Micron Technology (MU)

[realfast95]

Pricing discussion.

NAND: My take from below.
MU is increasing output 50%. Prices are falling 30%.
Margins increase with the increase in output.

DRAM: prices stable.


Micron Technology (MU) Presents at JPMorgan CES Tech Forum Conference (Transcript)

https://seekingalpha.com/article/4136382-micron-technology-mu-presents-jpmorgan-ces-tech-forum-conference-transcript?page=3

Harlan Sur(Analyst)

Let's turn to just kind of industry fundamentals. It's been a particular concern of the market, especially on the NAND front. There continues to be a concern by investors about the potential for oversupply as unit competitors around 64-layer to be lead this year. The market continues to be focused on stock pricing, which has come down since the peak in November and is sitting slightly above contract pricing. We know that demand was held back because of the strong pricing environment from NAND in 2017. Help us understand, how you see the NAND market unfolding in 2018. And what is that do you think investors are missing as it relates to their concerns on big oversupply and significant ASP declines?

Ernie Maddock (MU CFO)

Sure. So I think all of the participants in the NAND space have come out and talked about their view of 2018 bit supply growth. I think the low end of the range is in the realm of 40%, Micron is at the high end of the range. We said approaching 50%, so it's something maybe slightly under, but for ease of math let's just say that ranges between 40% and 50% for 2018. At that level of bid supply our belief is there is ample demand to absorb that level of bid supply.

Remember it is healthy for pricing to come down and follow the cost curve and that is the way markets expand, that is the way that we will penetrate more of the client SSD market. That's the way the densities will increase. So this is a -- has the set up to be an incredibly healthy environment at that level of bid growth. So 40% to 50%, the industry in aggregate will have significant cost reductions. They would likely to be as an industry, well in excess of 20% maybe even ranging into the middle part of that 20s.

And so that leaves ample room for some price reduction if that is what the market bears out without being terribly detrimental for the margin structure of the industry. So the simple fact of the matter is if you have a point of view that says pricing in aggregate over the course of the year is going to decline north of 30%, that's probably went across the margin compression. If you were on this pool that says with all the demand drivers and all the supply variability that we're seeing here, that pricing will come down generally less than that then you're probably going to see stable to potentially expanding margins.

Harlan Sur

Yes, I think that's maybe one thing the market doesn't understand is that if the industry is successful where actually improving yields and driving 40% to 50% bit supply output, yields must be pretty good. And so, for example, for Micron if you're driving towards the upper end of your target range closer to 50% bit supply growth. Should we be assuming that from a cost curve perspective that you're also driving closer to the 30% type of cost per bit declines?

Ernie Maddock

We have said that we're actually planning to be above somewhat above the industry. So by implication above 50% for the company in our fiscal '18. And yes, I think it's reasonable to assume you're going to see the cost reductions that will correspond to that level of bit growth. So we are very excited about the opportunity to continue to reduce cost for having great yield ramp on our 64-layer product.

We talked about introducing our third-generation product toward the end of the year that's still on track. And so we feel that we will be performing fairly well in the context of the broad industry, but we also think it's going to be performing well, relative to the ramping in general of 64-layer and cost reduction. I think Micron is comfortable that we should be positively differentiated there.

Harlan Sur

On the DRAM side, little bit of a different story, right? Pricing continues to hold up relatively low, in fact, pricing remains relatively strong in all segments. We just checked the pricing there recently sever and Flash cloud, mobile, PC client, all pretty strong pricing here in what normally is the seasonally weakest part of the year. How do you see the fundamental environment as we move through the first half of the calendar year, what are going to be the drivers of continued strength in fundamentals for DRAM?