Micron Technology, Inc. (NASDAQ:MU) Q2 2020 Earnings Conference Call - Final Transcript
Mar 25, 2020 • 04:30 pm ET
at all Micron locations. We were among the first in the industry to implement physical separation protocols at all our manufacturing sites globally to mitigate the risk of community spread, with blue teams and red teams that operate on alternate schedules.
We have been requiring self-declaration and self-quarantine measures as this crisis has spread, whereby team members, contractors and their immediate families observe 14 days of work-from-home after any air or sea travel. As of yesterday, we have two employees who have tested positive for the novel coronavirus and are receiving appropriate medical attention. At the two sites where we have confirmed cases, we have used contact tracing to quarantine individuals who were in close contact with either infected team member. We have also implemented more restrictive controls of on-site access, social distancing and service protocols. As a result of stringent preventative measures in place, these events have not impacted our manufacturing operations thus far.
We have also taken measures to protect our raw materials supply and increase our supply chain flexibility. First, we have been in close ongoing communication with our suppliers to ensure continuity and identify supply gaps. Second, we have increased our on-hand inventory of raw materials and have begun to store more of that supply on our sites to minimize the impact of any logistics delays. Third, we have increased our focus on multi-sourcing of parts to reduce supplier dependence risk. And fourth, we have added assembly and test capacity at both our captive and contract manufacturing sites to provide redundant manufacturing capability in multiple regions.
As COVID-19 spreads, we are complying with all government orders at our global sites. These orders may result in a temporary or prolonged shutdown of our sites, which could impact our shipments this quarter. For example, on March 16, the Malaysian government issued a Restriction of Movement Order, resulting in the closure of borders and most businesses in Malaysia. Subsequently, the Malaysian government added semiconductors to the list of essential services, and we were able to resume operations. Our assembly and test facilities in Muar and Penang, primarily used for packaging high-value NAND, were briefly shut down and have since been able to return to production on a very limited basis, in compliance with local regulations. We are using our global supply chain network and increased flexibility to try and mitigate this production impact, and we are working to keep our commitments to customers.
Turning now to COVID-19's effect on demand. COVID-19 is significantly impacting China's economic growth in the calendar first quarter, reflected in the sharp decline of smartphone and automobile unit sales. Weaker sell-through of consumer electronics and our customers' factory shutdowns in China were headwinds for us late in our fiscal second quarter. In China, lower consumer demand was offset by stronger data center demand due to increased gaming, e-commerce and remote-work activity.
Looking to the third quarter, as these trends also take shape worldwide, data center demand in all regions looks strong and is leading to