Micron Technology, Inc. (MU) Post Earnings Analyst Call Transcript

Micron Technology, Inc. Post Earnings Analyst Conference Call Summary Company Overview - Company: Micron Technology, Inc. (NASDAQ: MU) - Date of Call: June 28, 2023 - Participants: - Farhan Ahmad - VP, IR - Mark Murphy - EVP & CFO - Manish Bhatia - EVP, Global Operations - Sumit Sadana - EVP & Chief Business Officer Key Industry Insights - Market Dynamics: The call discussed the evolving market demand and supply dynamics, particularly in the context of the semiconductor industry, with a focus on DRAM and NAND products [2][3] - China Exposure: Micron's principal exposure to China is identified as 25%, with potential risks estimated at about half of that exposure. The company anticipates a more material effect from the CAC ruling in the fourth quarter and the first quarter of fiscal 2024 [4][5] Financial Performance - Cash Flow: The company reported negative free cash flow of $1.4 billion in the third quarter, with expectations of remaining in negative territory through a significant part of fiscal 2024 due to weak market conditions and high fixed costs [6][7] - CapEx: Micron has significantly reduced capital expenditures (CapEx) by 50% year-over-year, with plans to maintain low spending until clear signs of market recovery are observed [8][9] - Gross Margin: The adjusted gross margin for the third quarter was reported at negative 16%, with expectations of gradual improvement into fiscal 2024. The company anticipates a $500 million benefit from lower-cost inventories in the fourth quarter [11][34] Product Development and Market Position - Low-Power DRAM: Micron is developing a unique low-power DRAM product in partnership with NVIDIA, aimed at data center applications, which is expected to significantly reduce power consumption [21][23] - High-Bandwidth Memory (HBM): The company is ramping up production of HBM3, which is anticipated to be in volume production by the first quarter of 2024, with substantial revenue expected in fiscal 2024 [42][26] - DRAM Transition: Micron expects its DRAM sales to transition from DDR4 to DDR5, with a crossover anticipated by the end of calendar Q1 2024 [41] Inventory Management - Inventory Levels: Micron's current inventory stands at $8.2 billion, with a target to reduce it to approximately $6 billion. The company aims for a new target of 120 days of inventory, up from 110 days due to new technology processes [15][18] - Strategic Inventory: The company carries about $1 billion in strategic inventory, which is expected to be managed down over time [16][17] Demand and Supply Outlook - TAM Reduction: The total addressable market (TAM) for the industry has been reduced due to lower unit sales forecasts for PCs and smartphones, with PC units expected to decline in low double digits and smartphone units in mid-single digits [57][58] - Supply Response: Despite the demand reduction, Micron has increased its estimate for supply reduction, indicating that supply is currently running below shipment levels, leading to improved customer inventories [59][60] Conclusion - Micron Technology is navigating a challenging market environment with significant focus on managing cash flow, reducing inventory, and preparing for future product launches in the DRAM and NAND sectors. The company is optimistic about gradual recovery in gross margins and overall market conditions as it adapts to evolving customer needs and industry dynamics [61][62]