Micron Technology, Inc. (MU) Management Hosts SSD Market Update Conference (Transcript)

| About: Micron Technology (MU)

Micron Technology, Inc. (NASDAQ:MU)

SSD Market Update Conference Call

Thursday July 18, 2013 15:00 ET

Executives

Ivan Donaldson - Investor Relations Director

Glen Hawk – Vice President, NAND Solutions Group

Edward Doller – Vice President and Chief Memory Systems Architect

Allen Holmes - Vice President, NAND Solutions Group Marketing

Analysts

Steven Chin - UBS

Doug Freedman - RBC Capital Markets

Monika Garg - Pacific Crest Securities

Kevin Cassidy - Stifel Nicolaus

Glen Yeung - Citi

Craig Ellis - B. Riley & Co.

Vijay Rakesh - Sterne Agee

Operator

Good day. My name is Shawn and I will be your conference facilitator today. At this time I would like to welcome everyone to Micron Technology’s SSD Market Update 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.

Ivan Donaldson

Thank you and welcome to the Micron Technology SSD market update. On our call today is Glen Hawk, VP of Micron’s NAND Solutions Group, Ed Doller; VP and Chief Memory Systems Architect and Allen Holmes VP of NAND Solutions Group Marketing. This conference call including audio and slides is also available on Micron’s website micron.com. Our call will be approximately 60 minutes in length. There will be an audio replay assessed by dialing 404-537-3406 with the confirmation code of 94749756.

This replay will run through Thursday, August 23, 2013 at 5.30 pm Mountain Time. A webcast replay will be available on company’s website until August of 2014. We encourage you to monitor our website micron.com throughout the quarter for the most current information on the company including information on the various financial conferences that we’ll 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.

And I’ll now turn the call over to Glen Hawk.

Glen Hawk

Hello everybody. Again my name is Glen Hawk. And I’d like to start off with a brief introduction before turning it over to Ed and Allen.

To start off here I’d like to put things in little bit of perspective there are a lot of reasons to be excited about the memory industry right now. Some of you may be excited about the supply demand tightness that’s in the market right now. Others maybe excited about the consolidation that’s occurring much of it in favor of those who actually make memories or make NAND in particular. And then other maybe excited about the plethora of new startups that are out there that are applying flash components and flash SSDs in ways that previously were not really envisioned, those reasons excite us too, but I recall we're a technology company. And one thing one overall trend that really excites us is that memory technology innovations that we're driving here at Micron are enabling innovation around the world that change the way people live, change the way they work. And these changes in the way people behave and act are creating new devices new demand for devices that in return drives a larger thirst for more memory and that encourages us to push harder and invest more deeply for some of those innovations. And it’s a nice upward spiral that we find ourselves in.

For lot of the data new information that we're going to talk about throughout the rest of this afternoon it’s going to be a little bit more about the hearing now. But please keep in mind that we firmly believe here at Micron that memory is changing the world and we really think the best is yet to come. If you think back over the last few years maybe 30 years ago people, an analyst probably wouldn’t have projected the number of gigabytes required to support the transformation of digital audio and video. And if you go back maybe 20 years probably we weren’t very good about predicting the amount of discs that would be consumed by mobile platforms smartphones in particular. And if you go back just 10 years I’m not sure that we were really that great at predicting how much memory would be -- how much solid state memory in particular would be consumed by cloud computing.

Those are all trends that have happened we're well aware we’ll talk about the rest of the day, but I will assert that there is another wave yet to come that few of us can imagine and we won’t talk a lot about that today. If we do talk about the current outlook on the next slide what we see is we firmly believe that there is continued strong growth for NAND. What we're showing here is the 2013 to 2017 projection as you can see from our source here we're using Gartner many of the analysts have similar projections. We are all seeing very strong consistent growth over the next few years and starting from the bottom up we have some of the traditional NAND segments that really fuelled some of those early innovations that I mentioned earlier. Removable storage, industrial medical, automotive applications are still an important part of the market and our business.

We see tablets here relatively new entrant, we see mobile and what we're going to talk about the rest for the rest of the presentation here is that the real breakaway segment which is SSDs we've been focusing quite heavily on this recently and we’d like to give you an update on that. To take that apart a little bit and look at what’s happening in within that solid state drive segment, there’s really two at a high level, there’s two components of it that are important, they are similar but they are similar and they are important for different reasons. What we're showing here is the difference between enterprise solid state drives and client solid state drives and we're showing both the gigabytes that are projected to go into those segments as well as the dollars. And by comparing the two you get some feel for the differences on the left and by looking at the gigabytes you can see that the capacity of the gigabytes growth is really driven by client SSDs that makes a lot of sense.

There are certain a lot more client SSD devices in the world than there are servers and storage array networks etcetera. And you can see by a wide margin the vast majority of the capacity is required to fuel that client growth and that’s very interesting to us because at Micron scale is important and we know that it’s important to participate in that client segment. And so we certainly have a focus there. And if you look at the right and you look at the partitions of dollars or revenue between enterprise and clients you see a very different picture.

You can see this relatively equally balanced between enterprise and client and of course what that means is, is that there is more value there in the enterprise segment it’s much more difficult to serve. There are a lot of core competencies and capabilities an enterprise requires. And what attracts us there of course is that higher value those higher margins and the more stable margins and rather countercyclical to client SSDs and a lot of the other segments that we serve with our NAND businesses here at Micron.

As a result that’s why we have been on a multi-year campaign here to move up the value chain from silicon to systems. We built up on our silicon technology leadership and our NAND product leadership and we over the last few years had been investing very heavily and some of the key elements to be a leader in solid state drives that includes internal and external controller. It includes a focus on both client and enterprise because we see them as being very complimentary to one another in important parts of our business. And we do have our eye on the next level of integration above that which is an integrated software and hardware appliances. And before I turn it over to Ed I would like to make one note that even though our focus is on climbing that value chain by no means have we lost our tenacious focus on our silicon technology leadership.

Earlier in the week we did announce that we're sampling our 16-nanometer NAND technology and image of our 128 gigabyte MLC devices shown here on this slide some interesting aspects of that are we can get nearly 6 terabytes of storage single wafer and we do plan to introduce some of our solid state drives using this very same piece of silicon in early 2014. But once again our focus for today is on solid state drive. So at this point I’ll turn it over to our Vice President and Chief Memory Systems Architect, Edward Doller.

Edward Doller

Okay thanks Glen. I think as Glen stated both the NAND technology and capacity are the foundation of SSDs and I think both is enabling us to develop a complete market leading storage portfolio. We spent the last couple of years focusing on building a complete product portfolio and by complete I’m referring to interface complete, form factors complete and of course market segment complete. And what you’re seeing here is really the result of our focus.

I’d like to spend maybe a minute or two pointing out a few products and their relevance to the market. Starting at the top, we have a P320 which is the highest performing PCIe drive in the industry with bandwidth that saturates the interface as sub 50 micro seconds latency and well above 2 gigabyte per second sequential right bandwidth. When you achieve that level of performance in an SSD it frankly opens up a world of new usage and we're starting to capitalize on those new uses with offering drives to take advantage of them.

We still have new customers that frankly can’t believe the level of performance that these drives actually deliver. Having PCIe SSD in a 2.5 inch form factor is actually changing the way PCIe storage is thought and of course utilized.

Next is our P420 that’s right built on the success that we had on the P320 and adds capacity and cost improvement over 320 by trading off performance and fills per day for those applications that don’t need the high performance and high fills per day, the 420 is a great solution for that market.

Next we moved down our enterprise class sets in SATA drives. We launched these drives several quarters ago and continue to receive incredible market acceptance for these products. Next our products designed for segments that require less fills per day and classical enterprise, which still demand higher liability and high performance. The P400E and the 550 are doing a great job covering this segment.

Last but certainly not least is the M500 which utilizes our 20 nanometer industry leading NAND and was the first one terabyte SSD in the industry. I can tell you keeping up with the market demand for this drive has been no small fee.

If you compare the product portfolio to others in the industry you can see that Micron product breadth second to none. Let me take a moment to point out a column to me that is by far the most important on here and that is NAND column. I think because NAND makes up the majority of the data materials we fundamentally believe that it’s the necessity to success in this market. I go as far as to say that there is and will continue to be in an exorable move of market segment share to those with it and to those that have product portfolio breadth to utilize it. We have both.

Before I turn it over to Allen to talk more about the details of our current business I think it’s important to recognize that customers both storage and compute see Micron as a company that they want to do business with. It’s a combination of having a solid foundation as far as with NAND technology, capacity and ends with a broad SSD portfolio in the industry. So with that I’d like to turn it over to Allen for a business update.

Allen Holmes

Great. Hey thanks Ed. So I’d like to spend a few minutes kind of talking through how our business is really shaping up for SSDs in particular. I’ll start off with the client fee so if you can move to the next slide please.

So I – it’s interesting to note that it took us about four years to really ship the first million units for Micron. And now today we're actually shipping about a million a quarter. So I think that’s again a testament to what Ed was saying in terms of having our broad portfolio and really building out our business.

If you look at kind of how our customers are really starting to adopt the technology, we think there was an interesting trend that happened kind of last year if you look at around the Q1 ‘12 timeframe the pricing and the market that Glen was describing was very advantageous for customers to start to not really adopt SSD technology in particular we really saw growth in our business as you can see from the graph in particular we're growing 2x faster than the market and I think that’s something that we believe is, as Ed mentioned having access to the technology, having access to NAND capacity is certainly in our favor.

One thing I will note is in many of the SSD suppliers the average (inaudible) is being shipped into the industry is really around about a 128, 129 gigabytes. And for us we're shipping somewhere around just south of 200 gigabytes. I think that’s an interesting trend for us because as we're driving again higher density SSDs into the marketplace we're finding ourselves into some very unique market segments and opportunities. We’ll continue to grow on that overtime.

If we move to the next slide let’s talk a little bit about enterprise. Now we're really excited about the trends here and specifically looking at as Ed pointed out as we're growing out our portfolio, the number of market opportunities and the number of customers we engaged is growing every day. And so as we look out over the horizon from year-on-year growth from Q2 ‘12 to Q2 ‘13 we're really kind of trending around 120% growth over that horizon. And again as we kind of build out our portfolio and we engage with enterprise customers knowing that the [call] time is a bit longer than our traditional – our client business.

It gives us the opportunity to see future growth. What they’ll note here is the density that we've seen in enterprise is quite bit low what you’d expect, average has been around 200 gigabytes and today we're just slightly around just around 220 gigabytes. We continue to see demand and opportunities for in excess of a terabyte and we’ll continue to look for opportunities to service that.

Let me move to the next slide, really just want to talk about our SSD growth. And right now it represents about 25% of our revenue overall NAND revenue and we continue to see this a benefit for Micron of course adding more value and as Glen mentioned booming up that value chain we believe that’s, that’s a competitive advantage for Micron, as we look at how we're leveraging our portfolio, how we're engaging with new opportunities with new customers.

We really view this as something that we’ll continue to take a look at. The next slide I really want to talk about how we're engaging with storage in general. And I think it’s interesting to look at how we're servicing that market about 50% of our NAND is going into the storage markets. I think this is a focus area for us and we continue to look for ways to increase our footprint with Micron Technology into the SSD marketplace.

Okay so if we look at next slide please from the summary perspective as Glen pointed out its big opportunity we’re certainly laser focused on taking advantage of that opportunity. As Ed stated we have a very broad portfolio and we intend to continue to develop and invest in maintaining this portfolio. We are growing faster than the market and we intend to continue to leverage our NAND and our – the technology that we’re developing.

We’re looking at again half of our business is going into the storage industry and we continue to expect that to grow. And we know as Ed pointed out we’re just seeing a number of customer OEM opportunities to align with Micron and get access to our technology and our NAND capacity.

And so with that I’ll turn it over to Ivan for Q&A.

Question-and-Answer Session

Operator

We’ll now take questions from callers. (Operator Instructions). Our first question comes from Steven Chin of UBS. Please go ahead with your question.

Steven Chin - UBS

Hi thanks for taking my question. Can you hear me okay?

Edward Doller

Yes we can hear you.

Steven Chin - UBS

Great. I was wondering in terms of the percentage of your NAND supply going to allocate towards solid state drive products. Is there a natural sealing or limit that you guys target or are you, is that something that’s still as you’ll take it as it comes and secondly, in terms of the competitive landscape today just getting the significant supply. Are you seeing the markets being more competitive just and that the companies which cast a supply are gaining share now or is it less competitive because you have fewer players like smaller companies that can’t compete because they don’t have the (inaudible)?

Glen Hawk

-- Glen I’ll take the first part of that question and then Allen I think can just tail into some of the latter parts of your question dealing with some of the current competitive phenomenon we're seeing. I think your first question and the one I’ll address which was, do we have a sealing so to speak on the amount of our capacity that we're willing to allocate toward SSDs and let me add a little bit of our perspective to that is that even though SSDs is one word so to speak we certainly don’t see it as one segment. Solid state drives are finding their way into this incredible diversity of segments themselves. At high level we talk about enterprise and client that each of those can further be sub divided into tremendous complexity and we think that those sub segments so to speak are again can be somewhat countercyclical of one another.

On the enterprise side, at high level there is server side plasts and there are storage side plasts and within what we call client there is not just clients for a corporate client things that large corporations buy to make their employees more productive but their consumer clients typically more price sensitive devices might not have the same security concerns of the corporate client the consumers and the corporations oftentimes find themselves in different cycles, the refresh rate among corporations is often very different and say the holiday season purchasing cycle for client. And we can subdivide that even further.

We're seeing a lot of exciting opportunities for solid state drives in other segments like in automotive for example one could argue that future automobiles are nothing more than tablets that you can ride in, in the future the amount of flash and use of SSDs is a very exciting opportunity there. And there are number of other devices as well. So I don’t, my answer is, we certainly don’t have an artificial sealing just because of the end product that we're selling are NAND into. We look more carefully at the end segments than customers and make sure that we're comfortable with that diversification. So we're not giving any limits by any means at this point in time. With that I’ll go ahead and turn it over to Allen.

Allen Holmes

Yes I think from a competitive tightness are the impact that’s having on the landscape clearly I think others in the industry have signaled that there’s been limited NAND supply I think that’s clearly one of these advantages of having access to the capacity and really modulating and put the market opportunities that we see I think that we're certainly got a little bit of tailwind in terms of market opportunities that we're again exposed to. And I think the growth in some of the examples that Glen pointed out are creating some tightness but again I think being able to navigate that through that end and modulate our capacity is certainly competitive advantage for us as it relates to where we want to put our SSDs and in terms of customers and segments.

Steven Chin - UBS

Okay great. Just one last one if I could. Glen just given your comments about how you guys are [facilitating] more from a – in the increasingly from the clients where complete solutions standpoint. How should we think about the margin profile for these enterprise head products and are there any specific companies that you are benchmarking yourself again as you create solutions and think about pricing or margins with products, thanks.

Glen Hawk

Yes Steven, we certainly think about that quite a bit it has been new frontier for a lot of what we’ve historically done here at Micron of course when we look at solid state drive we see the value add from just simply creating a system level product in the first place and then of course we see the value add with a lot of the other product aspects that really make that piece of hardware so to speak the total solution can be the software that accompanies it, sometimes in the form of tools and drivers etcetera manageability type software, the services and the other support that we provide are very important to certain customers the ability to lock in to customer and hold their hand and really help them design that product into their application and optimize it.

We're –tapping into all sorts of value there that historically we haven’t so when it comes to benchmarking ourselves we really have to benchmark others towards doing bits and pieces of all of the above. There is a relatively few of us that can participate in all of that from the NAND silicon all the way up to the services the software, the support and all of those sorts of things, but there are a lot of individual companies that are doing very well with certain aspects of that.

So we do try to take a look at all of it I think with the chart that I’ve shown previously that clearly shows the dollars per gigabyte for enterprise being so dramatically higher than client I think the first order that gives you a feel for the incredible difference that we're seeing just between those two segments. And again enterprise does certainly rely on some of those other value added features more so than client, so that anyway that – there’s a benchmarking that’s certainly going on, but it is quite a process to look it in array of fellow travelers here and see how we're doing. And we're pretty comfortable with that progress so far.

Steven Chin - UBS

Thanks very much.

Operator

Our next question comes from Doug Freedman of RBC Capital Markets. Please go ahead with your question.

Doug Freedman – RBC Capital Markets

Thanks for taking my question guys. We hear a lot in the market right now about some of your competitors entering the SSD space with 3-bit-per-cell solutions can you tell us how those are stacking up and whether you’re going to need to offer a like product?

Edward Doller

This is Ed let me take that question. So this is something that we continue to look at I think with our majority of our focus right now on the enterprise market I think 3-bit-per-cell in the enterprise is probably something given the requirements of the enterprise from a performance and reliability standpoint that it is certainly something that we don’t see at least in the segments that we're focusing on in the enterprise.

On the client side I think it’s important to make sure that when we compare TLC costs the SSD level versus a non TLC or a MLC that you really understand that our 20-nanometer MLC is extremely cost competitive against the TLC so what we've been doing is certainly using our 20-nanometer 500M drives to -- they compete quite nicely against the TLC drive. So from a cost standpoint we think we've got a cost competitive solution and clearly from a performance standpoint having an MLC solution gives you the performance differential over TLC.

With that said I do fundamentally believe going forward that there is going to start to be these cold storage type of applications where previously most of us set within the memory business for quite a while, never thought we’d see the day where we have cold storage that are being serviced by hard disk drives previously looking at an extremely cost effective solution from a total cost of ownership standpoint that we fundamentally believe down the road is going to open up a just enormous opportunity for NAND. And so Glen’s comment during his introduction, about these things that we never thought were going to happen, we are living through some of them right now for sure.

And I’ll tell you these concepts of datacenters going now that I’ve got a taste of NAND and I really understand the value proposition and the fundamental total cost of ownership first hand, I’m looking at every hard drive I’ve got and looking to replace some with solid state technology and so perhaps there is opportunity for TLC or just MLC on a more cost effective technology note to go after that. I’m not sure we have enough capacity in the industry collectively to really put an enormous dent in it, but it is going to start hurting us no doubt about it.

Doug Freedman – RBC Capital Markets

I guess it is my follow-up to that you’re talking about pushing into the cold storage space does that require 3D NAND and where are you guys at with your 3D NAND roadmap?

Edward Doller

Yes, so I would first start by saying I don’t think it requires 3D NAND. I think having 3D NAND when and if 3D NAND is a lower cost solution than the technology we're shipping today will certainly dictate that. So I wouldn’t sit here and say that the only way NAND technology is going to make it into cold storage is by 3D, I think it’s a total cost of ownership and certainly a cost solution from a NAND and an SSD standpoint.

In terms of our 3D technology obviously everyone in the industry that wants to be and maintain leadership in the industry is investing in future emerging memory technologies as well as 3D NAND technologies. Right now we're not in a position to talk about what our progress to date has been. I think it’s something that you’ll hear more about in future opportunities.

Doug Freedman – RBC Capital Markets

Great. Thank you.

Operator

Our next question comes from Monika Garg with Pacific Crest Securities. Please go ahead with your question.

Monika Garg – Pacific Crest Securities

Hi. Thanks for taking my question. Ed, can you maybe talk about when I go meet like enterprise or web 2.0 customers I always feel that they always talk about this insatiable capacity demand in the enterprise segment. So I was kind of surprised when you talked about your average capacity is about 200 to 220 gigabyte because when I go and talk to them it seems what they always complain about is they cannot just highest density enterprise SSDs.

Edward Doller

Yeah, Monika, it’s good to hear your voice. So I would say there’s a couple of things going on that I don’t think the market has really grappled with yet and what I specifically mean by that is you’re now getting into what we call client and what we call enterprise and this kind of gray in between which some of our competitors call datacenter which in some case means enterprise and some case means web 2.0 who need out scale out hyper scale architectures. So your comment is right on, there’s multiple usages of SSDs in datacenters. And I think what you’re referring to is this insatiable desire to have to (inaudible) storage hooked up to a PCI interface in a datacenter. So you’re absolutely right what we're seeing is capacities ranging from 700 gigabytes up to 8 terabytes and so what we've got on our product roadmap that we didn’t show here today is our next version of the PCIe SSD that will have 16 terabytes raw on the component. And so now you’re starting to get into just this fundamental dynamic of where do I fundamentally want to keep my data. Do I want to keep it on a server, do I want to have a storage array network, do I want a little bit of both, is PCIe really a cache or is it a storage device and I can tell you that we've seen the full gamut; we've got customers who like our P320 because they want to use it at a cache, meaning they’re going to write it a lot, they’re going to dump it off and refresh it etcetera. What you’re talking about is more what I’d just call a direct attached storage model something that I think we all know the industry went, went away from many, many years ago. But, yes, that appetite for NAND and SSD capacity I think over the next couple of years is going to go through the roof.

Monika Garg – Pacific Crest Securities

Thanks ED. Then just another question on the PCM; given the high, very high endurance of PCM could you maybe talk about the role of PCM in a enterprise segment. And are you seeing some used cases or somewhere where PCM is used right now or where you think in the future it could be used?

Edward Doller

That’s a great question; you should come to the flash memory summit because I’ve got a keynote where I’m going to talk quite a bit about fundamentally where I see some of these emerging memories and architectures changing the way the compute occurs over time. But I don’t think we don’t have a lot of time but I’ll kind of give you my [inaudible] we've been working with several key OEMs, IBM being one of them. They’ve published several papers, I don’t know if you’ve got them if not I’ll make sure that we get them to you where they talk about the value of an emerging memory technology that has very high reliability and extremely low latency sitting on our PCIe drive. So we deliver PCIe drives to them they’ve done with us a lot of benchmarking.

And I’ll make sure that Monika that we get you a couple of those papers but clearly it’s the beginning of what we see is a major transformation over the next several years of what I would call the old school computer architecture to a new architecture that allows you to have very low latency non volatile memory being a being a more important piece of the compute platform. And so we absolutely see the value there, we're investing quite a bit not only in phase change memory and the scaling of that technology but other emerging memory technologies that we think will help put us into a leadership position as we work with the key ecosystem players in the industry to really transform the way data is dealt with on the compute platform.

Monika Garg – Pacific Crest Securities

Thanks Ed. And I would be at Flash Summit so I’ll meet over there.

Edward Doller

Sounds good. Next question please.

Operator

Our next question comes from Kevin Cassidy with Stifel. Please go ahead with your question.

Kevin Cassidy - Stifel Nicolaus

Yeah, thanks for taking my question. You listed down all the interfaces that you have but I didn’t see NVMe and just say what your plans are for that interface.

Edward Doller

Absolutely, so NVMe is an interface that we absolutely plan on supporting, in fact that 520 drive that I probably pre announced and I’m sure I’m going to get some interesting e-mail on that, is an NVMe drive; it’s a controller like the controller on the P320 the P420 that we’ve internally developed at Micron. It’s a heavy hardware based controller and once again we’ll be able to saturate the PCIe 3 interface and differentiate with again a internally developed controller but yes NVMe is critical to us and you’ll see product level details in the near future.

Kevin Cassidy - Stifel Nicolaus

Maybe you can give us handicapping of what you think of that interface going forward is that’s going to be the standard or…

Edward Doller

I think the industry right now is grappling with that, I think over the next couple of years what’s going to happen is everybody will come out with NVMe interface. My guess is that not all NVMe interfaces are going to be the same and so with like anything else that interface [products] [ph] are mature, yes, I do fundamentally believe that, that interface will be something that will be here and big over the next several years. Obviously there’s other PCIe interfaces that are in protocols that are being talked about. I would say it’s a little early for us to comment on that I can – probably as I said that we're absolutely committed to NVMe.

Kevin Cassidy - Stifel Nicolaus

Okay, great. Thank you.

Edward Doller

You’re welcome.

Operator

Our next question comes from Glen Yeung of Citi. Please go ahead with your question.

Glen Yeung – Citi

It’s more of a market oriented question but when we think about DRAM we often will talk about it as a percentage of the bill of materials and there being some natural cap I mean at the end they can end up in the client PC. I wonder if there is some similar way to think about SSD in terms of the dollar content as percent of client PC bill of materials.

Edward Doller

I’ll give you my take on that, clearly in a client there are certainly like anything else (inaudible) price point by which we start to see those capacity points move up. And I think as Allen said earlier when we introduced that 1 terabyte drive we introduced it at a price point and I think we did the same thing with the 512 gigabyte client drive, where we stimulated a reasonable amount of demand. But you’re right for the majority of the market the sweet spot right now is somewhere in that 200 gigabyte range. And you know as a user of SSDs I’ll pay every penny for it because the power of the performance, the ruggedness that it provides me personally I think is something that we're starting to see catch on. I think the other thing that’s driving certainly client is these form factors of getting to the point where you first of all, you can’t even upgrade them yourself and you can’t even fit the hard drive into them. So there’s this concept of form factors, there’s price point that are driving the client.

On the enterprise it’s a completely different animal. On the enterprise it’s really a performance total cost of ownership that’s driving the capacity as Monika asked earlier the 8 terabytes and beyond for these high end drives are something that I think is critical. And maybe Allen you could address this as well.

Allen Holmes

Yeah, I think the only thing I would add is that when we got to a price point for an SSD below $100 that’s when we started seeing kind of an uptick in demand and penetration into at least some of the client form factors. And so I think as you look at that when you get below kind of a $1 per gig is one of those metrics that I think people are kind of watching very, very closely. And it’s moving around – it’s going to move around a little bit because of supply and demand but for the most part that’s when we saw things really get stimulated.

Glen Yeung – Citi

I wondered just in this context when you think about the kind of PCs or tablets, let’s put tablets away, the kind of client PCs or notebooks that Intel for example is trying to promote in this market. To what extent is the pricing of SSD, the availability of SSD help or hurt the ability to promote that kind of new form factor.

Allen Holmes

If you’re speaking of kind of their ultra book initiative…

Glen Yeung – Citi

Yeah.

Allen Holmes

I think if you look at or kind of back away from that for a second and come back to it but if you look at what Apple has done with their Mac Air and some of their form factors and only using SSDs it certainly I think created a market awareness and a performance expectation that Ed was mentioning that he is so fond of I think that’s put a lot of pressure on kind of the competing OEMs and the form factors they’re trying to bring to market and having that kind of experience whether it’s instant on, power savings or the raw performance you get from using an SSD and so I think the price points that Intel has in their mind that they are trying to drive in the marketplace, and depending on what capacity you’re going to put in there. You can achieve those but I think that’s one of the areas they’re really grappling or they are wrestling with how to get it into that sweet spot to really move from a velocity point of view that platform.

Glen Yeung – Citi

Okay, just one last question in two parts. If we were to fast forward let’s call it two or three years from now what’s proportion of your NAND revenues do you think will from SSD and versus what is it today. And then secondly what do you think will be sort of the average SSD density then versus what it is today?

Glen Hawk

Well, maybe I’ll take a first stab at it and give Allen some time to think he can chime in with some clarifying comments. I think in terms of the portion of our shipments that are going to SSDs again if you go - look back there is a pie chart that we’ve shown that Allen had shown, it’s already quite high. And we don’t really have a goal or a target on that but it’s already quite high and we think it will be at least that high for the foreseeable future, maybe higher, probably a larger mix shifting to a higher percentage of our own SSDs of course as opposed to some of the third party.

And with regards to the average SSD density that’s a really tough question to address. We cited a couple of examples here that run the whole spectrum from our very cost competitive low density M500 drive that can be you know 128, 256 kind of gigs all the way up to some of the density that Ed mentioned whether it’s in our SATA form factor or PCIe form factor, 1 gig, 2 gig are here today and we're, we will be deploying products with capacities up to 16 in the not so distant future. And it really is a function of how those segments play out from a demand perspective. So the density question’s is a little harder to address. You know maybe one of the things just to bridge this factor to your prior question is that we talked a lot about the price and the price elasticity.

I can’t emphasize enough that one thing that we're seeing that’s very different this year than last year with this very same issue. In fact if you go back to the Flash Memory Summit last year when I’d given the keynotes I had a graph in there that Ed talked about, Allen’s $1 per gig price point. And last summer we were astonished that we had come pretty close to that price point and we hadn’t seen the uptick. Well no sooner did I say that then as Allen mentioned the demand turned on and we really realized that there was a sensitivity there and the rest is history.

But I’ll tell you this year the thing that we see that is very different is that there is a very large portion of the SSD segment now that is incredibly price inelastic.

There certainly the enterprise customers are consuming a lot more now and their value is more around quality, liability, stability of the supply line, the ability to scale with their business and provide demand capacity that’s required to source that. Wining designs there is rarely about price to be honest with you and the same is true in this explosive datacenter category or what some might call the web 2.0, the industry has assigned a three letter acronym to a behavior here that’s called large volume orders. And people that are building up these datacenters really would like to - they make those decisions fast. They need a ton of capacity very quickly and that manufacture and more often than not they have to by definition be a NAND manufacturer, have to be positioned to react to that sudden uptick. There again the winner there is usually the person that has the capacity the ability to supply not so much the one that’s hitting the right price point.

Glen Yeung – Citi

Very, helpful. Thank you very much.

Operator

Our next question comes from Craig Ellis with B. Riley. Please go ahead with your question.

Craig Ellis - B. Riley & Co.

Thanks for taking the question and nice presentation guys. Just going back to the slide that showed the range of products across interfaces and thinking about the two markets that you serve and the submarkets, consumer and enterprise, can you talk a little bit about controller development and how you approach that issue since it’s so critical to performance. Where does it make sense for Micron to do its own internal development to where do you partner up and are there opportunities where you just go to third party exclusively?

Edward Doller

That’s a very good question. It’s certainly something that I would say over the past several months we've wrestled with as well. I can tell you that on the enterprise high performance market is that utilizes PCIe from the get go we made the decision to use an internal controller and so we’ve been happy with that and the progress that we've made with that controller and the solution. I can tell you going forward on our fast drive we will be using our own internal controller for those products. And so as we roll out the next version of our fast drive it will have an internally developed Micron controller which will - is more than a single instance of a controller, it’s a platform that allows us to have a common firmware base that will allow us to have different transport layers that will give us the ability to move rapidly in terms of building on an investment and a foundation of a platform. And so the real fundamental question is what’s the ability to move that platform downward because it is going to start at the top where I think as Glen articulated the investments are there to support it and the business is there to support it. So we are – it’s actually in the process of dealing with how far down our roadmap we can actually move those controllers and where it makes sense.

I can tell you that even if it makes perfect sense your ability to do that and move those controllers as quickly as the market wants the move on certain instances despite you wanting to do it may be problematic and so I would say long answer but I would say our strategy going forward certainly on the bottom tier or two is to have a dual pronged approach where we use internal controllers where it makes sense and we use external controllers where it makes sense.

Craig Ellis - B. Riley & Co.

That’s, great. Thanks guys.

Edward Doller

You’re welcome.

Operator

Our next question comes from Vijay Rakesh with Sterne Agee. Please go ahead with your question.

Vijay Rakesh – Sterne Agee

Hi guys I know you on this PCIe you announced the 16-nanometer ramp. And when I look at entire space, where are you in terms of [24, 19, 69 mix] [ph] that you’re seeing?

Edward Doller

The question is specifically within SSDs we get?

Vijay Rakesh – Sterne Agee

Yeah.

Edward Doller

It’s again very good question. What’s interesting I think as Glen talked about the different segments have very different cycle times. And so down the bottom of the segment portfolio when you’re talking about cloud web 2.0 or personal storage our ability to introduce newer lithos into those markets that move much faster and are more on a cadence with the lithos that we introduced is much easier. And so 20-nanometer and that M500 we ramped that very quickly after we bought the technology up.

On the true enterprise levels rise I think as Glen articulated earlier the cycle times just to get those drives qualify at enterprise OEMs is nine months to a year and so now you have this almost a year lead time so when you get your technology up your drive completed, the year of qualification, and then by the way the customer say, don’t change anything for two years. So you got this delay factor which lead to the stickiness of the drive in that particular application and hence a very different business model that we have to make sure that our factories and our supply chain are able to handle. So as much as I love to sit here and say hey that enterprise drive is using our 19, 16-nanometer silicon that we just announced last week there is that delay factor that takes quite a bit of time. And so I think the secret for us is to figure out how you work with the right OEM’s to minimize that but I think as Glen said it’s less about offering them a lower cost drive, it’s more about having the drive there that they qualified the previous year, so we balance our portfolio based on those differing dynamics by segment.

Vijay Rakesh – Sterne Agee

Got it.

Allen Holmes

This is Allen I’ll just, I’ll give one quick example that I think is perfect to what Ed’s describing just talking to some of our sales guys just the other day about a particular customer who they had a chance to move to the next platform, the 20-nanometer platform. And actually to be simplistic paid us not to do it. Basically I will tell you the difference to make margin better for Micron to keep to stay on the 25-nanometer platform as opposed to going through the rigors of the qualification to 20. And again we make net better margin per wafer on that transaction now so I think the summary is we want to maximize our margin to the company.

Vijay Rakesh – Sterne Agee

Got it. And then last question here. When you look the controller side obviously on the enterprise side looks like you are doing a lot of the controllers in-house and as you shrink obviously the controller complexity goes up, the endurance of liability requirements go up; can you talk about how that is helping you in terms of getting more dollars on the sale on an enterprise drive?

Edward Doller

Yeah, absolutely I think as Glen showed on one of his slides, it’s fundamentally the concept of vertical integration, and it starts with that foundational knowledge base of what the NAND technology is really capable of doing. And I can say that and we can talk to customers that we're selling the NAND to, to explain that and we do an enormous amount of detail but with that there is nothing like having that first hand knowledge and 25 years of experience of dealing with non volatile memories when you’re sitting down to design a controller, and by the way you got to remember that when you’re designing a controller for the enterprise, the cycle time to design that controller is such that not only do you need to have the knowledge of the NAND technology that you’re shipping today you better know what that NAND technology is going to look like three years from now because that’s about the cycle time of a good enterprise controller you better know what that is otherwise you’re going design a controller that’s not going to be in line with where the technology is going, and so that concept of vertical integration where you understand, you understand the fundamental technology the timeline of where the technology is heading coupling that with your own internal controllers it almost guarantees if you do it right that you’re going to do a better job than anybody that doesn’t have that knowledge. And I can tell you that, that’s a critical piece of our strategic planning process that I think will ultimately enable us to be one of the winners long term in this market.

Vijay Rakesh – Sterne Agee

All right. Thanks.

Operator

I’m not showing any other questions. I’d like to turn it back over for closing comments at this time.

Ivan Donaldson

Thanks again for all the great questions. I would like to thank everyone for participating on the call today. If you will please bear with me, I need to read our Safe Harbor protection language real quick. During the course of this call, we may have made forward-looking statements regarding the company and the industry. These particular forward-looking statements and 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.

Operator

Thank you. This concludes today’s Micron Technology SSD business update conference call. You may now disconnect.

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