the calendar year 2016?

Well, let me try to set the baseline from where we sit today. Enterprise is relatively small, but the growth trajectory is pretty big. The 3 areas of investment we’re driving today are continued focus on enterprise-level controller and firmware, obviously driving the Seagate product line to market in the SaaS category. And we're also investing very heavily in 3D NAND drives for enterprise which we will be sampling soon. The final piece for us is I mentioned briefly in my comments, our components that we market to other enterprise players are probably the highest margin products we have in NAND, because of the quality of NAND we manufacture. So when you combine all that out, we're pretty bullish about enterprise going forward and we will continue to invest as such.

Thank you. Our next question comes from the line of Monika Garg from Pacific Crest. Your question please.

I just want to delve deeper into the margin guidance for next quarter, the gross margins are guided like 600 to 700 bps lower Q-over-Q, maybe could you walk on in details, is it mainly on the DRAM side of the margins are going lower or in the NAND side?

I would say it's more oriented on the DRAM side for all the reasons we've talked about on the course of the call. We expect NAND to be relatively similar to what we're seeing this quarter maybe a little bit sequentially lower, but it’s DRAM is where the most significant movement is.

And then the DRAM is it mainly PC side or are you seeing that going -- now moving into mobile and server as well?

There is a continued performance and as you might imagine if you look at things that are closest to PCs that in the enterprise space maybe some of the cost basis that look a little bit more like PCs those maybe subject to some increasing price pressure as well. If you go to the mobile side which is a little bit more specialized that tends to be buffered somewhat, but generally speaking as we talked about on the call, you see pressure throughout that whole sector.

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

Ernie, I guess, from my perspective let's go back to the gross margin guidance for the February quarter, I think you did a good job, kind of talking about the puts and takes, do you think that the February quarter kind of represents the maximum quarter of pain on the cost side and has improved there and can you help me to understand as you look at 30-nanometer/25-nanometer DDR3 to 20-nanometer DDR4 at equivalent yield what's the cost down you would expect in that transition?

Yes, so I do think from a cost perspective that we've been talking for sometime about the fact that the first couple of quarters of this fiscal year were going to be the most challenging for us as we got everything lined up relative to 20-nanometer and also on the NAND side. So I think that -- without certainly providing guidance beyond Q2, I would say our expectation is that with increased bits out we're going to see cost down that will be very helpful to us in the back half for the year. DDR4 has a bigger dye size than DDR3 but the shrink gets you closer to parity and also the production of 8 gig is also a big cost driver. So, it's really hard to say specifically but you are certainly in the same zip-code based on that comparison.

That's helpful, guys, and then Mark, maybe as my follow-on relative to the implied guidance for February, it doesn't look like Inotera would be accretive on February numbers and maybe Ernie answered the question already, is the expectation by the time the Inotera acquisition closes that some of these cost headwinds will become tailwinds and hence this is an accretive acquisition or can you help me walk through kind of that dynamic?

Yes, I think, and maybe Ernie wants to comment on this too, John but, yes I think the key point is that as we get a little further into the year that 20-nanometer transition is driving some pretty significant improvements at Inotera and we expect it to be quite accretive to us right out of the chute once we close.

Yes, and the only thing I'd add to that is that the bulk of the CapEx spend for their ’16 will already be completed. So, certainly from a cash flow perspective there is a lot of leverage there as well.

Thank you. Our next question comes from the line of Daniel Amir from Ladenburg. Your question please.

A couple of questions here with regards to the eMCP and the client SSD, looks like those were areas of thereabout weakness here this quarter, can you give a bit more clarity kind of where we stand at this point in the quarter and specifically the eMCP given that bit shipments were down 14%, I mean in this scenario that you're going to still be focusing on as well? Thanks.

Sure, on the eMCP category, there's really two dynamics going on one of which is some market softness in mobile which we identified earlier in my comments. The second piece is that as is consist with some other DRAM segments, the 20-nanometer transition puts us in a position where this was heavy focused on qualifying at major OEM customers. Having said that, there is also one area of mix issues that relates to the high-end and the low-end doing better than the mid-range segment of the market, so combine all those three together and there is some pressure on eMCP demand, we are continuing to feel that as a place for our product's focus, but again weighing that against mix and other opportunities.

And the client SSD side?

That for us as I mentioned earlier, we saw a very heavy competition in client SSDs driven by low cost TLC products both in the consumer and OEM market and we chose to move some of our capacity out of that market to higher value sockets and that allowed us to get kind of the most out of our capacity.

And is that a trend that you are continuing this quarter as well?

I would say that without forecasting it is something that yes we see pretty consistent quarter to-date and we would as Mark commented we are going to watch that while we position our 3D NAND TLC out longer term, because of the performance and cost advantages there. But today we see other opportunities as I said for our NAND capacity more are high performing MLC capacity that allows us to make that shift.

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

Thanks. Just a follow-up on those details, I was wondering if you could just sort of step back and if we look big picture around some of your comments about the PC market is a whole stabilizing. What gives you sort of confidence on that happening over next several months? And then similarly given some of the weakness you are seeing in the mid-range especially in China mobile market, again what do you think that improves as you get further into next calendar year? Thanks a lot.

Well, I not sure we sent forecast out on either one of those stated. We think that the PC market, the signs are that channel inventories are leveling off a little bit better that was after the inventory was low. If you look at more specifically to our business DRAM inventory in the channel with the exception of one player, one larger player, DRAM inventory across our channel is pretty low. So the demand seems to be flowing through and replenish of inventory seems -- that seems to be dynamic in the PC space. So that’s what behind our view of the world in terms of PC shipments. If you look at the data while not stellar growth certainly better than the first half of calendar year '15. On the mobile side, we still believe that these same dynamic goes on with smartphones, inventory is relatively low and the other side if you look at the configurations that are coming out for holiday and beyond, the memory content per unit is going out nicely in our favor. So it's all about for the mobile phone place market segment it's really all about what's the weighted average content and we still see not withstanding some of the weakness in the middle -- pretty reasonable growth in aggregate for the smartphone business.

Great that’s very helpful. And then just a quick follow-up, similarly on just sort of the enterprise side, I think you talked a about little bit of competitiveness, you are not the only ones to talk about that on SSDs in the last couple months. Is there a reason to believe that that sort of is temporary in nature from a demand side putting aside from the supply issues?

I think overall we think yes the penetration in enterprise is so low that we think it's likely that there tends to be a better market going forward and we are going to invest as such. Some of our competitiveness comments are really more around value segment, consumer and channel SSD-type products that are really driven by kind of a cost approach and not a performance approach.

Thank you. Our next question comes from the line of Doug Freedman from Sterne Agee CRT. Your question please.

I guess if I -- a lot of questions have been asked on the gross margin side, but if I could get a little bit of color around the revenue. We are looking at a revenue decline quarter-on-quarter of 9% at the mid-point. What are the pieces that are driving that, I am looking at sort of the bit growth side here and just struggling to come up to see, to align your longer term bit growth outlook with what’s going on in the near-term, so if you could help me understand what are the pieces to the top-line that would be helpful?

So, I don’t think it's too dissimilar a story from the discussion we had about margins which is you know we've talked about the fact that for the first couple of quarters of this fiscal year our bit growth is going to be limited. Now we are growing bits however in the face of some of the pricing pressures that we’ve seen in PCs, our PC DRAM space et cetera, that is not enough to overcome you know the bit growth doesn't quite overcome the pricing and that leads to the revenue circumstances as you heard both Mark and Mark speak about today in terms of those things are going to drive our bit growth in the second half of this fiscal year and into you know fiscal '17 those are still well on-track which would be the full deployment of 20-nanometer throughout the DRAM space, as well as the 3D NAND conversion.

Yes Doug, let me just add you know as we, as we do this substantial ramp of 20-nanometer we have a lot of new products to qualify as well. And so getting complete certainty as to exactly when all these products are going to qualify and when we will ship that product is difficult although we have complete confidence that we will qualify them and that they will be delivered. So there is that dynamic and that aspect as well which is I mean you know associated with ramping a lot of new products simultaneously.

I guess for my follow-up if I could, a little bit of a two parter, I just want to make sure I understood, you said your DRAM bit growth would be above industry average of low-20s. Was that for the calendar year or your fiscal year? and then when I look at these transitions that you're going through like 20-nanometer it's one of the things I think investors struggle with is that your results tend to -- we're seeing a much greater oscillation at Micron in sort of the financial performance than we do in your peers over at Samsung and Arnex and yet they go through the same transitions. Why is it that we're seeing such a greater impact to the financials here than we see at your peers?

So, a two part question, I relative to the first part, yes it's a calendar reference and it's weighted in the back half of the calendar year. Although we've told you that fiscal Q3 should be a significant step up. Relative to the impact on financial performance I'm going to let Mark comment on that in just a second but I would make the, point that this just sort of reinforces why we need to accelerate the introduction of these technos, because we have fixed operating expenses and in an environment where we're generating less gross margin because we're deploying less advanced technology that takes a bigger bite out of the net picture, Mark do you want to?

Yes just one other comment. We've communicated all along for many years that as a percentage of our capacity we sell and market our products in these much higher value segments, if you look at ASP per gigabit in NAND and DRAM for example, we've been a market leader in that for as long as I can remember. And when you're not in that model, meaning you're in ramp stage and you're driving these products into lower value segments the volatility and pricing will have a much bigger impact on margins during that time phase.

So Doug, just in summary we look at all this as opportunity and certainly we think we can do better and we intend to do better.

Thank you. Our next question comes from the line of Timothy Arcuri from Cowen and Company, your question please.

Thanks a lot, I had two, I guess the first question is on the Dalian announcements from Intel, I think that happened on the 20th of October so you really haven’t talked publically too much since that and there's still a bit of confusion out there, I guess we understand that you're basically ramping the fab there and for long terms of purposes you're sort of operating it. So I guess my first question is do you have any rights to the output of the fab and do you have the option to invest in the fab? And then I had a follow-up, thanks.

So Tim we are not operating the fab, we're not ramping the fab, Intel is our partner and we're helping facilitate the deployment of the technology to that fab. So, that relationship remains healthy and we would expect that as Intel progresses with their ramp of the manufacturing technology there, at some point we will have more discussions about whether it makes sense for increased collaboration at that site, we're not involved today.

And then I guess the second question, I think John asked a question previously about cost and whether the headwinds start to weigh in after this current quarter and it sounds like they do and you should get a little bit better PC pricing environment per -- I think Mark your comments as well. So, I guess my question is, is it fair to say that the February quarter is the bottom in gross margin if you sort of assume those two factors? Thanks.

Well, again we got to stay away from or we're going to stay away from projecting ASPs with, but in terms of our internal operational leverage we think things get a lot better in Q3.

Thank you. Our next question comes from the line of Vijay Rakesh from Mizuho. Your question please.

I had a question on Inotera here, what percent of the 20-nanometer output at the Inotera is DDR3 versus DDR4 today? And at 20-nanometer also is the DDR4 cost still higher than DDR3?

I don't have the DDR3, DDR4 mix by fab and I think we want to stay away from giving you that fab specific information, anyway. I'm sorry the second part of the question was DDR4 crossover?

Yes, is the 20-nanometer DDR4 cost higher than DDR3?

20-nanometer DDR4 cost…

Yes, we commented on that a little bit earlier, not an 8 gigabit but we would expect that as we ramp-up and crossover that we will be at parity and actually see some reductions but at present it’s fair to think about it as a headwind for us.

And on the 3D NAND side I know you mentioned second-gen 3D NAND kind of in the second half '16, is that kind of a 64 layer 3D NAND and just as a background what percent of output today is on 3D, I know you said you shipped some here?

We haven't said what our gen-2 technology looks like exactly but you can count on it being a significant improvement in both grid density and cost. And sorry the second part of the question…?

What percent of 3D?

Percent of 3D is it's relatively small today but ramping fairly aggressively and again as we get into the second half of next year we'll actually be into the new fab expansion as well. So, it'll really takeoff then.

Thank you. Our next question comes from the line of Hans Mosesmann from Raymond James. Your question please.

A question on the 3D XPoint, can you give us a little more flavor, I forget if you actually been commented so far on the call regarding this but can you give us a sense on the ramp and is there change in the nuance of the opportunity as being used in as main memory or is it a storage?

Well I think it targets both, main memory and storage applications overtime, probably a higher value in the near memory then in, and then in the storage applications but could be targeted at both. We're really more in an enablement mode as opposed to a significant production ramp today, but we think the revenue does become significant out in 2017 and more so in 2018.

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

I wanted to ask a question again on 20-nanometer ramp, so it seems like from the comments that schedule is ramping pretty much in line with what you're saying about half of production within the May quarter, but based on this gross margin guidance again it is coming down quite a lot, it seems like the cost isn't quite performing at least not in FQ2 yet, so I am wondering is this because of poor yields than expected on 20-nanometer, is there any difference in the yields on 20-nanometer than your expectations versus previous nodes or is it just that the 20-nanometer that you're starting to produce which I assumed should be a fairly significant portion in FQ2 is really being held more in inventory and such not really impacting the top-line and the cost?

Yes there is a dynamic that as you ramp new technologies you have to get those products qualified, but they don't necessary always flow out to the customer quite as quickly, so there is an inventory dynamic that you're referencing. I think the bigger issue is that when you're ramping new technologies, it just takes awhile to get the tools ramped and loaded and get that output out and the cost reductions do come they just don't come quite as quickly as people anticipate. We're on-track or slightly ahead of where we expected to be from a yield perspective, so everything is progressing nicely there. Obviously ASPs are a lot lower than we thought they were going to be.

So as we look forward to the backend of the fiscal year, so if you look forward to FQ3 the May quarter then we should see a much -- we should see some of this cost decline finally happened, I think that's probably fair to assume and can we assume that the previous guidance for the cost decline from 20-nanometer that you've guided as earlier is still intact but just more backend of the fiscal year and rather than the front-end?

Yes, I think we said for quite awhile Mark that fiscal Q3 is when you should really start to see the impact from 20-nanometer ramp and all the guidance we've given over previous quarters I think it is still on-track and intact.

Thank you. Our next question comes from the line of Ian Ing from MKM Partners. Your question please.

Yes, thanks, could you talk about your assumptions on keeping mobile DRAM in supply demand balance this next year, I mean, there is a lot of unit variability at the big OEMs that given how that plays out, would you ever consider not to trying to over shift the industry?

Well certainly look at that dynamic, our view of the world is that even with that variability that you're projecting, there is a content increase for device that we feel comfortable mutes that out and so we think over the long run mobile is pretty solid. And again we're taking a look at all the market segments and there is networking we think will continue to be a good market for us hyper-scale servers as well as there is some balancing will do in general, but all-in-all we think mobile is a good place over the long run.

Okay thanks and then in the DRAM server market, I mean, you talked about some pricing pressure, could you talk more about the sources of demand and the server side the next few quarters, there are some mixed signals out there you've got some suppliers talking about enterprise being stronger than cloud customer, I mean, any workloads that you're excited about the next few quarters?

All-in-all, I would say the enterprise market of the two appears to be more favorable for us. Datacenter is a little bit more commoditized I think. Some of the datacenters materials sometimes could be consumed with high-end PC grade material. But overall we think that the projection of the market in servers gets us in a new pretty good growth environment and as we look at that server again like mobile, we have a good market for us we're not -- we don’t think it's a challenge for us as far as adding growth in the bits to that segment.

Certainly, our final question comes from the line of Rajvindra Gill from Needham & Company. Your question please.

There have been some recent reports that a major competitor of yours could have 18-nanometer DRAM by the second quarter, calendar second quarter of next year, given the transition to 20-nanometer this year and next year, how do you think this impacts your competitive position in the overall market from a supply demand perspective?

That's a relatively muted step from 20 to 18 and relative to that particular competitor we think there are also some architectural changes that will cost them some rate efficiency, so we believe that notwithstanding the fact that other competitors will continue to migrate their technology at a more muted pace on a go forward basis we will continue to narrow the gap.

And just switching gears to the Inotera, how does the Inotera buyout affect your CapEx plans and will the Company plan to utilize Inotera's cash flow for non-DRAM products such as 3D XPoint, is that the also one of the purposes a little bit as well?

What we touched on the announcement that was on average, you'd expect to see Inotera add somewhere around $800 million a year to our CapEx that we have previously discussed and the reality is cash fungible, so it will add cash flow into the Company and the Company will direct that cash flow where it sees best so the idea of specifically saying that cash flow would be used for 3D XPoint is sort of a mute issue.

And unfortunately we are out of time today, so we'd like to end the call now and thank you everyone for your participation and 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 everyone.

Thank you.