Good afternoon. My name is Josh, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Micron's post-earnings analyst call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, please press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. In order to allow as many analysts to ask a question as possible, please limit yourself to one question. Thank you. It is now my pleasure to turn the floor over to your host, Farhan Ahmad, Vice President of Investor Relations. You may begin your conference. Thank you, welcome to Micron Technology's fiscal third quarter 2021 sell-side analyst call back. On the call with me today are Micron EVP of Strategy and Chief Business Officer, Sumit Sadana, Micron EVP of Operations, Manish Bhatia, and our CFO, Dave Zinsner. Today's call will be approximately 45 minutes in length. As a reminder, the matters we will be discussing today include forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today. We refer you to the documents we filed with SEC, specifically our most recent Form 10-K and 10-Q, for a discussion of the risks that may affect our future results. With that, operator, you may open the call. Thank you. Our first question comes from Harlan Sur with JP Morgan. You may proceed with your question. Hi, guys. Thanks for taking my questions. On the confidence on supply tightness in DRAM into next year, I know that the team has been entering into longer-term supply agreements with some of your customers. I'm sure customers are more open to sharing their longer-term forecast as well. How much of your calendar year 2022 is being viewed as being driven by order backlog or customer forecast visibility into next year versus some sort of top-down, macro view? Just a quick follow-up question on the DRAM cost front looking into fiscal 2022. At the highest level, does the team at least expect the cost profile to be within your long-term range of down mid to high single-digit percentage points? Thank you. Okay. This is Sumit. I can take the question related to the market. We do go through a pretty rigorous process to assess demand and supply both. Certainly, we look at the tops-down models, macroeconomic approaches, industry environment, and conditions. We talk extensively to our customers, to our ecosystem partners. We obviously assess technology trends that are shaping the landscape. For example, as you know, there are upcoming launches of new x86 processor platforms that have significantly more attachment of DRAM. They tend to bend some of the demand curves when these type of transitions occur. We take all of those into account, and we determine how things are proceeding, and we have, I think, a reasonably good track record based on what you have seen over the last few years. I think the approach that we take on the supply side is also similar. We do a fairly detailed analysis. Of course, there are certain things that change from time to time in terms of supply. This time around, we try to highlight some of them, including the headwind that comes from bigger die sizes on DDR5 compared to DDR4 because of the on-chip ECC that used to be on the module, now integrated onto the die itself. That creates headwinds for supply growth. When we pack all of that together, the other thing to keep in mind is lot of ecosystem shortages across the semiconductor ecosystem for different types of parts. Could be raw material for some of these devices, could be controllers built in foundries in some of the legacy nodes. It could be analog parts. A lot of different things are extremely tight, we think that some of this tightness gets resolved over the course of multiple quarters, extending well into calendar year 2022. As these things get resolved, it will open up pockets of demand that today cannot be met because of these non-memory shortages. I think overall, when we pull together all of the demand view and the supply view, we feel that the industry environment will remain healthy for a good period of time, certainly through this calendar year, extending into next year. We feel that the supply has been pretty disciplined on the DRAM side. We have been tracking the CapEx that I know you look at as well. Because of the disciplined CapEx in DRAM, we feel that the overall supply growth will be in fairly good shape, consistent with the demand growth and should help to extend the healthy environment in the industry. I'll turn it over to Manish to talk about the cost. Thanks for that, and thanks for covering a little bit of it. One of the things that is impacting the bit growth also impacts DRAM cost for next year, which is a transition to some of these newer standards with DDR5, LP5, and obviously graphics product all having higher performance, but high performance for our customers in their end applications. Being a bit of a headwind to cost as well. In terms of what we see looking forward, the 1-alpha node for DRAM is ramping well, and we feel very good about both where that is right now, how it's going to ramp over the next several quarters, and what it's going to provide us in terms of like for like cost reductions in FY 2022 and bit growth for FY 2022. In terms of the cost reduction range that we've talked about before of mid to high single digits, I think on the front-end side, we feel good that we'll be towards the higher end of that range, and that when we think about the mix of the business as well as some of the more expensive back-end costs, for example, DDR5 modules are more expensive than DDR4 modules, given some of the changes in the JEDEC specs for those modules. As we think about some of those things, we think that the total end may be towards the lower end of that range, but we still have, as Dave mentioned on the other call, we're still working on exactly that, the mix of the product in next year's plan. We'll give more color on that as we head to the next call. Yeah, very insightful. Thank you. Sure. Thanks, Harlan. Thank you. Our next question comes from Aaron Rakers with Wells Fargo. Please proceed with your question. Yeah. Thanks for taking the question. I wanted to go to the data center business and particularly the server business. You guys talked, you just mentioned a little bit ago about the expansion of memory channels in the server CPU market. I'm just curious, are you alluding to things like Ice Lake and AMD's Milan processors today, or I thought the commentary was a bit more weighted to the back half and even into calendar 2022, where I guess the question is, are we starting to see indications that there's further expansion of memory channels on these CPU sockets beyond the eight channels that we currently see? Then also any quick update on HBM, just timing or materiality of when we should start to think about that ramp materializing. Yeah, those are two good questions. I will just answer them in that order. The first part, yes, it is about six channels going to eight channels and the broader deployment that will be occurring with these both Intel and AMD platforms over the course of time. I also wanted to mention that upcoming processor platform launches are going to have dramatically higher core counts, and if you just attach the same amount of memory as before to a processor with high core count, your bandwidth per core starts to decline, which then starts to affect application performance. Servers that were originally configured with a certain amount of DRAM memory need higher amount of DRAM memory to be attached to that same server with a more higher core count CPU socket. That's sort of the trend that drives double-digit increases in average capacities in terms of attach rate per server. That's what we are seeing as a trend that will continue to do well over the course of some of these core platforms being deployed in 2022 from both AMD and Intel and gathering pace there. In terms of HBM, HBM2E was the first HBM product that we introduced to the market. We have made investments in that product. The product is being qualified by our customers. Our intent with HBM, first generation HBM, which is our HBM2E product, is not for there to be a very material ramp in that revenue. It's more of a vehicle for us to prove the technology, gain the confidence, qualify it, ramp it into volume. It's a pretty complex product, and then rely on subsequent generations of HBM to drive material gains in that product line in terms of revenue ramp. That still is the plan, and we are making good progress towards that. Thank you. Thank you. Our next question comes from Mehdi Hosseini with SIG. You may proceed with your question. Yes. Thanks for taking my question. Just a quick follow-up to the previous one. I wanted to understand how HBM demand would trend in the context of DDR5 adoption. Could HBM actually cannibalize DDR5 server DRAM, or do you feel confident enough that HBM is driven by incremental demand creation for AI, that it won't have a cannibalizing effect on DDR5? I have a follow-up for David. I don't think of HBM as cannibalizing DDR5 as much as a complementary way of attaching very high bandwidth memory. If you think about different applications, some applications tend to be very latency sensitive, some tend to be very bandwidth limited. Several AI applications tend to require very high memory to CPU bandwidth. They tend to use HBM. Having said that, pretty much most server applications in the data center today are getting impacted because these very powerful CPUs with massive numbers of cores are unable to really get the data fed to them at a fast enough rate that they can keep all the CPU cores active and busy, which is what is needed to be done in order to leverage the significant investments we will make in these new CPU platforms. That is what drives the DDR4 transition to DDR5, because we are dramatically increasing the bandwidth on the DDR bus. Hence, we believe that both of those things will occur. There will be a DDR5 transition in certain applications which are highly bandwidth limited, like some AI applications, there will be HBM usage. Having said that, HBM is today still a relatively modest market. It's about a $1 billion TAM. It is going to grow faster than the rest of the DRAM market. The DDR5 market will become massive very, very quickly and will, very early in its ramp, overwhelm the size of the HBM market and then keep going. I don't view those as competing with each other as much as being complementary in terms of how application workload is being addressed. Great. Thanks for the detail and quick follow-up for Dave. I understand you don't want to provide FY 2023 operating margin guide. I want to better understand how effective the management team is executing on a cost structure. Obviously, we've had a couple of memory downturns. You have established the fact that you're kind of a trough operating margin above zero. I believe last time it was around 10% operating margin. In the last upcycle, which was extraordinary, operating margin exceeded 50%, and the prior upcycles, prior to 2018, your operating margin peaked in the 20%-30%, and you're already above that. Help me understand. I know you're trying to be conservative. You're trying to be prudent, especially with the guide and not letting us get carried away. Can we establish the fact that maybe your operating margin could trend higher? It may not exceed the prior peak, but at least it could trend towards the 50%. Just to be clear, you were mentioning something about FY 2023. You're not looking for FY 2023, right? Yeah. I was just trying to make sure that you're paying attention to my question. That was just. I was definitely paying attention. The way I look at it is what the peak is and what the trough is less important than what the entire cycle looks like in terms of profitability. I think I mentioned on the call in the prepared remarks that we had EBITDA margins, I think, through that entire cycle of 50%. We had gross margins, I think, through the whole cycle of 40%, and then ROIC was 20%. I feel like those are very good numbers, quite honestly. I think if we can achieve numbers that are roughly in line with that, plus or minus a bit, I'd feel really good about our performance. Obviously, some of it is we're at the mercy of the market. I do think that a lot of the things that we've done structurally to drive the relative profitability of the business up have been pretty spectacular, quite honestly. Now that we're in a place where costs are somewhat in line with the industry, we look at our cost to drive them somewhat in line with the industry. I think we've shown, particularly this past quarter, that we could do a very good job in terms of managing our pricing across the DRAM and NAND markets, as you've seen, we're pretty efficient on our operating spend. I'd like to think that we could continually, through cycles, maintain very good profitability, both EBITDA margin and gross and operating margin. How that shakes out on the model year to year, I'll let you guys all figure that out. If I may just quickly, quick follow-up. If I just go with the 50/40 EBITDA and gross margin, that doesn't leave me a lot of upside from here. Maybe 3 points, if I just take what you reported for the last quarter, and I take the trough of three quarters ago. The question becomes, well, how long is the cycle? We don't know. This is where it gets a little bit tricky. On top of everything, you haven't been aggressive with buyback. What am I missing here? What are you missing in terms of what? About the buybacks? Well, there's only 3 point upside to these margin guide, EBITDA of 50% and gross margin of 40%, if I were just to average what we have done so far in this up cycle. You may push back and say, "Well, maybe the cycle could be two years cycle. I could run a business at 50% EBITDA and 40% gross margin for two years, not just two quarters." This is where I'm having a hard time to think about sustainability of earnings growth. Well, I think, it's hard for me to make a prediction on what the high point is and what the low point is. All I want to do is drive profitability through the cycle. That is not to say that we're making any prediction about how long the cycle is or how high the cycle will get. We're just trying to drive the profitability through the entire period to generate a good return on invested capital. The buyback, I'll tell you, it has nothing to do with any view on how long the cycle is. We have an opinion that over the long term, we can drive very good profitability. We have a good product roadmap. We have good technology leadership, excellent cost in terms of being competitive with others. We feel very confident about this. When you feel confident about this, and think about where the stock price is today, of course, this is a good price. We will buy back a fair amount of stock next quarter. We have that built into the plan. That in no way is in any relationship to what we think about the cycle. As far as we can see it, which of course is always a bit hazy, we feel good that things will be tight into 2022, and then we'll see what 2022 plays out as. I think we've shown that we can do a very good job managing through upturns and managing through downturns. We'll continue to do that. Great. Thank you. Thanks for the details. Thank you. Our next question comes from Thomas O'Malley with Barclays. You may proceed with your question. Hey, guys. Thanks for taking my question. Dave, this one's for you. You've done a really good job of bringing down OpEx as a percent of revenue over the past really eight, nine quarters. It's stepping up from a dollars perspective from May into August. Can you talk about what's driving that step up there, and then what the profile from a spend perspective should look like as we go into the next fiscal year? Yeah. We've been managing OpEx pretty effectively. It can be a little bit lumpy, because there are pre-qualification expenses that R&D incurs from time to time, depending on what activity is going around in terms of innovation. The last couple of quarters were pretty light. This quarter, the fourth quarter, is actually going to be a relatively heavy quarter of pre-qualification expenses. That's part of it. I think also we had a little bit of a benefit in the third quarter from the sale of some assets. We took a gain on that. OpEx was a little bit artificially low, in the third quarter because of that gain. It was probably about $15 million higher, so once you strip that piece out. I think longer term, when we're in the really upward part of the cycle, I think we're generally running low double digits or in, I think fiscal 2018, we ran as low as high single digits. When you're in the lower part of the cycle, it kind of runs in the mid-teens, and we'd like to get to average somewhere in the low double digits to low teens, over time. We want to drive, obviously, leverage as we're coming out of the cycle, but I think over time, we're not trying to drive a ton of leverage through operating expenses because the one thing that always differentiates you from competitors is your ability to invest in products. We do want to make sure we're making the proper level of investment in terms of products that obviously drive profitability and drive growth. Helpful. Just a quick follow-up. On the NAND side, in the May quarter, you guys talked about low single-digit growth. The last couple of quarters, you've talked about an environment in which things are stabilizing. You've sounded more positive really every single time we've heard you talk on the NAND environment. Is there a reason why things slowed a bit in the May quarter? Should things pick back up there just given the fact that it seems like the demand needs are pretty robust from all the end markets that you talked about? I can address that. Definitely the semiconductor, the NAND industry, overall gross margins got pretty challenged, in that CQ1, CQ2 time frame. Part of that was driven by the fact that there was a substantial amount of CapEx that had been invested, and we had articulated for a few quarters that we believe that the industry CapEx is at pretty high levels. That's what ended up playing out in terms of the challenges in the gross margin profile. Of course, NAND has pretty high elasticity of demand. As pricing fell in NAND, certainly the demand picked up even more and has absorbed a lot of that supply. Things are in pretty healthy shape. We have posted ASP improvements, as you saw in our fiscal Q3 results, certainly we look forward to improvements in fiscal Q4 as well. There is a good deal of demand coming from multiple segments of the market. Some segments of the market remain undersupplied. As we look at strength in PCs, look at data center strength, look at game consoles ramping with SSDs instead of HDDs for the first time, both PlayStation and Xbox. We look at the significant amount of strength coming from automotive and industrial markets. The environment is healthy on the demand side. We feel that as long as the CapEx remains at disciplined levels in the industry, the environment can remain healthy. Our intent has always been to grow our supply bit in line with the demand growth in the industry. Certainly, we look forward to continuing to execute well on the NAND side. We are doing a lot more than just the supply-demand balance, of course, focusing on that, but there's a lot of focus on our portfolio, the strength of our products, the mix of the portfolio. We spoke about record QLC bit mix. These QLC products have dramatically higher profitability for us compared to what TLC can drive. TLC and QLC cost structure in NAND, very competitive, well flat cost structure. We are feeling good about all of that. Looking ahead, we are looking forward to the introduction of our first vertically integrated platform data center and gaming SSD as well. A lot of good things happening on that front, and we hope to certainly improve the ROI in that business going forward. Thank you, guys. Thank you. Our next question comes from Ambrish Srivastava with BMO. You may proceed with your question. Hi. Thank you. Hey, Dave. I just wanted to make sure I was on the same page with everybody else. Just correct me if I'm wrong. I have heard you guys talk about cost down for fiscal 2021 for DRAM, mid-single digit. I think Manish said mid to high, and then on a call, somebody said 10%, and you did not correct that. What have you said? Could you just calibrate us on what have you publicly said about the cost down for DRAM? Yeah, I probably should have corrected it, although I wasn't sure exactly what aspect they were talking about with down 10%. Originally, when we came into the year, we said our cost down in DRAM would be mid-single digits. I would say over the course of the year, we've gotten a little bit more bullish about that, and it was certainly trending above that. It's still above that, but suffice it to say, some of this COVID mitigation expense, we didn't exactly have dialed in. That has been a little bit of a weight. Weighed us down a little bit. Not terribly. I mean, we're still above the mid-single digit number we thought we would be coming into it. The other thing we said is that we think, at least over the intermediate call the next several years, DRAM cost declines probably run in the mid to high single digits as the industry goes. We think we'd be in line with that over that time. Thanks, Dave. And that's right. I think what I had been talking about when I was with a longer-term kind of trend for us and the mid to high single digits. I think as we mentioned at the beginning of the year, or maybe I mentioned on one of these callbacks last quarter, coming into this year, we made a strategic decision to invest more in 1-alpha, which would have a bigger cost benefit, really primary cost benefit in fiscal 2022, and we actually reduced some of the CapEx on some of the other technology nodes, 1Z in particular. That is why our cost reduction for this year is maybe somewhat lower than what that range would indicate that we're targeting for the longer term. Okay. That's helpful because I do miss a lot of stuff, but I thought I was pretty dialed into cost down. When I heard 10%, I said, "Huh, I must have really missed that. Yeah, we never said we know about the 10% down. Okay. Thank you. I think that's important. If the industry tracks that a number. What have you said for NAND as well for this year? For NAND, fairly early on, we said it would be in the low double digits. Which was kind of driven by mix, and that's generally where it's been tracking. I would say it's also maybe tracking a hair negative more recently as well, when the dust settles for the same reasons. It was a function of this COVID mitigation expense. Got it. My question is on the EUV side and the CapEx intensity going to mid-30s. What is the timeframe? Does that stay in the mid-30s up until 2024, or should we think about that as a peak year? What's the right way to think about it? As we said on the call, we're planning to introduce EUV on our 1-gamma node in 2024, and thereafter in subsequent years, 1-delta. It'll really take us until 1-delta node and beyond to be able to make the whole EUV infrastructure be productive for us. It'll probably go towards that 1-delta, which would be after the 2024 timeframe, where we'll be making prepayments for tools, investing in the facilities infrastructure for this equipment, and getting it ramped up into production. As we said, it'll be an introduction on 1-gamma. 1-delta will be a deeper penetration, more layer count. I would think it would be through that 1-delta, which would extend beyond 2024, and then we'll start to see hopefully some more improvement and reduction in some of the multi-patterning that EUV will provide from 1-delta and beyond. Got it. Thank you. While I have you, what is the die size increase for DDR5 that you guys are expecting? Yeah, we're not giving that specifically, but I think one of the things Sumit gave a little color on is one of the drivers of that is the addition of on-chip ECC. Yeah. Kind of use that as an estimate of one of the major drivers. Yeah. Okay. Thank you. Thank you very much. Our next question comes from Simon Woo with Bank of America. You may proceed with your question. Okay. Thank you. Very quickly, any rough idea the percentage of your bit shipment at the 1-alpha node DRAM, whether it can be more than 10% from the August end of quarter or still less than 10%? The same question regarding the 176-layer 3D NAND out of total NAND shipment. We want to measure whether it can be more than 10% or less than 10% of the total bit shipment in DRAM and NAND for this current quarter. Thank you. I think we did say that we reached a meaningful level of production in FQ3 on both 1-alpha and 176-layer, and that that production obviously at the fab level in FQ3, Simon, would allow us to say a meaningful level of revenue generation from both of those two nodes in FQ4. As we look towards the end of the year, I think we did say in the prepared remarks, that we would have 176-layer would be more than half of our NAND output by the end of the year. We said that between 1-alpha and 1Z, combination of the two would be more than half of our output by the end of the year on the DRAM side as well. That's the end of the calendar year. Calendar year. Yes, sorry. Yes, calendar year. Okay. Sure. Yeah. I want to know the definition of that meaningful portion, whether it can be more than 10% or less than 10%, but it's okay. Sure. Another, I think it's a little bit kind of the, not a concern, but I'm feeling like this 1-alpha node is very advanced technology. That should be used maybe 16 Gb density chip production rather than 8 Gb or 32 Gb. Same thing, 176-layer, I think it's too expensive, very advanced for the 256 Gb mono chip production. I think your 176-layer should be used maybe 1 Tb level of the chip production. The question is whether your 1-alpha node and the 176-layer 3D NAND can be used effectively the larger density. Your OEM customers today prefer maybe smaller, lower density at the maybe 1Z node or maybe 96 layers. Any color on this, how to maximize your new node use for the larger density, which is much larger than the mainstream, the DRAM chip 8 Gb or 256 Gb. What are your OEM customers feedback or reaction to your new new node's larger density? Thank you. Thanks, Simon. I'll start from a technology perspective, and Sumit can add the customer side and how that's going. I'll start with 1-alpha. It's a very competitive node. We're deploying it across multiple different densities and multiple different aspects of the, whether it will be deployed for mobile, it'll be deployed for compute. It's going to have a broad portfolio, we see very good competitiveness on multiple different densities that we're going to have in the 1-alpha node. I don't think we see it as hampering us for some of the lower capacities. We see good competitiveness on multiple different densities across multiple different end market applications. On the NAND side, same thing on our 176. You're right, it is a very advanced node. We really feel very good about our technology position and our decision two years ago to kind of move forward in the replacement gate as we transition there to do a small implementation of 128-layer and then jump to 176-layer for the more significant deployment there. one thing to keep in mind on the 3D NAND side is that because of our CMOS-under-array capability, that means that we're going to be maybe more capable and effective, efficient on the die size floor plan, because we're able to fit all of the CMOS-under-array versus maybe some of the competitors and what their comments might be about what they have to do, because not all of our competitors have adopted CMOS-under-array as yet. Yeah. In terms of customers, just like Manish said, we have a pretty broad portfolio of capacity points in our die roadmap, and hence we can meet most of our customer requirements. Of course, there are some low capacity points that we can't always meet, but we don't try to create a portfolio of products that can be everything to everyone. We pick the areas where we feel the portfolio can best address customer needs in the most optimized way. Some of the applications that require far smaller capacity points are often just better served through legacy nodes. We do that, for example, in our automotive and industrial markets. Some consumer markets also serve from legacy nodes. We use the different node mix in our manufacturing footprint to meet the varied kinds of customer demand that we have. For the volume part of the market in most of our segments, like server, client, mobile, et cetera, 176-layer NAND and our 1-a lpha can really meet the broad range of capacity requirements that our customers have. Yeah. Very clear, Manish. I really appreciate. Maybe one quick clarification. 1-gamma, 1-delta DRAM node, no need of EUV, right? Using the multi-patterning as you previously commented, right? No EUV there. 1-gamma, 1-delta. No. Simon, we had previously said that we were evaluating EUV for 1-delta, and what we're saying now is that we do see that we will have a significant introduction at 1-delta, but we will have a significant deployment on 1-delta, but the introduction will happen in 1-gamma with fewer layer count and then more layer count on the 1-delta. 1-gamma will be 2024 timeframe, and then 1-delta will come after that. Okay. Very clear. Thank you so much. Thank you. Our last question comes from Sidney Ho with Deutsche Bank. You may proceed with your question. Great. Thanks for squeezing me in. Actually, two quick questions. One is, again on DDR5. What is your current expectation of ramp schedule in terms of when and how quickly, maybe versus DDR4? I know you talk about the bigger die. I also heard you're also doing more server modules. Do you expect a margin trajectory over a certain period of time to be similar to DDR4 with DDR5, maybe low in the beginning and maybe come back up? I'll ask the second question as well. Just on EUV, I know you talk about 1-gamma in 2024 and then 1-delta. I wonder if you have any views on your development or R&D project on 3D DRAM, because one of the equipment suppliers talked about you don't really need EUV for 3D DRAM. I'm curious if you agree with that assessment. Thanks. For you, Sumit. I can take the first part of the question on DDR5, and then Manish can take the other part of your question. In terms of DDR5, we expect that the ramp will start later this calendar year, and then FY 2022, sorry, calendar 2022 will be the time where the ramp starts to really pick up steam in a meaningful way. Later this calendar year in 2021, it's just the start of the ramp. As our customers deploy these more advanced CPU platforms in greater numbers, they will obviously be increasing their consumption of DDR5 beyond 2022 in a very material way. I think that's the schedule we are on, and I'll turn it over to Manish to talk about the EUV discussion. Sure. On the question about EUV and how it helps our scaling roadmap, we see now that we have multiple more nodes that EUV is going to be able to help us with. As I mentioned to Simon just before, we see a meaningful number of layers on, or significant number of layers in 1-delta, and we see nodes beyond that EUV will allow us to continue to scale. We feel very confident in being able to maintain our leadership in DRAM scaling as we go into the foreseeable future. We feel very good about what EUV is going to allow us to do and what our scaling and the combination of our expertise in multi-patterning as well, to help us maintain our lead.