Micron Technology, Inc. (NASDAQ:MU) Q2 2020 Earnings Conference Call - Final Transcript

Mar 25, 2020 • 04:30 pm ET


Micron Technology, Inc. (NASDAQ:MU) Q2 2020 Earnings Conference Call - Final Transcript


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Sanjay Mehrotra

supply shortages. In addition, we are seeing a recent increase in demand for notebooks used in the commercial and educational segments to support work-from-home and virtual learning initiatives occurring in many parts of the world. We are also encouraged to see manufacturers in China increasingly returning to full production, and we have recently started to see China smartphone manufacturing volumes recover.

Nevertheless, as the world deals with the outbreak of COVID-19, we expect that overall demand for smartphones, consumer electronics and automobiles will be below our prior expectations for the second half of our fiscal 2020. Once the US and other major economies have demonstrated containment of the virus's spread, we expect a rebound in economic activity. Much depends on potential government stimulus and the rate, pace and effectiveness of containment efforts. We are modeling an improvement in the trajectory of economic activity later into the second half of calendar 2020, with a further rebound in economic momentum into 2021. This is a very fluid situation, and we will learn more about the virus, its spread and its economic impact over the next few weeks and months.

Anticipating changes to our customer demand, we have been moving supply from smartphone to service the strength in data center markets, for both DRAM modules as well as SSDs. Just like we have increased our raw materials inventory in these uncertain times, it is possible that certain customers are similarly increasing their inventory of DRAM and NAND products. We will manage our business with prudent and proactive action and continue to work closely with customers to understand their latest demand outlook. We are evaluating our production levels and capex plans for calendar 2020 and will adjust to the most recent demand requirements.

Once we emerge from this low-visibility environment that is impacted by COVID-19, we expect the industry to resume its long-term growth trajectory, with a DRAM demand growth CAGR in the mid-to-high teens and NAND in the 30% range. For both DRAM and NAND, we expect our multiyear supply growth CAGR to be in line with the industry's demand growth CAGR. Focusing on 2020, we returned our DRAM operations to full utilization at the beginning of the calendar year, and our NAND operations continue to run with reduced wafer starts as we deploy capital efficiently through our conversion to replacement gate. While we returned our DRAM utilization to full production, we remain flexible to adjusting these levels depending on the near-term demand environment.

Node transitions and industry supply growth in calendar 2020 could be impacted by disruptions to equipment companies' operations, including travel restrictions hindering field service and engineering support. Recently, some equipment companies have also indicated delays in equipment deliveries due to the impact of various government actions to combat COVID-19.

The situation with coronavirus is rapidly evolving, and disruptions could be much larger than we can see today. However, our continued focus on innovation and execution, combined with our rock-solid balance sheet, puts us in an excellent position to navigate