Thank you for standing. Welcome to Micron's Fourth Quarter 2023 Financial Call. [Operator Instructions] As a reminder, today's program is being recorded. And now, I'd like to introduce your host for today's program, Samir Patodia, Investor Relations. Please go ahead, sir.

Thank you, and welcome to Micron Technology's fiscal fourth quarter 2023 financial conference call. On the call with me today are Sanjay Mehrotra, our President and CEO, and Mark Murphy, our CFO. Today's call is being webcast from our Investor Relations site at investors.micron.com, including audio and slides. In addition, the press release detailing our quarterly results has been posted on the website, along with the prepared remarks for this call. Today's discussion of financial results is presented on a non-GAAP financial basis unless otherwise specified. A reconciliation of non-GAAP to GAAP financial measures can be found on our website. We encourage you to visit our website at micron.com throughout the quarter for the most current information on the company, including information on financial conferences that we may be attending. You can follow us on X at MicronTech. As a reminder, the matters we are discussing today include forward-looking statements regarding market demand and supply, our expected results, and other matters. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made today. We refer you to the documents we file with the SEC, including our most recent Form 10-K and 10-Q, for a discussion of risks that may affect our future results. 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 to conform these statements to actual results. I'll now turn the call over to Sanjay.

Thank you, Samir. Good afternoon, everyone. In fiscal Q4, Micron delivered revenue and gross margin above the midpoint of our guidance, with EPS above the high end of the range. These results reflect our strong execution, and we are well-positioned to drive significant improvements in our financial performance. We believe pricing has now bottomed. Ongoing demand growth, customer inventory normalization, and industry-wide supply reductions have set the stage for increased revenue, along with improved pricing and profitability throughout fiscal 2024. We continue to expect record industry TAM in calendar 2025 with more normalized levels of profitability. Fiscal 2023 was a challenging year for the memory and storage industry as the revenue TAM reached a multiyear low, resulting in a significant impact to financial performance. Despite this difficult backdrop, the Micron team stayed focused on our strategy, executed well and accomplished several important milestones. We achieved record annual automotive revenue, record NAND QLC bit shipments for the full fiscal year, and reached record levels in calendar Q2 for revenue share in data center and client SSDs. We were the first in our industry to introduce 1-beta DDR5 and LP5X DRAM products and the first to ship HBM3E samples with industry-leading performance and power efficiency. We were also the first to introduce 232-layer NAND SSD products in data center, client and consumer markets. These accomplishments were underpinned by our leadership technology and continued strong progress in manufacturing execution. We achieved world-class mature yields in record time on our industry-leading 1-beta DRAM and 232-layer NAND technologies. In addition, Micron took several prudent and timely actions to reduce our CapEx and supply in order to address the market imbalances through the course of fiscal 2023. Our industry-leading technology roadmap continues to progress well. As we have mentioned before, the vast majority of our bits…

Thanks, Sanjay, and good afternoon, everyone. In the fourth quarter of fiscal 2023, Micron delivered revenue and gross margin higher than the midpoint of the guidance range and EPS above the high end of the range. We are exiting the fiscal year with the business improving due to multiple factors including higher volumes, an inflection in the pricing environment, strong productivity and ongoing capital discipline. Total fiscal Q4 revenue was approximately $4 billion, up 7% sequentially and down 40% year-over-year. Fiscal 2023 total revenue was $15.5 billion, down 49% year-over-year. Fiscal Q4 DRAM revenue was $2.8 billion, representing 69% of total revenue. DRAM revenue increased 3% sequentially, with bit shipments increasing in the mid-teens percentage range and prices declining in the high-single-digit percentage range. For the fiscal year, DRAM revenue declined 51% year-over-year to $11 billion, representing 71% of total revenue. Fiscal Q4 NAND revenue was $1.2 billion, representing around 30% of Micron's total revenue. NAND revenue increased 19% sequentially, with bit shipments increasing over 40% driven by timing of shipments including strategic purchases and prices declining in the mid-teens percentage range. For the fiscal year, NAND revenue declined 46% year-over-year to $4.2 billion, representing 27% of total revenue. Now turning to revenue by business unit. Compute and Networking Business Unit revenue was $1.2 billion, down 14% sequentially. Data center revenue remained weak as customers continued to adjust inventories and as a result of the CAC decision. In fiscal Q1, we expect sequential growth in data center. Revenue for the Mobile Business Unit was $1.2 billion, up 48% sequentially due to seasonal effects and timing of shipments. Embedded Business Unit revenue was $860 million, down 6% sequentially. Embedded Consumer revenue increased sequentially, helped by seasonality while automotive and industrial revenue declined modestly. Revenue for the Storage Business Unit was $739…

Thank you, Mark. The past four quarters tested the resilience and agility of our entire industry. While the recovery from this downturn has begun, Micron will exercise continued supply discipline to drive a return to sustained profitability. I am proud of our team's response to adversity, sustaining our technology leadership, improving time to mature yield, and launching a suite of leading-edge products that represent one of the strongest portfolio expansions in Micron's 45-year history. As our global investment announcements throughout the year clearly show, Micron remains keenly focused on building our business to meet future demand driven by the proliferation of AI from the data center to the edge. I have full confidence in our team, the position we have built for Micron, and our collective ability to capitalize on the opportunities ahead. Thank you for joining us today. We will now open up for questions.

[Operator Instructions] And our first question for today comes from the line Tom O'Malley from Barclays. Your question, please.

Hi guys, thanks for taking my question. I just want to understand the trajectory here on the NAND business. You guys in the quarter kind of took your demand profile from high-single-digits to high teens and you pointed out consumer in particular. What can you do to give us confidence that, that wasn't a pull in from some of your large consumer customers, and that later this year there might be a little hole there, and just talk about the trajectory of where you see that business going, just given you said that bits are going to be down sequentially into November? Thank you.

So with respect to NAND, yes, I mean compared to what we have said before, we saw strong demand, particularly on the consumer, including some parts of the channel and the consumer part included likes of smartphones, PCs, et cetera, and again, as I pointed out, the channel as well. And keep in mind, with the pricing that has existed for NAND, elasticity has certainly kicked in. The content is continuing to increase in the devices. Today, flagship smartphones have minimum of 8 gigabyte DRAM and 128 gigabyte of NAND. So that's the overall trend and same thing in PCs that the elasticity is driving, increasing average capacities. And overall certainly strategic vibe have influenced some of the NAND demand for the year as well. And keep in mind that next year in 2024, we see that the demand growth will be pretty much close to the long-term CAGR for NAND. And the strat buyers - the strategic buyers that I mentioned, of course, they help improve the inventory position for NAND as well. So overall, of course, supply cuts have been made in NAND as well. And as we look ahead, we do see that the demand and supply fundamentals will continue to improve on the NAND side as well.

Very helpful.

And the inflection in pricing as well has occurred and, you know, particularly in the second half of our fiscal year we would see that continued improvement in the pricing as well.

Helpful. And then just as a follow-up, obviously you're facing headwinds from the CAC band. Can you just talk about areas of the market where you guys are targeting to help make up some of those bits. Is it just conversations with customers in the consumer space or are you looking at content increases in the data center, just given the puts and takes of you know where you're making up that a double-digit percentage hole and if you see kind of any change to that. Is it getting worse or is it getting better into February and May of this year? Thank you very much.

So as we have mentioned before, the CAC headwinds are primarily in the data center and networking markets for us in China. And the impact, the negative impact of revenue as a result of CAC decision is already baked in in our CQ4 results, and is also included in our FQ1 guidance here. And keep in minds that the CAC decision, I mean, continues to remain a risk for our business and the impact in our China demand is meaningful. However, Micron has made strong progress with respect to mitigating the effects as well with our global customers who are not impacted by the CAC decision. And we are mitigating that and effect of the mitigation also is reflected in our FQ4 results, as well as in FQ1 guidance. So the - FQ4 results and FQ1 guidance reflect the net effect of the loss of revenue in China as well as the success with some of the mitigation, and of course, we are working on mitigating the China revenue loss with increases in demand for us across our multiple end-markets, across all our global end-markets. And remember that our goal remains to maintain our global share. While there may be some ebbs and flows in the near term, But you know our goal absolutely remains to maintain our global market share here in terms of bits.

Thank you, Sanjay.

Thank you. One moment for our next question. And our next question comes from the line of Toshiya Hari from Goldman Sachs. Your question, please.

Hi guys, thank you for the question. I had a gross margin question for you, Mark. You're guiding November quarter up five percentage points sequentially. I was hoping you could provide a bridge, if you will, on a sequential basis. You talked a little bit about you know period costs continuing to be a headwind. You gave a little bit of color for the benefit you'll see from selling through written-down inventory. But, you know what are your thoughts on pricing. What are your thoughts on cost-downs? And if you can give you know directional guidance for FED and the puts and takes there, that would be helpful as well. Thank you.

Sure, Toshi. I am - so on the fourth to first quarter bridge, as you mentioned, we are forecasting roughly a 500 basis-point improvement. We did say over the last few quarters that this would be the profile of our improvement. I will say that it's gotten incrementally better. And that we said before that our profile would be that we would be positive gross margin in the fourth quarter of fiscal '24. We now believe will be positive gross margin through fiscal '24 and so you'll see this positive margin trend continuing. As it relates to the first quarter, we do get a small benefit roughly, you know, roughly a point of incremental low-cost inventory pass-through from what passes through in the first quarter, which will be around $600 million versus what we had pass-through in the fourth quarter, which is roughly $550 million. We also will see a slight benefit in price indeed in the first quarter. As we've mentioned in the last several quarters, we first saw pockets of improvement. And then, we mention that prices bottoming. We are mentioning on this call that it has bottomed and we are seeing in the first quarter price improvement and we expect that in this transition period to be somewhat muted in the first half and then pick-up momentum and strengthen considerably in the second half. So that's the, you know, general walk for the first quarter. I will, because there's a lot of puts and takes, maybe just, it's been a very difficult several quarters around both utilization write-downs. And fortunately, we're on the other side of that which we can cover later in this call or the after call.

Thank you. And then maybe as a quick follow-up on HBM for Sanjay. You know, three months ago, you guys talked about or at least hinted that in fiscal '24, you might be able to generate you know several $100 million in revenue. Is that sort of target still intact? Have things improved since then and I guess at what point do you expect your presence in HBM to be similar to your presence in DRAM overall? Thank you.

We are very excited with our HBM product. It is an industry-leading product with respect to performance, power, capacity, capability. And as we have mentioned, this product is in the qualification stages with our customers here and we expect revenue to begin in early 2024. And yes, we are very much still on track for meaningful revenue, $700 million in our fiscal year '24. So pleased with the progress, continuing to make good progress. It is an exciting opportunity for the memory industry and Micron will be well-positioned to capture the generative AI opportunities that require the kind of attributes that our HBM3E memory brings to the market. And, of course, as we proceed through the fiscal year, we expect to be gaining share in this important part of the high - in this important high growth part of the memory market.

Thanks so much.

Thank you. One moment for our next question. And our next question comes from the line of Timothy Arcuri from UBS. Your question, please.

Thanks a lot, Mark, I wanted to clarify the statement on gross margin. So, you had said in the prepared remarks that it would be positive in the back half of the fiscal year. But in response to the question just before, you said that it will be positive through fiscal '24. So since you're guiding negative in fiscal Q1, does that tell us that fiscal Q2 gross margin will be positive?

Good question, Tim. I didn't comment on fiscal Q2. I - fiscal Q3, we believe, will be positive. And there'll be a trend of improving gross margin fiscal Q1 through fiscal Q3.

Okay. So you don't want to state that fiscal Q2 will be positive, maybe it will be, maybe it won't.

It - maybe. It depends on of course pricing and we're continuing to drive productivity and we'll just have to see at these profitability levels, mix and other things matter. I mean, we do have favorable mix of DRAM going into the first half. You know, we're increasing DRAM relative to NAND in the first half of the year. So that helps. You know, we, pricing, the momentum is definitively positive. It's just a case of you know we're in a transition period, we did see you know, we kind of had to meet the market on some special deals here in the fourth quarter and you know those effects will continue in the first half, but you know we're definitely seeing new deals being struck at higher prices and we certainly expect that to strengthen in the second-half.

Got it, thanks. And then as a follow-up, just on that comment you just made about called special deals and - that you, you know, struck in, you know, fiscal Q4. NAND demand, you're more positive on NAND demand, but pricing was still as bad if not worse than at least I thought it would have been in - you know, side of fiscal Q4. So is - can you kind of foot that, is that maybe you offering some big deals on the NAND side, some you know customers coming in and being opportunistic and you offerings some big deals to move bits and maybe shore up your NAND share, but at the expense of price. Can you just walk through that force? Thanks.

Yes. I would say, Tim, that, you know, really NAND pricing was not - was basically in line with the downs that we saw in the third quarter. So, I would say that prices - the decrease had slowed and the price or the market was being the firm off. You know that - you know customers realize that this is a period that's ending, the markets firming up, you know, and so, you know, there is also some mix effects in there. We do see price and NAND improving in the first quarter. It will be up actually in the first quarter. And so I think that's all, I'd say, on price for NAND.

Thanks, Mark.

Thank you. One moment for our next question. Our next question comes from the line of Mehdi Hosseini from Susquehanna Financial Group. Your question, please.

Yes, sir. Thank you for taking my question. Two follow-ups. I would like to better understand the dynamics of seasonality. You talked about the NAND bit shipment declining in the Q1 fiscal year and most of the growth coming from DRAM, but how should we think about seasonality impact in February quarter? And I have a follow-up.

So certainly, the typical seasonality will be in place. But just keep in mind that FQ4, we had a very strong sequential bit growth in the NAND business. And - I mean coming off that big sequential growth, we are just guiding to you know normalized level of overall shipments as part of FQ1 and overall, you know - and again, the content continues to increase across the end-market applications. And that will continue to drive increased demand growth for us as well.

But would there be seasonality in February quarter?

Well, typical seasonality trends that exist in the consumer market would be there. But keep in mind that you know it all depends on the mix of the business as well for us. In terms of NAND, you know, in - it - maybe I have already guided to the trends. But overall when we look at the full-year basis, we would look at you know that calendar year '24, NAND will be growing in line with the long-term CAGR or near the long-term CAGR and DRAM will be growing in terms of demand much ahead of the long-term CAGR as well and all of that will of course take into account the typical seasonality that occurs in the industry.

Great, thanks for detail. And second question has to do with the puts and takes in reducing wafer starts. And I understand that more emphasis is on the trade mix. But as you - as I think about memory like, there is no trailing edge. And in that context as you think about bringing utilization rate back up to the normal level. and some of the trailing edge converted to the leading edge, could that help with a bigger step-up in gross margin improvement? How should we think about it, assuming that the trailing edge would be phased out?

Well, good question and I think I would like to take the opportunity to provide some context here and overall background. As you know that in 2023, the industry has experienced extreme over supply and you know extreme negative effect on the profitability as well. And you see now that CapEx cuts and underutilization in the fab have been implemented across the industry given the CapEx constraints that we have, as well as given the poor profitability and certainly Micron has done that, but this is happening across the industry as well. And at the same time, the demand for the new products is increasing that requires, you know, as you were pointing out, leading edge technology as well. And in order to maintain our supply discipline and to meet the demand for these new products such as HBM, such as DDR5, we are shifting some of our equipment from older nodes into the newer technologies to ramp up those newer technologies into production. In the past, we would have done this with more CapEx. But we are being extremely mindful of CapEx spend, extremely disciplined about supply. So as a result, when we move the equipment from older nodes to support the ramp-up of leading-edge nodes, it results in a net reduction in overall - in a net reduction and the structural reduction in the wafer capacity as well. And that overall bodes well for the industry demand-supply fundamentals. So keep in mind that as we go through the year, we - and you know, as we shift more of the equipment toward ramp up of leading edge nodes, this will result in overall wafer capacity reduction and lowering underutilization as well. Of course, the legacy nodes will continue to have underutilization through the course of the year. And…

Thank you.

Thank you. This does conclude the question and answer session, as well as today's program. Thank you, ladies and gentlemen, for your participation. You may now disconnect. Good day.