Ivan Donaldson - Director, Investor Relations
Tom Eby - Vice President, Micron’s Embedded Solutions Group
Jeff Bader - Vice President, ESG Marketing
Micron Technology Inc. (MU) Memory for the Interconnected World Conference Transcript February 21, 2013 11:00 AM ET
Good morning. My name is Bethany, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Micron Technology Memory for the Interconnected World Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer period. (Operator Instructions)
Thank you. It is now my pleasure to turn the floor over to your host, Micron Investor Relations Director, Ivan Donaldson. Sir, you may begin.
Thank you. And welcome to the Micron Technology Memory for the Interconnected World conference call. On the call today is Tom Eby, Vice President of Micron’s Embedded Solutions Group; and Jeff Bader, Vice President of ESG Marketing. This conference call, including audio and slides is also available on Micron’s website at micron.com.
Our call will be approximately 60 minutes in length. There will be an audio replay of the call, access by dialing 404-537-3406 with a confirmation code of 99763295. This replay will run through February 28, 2013. A webcast replay will be available on the company’s website until February 2014.
We encourage you to monitor our website at micron.com throughout the quarter for the most current information on the company, including information on the various financial conferences that we will be attending. Please note the following Safe Harbor statement.
During the course of this meeting, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company and the industry. We wish to caution you that such statements are predictions and that actual events or results may differ materially.
We refer you to the documents the company files on a consolidated basis from time to time with the Securities and Exchange Commission, specifically the company’s most recent Form 10-K and Form 10-Q.
These documents contain and identify important factors that could cause the actual results for the company on a consolidated basis to differ materially from those contained in our projections or forward-looking statements. These certain factors can be found in the Investor Relations section of Micron’s website.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of the presentation to conform these statements to actual results.
I’ll now turn the call over to Tom Eby
Good morning. Appreciate your time this morning. I’m going to spend probably about 30, 35 minutes or so walking through, starting at a high-level some of the key technology trends that we see driving very significant memory growth and in a broad level what Micron is doing to respond and position generally to take advantage of that.
But then really dive in and talk about what or perhaps a little bit less understood factors driving tremendous growth in the embedded memory opportunity and how we are positioning to capture that growth as well.
So, starting at a very high-level, some of the very large technology trends that we see out there. The first is, from a big data perspective, the trend towards integration analysis of enormous data sets to promote advertising to do high value customer identification or increasingly for control of systems including looking forward things like autonomous driven vehicle.
Certainly then there are the economies of scale that are driving the storage and the processing of that big data into the cloud and the growth of providing that not on enterprise in company basis but as a service.
And of course since one of the objective is to be moving this data around, there is tremendous bandwidth, certainly wired on the backbone, but of course increasingly wireless out to a range of clients, which certainly include the traditional wired enterprise and consumer PC clients, but of course, the enormous growth is on the mobile client side with things like smartphones and tablets.
And of course, finally and perhaps least appreciated is the connection of machines to this network and using machine to machine label very broadly to include not control but things like automobiles, TVs, refrigerators, smart meters and many things that traditionally were not connected to the network.
So if we look at these trends, memory is at the core of enabling all of them. Certainly, in terms of what’s driving the greatest growth it is the degree to which it enables storage, certainly more efficient storage in the cloud by adding solid-state drive, but on many of the end nodes, simply enabling functionality and things like phones and other devices that couldn’t happen at the level of storage that exists today without the existence of high-density solid-state storage.
Certainly, more then that though, there is a need for volatile instruction in storage and co-storage in traditional and low power DRAM. And of course, non-volatile co-storage in NOR and then we believe going forward in technologies like PCM.
So if we look at a couple of the implications of that, this shows how memory has grown both in absolute and relative terms in what we call silicon footprint. This is talking about the overall semiconductor industry in terms of square inches of silicon. It was about 5 billion in 2003 that total we anticipate more than doubling to a little bit in excess of 10 billion square inches of silicon.
But more importantly for memory, the portion of that footprint that is consumed by memory has doubled from about a six to a bit over a third in 2013. And so from both in economies of scale of semiconductor manufacturing, recent IT insights story noted that following the close of an Elpida transaction, Micron would be the number two capacity player in 300-millimeter wafer fabs, not in the memory industry, in the entire semiconductor industry sounds a tremendous advantages of scale.
But perhaps more important in the embedded world, a much more significant contributor to the developed materials of the system as well as a much more critical enabler of the performance that our customers are looking for.
The growth in the square inches of silicon is important. A much more traditional way to look at this is from a revenue perspective. And as we look forward to a post Micron plus Elpida transaction, there really will be two broad technology, NOR NAND, DRAM in the future looking forward to PCM players that’s ourselves and Samsung; a two-technology player in Hynix and a single technology player in Toshiba-SanDisK which from a technology and manufacturing perspective is really one players.
And the other players because of the challenges of just not -- there not being enough margin in the memory stack, they’re really going to be relegated towards a boutique position depended upon third parties for foundry technology.
So let us shift a little bit more to the unique value that we bring in the embedded market. And I think it’s important to start by saying that the ideal embedded business cannot exist outside of the envelope of a large multi-technology leading-edge high scale company because -- while there are some very unique needs that embedded market and customers have, they also in certain areas are looking for leading-edge low-cost technology and you need to be a player of scale in order to provide those.
But certainly you need more than that as well. And one way to describe that is to look at the way we position ourselves versus very broadly two different classes of competitors. Certainly in the upper left-hand corner against the large multitechnology players, we believe that we can compete very fairly in terms of technology leadership, in terms of breadth portfolio, manufacturing scale and cost.
But we feel that from an embedded focus perspective, we differentiate. And that’s at our product line level, that’s an organizational level, that’s at our service level. And we’ll talk about that a bit more going forward.
Versus the much smaller boutique players in the lower left-hand corner, we believe that we can compete fairly with regard to those issues of embedded focus. But then again on the technology, the breadth of offering and manufacturing scale, we have very significant advantages. And just one example of that, we are beginning to ramp our NOR technology at 45 nanometer in one of our 300-millimeter fabs. And we’re able to take a fab that’s about 70,000 wafers a month which we build nothing but NOR would supply well over 150% of the total market, clearly, we’re not going to do that.
But we’re able to build the technology in the fab of that scale because we are a multitechnology company and we’re leveraging a fab that’s been operating at 300 millimeters for many, many years and so it’s substantially depreciated. And so from -- again from a scale and cost perspective, we can leverage that, that footprint that we have in this case as we apply it to our NOR technology.
So when we look at a little bit more specifically the segments that we address within our embedded business and what some of those unique needs are, they range -- they are quite different. Certainly, in applications like networking, very low latency and very high performance is a key differentiator particularly for very high-speed infrastructure applications in markets like industrial, medical, multimarket and automotive, which will include medical as well, things like temperature range and longevity are critical.
And frankly the high storage solid state -- high capacity solid state storage is increasingly important across all of these segments.
And now shifting to the specific portfolio that we bring to bear and how we meet those needs, again this highest growth opportunity coming from storage is being addressed primarily by MLC or multi-level cell NAND. And increasingly that showing up in managed form.
eMMC growing very rapidly and looking forward, we see similar opportunities in the embedded market for SSDs. But certainly the volatile high-performance and low-power DRAM requirements and the traditional NOR code storage again with code storage moving at the face change going forward. And finally, we sell this technology at kind of a multiple level of integration.
We sell known good dye across a range of applications. Automotive guys want to buy it directly. Some of our partner chipset players who want to buy to stack on their chipsets. And at the other end of the integration scale, the mix-and-match technology that we see in applications like digital still cameras, certainly DRAM modules across a range of industrial applications and again the managed NAND where we see very explosive growth across the full portfolio.
And I think one of the big advantages here is that when we walk into a customer and make a recommendation for what we believe is their best interest in terms of a memory architecture, we can generally make that based on the customer’s best interest, not because it’s the only technology we happen to have in our bag. And so I think that enables a tighter, most trusting relationships with our customers and frankly with some of our chipset partners as well.
So let me just talk briefly about one specific example of very embedded focused service that we launched just under two years ago. And it’s something that we call the product longevity program.
When we look at a number of our application, certainly, industrial, medical, automotive are very good example. The cost of change not having a fit, form and function equivalent product can be very high. One example, I was talking with talking with an aero defense producer several months ago.
And for every dollar they spend buying memory, they spend $2 re-qualifying obsolete memories to our more recent technology. And so the PLP addresses that fairly well, we provide a 10-year supply on a fit, form and function basis and to the extent that we do a shrink within that window, we provide a two-year conversion so that they can do that more gracefully.
And back to the aero defense customer example, to the extent that we can save them that $2 in conversion cost, while we can fight over how we split that and that’s a high-class fight. So having gone through, at a high-level of what we’re doing as a company, as an embedded business, I now like to turn it over to Jeff Bader, who is going to dive into a little bit more detail some of specific opportunities and our responses in the embedded space.
Thank you, John. So, yeah, what I want to talk about the next is the world and memory is playing in creating and enabling this interconnected world. And when you think about applications like mobile, cell phones and tablets, I think that their role is pretty well understood and pretty expected.
Similarly in the classic business in enterprise networking space, it’s a well understood model. What I want to spend more time that is going into the other three applications on this slide. The automotive application, which is a key growing application for us where memory is playing an increasingly larger role in that footprint, but also into the industrial and medical space where there is some new emerging applications happening with memory in the center of that and then in the consumer space as well, where the user expectation and the user interface expectation is being driven by a memory footprint.
And really when we think about these interconnected systems, we are really talking about the growth of what we think of this intelligence system on top of what we traditionally had as embedded systems. And the way we can characterize that intelligence is a couple of different ways. One is the integration of or the inclusion of very high speed advance multicore processors and the implication of that coupled with, let’s say the high level operating system and machine interface that’s attached to that is driving a much larger growth in high speed and higher density volatile memory from an execution space.
When you think about the OS and the connectivity as well as the data generation and the analysis that these systems are now responsible for, that’s driving an increased code storage and increased data storage application now that’s resident on this intelligence systems.
And so probably the key example of where we see this interconnected world really getting home is in the automotive space and you look at those two megatrends that are happening today in the automotive space. We are spending more, more time in our cars and as a result much like the rest of our life, we have a certain consumer expectation for how that experience should be from an infotainment perspective, from an entertainment perspective and from a personalization perspective.
The other major trend that’s happening in automotive is the continuing growth and continuing sophistication of that safety systems or advanced driver and assistance systems. And you can some of the stats there on the costs about the human life, but also the cost in terms of dollars that we are losing to safety issues. And so the focus in automotive today is to address both of those trends in the infotainment cluster and in the advanced driver and assistance safety systems.
When we think about Micron’s role here, this is one of our key markets for Micron and you are going to look at the presence we have today. Just last year, we shipped over 120 million units, when you think about that in terms of the number of cars on the road it’s about one an a half units for every car that’s out there, so very, very high focus for us.
We have a dedicated organization that takes that broad portfolio that Tom talked about, customizes it from a manufacturing flow, from a testing flow, from quality, reliability perspective to really achieve that zero defect high-quality mindset. And then builds those purpose built solutions with our customers and for our customer that enables them to take this level of innovation into the automobile space.
And one of the keys to think about in this space is sort of the merging of this very innovative high-speed, high evolution, a capability with what has been traditionally a very long designing cycle. And that’s one of the major challenges that our customers are facing today of integrating this high sort of leading-edge technology into the automotive system.
So we are looking here at the advanced driver assistance systems, which for us is primarily consuming sort of high-density, high-speed NOR product as well as high-speed DRAM and low-power DRAM and low-power is driven by the need for both the power and the thermal envelope consideration in the car. And these systems are things like lane tracking, a collision avoidance, driver drowsiness detection, all these essentially sensor networks and camera networks in and around the car that are responsible for real-time and its processing real-time data storage and manipulation.
And then often times, again, back to megatrends and Tom talked about, taking that data and providing a snapshot of that out from a connectivity back to the cloud, either private clouds or public clouds. And so when we look at, a specific example here from our customer wires that we work with, this is essentially a rear camera display from one of our customers, again, takes a very high density, low-power DRAM solutions, code storage from a NOR technology or high-density NOR technology in this. And together that that system is again responsible for processing image, taking that image and now feeding it out and acting upon that to provide lane detection or whatever the specific functionality is.
And in the ADAS space, in particular the other megatrend that’s happening is the regulations attached to that. So, for example, in the U.S. in 2014, a rear camera, rearview cameras is going to become mandatory on all cars. So you see these technologies typically beginning in the high-end car, but their water falling down. From safety perspective, those applications are getting regulated to go much broader, which is driving again large growth in the automotive space.
The other mega segments that we are interested in, in automotive that’s really driving this interconnected world is the infotainment cluster. And again, this is providing high-end navigation, is providing 3-D imaging, is providing the in car-entertainment, oftentimes the Internet connectivity or in-car in and out connectivity, Telematics and so on. And this is a very, very complex subsystem that takes multiple memory solutions. It takes both the code storage device like a NOR or a serial NOR device. It has a high-density NAND, storage element to it which is either taking NAND or the e-MMC product to manage NAND solution. And again takes DRAM technology of very high-density, high-speed to support that high-functional asset and to support the types of applications that are trying to running in this infotainment and entertainment cluster.
And here, again, is another example of a solution developed by a company called Harman, one of our major customers and major supplier in the automotive business. For their high-end infotainment cluster which again, uses volatile, non-volatile memory for Micron, providing very realistic imaging for streets and buildings.
It provides incremental functionality like voice recognition, tax recognition, voice dialing and so on to sort of help with the safety side of the house as well and we see this trend, again as I said starting in the higher-end automobiles but migrating down rapidly into the midrange and below in automotive.
So net overall, in the automotive we have, again much like that slide on intelligent systems, we have a relatively slow growth market in just number of units built automotive vehicles built. But the electronics content of each one of those is growing rapidly with the integration of this intelligence and the corresponding interconnecting this.
I’ll switch gears now and talk a little bit about the -- what’s happening in the medical space. So, interconnected helps and this is for us a very interesting emerging market that is rapidly moving toward an interconnected market with high functionality and high feature content going into various different spaces.
First, the sort of the growth of the distributed patient care model. So the ability, sort of in-home or out of the doctor’s office should be monitoring, measuring and providing information on a patient’s health directly to your doctor’s office, directly to the hospital or in many cases through Telemedicine, through a remote audience and out into the remote hospital or another place and all of this data again, driving into patient records and other sort of distributed solutions in healthcare management.
And the interesting thing about this segment is again, it’s similar to the automotive space. This is an area that wants to use latest and greatest technology, but absolutely requires the longevity given the regulatory environment here. The cost of change and the cost of going through that regulatory environment is very high in the medical space. And so leveraging the product longevity program, leveraging the solutions that we have, offering into that space is enabling these medical devices to both deliver the leading-edge functionality but also to deliver the long-term supply that’s looking further.
And then the final example is interconnected home. And in the interconnected home, we really look at this, the sort of these two separate models that are happening. On the left-hand side of this picture is essentially what we call the industrial usage or the control model and on the right-hand side is the consumer usage. And in the centre of both of those is what’s -- in many ways driving this trend and that is sort of the tablet or smartphone user experience. And this is acting in both to bridge those environments, but is also acting as sort of the model for what those environments are both competing with and the kind of experience that they are trying to deliver.
And just an example, on the left-hand side is an intelligent thermostat. I have a eight-year old daughter and we were in a hotel and had a little screen on the wall and my daughter walks up to the screen and immediately tries to start moving it and scaling it and clicking on iDOT. Now, this wasn’t -- it didn’t turn out to be a touchscreen but that’s the user experience, that’s the expectation that’s there today for the consumer and we want that experience now across the entire home.
So in control space you have things like smart metering and other energy management solutions in home control, there is -- the IMS research recently came out with some data that there’s over 400 million smart home energy management devices that are already shipping in the next five years.
You have additional interfaces going into, as I said things like smart home control with again integrated Wi-Fi, integrated proximity sensors and all of that technology requires both an advanced DRAM capability as well as an advanced NAND or NOR storage, code storage and data storage solution to support those applications.
On the consumer side of this, you have probably the -- the most obvious one is the Smart TV or the intelligence that’s been added and interconnectedness that’s been added to the television where you -- where now it’s no longer just a pure sit back and consume but you now an interaction model, you want to go, have your Internet feed. You want to get your IPTV on that device as well. And that complexity is driving, a corresponding road in the memory footprint and the complexity of those solutions.
And the final example, we have is again a slightly different version of what’s going on in the interconnected home. And then again, this is another custom of ours with -- called LeapFrog and one of their new products has been very, very well received. It’s essentially a customized, custom built, purpose built tablet for education and for home learning and child learning opportunities, right.
And so again it’s an application environment. It has deep storage to support the rich content that’s there. It’s a special built -- purpose built application now that’s taking that consumer expectation, tablet expectation and now purpose building it for this education environment and this education opportunity, again driving large memory footprints behind that.
And with that, I’ll turn it back to Tom for wrap-up.
Thanks, Jeff. Just to quantify some of the growth that Jeff has talked about in terms of both local control and consumer applications. This shows the multiple orders of magnitude of growth in overall memory footprint that this interconnected world is driving.
Now, on the controlled side, that’s often from a very modest base of density but the opportunity as we’re connecting Internet of things is this -- is for this to penetrate literally billions of devices. Obviously, the unit numbers on the right-hand side, the consume opportunities are necessarily measured in billions.
But we’re starting actually from a reasonable footprint and as we get to these tablet like interfaces, these interfaces that will meet Jeff Bader’s user experiences, we are seeing memory footprint that are very much like what we see inside a smartphone and a tablet and obviously, providing very attractive growth opportunities in the embedded world.
So if we translate that in terms of -- in terms of financial results, this just shows our recent quarter-on-quarter growth over the last fiscal year. And it shows that in what has been a fairly challenging macroeconomic and memory environment, we’ve been averaging give or take 10% quarter-on-quarter growth over the last several quarters. And we’ve been gaining share based on the competitive result particularly from some of our more embedded focused competitors.
And based on outlook for the current period as well as some competitive announcements, we very much expect this share gain trend to continue. And that’s of course good for the embedded business at Micron. But I think it’s equally beneficial for the corporation overall.
On the right, you see how our diversification and the mix of our revenue has trended over about a six-year period from fiscal ‘07 to the last 12 months. And you can see how a number of the more embedded focus segments, automotive, industrial, medical and military networking and storage and consumer have grown significantly as a percentage of Micron’s revenue.
That’s not all embedded but certainly in aim it is and in the other, we contribute a great deal. And so in addition to attractive embedded growth, we’re contributing to a more segment diversified and overtime therefore more stable Micron from a financial model and a financial results perspective.
So, I guess, in summary, talk quite a bit about the enabling role that memory is playing in this ever more interconnected and data storage rich world. And some of the perhaps less well understood opportunities in the embedded nodes that are out there complementing of course the data storage, the cloud and the mobile opportunities that are much better know.
And really how depending on the application, there is a full breath of technology requirements and again going forward we expect the PCM will start to play an important role here as well, both at the component and subsystem level.
And how we -- we overlay on that product specific differentiation, quality specific differentiation and service like PLP, very much focused on the needs of the embedded customers, as well as our chipset partners that focus in this marketplace.
And the results of all that is momentum, in terms of our growth in the marketplace that we expect to extend growing forward. And again good for embedded and good for the diversification of Micron’s financial model going forward as well.
So, thank you for your time and with that, we’re going to turn things open over the Q&A.
We’ll now take questions from callers. Just a reminder, if you are using a speakerphone, please pickup the handset when asking a question so we can hear you clearly. Operator, can you pause if we have any questions.
Okay. It doesn’t look like we have any questions, which is fine. We’ll go ahead and wrap things up then. I want to take a quick minute to just repeat the Safe Harbor protection. During the course of this call, we have made forward-looking statements regarding the company and the industry. These forward-looking statements and all other statements that may have been made on this call that are not historical facts are subject to a number of risks and uncertainties, actual results may differ materially. For information on the important factors that may cause actual results to differ materially, please refer to our filings with the SEC, including the company’s most recent 10-Q and 10-K.
Thank you. This concludes today’s Micron Technology Memory for the Interconnected World Conference Call. You may now disconnect.
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