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Here’s the entire text of the Q&A from Micron Technology’s (ticker: MU) fiscal Q1 2006 conference call. The prepared remarks are here. We recognize that this transcript may contain inaccuracies - if you find any, please post a comment below and we’ll incorporate your corrections. And please note: this conference call transcript is a Seeking Alpha product, so feel free to link to it but reproduction is not permitted without the explicit permission of Seeking Alpha.

Question-and-Answer Session

Operator

Thank you, the floor is now open for questions. If you do have a question at this time, we ask that you press “*” then “1” on your touchtone telephone. Once again, to queue in for a question, it is “*” followed by the number “1” on your telephone keypad at this time. Our first question will be coming from Brandy Abrams with CSFB.

Q - Brandy Abrams

Yes good afternoon guys. First, I have a couple of questions on the CapEx gains, could you talk about the 1.5 billion Micron spending and 500 million IM Flash in terms of capacity addition from 300 millimeter versus backend on shrinks?

A - Wilbur G. Stover

Well, there’s an initial clarification, as we had been guiding fiscal year 2006, at 1.5 billion and with the consolidation of IM flash, there’s approximately $500 million of joint venture spending which will be consolidated within the fiscal year 2006. The 1.5 billion reference for Micron is still representative of how are cash flow, as the additional spending at the venture is funded by the initial capital coming from Intel and Partners.

Q - Brandy Abrams

Okay and then, maybe the mix between frontier moment on shrinks and backend, like how that’s splits out?

A - Michael W. Sadler

Well, on almost vast majority on new fast finding the history of nanometer and then of course we don’t really breakout between, what goes to shrink versus this new capacity and this environment, because remember we, even at this point in time, we’ve been finishing out the RAM and MTP, a quarter of this and of course that will start increasing as we moved to the rest of this capacity for the year. So, I think it’s fair to say that the vast majority at some of the front end, and in our particular case, I don’t have the detail on breakout between new capacity and what is advancing the process because the joint venture obviously impacts that and I still have that detail, which definitely favors us.

Q - Brandy Abrams

Okay, and maybe looking at the near-term just on the bit production growth, could you talk about where you’re targeting and maybe how that’s per se between DRAM and non-DRAM?

A - Wilbur G. Stover

We’re looking at mid to high-single digit production, bits growth and of course that’s the way it exclusive as the image sensor ramps.

Q - Brandy Abrams

Okay and then you’re finished goods inventory looks like you came down in the quarter, I guess, and just still looking at your growth, do you expect an inventory build when you look at the next few months?

A - Michael W. Sadler

If we were going to anticipate an inventory build, this is the core that we do it, because, the seasonality as well as the various holiday that we have with, of course our holidays here in the States while this New Year. In our internal rejections, we have a built in a slight inventory build, based on the shrinks of the market today, it’s plenty strong to be absorbing everything on pretty core producing.

Q - Brandy Abrams

All right, thanks a lot guys.

Operator

Thank you our next question is coming from Tim Luke of Lehman Brothers.

Q - Tim Luke

Thanks, I was wondering, if you could, guys could clarify what you have said with respect to seasonality and how it maybe different in terms of your expectations and I was also just wondering if you could clarify your comment with respect to R&D, I wish its been running at the, the 166 level. And it sounds like you are anticipating that would not move lower with the, with the collaboration with Intel. Thanks.

A - Michael W. Sadler

I’ll speak on this. This is Mike. I will speak about the seasonality. First of all, in the quarter we just completed, from a demand standpoint, it really, it really played out just about we, like what we expected, all the end products were quite strong with respect to demand, we did however in commodity DRAM area, see pretty strong supply growth, which pull a lot of price pressure, on the commodity DRAM products they’re being used in both the notebook and desktop PC, but demand was the, was attracted by like we expected. Now typically in a calendar Q1 type of scenario which roughly corresponds with our fiscal Q2, we would expect DRAM demand from PCs to be all flat let’s say down 5% and on a recent pulling of our customers for this time period, for the coming quarter, if we add the remaining up is about flat, so flat quarter-over-quarter from the seasonality perspective into fiscal Q2 for us. On the other, does that address your question on seasonality fee?

Q - Tim Luke

Yeah, that’s very helpful anyhow.

A - Wilbur G. Stover

Okay. On the R&D front….

Multiple speakers

A - Wilbur G. Stover

I’m sorry, go ahead.

Q - Tim Luke

I think, we may move towards the second part of that, you’re about say seasonality and do you have a, image sensor business, but…

A - Michael W. Sadler

Oh yeah, thanks for reminding me. We would have expect this, again, the primary driver for our image sensors today is mobile phone cameras and we would certainly have expected some, some seasonality there as well and actually we would not have been surprised had demand kind of, slacked out a little bit once we get, got past the Christmas selling season, but it is not the case at all. Our demand for our image sensors is absolutely growing into the current quarter, we’ve got customers coming in and you are just about everybody and pound us for more supply. So, where we would have expected a slight greeter from a seasonality standpoint on the image sensors side, I think they’re assuming from a demand standpoint really there appears to be no end in sight in the near to intermediate terms for growth there. And on the flash side, as well again this is a consumer item, the NAND Flash is a consumer item, we would have expected, there may even be some seasonal slowdown in NAND flash demand but my view of saying is that demand today is still greatly exceeds the industry’s capability to supply that even a seasonal flow around is not going to have a material impact on the current imbalance of supply and demand.

A - Wilbur G. Stover

On the, yeah, on the R&D front, with the question about what we expect to happen there, clearly we’re going to get some efficiencies from cost sharing but I also think that we need to separate in terms of short-term and long-term, in long-term we think the R&D will be much more efficient with us joining the, sharing the cost of that. But also keep in mind, that in the shorter-term, we have a much broader portfolio that we’re going to be pursuing and we’re going to have, some activities, trying to bring the innovation for both companies to the forefront. So when you think about, we got new fabs, and we got new product, an expanded product portfolio, now that we have the significant capacity that we will be taking advantage of, that, in net scenario, at least in the short-term, we really don’t expect this is going to go down. We’re going to get some benefits from the cost sharing but anyhow don’t add a comment. Yet, Steve’s comments lead us right to a range of about 150 million to 170 million we’re in the near quarter, we’re going to be towards the upper end of that range, in a couple of quarters out, we would expect to be towards the bottom of that range.

Q - Tim Luke

That makes sense. Any color, just with respect to pricing in how that may play out in terms of gross margin outlook?

A - Michael W. Sadler

Well, it’s very difficult to project.

A - Wilbur G. Stover

Yeah.

A - Michael W. Sadler

You know, what’s going to happen in the prospect of pricing, if you paid attention to some of the, new designs on public, on stock market pricing in the DRAM area, just in the past week or so, it appears to stabilize, at a level of much lower than we would have hope for it but, appears to be stabilize our contract renegotiations, that occurred in mid month with our big OEMs resulted in flat pricing. So, it appears that we, we’re true to storm anyway on the price, the strong price reductions that we’ve seen in the DRAM area. And on the NAND flash area there is, there is really not much price pressure, all prices are relatively stable, and the CMOS image sensor area is where, kind of been on a full source situation, with virtually all of our customers so there is not a lot, commodity type price pressure there will be though.

Q - Tim Luke

Thank you very much.

Operator

Our next question is coming from Adam Parker of Stanford Bernstein.

Q - Adam Parker

Yeah, Hi, what percent of your revenue within that 45% you reported. Can you break that down into CMOS manage specialty with DRAM portals?

A - Wilbur G. Stover

Well I can give you; we prefer to stand away from the revenue fees. But that again from a wafer allocation standpoint, we’re running right around 50% of our product and kind of the more PC-oriented DRAM capacity 30% and the specialty raised 25% to 30% in specialty and then that leaves you 15% to low 20% and every thing else, so as combination of flash and general and image sensors and others.

Q - Adam Parker

Okay, so last quarter, I think you guys said that your NAND was kind of in that 6 to 8 range and maybe CMOS rounded up to 10, I mean, did the CMOS outgrow the NAND sequentially here in the, in the November quarter?

A - Michael W. Sadler

Yes.

Q - Adam Parker

Materially I assume?

A - Michael W. Sadler

Yes.

Q - Adam Parker

Okay and then what percentage of your DRAM revenue came from tech during the quarter, or again, if you would not want to avoid revenue commentary?

A - Wilbur G. Stover

Well like we stated in previous public disclosures, it runs about half of out DRAM, commodity DRAM output.

Q - Adam Parker

All right, and do you think there is any reason that would change give, in the coming few quarters.

A - Michael W. Sadler

No I don’t see any change at all, until as Steve is mentioned in prior calls, tech begins to go through some type of a 300-millimeter transition, which we spoke to publicly be in towards the end of ’06, ’07.

Q - Adam Parker

Right, last question is you know on the options accounting, it seems 2 things, one could you allocate to across RDS, it need calls for us, and also it seems like it came in a little bit below what you would previously expected can you explain that, modest reduction?

A - Wilbur G. Stover

Yeah that $3.8 million, probably half of that in the cost-of-good sold arena another 30% is in R&D and 20% in SG&A it’s the rough breakout for you.

Q - Adam Parker

Will you give exact breakouts in the queue or…

A - Wilbur G. Stover

Having got into that analysis did not expect to. The amount, as you appreciate $3.8 million is just not significant to the overall results of operations. The estimate for the year is still running in the $25 million range and the fact the first quarter was somewhat lower, is just a timing of brands issue.

Q - Adam Parker

Okay so it’s still so we should assume 25 million at that, to what price in your stock, sorry?

A - Michael W. Sadler

It really has right now Adam has more to do with the timing of the graphs.

Q - Adam Parker

Okay.

A - Michael W. Sadler

More so, than a, point-in-time, stock price.

Q - Adam Parker

Okay, that is one of the so it’s towards its strong in DRAM 25 million.

A - Wilbur G. Stover

Correct.

Q - Adam Parker

Okay thanks guys.

Operator

Our next question is coming from Doug Freedman of AM Tech Research.

Q - Doug Freedman

If you guys rank the products by gross margin you have offered that in the past?

A - Michael W. Sadler

Sure, we can do that for its, like prior quarters, image sensors continues to lead the parade, interestingly not the specialty DRAM and NAND was pretty closed in margins as particular quarter and then of course followed that by DRAM gross margin.

Q - Doug Freedman

Looking at my numbers here, did specialty DRAM grow or did it compress in the quarter?

A - Wilbur G. Stover

It did grow, it did grow in single digit.

Q - Doug Freedman

Single digits okay, and then what should we look at, as far as the NAND RAM, with the little surprise it appears that NAND did not grow nearly as fast as, I was thinking it was going to and any sort of color you can offer on, sort of the aggressiveness that which we can expect NAND up a deserve ramping?

A - Michael W. Sadler

We’ve had, as we’ve previously stated, it will be fairly flat in wafer allocation for NAND until we can start making some adjustments in Boise and we start to see an output from Virginia which is later this year. So, expect the NAND flash again ramp to be fairly flat for the next couple of quarters and then we start to see some ramp as we get into the later part of summer in the end of the year.

Q - Doug Freedman

Okay. And can you offer a bit shipment growth for the quarter because it appears as though you worked down quite a bit of inventory. Looking at my model; I’m coming up with the fact that you guys might have shift as much as 27% bit growth. Can you enlighten up this sort of whether you guys feel like you took them share going this period? Or is this really driven by the handset market consuming quite a bit more?

A - Wilbur G. Stover

Let me start with the first part of your question, and then I’ll pass it to Mike if he comment on some of the segments that, in terms of guidance for production bit growth would be mid to high single digit this quarter, and again that’s exclusive of image sensors and again that’s production and Mike would you like to make any commentary on different segment?

A - Michael W. Sadler

Sure. Doug, I’m not, first of all, I’m not sure how you get your 27% calculation or whatever that was at the end with us, but we did last quarter, we increase bit shipments by 11% I think. And now, it was against production increase of 8%. So we get draw down inventory somewhat in the quarter, where we are seeing strength of work from an application standpoint, where, where we are seeing more dramatic growth of course in handsets. Both from a memory content just a shear demand growth standpoint as well as our market share growth and there so, handsets will probably be at the top of the chart with respect to growth, server is also a significant growth area for us and we have given up some share although I don’t think it’s significant but we’ve given up some share in the notebook and desktop space.

Q - Doug Freedman

All right thank you.

Operator

Our next question is coming from John Lau of Jefferies & Co.

Q - John Lau

Great, thank you. Looking towards the future memory architecture in the cell phones you have mentioned that you have four products that play into the cell phone area. Can you tell us what do you think the architecture is going to be, is the NAND still going to be separate, is it going to be integrated in the cell phone and say, how Micron will play in those different markets? Thank you.

A - Michael W. Sadler

Yeah, sure both. Today our view is that NAND does not playing a significant role in cell phone architecture certainly from an embedded standpoint, it does from an external or card standpoint. Our plan is to put, spread on both size of that, John, 1) our first MCP product with the NAND flash device is going to be a 1 gig, 1.8 above NAND chip packaged with 512 megabit or 256 megabit low power DRAM product. That is probably going to be a market reality in the second half of 2006. So, that’s basic with the embedded play for us, and that’s going to grow of course 2 Gig NAND plus 1 Gig DRAM and so and so forth. And then the other side of that would be the embedded piece and that would be through a variety of different card form factors and we’ve got, we supply chips to car manufactures that get us in that way and, we are contemplating a rollout of, other means of entering that piece of market as well. But, surprised to say that the both the embedded and the internal features are significant interest for us.

Q - John Lau

You mentioned, thanks Mike, you mentioned an interesting comment that the NAND flash in terms of your bit growth production is going to be kind of flattish for the next several quarters. I was wondering if you can elaborate on that and if you are going to be, participating or missing out in the market, as you would try to adjust to your capacity?

A - Michael W. Sadler

Well we are, as we’ve mentioned before we’re ramping NAND but it predominant today in the Boise facility and keep in mind, in the Boise facility we’re also producing imagers which are in strong demand we are producing CellularRAM which is very strong demand and so in fact the really what I would think of it is, kind of the first custom design low powered DRAM device is running in Boise from the cellular market as well, as a extension of the CellularRAM business. So we have some challenges on balancing the capacity among some pretty strong products and as a result the Boise will continue to ramp on NAND but it’s not as aggressive as you might expect to be given the strength of the NAND market but that’s also because it’s against other products that are going quite well. And so it’s more of a calculated change in the balancing of the way for resources still some dramatic.

Q - John Lau

Okay.

A - Michael W. Sadler

That obviously will start to ship pretty heavily as Virginia comes online slowly, we are thinking in terms of Virginia, we will start to leading someway for it, on mid ’06 and in later ’06 for Lehi, so, that too will become all, but really the next couple of quarters as Kipp, on a relative basis, it’s still growing for us. But on a relative basis, compared to what will happen in the second half of ’06, it will appear to you to be somewhat flat.

Q - John Lau

Great, thank you.

Operator

Our next question is coming from Shawn Webster of JP Morgan.

Q - Shawn Webster

Hi, yeah I was wondering if you could provide a little bit color on your pricing in the DRAM segment, and I guess maybe in the Sensors as well on an average basis like what your DRAM pricing did quarter-over-quarter? And then I have a follow-up please.

A - Michael W. Sadler

Sure, on the, if we look at the commodity piece of the market which again as Kipp mentioned is roughly half of our business. I think quarter-over-quarter prices were down round 15%, I think if I’m mistake that is slightly higher than that. If you look at our overall DRAM portfolio, our price per bit was down about 5%. So I think that speaks to, the strength of that portfolio, essentially there was heavy price pressure on a commodity area and pricing is going to flattish for all the other DRAM in the portfolio. On image sensors its really a function of what we are doing with a product line as opposed to what the external market pressures are but frankly speaking for us there aren’t a lot of external market pressures, we are, the big player in the market and, so in other words we did take average selling price is down quarter-over-quarter. Because we significantly grew our VGA sensor outputs in response to market demand. And of course VGA sensor sold in lower price than 1-Megapixel or 2-Megapixel CMOS Megapixel sensors. So essentially not a whole lot of price pressure there, just a function of what we are doing with the product portfolio.

Q - Shawn Webster

Okay, thanks. And I guess to you kind of two unrelated questions on the IM Flash joint venture is that signed or do you expect that to be signed in January?

A - Michael W. Sadler

Yeah we expect to close it in January.

Q - Shawn Webster

Okay. All right, and actually that’s all I have thank you.

A - Wilbur G. Stover

Okay, thanks.

Operator

Thank you, our next question is coming Jim Covello of Goldman Sachs.

Q - Jim Covello

Good afternoon guys, thanks so much. Couple of quick question, first if just want to make sure particularly about modeling the profitability of the NAND business probably, the way for upward growth is going to be flattish for the next few quarters. And you are going to give up your are sharing half of the profitability with Intel so the NAND profits are going to go down for the next quarters until the Intel, tell me the incremental capacity comes online in which case you are obviously planning on growing at much faster than, what you are going to share with Intel. Am I taking about that wrong or have the right?

A - Michael W. Sadler

Yeah I think in general that’s right. We, what we said was it’s for the next 2 quarters that the output with same relatively flat although it is still growing really it is the third important quarter of ’06. I think we’ll start to see something reflects in, in terms of change. And yes, we will be splitting the output and hence we will be not giving whatever margin is don’t that have to runs to our partner Intel. But of course the JV itself, the product to Intel will flow through Micron and then you got to remember that the R&D benefit that we are receiving we will be countering that.

Q - Jim Covello

So when you net that out, I mean if you can help us from a modeling perspective for the next couple of quarters where, there is an incremental up tick you are sharing some of the profits. Can you obviously think about what kind of EPS impact that would be, or there something along those lines for modeling purposes.

A - Michael W. Sadler

No, not at this time Jim, sorry.

Q - Jim Covello

Okay. Next question you talk about the DRAM industry your commodity DRAM finding a supply and demand balance I think that was in the opening or is that will find a supply and demand balance service in the opening comment. But hasn’t the problem really been on the supply side from your competitors and not really on the demand side, I mean the demand for PC units has been great. It’s been the supply issue. What fixes it if the Taiwanese DRAM companies have been showing their willing to scale back on their supply.

A - Michael W. Sadler

Yeah, in terms of, the in particularly the historical impact Jim clearly supply side economic has had greater impact than demand. Since the demand has been relatively good year after year, in terms of its bit consumption, ranging from 40% or all days of 75% to 80%. So your question about, what we will rationalize the DRAM supply going forward, we don’t necessarily have a good answer, because we don’t have visibility to what some of our competitors are doing specifically with respect DRAM into the PC space. But of course, if we have the absolute answer that I have we would have been diverse find the portfolio. Or maybe we would have been doing slightly different but, that’s the reason we are trying to be expose less to that product it goes right into the, the desktop space. And, I’ve heard both, sides of the fence of in terms of what the industry things are going to happen by supply. Clearly there is an allocation into NAND and in our case into NAND and Imaging. And what I think of especially DRAM because those markets are growing and others are trying to do, some others anyway to trying to do similar things. So, that’s we are chart for us to get a handle on it. How much migrate, how much current capacity migrate, how much the current capacity migrates out and then, the new capacity you guys can go and look at the models out there and that we are going to do with that despite, but….

Q - Jim Covello

How can sure about that on just for one second this would be my last one, if I think about ’05 we had great PC unit growth we had a lot of capacity allocated over from DRAM to NAND and Image sensors in your case. And the industry pricing was still a lot worse than expected I mean what kind of scenario do, you need to see where we get better than expected price.

A - Michael W. Sadler

I’m not really sure Jim that we’ve seen that the, the results of a major effort of on the part those manufactures can, ship capacity towards NAND, we are not a lot that we can do with our capacity but we are doing what we can in order realize more NAND after sooner as suppose to later and in fact quite some DRAM, there are two either big players in the both DRAM and the NAND area they claim they have the capability to shift our capacity from the DRAM and NAND. And I think now it’s about the time when we sure really start to see the result of that effort were bear fruit. Because in NAND market is clearly under supplied right now, the DRAM market its clearly over supplied, so….

Q - Jim Covello

I mean those two guys would argue that they move whole fabs worth of capacity over in ’05 and they will do they will do that again in ’06 but no more. I mean do you think differently about that?

A - Wilbur G. Stover

I don’t know, no idea what there, what there mindset maybe just if I were in their shoes and I had the ability to be as flexible as they’ve indicated that they do I would certainly be moving much more capacity towards NAND and away from DRAM and this kind of environment if you look at the margin differential its staggering.

Q - Jim Covello

Sure make sense I’d listen thanks so much.

A - Michael W. Sadler

You bet.

Operator

Our next question is coming from David Wong of AG Edwards.

Q - David Wong

Just a clarification on the R&D, all spending by the joint venture actually its, consolidates on your income statement, am I correct. So if your guidance, what you said a 170 million going down to 150 million. That’s what shows on your income statement line. Or it’s more than that because you were including statements by other third parties.

A - Wilbur G. Stover

You heard it correct and it’s the consolidation of IM Flash Technologies, we will include the R&D spending at the joint venture with our R&D spending and as a result of the sharing it will be in the 150 to 170 range even with the diversification and the additional product efforts that Steve outlined.

Q - David Wong

Right, thank you.

Operator

Thank you, our next question is coming from Glen Yeung of Citigroup.

Q - Glen Yeung

Thanks, want to ask a little about price reduction, cost reduction that you are seeing now I assume you are staying under sort of typical plan. And looking at where spot prices today, actually my question is, is the difference between spot price in your cash corners and/or better or worse than it was at the beginning of the last quarter?

A - Wilbur G. Stover

We are not going to get into that kind of specifics. If you like to try the question in different manner we might be a little help.

Q - Glen Yeung

I don’t know if I can, because I guess whole no what the kind of reaction, I kind of guess it was, let’s maybe look somewhere else. You know, we were looking out at the image sensor market and we are seeing a lot of strength obviously from handsets in general. But, we are starting to hear more and more popular, image sensor demand coming out of China, in particular. They want to get attention from you what you see from that market and what you think that does or doesn’t give to a sustainability of image sensor to our strength?

A - Wilbur G. Stover

Actually we are not hearing much it all about Silicon coming out of china from for image sensors. There are two in one capacity, more capacity to do things on the backend if you will modules or see if there are something about nature and maybe one or two at the foundations right and trying to do something there, but we are not aware is there any silicon coming out of China right now.

Q - Glen Yeung

I’m actually thinking at the other way in terms of demands starting to pickup more aggressively with that.

A - Wilbur G. Stover

Oh, I see.

A - Michael W. Sadler

Oh, on the demand side actually, the camera phone market in China, the penetration rate is relatively low and the demand from the Chinese market, I’d characterize it, it has been significant today. So, that’s a, that’s a huge, huge potential growth area for us. What demand growth we’re seeing from China is strictly, today anyway is strictly from an assembly standpoint. So most of, actually if I am not mistaken virtually all of our, end-customers have either directly themselves or through subcontract arrangement of a module. Camera module assembly operation in China and that’s why we’re seeing demand coming out of China, its primarily just, just that’s where the assembling take place.

Q - Glen Yeung

Okay, just one another question, what you’re thinking about looking at the end of this fiscal year from now, how do you think we can expect to see the rates of, not the rates, but do how you, offer to give us a mix of your business, and I guess on our way for our date, which is, is a good way of thinking about this, for NAND, CMOS flash and special PC DRAM and commodities do you have.

A - Michael W. Sadler

We expect the commodity PC DRAM that, to continue to trend down. We expect specialty DRAM to continue to moderate up and of course NAND flash will be beginning its pretty good ramp at that period of time. So, we will see some pretty significant increases as well and image sensors continue to look very strong.

Q - Glen Yeung

So, can you quantify that delay?

A - Michael W. Sadler

I am sorry.

Q - Glen Yeung

Can you quantify that, and in terms of where, what percentage they may, they might make up at the end of the year versus now?

A - Michael W. Sadler

Its too far away, we are going to continue to be opportunistic and move wafers around where we see strategic benefits to do that, and anything more that a cycle time gives us a pretty good opportunity to move wafers. So, it’s a little hard for us to look out 6, 9 or 12 months and give you that ratio.

Q - Glen Yeung

Is there a range or a level at which you just can’t lower your DRAM, your commodity DRAM in market, because you’ve got certain responsibilities, to OEMs for example. Is there a level you have to just keep producing at?

A - Michael Sadler

Well I think that the responsibilities to the OEMs in the PC market, it’s obviously a slightly different responsibility to the parts what we have sold so or so its not quite that issue, so long as, we are changing our capacity of RAM, as long as we get sufficient notice to the customer base, I don’t think it’s a bigger deal in the PC side. The challenge that, one of the challenge is that we have is, we’ve already made big moves in capacity allocations, obviously as Kipp mentioned, about half of it, we’re down from we used to be a 100% couple of years ago or few years ago, down to about half of it now going into the desktop space if you will, on the DRAM side. And, so we have capacity in place that’s geared towards doing certain things, we can migrate it overtime, but it’s, when you start talking about those kinds of changes and also a short period of time, we run into some limitations that exist at least for maybe 2 or 3 quarters, before we can substantially change that, and an example would be, we put in significant capacity in 12 inch, to run think of it is high volume DRAM products. And, if we are going to change that or to the greatest, we want to change that, it just takes us a little bit of time to do. And so, it doesn’t, we, you consider to be flexible capacity, you can change within a cycle of time as Kipp spoke about, and then there are some others that take 2 or 3 quarters to trying to change. We saw some flexible capacity lap, but we are going to run up against our ability to do something in more cycle of time being limited and we’ll have to make more wholesale changes on a facility basis.

Q - Glen Yeung

Mike, that’s very helpful. Thank you.

Operator

Thank you, our next question is coming from Krishna Shankar of JMP Securities.

Q - Krishna Shankar

Yes of the 55% which is PC DRAM can you give us some estimate, there is, within that, the, is the Server workstation part of that, to the growing portion and can you talk about the profitability of that, these are the competing DRAM positive versus PC DRAM?

A - Michael W. Sadler

I am not going to provide specifics on what portion of that would be the Server piece; but it’s less than half of that of PC DRAM piece with the Servers. And for us, the server space is more profitable than the Desktop and Notebooks base primarily because it is higher density required, high reliability devices and modules and so far, so it’s more profitable for us and it is a growing piece for us as well.

Q - Krishna Shankar

Is there any consideration being given to just moving more PC DRAM, some of your older 8-inch PC DRAM side Server into the NAND flash joint venture because the revenue per wafer is higher there, so why not even lower the exposure to PC DRAM even more?

A - Michael W. Sadler

Well actually we’ve been on that migration path, that’s what, we are experiencing today, we continue to move PC DRAM and the products. But, the other thing to make note of it, is we don’t have a lot of 8-inch capacities left running what you would think of is PC DRAM. We have a, what we call a legacy-driven portfolio, we’ve obviously got the man we spoke about, and we’ve got imaging in some of the cellular type stuff, which is consuming the vast majority of 8-inch. And the only exception to that, by the way would be our partner in Singapore Tech, and they are on a migration path to 12-inch, as Kipp mentioned they are going to start doing that, actually similar call is here in the next quarter to and then start in that progression of change. So, I mean what you have left after that is only Virginia running 12-inch. So, those this month, a lot of 8-inch running what you, what we are characterizing PC DRAM.

Q - Krishna Shankar

I see and then turning to NAND flash, what steps are you taking to really sort of expedite the ramp in both in Virginia and Lehi. I’ve just given the tremendous profit potential there, how, how can we express the ramp of the NAND flash joint venture manufacturing?

A - Wilbur G. Stover

While we are aggressively as moving as we can, I mean it’s currently having child. There is a certain period of time, that you got to just stay and its going to take that long. So, to the extent that we accelerate it, we will, but as always somebody thinks you can do it, you got a full supply times, et cetera, et cetera.

Q - Krishna Shankar

And can you talk about your product roadmap in NAND flash; I guess right now everything is on 8-inch 90-nanometer and can you talk about both the product roadmap in terms of density and line width in multilevel cell flash technology?

A - Michael W. Sadler

Sure we’ve been producing and shipping obviously since Day 1, last December, so almost a year now, anniversary 2 Gig, we’ve been sampling now 2 Gig and 4 Gig, and that was, finally that was all in 90-nanometer, we are now sampling 2 Gig and 4 Gig at 72-nanometer as well. And of course we have a product roadmap beyond that, we are not sure probably yet.

Q - Krishna Shankar

Okay. And how would you see pricing trends between the 2, 4 and 8-gigabit NAND flash out there, even though I realize you don’t participate in 8-gigabit, what do you see in terms of pricing?

A - Michael W. Sadler

Yeah actually we do participate in 8-gigabit, by stacking 4 of our 2-gigabit chips and, from our market pricing standpoint, basically the markets have roughly parity on a perfect basis for either or 2, 4 and 8 gigabit solution.

Q - Krishna Shankar

Okay, thank you.

Operator

Thank you, our next question is coming from Paul leming of Soleil Securities.

Q - Paul leming

Good afternoon, what did wafer outs average for the quarter and could you give us estimate as to what they will average for the current quarter?

A - Michael W. Sadler

Mid 60,000 wafers outs a week and, this will speed up very slightly in fiscal Q2.

Q - Paul leming

Thank you.

A - Michael W. Sadler

You bet.

Operator

Thank you, our next question is coming from Nimal Vallipuram of Benchmark Company.

Q - Nimal Vallipuram

Hi thanks a lot. I have a few questions, the first one is that, Bill, you indicated, the some, you give some color on how the accounting is going to work with the new venture with Intel, you’ve said that half of those will go to Intel, at a certain price and the other half we will be able to sell it on the market price. But the total cost-of-goods sold will go to the cost-of-goods sold. And the whole 100% cost-of-goods sold will go to your cost-of-goods sold. Now, can you add any more color on as to whether that Intel pricing is always going to be approximately below the market pricing at a certain discount, or if the market price goes down significantly, would you have some sort of upside on Intel pricing?

A - Steven R. Appleton

Hey, Nimal, this is Steve. The basic way in the JV works is that we are buying; both of us are buying equally the products from the joint venture cost. So there is nothing going on at the JV level, besides that. And where we get consolidated we’ll just incorporate that council.

Q - Nimal Vallipuram

Okay, I understand, I think, just my second question this has been asked by number of people, so please don’t, I just want to get some idea, when you exited calendar 2006, can you give us any idea on a basis, I think probably a bit basis would be the best way to look at it. At least, approximately, what percentage of you bit output would you like, or would like to be in NAND flash as opposed to everything else?

A - Michael W. Sadler

Well you guys can first of all forget the bit piece in CMOS Imaging, it’s not even relevant, it’s got nothing to do with any of it. So, if we look at the allocation when we make the imaging, you got to tell me to a full of that, it’s not even a relevant image with respect to NAND versus DRAM, hey look you guys can do the math. Okay, Virginia is capable, we’ve already said it’s capable of about 7K per week, and we guys are capable of 11k per week, and then we’ve got the Boise RAM from, as Kipp already mentioned, we do about 5k now and it will take that about to probably 10k, 11k, 12k per week on 8-inch. It really all has to do with timing, we’ve already said that we want to start ramping Virginia in sometime in mid ’06 and we have the middle of ’06. So, take your historical perspective on how that’s ramp, plug that in and you don’t have a pretty good number.

Q - Nimal Vallipuram

So did that concern you about all the numbers together about 22k, in addition to US, you are probably running someway out of the 22_ of by end of next year. So 70k, out of the 70k say about to 16, though so would be, is that the right calculation, am I in the…

A - Steven R. Appleton

You can’t ask me a comment on the math doing in your hand, I am going to have ask to pass.

Q - Nimal Vallipuram

All right thanks Steve. It was an excellent quarter. Thanks a lot, I appreciate it, happy holidays.

Operator

Thank you our next question is coming from Auguste Richard of First Albany.

Q - Auguste Richard

Hi, thank you, could you talk a little bit about the drivers, CMOS Image structures in the coming quarters, if market penetrations, market share gains or just really strong cell phone demand?

A - Michael W. Sadler

All the above for us to really, I did mention in an near term to date and in the near future, primary driver gains in the camera-enabled cell phones and my perspective is that, we are the beneficiaries, certainly of the growing penetration rates, in terms of cameras, cameras being the numerator and total cell phones being the denominator. We also are, have put ourselves in a position where we are the supplier choice just based on the imaging quality that we are able to deliver with our sensors. So, we are benefiting from market growth, we are benefiting from market growth, we are benefiting from market share growth, and if I look at, say a couple of quarters to, to say 4 to 5 to 6 quarters down the road. We will start to see some significant growth as well from automotive applications as well as some further penetration in these digital still cameras and in PC camera area.

Q - Auguste Richard

And then I need any color on the split between DDR and DDR2 in the quarter?

A - Michael W. Sadler

In the quarter we just completed it was a little less than 50-50, DDR being less than, DDR being greater than 50, DDR being less than 50% of the commodity pie. In the current quarter it’s probably going to be about split 50-50.

Q - Auguste Richard

Okay, and then final question, in the strange world of commodity memory, given you are allocating capacity to IMSC, in the future if there was a shortage of DRAM could you revert that capacity, with DRAM or is that just a ridicules thought?

A - Wilbur G. Stover

We cannot, we well, put it this way, its not that it couldn’t happen, it’s that, we have a partner manufacturing name and the name actually manufacture with the partner. So that extent that we are going to do something with that capacity, in an increase or decrease if we have to have discussion with the partner.

Q - Auguste Richard

Okay, like just so in the sense it limits your flexibility from reallocating capacity going forward, from DRAM to NAND and back and forth.

A - Wilbur G. Stover

When you say limit, owing to the extent that our partner believes that we should do something different with it. But in other words, just a similar of a self breaking mechanism. If the, again not to believe in this but, if the margin on NAND is much better than the margin on DRAM, of course we would want to allocate it in the direction of NAND, and if that were to be the case, the probability is our partner will be fine with that. If the margin on NAND is worse than the margin on DRAM, it depends on how worse it is, before our partners want to reallocate it, but thoroughly if they wasn’t doing very well now because the market was over supplied. They’re unlikely to have too bigger problem with the reallocation.

Q - Auguste Richard

Okay, fair, that’s kind of what I thought. All right, thanks a lot.

Operator

Thank you your next question is coming from William Desellum of Titan Capital Management.

Q – William Desellum

Thank you, we had a, group of question. First of all, Mike you had referenced camera phones with 2 cameras. Would you please walk us through the applications where having 2 cameras on the same phone, it advantages and then relative to the JV, the IM plus JV. What percentage of the production needs to be dedicated to Apple versus the availability that you have to address the large opportunity that you are anticipating developing here in later this year in the cell phone market?

A - Michael W. Sadler

Okay then on the first one, the dual camera phones, their primary application would be video conferencing. So there is, we have, we would call an in camera which is typically a low resolution, a VGA camera, which should be on the inside of the phone, basically looking at, you were taking the picture of the user for video conferencing purposes and you have out camera which would be for taking photograph by the end user. The penetration rate of dual camera phones today is not that great, but again as infrastructure improvements are made to enable more seamless video conferencing we expect to see that increase. But that is one of the big drivers of those extended life of VGA cameras is the dual camera phones.

Q – William Desellum

And we before we shift to the next question, you’d referenced the infrastructure out there, with the current technology as they were the services providers, is this something that is can be fluid or there are upgrades to the existing infrastructure, that really needs to be made.

A - Michael W. Sadler

It depends where, I think probably the most, where geographically, probably most infrastructure today from Mobile communications will be in Japan and video conferencing over the mobile networks bares the reality today. In Europe, I believe it is as well, in US again this is a, beyond my area of expertise, but its probably quite someway off into this future.

Q – William Desellum

That’s helpful and then the IM plus JV?

A - Steven R. Appleton

Yeah, Bill its Steve. On the question regarding, I think it was specifically with respect to with some slighter Apple, we saw us we had a long-term agreement with them on that. Obviously I am not going to disclose a lot specifically because agreements both with our customers and with our partners. But I think it’s suffice to say that the percentage of exposure that we has in that agreement is really controllable by us, in other words I mean the partnership because its quantity-defined. So, if we want to produce more products, then the percentage goes down and if we produce less products then the percentage goes up. It’s completely within our control, as to how we want to, how much of our outlook that we wanted to be exposed to that. So I think that’s the best way to think about it.

Q – William Desellum

That is helpful thank you and then, one additional question, and I think this was somewhat addressed earlier. But I would like to try again to see if I can get a little more clarification please. Relative to the inventory decline given that the pricing in commodity DRAM was down, often times that, you don’t see inventory declining when pricing is also declining. Would you walk us through again where with in what products you actually saw the decline in inventory please?

A - Michael W. Sadler

I think pretty much, while we entered the quarter with firstly no inventory on in my senses that you could probably imagine based on the way we stop speaking about it. So there was not much of a change there. I think that if I remember back across probably with the case on especially DRAM as well, so the inventory we carried with primarily in the PC DRAM area and demand was strong enough to absorb it, albeit, there was a tremendous amount of price pressure, had we projected that pricing was going to be increasing in the current period, it probably why it chose into whole small inventory. But we weren’t projecting that, still not really projecting that. So, as the market had strength enough to absorb it, we just hold at the market prices and ended up near draw down on inventory as suppose to your building or keeping it flat.

Q – William Desellum

But if we did hear your earlier comments in the call, there it certainly appears to be the possibility that some of the manufacturers are shifting from DRAM to NAND. But that makes started taking queries and actually impacting the market here, favorably in this seasonally slow period?

A - Michael W. Sadler

I am not going to predict, but I would, certainly would hope that would be the case.

Q – William Desellum

Thank you all.

A - Michael W. Sadler

Bill thank you very much, I think we have time for one more question and then we will wrap it up.

Operator

Thank you, our final question is coming from Ben Lynch of Deutsche Bank.

Q - Ben Lynch

Yeah I will try to, this on the NAND side, this agreement that u have with Apple, I know the way Apple operate, it take too much about, could you just help us think a little bit is this a sort of a, a cost plus thing or how do you supplying to them or driven by market ASPs and they still to, need to be cost competitive to their current suppliers to make comparable margins or not, and I do have a follow up please.

A - Wilbur G. Stover

Okay well as you suspect to them I can call it pricing to, think your customers as, that wouldn’t be probably exceptional for them more, having said that on the cost, our, our expectation is to, is to be equal or better than anybody else in the cost side, its got nothing to do with an Apple agreement and, I think the way to phrase it is, we’re planning on making money on the product we sell to Apple, we trying to making money on the product we sell to other customers, so, we expect to be as competitive as anyone in terms of cost.

Q - Ben Lynch

Okay account for you had, I know you don’t want to give specific some gross margins of product area. Could you may be give us, a rough estimate on the spread and gross margin between all those 4 major areas the highest and the lowest.

A - Wilbur G. Stover

Now, we wont give you specifics on the spread although Kipp indicated that the CMOS image sensors and specialty DRAM and the NAND were well and pretty close together this last quarter had a very attractive rate and there, there is a significant spread between that and the commodity DRAM.

Q - Ben Lynch

Okay, thank you.

Kipp Bedard, Vice President, Investor Relations

Thank you Ben. Now, with that we would like to thank everyone for participating on the call today, if you will please bear with me, I’ll need to repeat the Safe Harbor protection language. 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 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 and actual results may differ materially, for information on the important factors that may cause actual results to differ materially, please refer to our filing with the SEC including the company’s most recent 10-Q and 10-K. Thank you for joining us.

Operator

Thank this thus concludes this conference. You may disconnect all lines at this time and have a great day.

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Source: Full Transcript of Micron Technology’s F1Q06 (Qtr Ending Dec 1, 2005) Conference Call - Q&A (MU)
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