MU - Micron Technology Inc. (MU) Deutsche Bank's 2023 Technology Conference - (Transcript)
2023-08-30 14:29:02 ET
Micron Technology, Inc. (MU)
Deutsche Bank's 2023 Technology Conference
August 30, 2023, 11:00 AM ET
Company Participants
Mark Murphy - Executive Vice President and Chief Financial Officer
Manish Bhatia - Executive Vice President, Global Operations
Conference Call Participants
Sidney Ho - Deutsche Bank
Amy Sutter - Deutsche Bank
Presentation
Sidney Ho
Okay. Well, I guess, we can get started. Good morning, everyone, and welcome to day one of the Deutsche Bank Tech Conference. I am Sidney Ho, I cover semiconductor, semi-cap equipment and IT hardware at Deutsche Bank.
Our first company today is Micron Technology. Micron is as you all know one of the largest memory suppliers in the world. Today, we are very excited to have Micron's CFO, Mark Murphy as well as EVP, Global Operations, Manish Bhatia joining us today. So welcome, Mark and Manish.
So Mark, before we get into Q&A, why don't you give us a brief update as to what you are seeing in the marketplace, maybe highlight things that may have changed since you provided guidance on, I think, June 28th.
Mark Murphy
So, great to be here, Sidney, and thank you, everybody, for joining us today. I'll start with the Safe Harbor. I'll be making -- we'll be making forward-looking statements. Those statements have risks and uncertainties associated with them. I refer you to the risk factors disclosed in our public filing.
So the business is trending in line with the expectations that we shared at our earnings call in June and a recent conference. Industry bit shipments continue to increase, and the supply response has been broad-based. On industry bit shipments, and our bit shipments, we're past the bits bottom. And in fact, we expect to have record bit shipments in this quarter.
On pricing, we're at an inflection point. We see pricing bottoming about now. As we've said before, we expect in calendar '25 for the industry to be record TAM and that is with more normalized profitability as well. On other items, on July 26th, we did announce that we began sampling our HBM Gen 2 product. Can also refer to that product as HBM3E.
Subsequent competitor announcements show that Micron will have a product that leads on specs when it's ramping. On August 7th, also supporting data center, we announced a memory expansion module product, both users and supports CXL standard. And then finally and most recently, we did complete chips, grant filings for a fab in Idaho and a mega fab in New York. So with that, we'll address Q&A.
Question-and-Answer Session
Q - Sidney Ho
Great. Well, yeah, thanks for that update. Maybe just a few follow-up questions on what you just mentioned. Can you talk about price inflection, expecting price decline inflection in the second half and actually today you updated to be just about now. Can you add some color as to the scope and magnitude that the price increases that you're expecting, are you seeing that both in DRAM and NAND?
Mark Murphy
We are. The market is playing out as we had expected. Severe downturn beginning last summer, broad-based supply response as a result of that downturn that has helped begin to stabilize inventory levels and thus pricing. And so now we are with inventories in a better position in many markets and volumes continuing to increase. We are seeing now first, it started in pockets. But now we say generally, we're seeing pricing bottom. And we expect that pricing to strengthen through the second half of the calendar year, assuming these supply discipline holds and also that the volume continues to expand.
Sidney Ho
Okay. Great. Maybe on data center recovery, you talked about data center inventory will likely normalize around the end of the calendar year or somewhat thereafter. What gives you confidence? Is that still the right timing? What gives you the confidence that this time is actually [indiscernible]?
Mark Murphy
As inventories will normalize?
Sidney Ho
Exactly.
Mark Murphy
Well, I mean, so far, again, I would just point to our view on how this has played out. We have seen broad-based supply response. We are seeing inventories at lower levels in many markets. PCs and smartphones, for example, have been in pretty good shape for some time. So as demand picks up in those markets, customers will replenish their inventories. Data center which had more elevated levels of inventories. We do expect those inventory levels to be in a good spot in the end of this calendar year, maybe beginning of calendar '24. So and so then the drawdown of inventory should happen at the producer level and that is happening. We are seeing our DIO continue to drop and see that trajectory of improving inventories through the rest of this year and the next year.
Sidney Ho
Got it. Go ahead.
Manish Bhatia
Add just a little bit on that. And I think to Mark's point about playing out the way we thought. I think we've been pretty consistent about talking about this. We were probably the first in the industry to see this coming to take action in terms of supply. We saw this starting with mobile phones during the lockdowns in China spring of 2022. So inventory started to build in mobile, consumer space then eventually moved over to data center later and the recovery in inventories has played out as we expected, starting with the consumer space. Mark mentioned, mobile and PC segments now relatively normal heading into the seasonally strong part of the year. So I think you sort of have seen this movie before. We understand how the cycles play out, and I think we have a pretty good beat on the fact that data center will get better next. And the other part to keep in mind about data centers, it's not just one amalgam of -- it's an amalgamation of a bunch of different technologies. There's D4, there's DDR5. There's -- we're going to talk about high bandwidth memory in a few minutes. There's even some LP that's going into data centers. So there's different markets and the inventory positions are different there. I think as the market moves more and more towards some of these newer, more advanced solutions like DDR5 that will definitely also help with recovery in NAND from data centers.
Sidney Ho
Great. That's great. That's good. You guys talked about DDR5 and it looks like things are picking up. Bit growth is growing well. What is the situation in DDR4 in terms of inventory in general?
Mark Murphy
Well, DDR4, there's more supply DDR4 than DDR5. And there is a transition underway. So DDR4 will continue to be used and continue to be used for a long time. But we are seeing this transition to DDR5 and we're in a great position there. We've got DDR5 right now in our 1-alpha. We're transitioning our next DDR5 products will be on 1-beta, which Manish shared, we can go into detail in that process technology is outstanding. But this mix shift into DDR5s occurring and data center, we saw DDR5 as a percent of DRAM shipments more than double Q2 to Q3. And then we expect DDR5 volume to cross over DDR4 at the end of -- into the first calendar year -- or first quarter of calendar '24 versus mid-'24 for the rest of the industry. So we feel great about our position and the migration of data center to that latest.
Manish Bhatia
And I'll just add that Mark mentioned that 1-beta is really going well for us. Clear leadership in the industry, mature yields already across the board and great power, great performance. That's across the portfolio that we're leveraging it in. It was really uniquely defined architecture and a lot of the specs around DDR5. So as the industry moves towards DDR5, we think it's going to really be a differentiator for us in terms of our ability to address the DDR5 opportunities as well as LP5 opportunities, HBM opportunities and Graphic 7 eventually as well.
Sidney Ho
Got it. I do want to talk about HPM in a second. But before we get into that, for NAND market, it seems like it's consensus that things are a little slower compared to DRAM. Can you give us an update on that market? It sounds like pricing is also started to improve. But are there pockets of strength and weaknesses that you guys are looking at?
Mark Murphy
Yes, the NAND market, no real update on the NAND market. The profitability and pricing is worse than DRAM. There's higher inventory levels than NAND DIO is higher. We are seeing volumes increase there, and there is supply response well. So we do believe that the same sort of recovery is underway, but it will take longer given the [indiscernible] situation.
Sidney Ho
Okay. And last question before I open it up to the audience. I want to ask about the China, the CAC restrictions. Has there been any more clarity or visibility in terms of what's being restricted? Could there be more negative surprises there? And talk about your progress in terms of also flexing up share at some of the key customers that you guys talked about in the past?
Mark Murphy
No update on the CAC as well. I would refer folks to our latest 8-K, which I mean no additional update beyond that and earnings. It's a sensitive situation with a lot of uncertainty, but we have sized what the potential risk is and we're obviously working to mitigate that risk. And we're having good engagements with customers and others to try and mitigate impact. We've been in China a long time and have served customers very well in China, provided a lot of value to the Chinese semiconductor ecosystem and Chinese consumers. So we look forward to continuing to supply the market and are working, of course, under these current [indiscernible].
Sidney Ho
Okay. Great. Maybe I'll pause here to see if there's any questions on the floor. If we do, we can run the mic over to you.
Unidentified Analyst
Yeah, Ian Murray. Thank you. Matt, listening to you for the last year. This is a nice change in tone at the beginning of the conference, but I have two questions. One is we all hear about HBM in the AI servers. And I'm wondering how much DDR5 is required for the AI servers, to what extent is that a bump up? And secondly, could you talk about your HBM solution. The general consensus now is that Hynix has the best solution and they're taking most of the market. You're just at 5% or something and they have the stack with the liquid in between -- what is your answer to that? When does it come? Where do you expect the market share to end up please? Thanks.
Mark Murphy
Maybe I'll start --
Manish Bhatia
Yeah, take the first one up.
Mark Murphy
Yes. Okay. I'll start and then build on it. So it certainly is a better tone than this time last year. I mean we were headed in the midst of the steepest part of the downturn. We knew it was happening, but many others didn't. So we were lonely acting early at times, but we acted early and so and are in a good position today as a result. And so today, the recovery has started. Supply-demand balance is better. Pricing, as we talked about, we believe, has bottomed. So we look forward to the future. An exciting part of that future is data center, of course, and the products serving that market. Your question was good because serving that market takes a suite of products that we think we're very well positioned in. So you've got high-capacity DIMMs, you've got the standard DDR products. We've talked a lot about DDR5. LPDDR, so low-power DDR is being introduced in the data center, so or in servers. So you're seeing various combinations of these products being used to best or to optimize the performance of those servers. And then finally, you've got of course HBM, which has a lot of attention. And we're really excited about that product. It's built on, we believe, the best technology in the business and our 1-beta process technology. So we've announced that we've begun sampling. We're very pleased with what we see. The customer engagement is very deep and we will be ramping that product in calendar '24 and we think we'll have meaningful revenue on that product by the second half of the calendar year. And we expect to have on the HBM3E, we will have better than our share of the overall DRAM market in that particular product. So we believe. Yes.
Manish Bhatia
So, Ian, you're right that today, Hynix and -- does have a position -- strong position relative to the existing solutions for both HBM2E and the first generation of HBM3. Our product is really a leapfrog with HBM3E. The performance is 50% higher than today's HBM3 solution. And even relative to recent product announcements by competitors, our performance is higher than that. Our power, we believe, will end up being lower than competitive offerings in HBM3E as well 2.5 times lower than previous generation on a power per bit basis. So we really think our product will be differentiated and will be an industry leadership platform. As Mark just mentioned, we expect to be able to have very strong share performance within HBM3E going forward. Now how did we do that? The foundation is the technology and the fact that we have leadership with 1-beta well ahead of competitors. Typically, we scaled new technology nodes because we're trying to drive cost. In this case, it does give us a cost advantage. But beyond that, it's able to -- because of the performance of the device and the size of the memory array, we're able to actually have higher capacity die. Our HBM3E is higher capacity than existing HBM3 solution, so we can get more memory capacity closer to the processor because of the ability to shrink using the 1-beta technology into the standard package. We're also able to provide better performance and power trade-off because we have lower power inherent in the technology. Then the other I think big differentiator is we're so far ahead on 1-beta. We are mature shipping in high volume across other products, have all that learning that will go into our HBM process flow as we ramp and take that and grow that revenue, as Mark mentioned, in calendar year '24. So I think that 1-beta really gives us a lot of -- the fact that we're so far ahead and it's such a great technology foundation gives us the confidence to be able to build a strong product offering on top of that. Now on top of that, we are having -- we do have a lot of great design features and packaging features that we're pretty confident in -- are going to be able to provide -- enable that leadership and enable us to ramp successfully next year. And we're investing with confidence. We mentioned on our last call that we're -- based on the confidence and the strong response we've seen from customers to our early samples and our specifications, we're increasing investment for next year, our plans for investment next year for advanced packaging capacity to be able to meet this demand.
Sidney Ho
Yes. Maybe I'll just have a follow-up question. You talk about HBM ramping sampling right now, ramping in calendar '24 and meaningful revenue in second half of '24. HBM is a little different than normal DIMM in terms of design cycles, right? So you probably got to work with your partners a little earlier. Can you talk about that process? How long does it take versus a regular DIMM. And once you design into an HBM, is that something that your customer can switch in and out just based on prices are pretty much locked in for that?
Manish Bhatia
I think that you're right, Sidney. It's a longer process, not just because the product is so -- such a high-performance product that it requires a lot of tuning by the customer on their side to be able to optimize the solution, but also because it's a multiparty processes you're aware of because there's the foundry that makes the silicon as well as does the integration for our customers combined with our process. So it's a more complex overall integration. And yes, it takes longer time. But it does create, I think, more of a customized solution in terms of the tuning that we work together with to be able to optimize the solution for the end application. And that tuning happens on both sides and tuning happens in terms of the way the system interoperates as well as even just in some of the manufacturing areas that each site needs to address to be able to allow this very, very high-performance solution to be optimized.
Sidney Ho
Okay. Any other questions on the floor.
Amy Sutter
Hi. Amy Sutter from Deutsche Bank. I just wanted to get some color about to the extent you have it on -- when you mean about calendar '25. I mean I think this was a bigger downturn than anyone expected, obviously. And coming out of COVID, there's a lot of not great visibility into the supply chain in general. But, look, when I look at what's happening with HBM and the market opportunity there and all the investment in data center, is there a chance that we can get back to previous margins? Like how -- to the extent you are willing to talk about the margin framework as come out of this cycle would be really helpful.
Mark Murphy
Yes. We're not going to comment in any sort of detail on margins out that far. What we can say is that the, on the demand side, as you point out, they are very strong growth drivers in this space. And I think the best example is that we're at record bit shipments today, emerging from a downturn were a record shipments. So that just points to the strength overall of memory and the need for these products. And those growth drivers are durable. So automotive we'll be continuing to grow and a lot of content there. Smartphone and PC they've been in the doldrums for some time. But eventually, there will be a cycle -- replacement cycle on those, and that will recover. And then, of course, you've got data center, which is currently demand exceeding expectations on AI-related server purchases, training and inferencing. But eventually, the broader server compute infrastructure will need to be built out refresh. So again, very durable growth. So on the demand side, volumes we feel very good about the multiyear trend in the business. Now on the supply side, the response has been very strong. All the competitors have announced reductions. They're all mining inventories, they have all cut CapEx. We've all reduced utilization, sort of actions that are unprecedented and appropriate given the downturn that we experienced. But it's a positive sign on the -- on the industry to deal with this because the pricing is not sustainable at these levels, we cannot invest in the needed capacity and technology development required to drive the rest of the technology space with pricing where it is. So pricing as it's beginning to now should recover and that will, of course, help margins. So we're investing appropriately for that good future in the business where volumes are higher, pricing is better. Cash generation is stronger. And so we'll provide more on near-term margins and then more on the longer term in the business [indiscernible].
Manish Bhatia
Maybe just add a little bit on the supply side there. I think, yes, the industry did have added too much production capacity relative to demand signals we saw through the pandemic-induced increase or inflation and demand signal that we were getting, but that doesn't change the fundamental driver that technology is getting harder and harder, both in DRAM and NAND side, technology is getting harder, cadences are more challenging to be maintained in terms of new technology introduction, CapEx still continues to grow per node, node on node to be able to transition capacity. So that's a stabilizing factor, I think, for long-term bit growth in the supply side. And then high-value solutions. We talked about DDR5, we talk about HBM. Those are both solutions where the bits per wafer, bits per die are more -- are lower and in HBM's case significantly lower than on a standard D4 or LP4 technology. So as the industry transitions to these higher-value solutions that I think will also be a stabilizing factor as we look forward in terms of the pure bit supply growth capability for the industry.
Sidney Ho
Yes, one more question.
Unidentified Analyst
Yeah, just looking forward to 1-gamma, are you going to continue to use EUV sparingly as in a few layers as possible? Or do you think there is a need to kind of build hard and build out a very large fleet of EUV tools? And to what extent is your footprint ready to sort of receive those tools because you have a relatively older footprint than some of your competitors. Thanks.
Manish Bhatia
Sure. So we'll, first of all, I think we've -- I really handed to our technology development team for making the decision to be able to push EUV out to our 1-gamma node. I think that's one of the reasons that our -- I mean, our immersion-based multi-patterning solutions for both 1-alpha and 1-beta have performed superbly. I think we will -- I think our lithography expertise is excellent. Our judgment in terms of which layers need EUV, which ones we can optimize better with multi-patterning is very good, and I think we'll implement it well within 1-gamma there as well. In terms of the readiness, we already -- when we've talked about already, well, we've mentioned this publicly before, that we've already taken receipt of production tools in Taiwan, where EUV will be first introduced on 1-gamma in 2025. And we've already started exercising those tools on our 1-alpha just to demonstrate that we understand how to -- to come up the learning curve on the new materials and processes that are needed to be able to be successful with EUV and we're already matching yields on 1-alpha EUV layer against multi-patterning layers. So we feel very good about our learning rate. And when we introduce it, we'll be successful. And in terms of our ability to receive it, we have new fab space that we've built in Taiwan. We have new fab space that we've built in Japan. Both of those within the last five years. And when we built that new space, we enabled EUV with that -- that space was built with EUV in mind. So we're very we're ready for how many EUV tools we need to receive to be able to grow in 1-gamma and into the future.
Sidney Ho
Okay. Well, maybe I have a few more questions on the product side. Clearly, a lot of interest on the HBM side of things, but you also talked about high-capacity DIMMs, the 128 gig, I think that's what you're referring to. Maybe they also talk about LP DIMMs deployed in data center. How is Micron positioned? And how do you differentiate that with competitors that have similar solutions?
Manish Bhatia
Sure. So I think high-capacity DIMMs, are certainly becoming a larger part of the market and exciting part of the growth in AI servers. So we actually already have an offering Mark mentioned our DDR5 on solution today is on 1-alpha. We have a 96-gigabyte offering that's already shipping in volume and production to customers. And as we transition to 1-beta, we expect to have a 128-gigabyte offering that will be competitive. And in terms of capacity, it will be matching what others have in the industry. But again, benefiting from the -- all the strong capabilities we have on that 1-beta technology to be able to provide us -- to provide our customers benefits on power and performance. I think the difference in our strategies between the strategy between us and our competitors is that we've targeted to have monolithic die high-capacity solutions. We think that those optimize costs as well as power and performance better than the multi die stacking that competitors are currently using to get to the 128 gigabyte capacity point. So our 1-beta offering, which will be next spring -- which will be coming out next spring will be a monolithic solution. Again based on 1-beta, and we're able to do that because of our leadership in time to market with 1-beta and their ability to get that larger monolithic die into the package for the DIMM solution. So we feel very good about our -- and that was sort of some of the thinking about what solutions we introduce when because we saw that our 1-beta was going to be such a great node, well ahead of competition, yes, there are some high-capacity DIMM shots that we're not in today. We think our 96-gigabyte solution is helping us in a lot of them. But when we get to our 1-beta solution next year, we think we'll be very well positioned for the 128 gigabyte, 128-gigabyte module capacity.
Sidney Ho
Great. Thanks. Maybe just wrap it up with a couple of financial questions for Mark. Does the improvement in DDR5 and AI demand changed the way you think about CapEx for fiscal '24? What is -- maybe just give us a sense, what's the range of supply growth that you can do and without increasing that you can support in fiscal '24, calendar '24, whatever time [indiscernible]?
Mark Murphy
So there's no update to what we've said on fiscal '24 CapEx this time. It's a continual process, assessing how to most optimally deploy capital and how to spend our R&D, how to spend CapEx at the right time at the right place and the right amount and that is ongoing. So for example, on the last call, we mentioned that we're increasing our HBM related CapEx spend because we see the market need is immediate. We have a great product, so we need to be able to supply that to market. We've not changed our CapEx. We're looking for other ways to get that CapEx out, pushing whatever we can do to be mindful of that. I mean we're still -- the fundamentals of the business is still weak. And so we're being very thoughtful about what we spend and getting -- returning to free cash flow growth. We did say that next year, we do expect WFE to be down year-over-year. And so we'll give -- we're about a month out from earnings. So we'll give a more update at that time.
Sidney Ho
Okay. Great. Maybe just one more last short-term question. On gross margin, do you still expect gross margin on reported basis not to turn positive until second half? Or is it -- things are improving a little bit that outlook is a little better?
Mark Murphy
Yes. Again, we're about a month out from earnings, and we'll give a more complete update at that time, including profile of gross margin spend, but our gross margin. But we do -- as we said on the last call, we do see gross margin on a reported basis, continuing to become less negative and then eventually turned positive in '24. As I mentioned at the opening right now, the business is trending in line with what we shared at earnings in the last call. So the volume and pricing trends are consistent with that. And so therefore, we would expect to do as good or better than what we had stated before.
Sidney Ho
Okay. Great. Just to close, what are some of the key messages that you may want investors to take away from today? What are some of the areas that you think investors may have underappreciated with regards to the Micron story?
Mark Murphy
Just quickly then Manish can add. I think investors should take away that we responded very well during the downturn. And in a disciplined manner and in many ways, led the industry, and we minimize the financial impact of what is maybe the worst downturn in industry's history. And we did that in a way that we continue to invest for the future, and we're very excited about the future. We talked a lot about it today and we couldn't be more pleased with the position we've got and of course are working to capitalize on what we view as a very positive trends in the space.
Manish Bhatia
I'll just add. I mean, I think the technology and product portfolio of the company has never been stronger. We talked a lot about 1-beta today, but 232-layer NAND also both 1-beta and 232-layer NAND, fastest programs in our history and positioning us very well for many different solutions, high-value solutions. We talked about DDR5. We talked about HBM. We didn't talk about data center SSD, but we're already on 232-layer shipping data center SSDs. So the technology product and our manufacturing ability to deliver those leading-edge technologies at scale, I think, has never been stronger. And I think that the underappreciated part, I think, is still the multi-cycle growth story, right? Yes, we have cycles. This one was deeper than most. But when you look over the long term out towards the end of the decade, the fundamental demand drivers of AI, 5G and autonomous is still there, maybe even building more steam than before. And when you look across cycles, I think the memory space is going to continue to outgrow the rest of manufacturing.
Sidney Ho
Great. Well, we are out of time. So thank you, Mark and Manish. And enjoy the rest of the conference.
Mark Murphy
Thanks, Sidney.
Manish Bhatia
Thanks, Sidney.
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Micron Technology, Inc. (MU) Deutsche Bank's 2023 Technology Conference - (Transcript)