Micron Technology, Inc. (NASDAQ:MU) Credit Suisse 22nd Annual Technology, Media & Telecom Conference November 28, 2018 2:45 PM ET
Sanjay Mehrotra - President and CEO
John Pitzer - Credit Suisse
I’d like to welcome everyone to the lunch keynote presentation with Micron. My name is John Pitzer, I’m the semi and semi cap equipment analyst here at Credit Suisse. It’s my distinct pleasure this afternoon to introduce Sanjay Mehrotra, the President and CEO of Micron.
We have got about a 40 minute sort of keynote of -- fireside chat here. I will kick things off, we do have some mics in the room, so if there anybody with some burning questions, please raise your hand we will try to get to the mic.
Q - John Pitzer
But you know Sanjay, I think there’s a saying that kind of goes once you join the CIA or the Mafia you can never leave. You are kind of making that true for memory CEOs, after a very distinguished career at SanDisk, you have now been at Micron for about 18 months I believe, you didn’t have to come back. It might be interesting for the audience to hear, what did you see either at an industry level or specifically at a company specific level that made you want to come back?
So, first of all, let me just say, it’s great to be here. Thank you, John for inviting us. And of course during the presentation -- course of the discussion over the next 45 minutes or so I will be making certain forward-looking statements, so please do refer to our SEC filings, which we may from time to time related to the various risk factors of the business.
So, John joining Micron 18 months ago, absolutely very, very excited at the time and continue to remain very excited. First of all, when you look at having both DRAM and NAND, as well as a 3D XPoint kind of technologies under the same roof at Micron it absolutely is a company that has I believe the best technology portfolio in the world, because there are six companies that have NAND, there are three companies that have DRAM, there are only two companies that have 3D XPoint, Micron is the one that actually has all three and is the only one that has all three of these technologies.
That really excited me. But coupled with all the market trends today in diversified markets for DRAM as well as NAND, secular demand trends and, you know, a trend of artificial intelligence absolutely requiring more and more memory and storage across applications whether it is your cloud data center or it is your smartphone or autonomous vehicles of the future. So very exciting to look at the demand trend for the future having a strong technology portfolio and absolutely having tremendous potential that the company can yet capture by speeding up its execution, by accelerating its technology cost effectiveness, driving mix of high value solutions. This is what really excited me about joining Micron 18 months ago and it absolutely keeps me totally excited when I look at where Micron is, how well it is positioned and we like to say that the industry is structurally different and Micron is structurally different, it’s a new Micron today.
We whole wholeheartedly agree with you on the structural view but as you know there is always going to be a cyclical element to this industry and period of digestion. On your last conference call you talked about some of those issues around inventory digestion at some customers within the hyperscale space. This industry is hard enough to try to analyze when it’s just looking at business fundamentals. You are being forced to now incorporate political views as well around China tariffs and escalating trade tensions.
I’d be kind of curious if you could give us kind of your view of the near-term demand environment and specifically as we transition from the end of this year and the beginning of next year when we see the extra $200 billion in tariffs or the move from 10 to 25. How you think that might impact the near-term demand environment.
I think you have a lot of things in that question here. Let me first say that yes we did say in our last earnings call that inventory adjustment across certain customers, as well as CPU shortages impacted our fiscal Q1 outlook and the inventory adjustment particularly in enterprise, in cloud, as well as in graphics -- that inventory adjustment during the course of the quarter was certainly challenging.
And we saw that overall demand also and the market - overall market environment weakened through the course of the quarter. So, consequently, we had guided in the last earnings call for our revenue range for FQ1 to be $7.9 billion to $8.3 billion and our quarter is not finished yet. It actually finishes tomorrow. But I will share with you how we see it tracking. We expect our revenue for FQ1 to be near the low end of the range that we guided to previously.
And, overall, Micron continues to execute actually very well and we had guided in terms of EPS to $2.95 plus or minus $0.07 in our last September earnings call, through strong execution; we actually see our EPS for FQ1 to be somewhat above the mid-range that we had guided to, mid-range -- midpoint of the range that we are guided to, midpoint being $2.95, we see it somewhat above the $2.95. And I think what’s important to understand is that, that is very robust level of profitability for the company and the company absolutely continues to execute well. Now, you also ask…
Talk about tariffs as well and how the impact -- how you see the impact unfolding as we go from the end of this year to the beginning of next year?
Okay. So with respect to tariffs in our September earnings call we had said that we see mitigation for tariff happening over the course of two to three quarters and we had shared with you that in FQ1 we see an impact of 50 to 100 basis points on our gross margin as a result of the tariff.
And I’m pleased to share with you that our activity is related to the mitigation of tariff has really proceeded very well. We expect that by end of December 90% of the tariff mitigation work would have been completed. So in FQ2 it would be less than the impact than what it was in FQ1. And our mitigation activities have really proceeded very well. So after the end of December the effect of tariffs on our business becomes really pretty minimal. So we are very pleased with the progress that we are making there.
That’s helpful. It’s clearly a very dynamic time right now. I want to get an update from your perspective of how you see supply growth both in DRAM and NAND for next year for the industry and how we should be thinking about it for Micron.
Certainly. And you know when you look at in terms of overall demand trend in the industry are absolutely vibrant. When we earlier talked about inventory adjustment happening in cloud and enterprise and graphics, what’s important to understand is that is inventory adjustment impacting near-term some of our demand to our customers but their end market applications, their end market demand continues to be vibrant.
Some of the effect is due to inventory adjustment and this inventory adjustment we expect you know well - inventory adjustment, as well as we have talked about CPU shortages. And you know both of these affected our FQ1 and both of these CPU shortages, as well as in terms of the inventory adjustment this may take a couple of quarters to work through the system. But the end market demand drivers in terms of AI, machine learning, applications and smartphones and data centers and cloud, IoT, all of these end market demands drivers continue to be solid.
In terms of the supply, what we had talked about in the earnings call was that for fiscal year -- for calendar year ‘18 the NAND supply growth approximately 45% and DRAM supply growth somewhat above 20% and for fiscal year ‘19, we had said that NAND supply growth 35% to 40% and for DRAM industry supply growth we had said in the September call approximately 20%.
So you know you are well aware of various parts of the industry, have talked about some of the CapEx cuts that have been made both on the NAND side, as well as on the DRAM side. So I would think that on the DRAM side the supply in calendar year ‘19 perhaps could be a little bit less than 20% or near 20%.
And when I look at inventory adjustments as well as some of the effect of the CPU shortages and those seeking a couple of quarters to work through the system and I look at the overall effect on calendar year ‘19 from the demand side you know it could be that the demand, it would be somewhat less than the supply growth in calendar year ‘19.
However, second half of calendar year ‘19 improved stronger demand compared to the first half because first half is just working through the inventory and just went in overcoming the effect of the CPU shortages.
And it could be that some of the supply cutback, CapEx reduction et cetera that have been talked about on the DRAM side, maybe a little bit more is needed as well to further accelerate overall industry environment.
But what I would say for DRAM is that the DRAM help in terms of profitability of the market absolutely continues in my outlook for the industry and certainly for Micron absolutely continues to be pretty strong. I mean the profitability levels of DRAM are throughout calendar year ’19, expect them to be on the strong side.
Now with respect to NAND, for calendar year ‘19, 35% to 40% supply bit growth and some of the reductions have been talked about in this area and it could be perhaps a little bit more reduction is needed on the NAND side.
I would expect that NAND also as we get to 96-layer transition in calendar year 2019, NAND will start seeing decelerating supply bit growth. So I do expect that yes today, NAND has some oversupply situation, but I do expect NAND’s industry to have improved balance by the time we get to the second half of calendar year 2019 as well.
I appreciate that. I appreciate the fact that you probably can’t get into too much more details about the November quarter other than the topline and bottomline guidance you have given us, but I want to explore little bit more the dynamic of the over executing as a good execution that’s allowing you to drive higher levels of profitability on lower levels of revenue. I think coming in to the seat, one of the observations that are -- that’s driving your philosophy is that on an exponential curve like Moore’s Law, you just can’t be a fast forward and you have had a strategy in place to try to close the cost gap. I wonder if you can give us an update. Let’s start first with DRAM on how you see yourself executing on closing that cost gap, where are you today and how do you think that looks 12 months from now.
We are making very good progress in terms of accelerating our technology development in closing the cost gap with the best in class. We discussed at our Investor Day in May that in DRAM in 2017, our cost gap of the leading technology node was 15%.
And we have been focused on accelerating our technology nodes and good progress there, very good progress with our 1Y DRAM technology node and absolutely good work continuing to happen on our 1V and beyond technology nodes as well.
Over the course of the next several quarters to few years we absolutely see the cost gap continuing to narrow and this is absolutely a very important, a very high priority for the company and we are executing quite well in that area.
And of course, we are translating the strong technology capability into the production capability by ramping in a prudent fashion the new technology nodes managing supply of bit growth appropriately but strengthening our cost position as well.
And along with the cost aspect we are, of course, also focused on strengthening our high value solutions. And in the DRAM area with our GDDR6 solutions as well as low power DRAMs, we have definitely continued to do very well over the course of the last several quarters and we remain focused on strengthening our portfolio of DRAM solutions towards high-value solutions such as HVM which goes into data filter applications for the future.
But on the NAND side, just want to share something with you. I mean, of course, our technology bases is excellent. We have the lowest cost 64-layer NAND technology in the industry with CMOS under the Array and with Micron driving not only TLC, but also being the first to introduce QLC-based products. We are in very good position with our technology in a strong leadership position at the NAND’s technology level.
We are focused on strengthening our portfolio of high value solutions in NAND, such as FSD, such as managed NAND solutions that go into smartphone applications and we are making very good progress there as well.
Let me just share with you one metric, about 4 years ago, it used to be that about 80% of Micron’s NAND production revenue [base] [ph] would get sold as components. Now we have 60% of our revenue [base] [ph] going into high value solutions. So only 40% now going into components and it’s our goal that by 2021 to have 80% of our NAND revenue [base] [ph] going into high value solutions.
So we are continuing to make great progress in NAND, FSDs and Managed NAND. Our share is still relatively low in this part of the market. As we develop our NVMe products, which we talked about at the last earnings call, we look at positioning ourselves for share gains. We will be having those products -- NVMe products, clients and consumer in 2019 and enterprise and cloud in late 2019. So as we bring those products to production, we will be in 2020 I look at again opportunity to regaining share with SSD.
Managed NAND solutions in mobile, we are absolutely doing really, really great in terms of continuing to drive good adoption and our share relatively is low both in SSD, as well as in Managed NAND and I absolutely look at that as a great opportunity. But, again, these are all elements of the new Micron, which focus on cost competitiveness, as well as accelerating our product execution towards increasing the mix of high value solutions.
Sanjay going back on the DRAM side of things, I think one of the concerns I hear from investors as you continue down this journey to close the cost gap is that you have publicly stated your adoption of EUV is probably going to be later than others and I think there is a view in the investment community that might mean that your gap widens again. Can you just kind of help us understand why you seem to be adopting EUV later than others, one? And two, does it have any implication on your ability to close that cost gap?
So, we are adopting EUV later than perhaps others as you put it, because we have confidence in our technology roadmap that we can achieve with immersion, with pattern multiplication, which Micron had pioneered 10 years ago and Micron has that kind of innovation capability.
Our engineers and our R&D team has determined that we can exercise pattern multiplication not only through 1Z generation after 1Y and 1Z, but also through 1 alpha and 1 beta generations. And we discussed this in detail at our Investor Day in May.
And the point is that with multiple -- pattern multiplication instead of EUV, we have a roadmap of low cost technology and we believe that in this timeframe that we are talking about all these nodes, EUV will be more expensive to be deployed to DRAM production rather than patent multiplications. So we believe our roadmap positions are very well to continue to achieve cost reduction objectives that we have for the future.
And I think it’s also important to understand that of course, we have R&D capability in UV. We have UV machines inside Micron, and we absolutely continued to evaluate it, and our assessments based on comparison of our technology roadmap is to apply pattern multiplication versus EUV for generations through 1 beta technology from a cost point of view.
You preempted my follow-up question. I wanted to make sure that the adoption of the EUV is not a technical issue as much as a relative cost issue?
That’s right. Exactly. Exactly.
Perfect. Sticking with DRAM for a bit before going back over to the NAND market, I think one of the things that’s interesting and different about this cycle is that the DRAM manufacturers actually started making capacity adjustments well before sort of pricing peaked and profitability peaked was not something we typically see. You talked about in my comments - in the comments about the vision about how the industry has structurally changed.
I’m kind of curious as you think about the costs per bit going up in DRAM, how does that make you want to manage the current environment around your own inventory levels, and quite frankly your own utilization level in a world where you are getting 30% cost downs in DRAM, it kind of makes sense to keep utilization high until you are at cash cost. In a world where you might only be getting 5% to 8% cost down every year, you might want to drop that utilization more quickly just like you might want to drop CapEx more quickly. How do you see that dynamic playing out in the near-term?
So I just wanted you to know that we are regularly assessing the demand site, absolutely assessing our technology status, and yield and production ramp status of the new technology nodes, and we are always assessing what is the best balance for us in terms of our own production output, our own our own CapEx, as well as our own inventory level.
So you are right to point out that you know as the cost of cost declines continue to lessen and lessen with each successive technology generation, because of the increased complexity as well as increased CapEx that is required from one node to another node with lessening cost reduction, you certainly if you choose to can carry more inventory than what you would do in the past.
These are the kind of -- our inventory levels are at very good level for the size of the business that we have, but these are all the norms that we have in terms of overall managing our business. I mean, it is certainly about CapEx, it is certainly about how we ramp our new technologies into production and adjust the bid output depending upon the market needs, and certainly, work with our inventory.
We are absolutely focused on making ourselves very lean in terms of -- lean operations in terms of how we manage inventory that means finished goods inventory, et cetera, we always want to keep it at the lowest possible level. If any inventory, we’d rather keep it at the wafer level because our markets are very diversified now, so demand can come in from different parts of the market. So if we keep it in wafer level, we can easily convert it into different parts of the market segments to a certain extent.
That’s helpful. Switching over to the NAND side of the market, I think, that the current oversupply situation is probably worse than many industry observe and start coming into this year. I’m wondering if you can help us understand kind of some of the dynamics that you think drove that. Is this the move from 32-layer to 64-layer, was it just a lot more productive than people think and as we think about the industry going from 64-layer to 9x, I will call it x, because different companies have different acronyms to 120x. How do we think about the big growth per wafer in the supply side on the NAND side?
So I think on NAND, what is important to understand is that industry primarily transition from the last node of 2D NAND to 3D NAND with the 64-layer technology and that transition is an inflection point in the industry, one time inflection point going from 2D to 3D that gave you a lot of big growth per wafer. Of course that transition from 2D to 3D took significant amount of CapEx as well. So when we look at the oversupply situation right now it is the result of the transition which differs from 2D to 64-layer 3D, which industry by and large has now completed.
Going forward, when you look at 64-layer to 96-layer, you will have less output gain per wafer far before as you make that transition. So this is why we say that the supply growth will start dampening as we go in the future years for the same reasons that technology is becoming more complex and it gives you less supply bid growth per wafer.
Just like we talked about for calendar year ‘18 we expect supply bid growth to be approximately 45% percent for calendar year ‘19 35% to 40% because calendar year ‘19, the 96-layer transition will be happening which will be giving you less big growth for wafer and that’s why we look at second half of 2019 for NAND certainly better than the first half as the big growth continues to dampen during the course of the year.
And I think what’s important to also understand for NAND is that the end market drivers for NAND particularly with elasticity of NAND, displacement of HDDs by SSDs in cloud and data center applications, as well as increasing the tax rate of SSDs in your notebook, all of these trends actually absorb NAND output given the elasticity of the market fairly well.
You will see average capacities over time certainly can have some lag. But over time average capacities in notebook PCs of SSDs will increase supported by attractive price points of NAND driving demand signals stronger. Similarly you will see stronger displacement of HDDs with SSDs and cloud and enterprise again driving those.
So these demand drivers and you will see average capacity continuing to increase for NAND, as well as for DRAM and smartphones as well, because in the future all the trends on 5G, et cetera, they only require more memory and more storage.
Well, just to drill down a little bit deep on that. Maybe I can play devil’s advocate. I think despite what was a very strong big growth quarter for you -- for Micron in the August quarter, there’s still I think a lingering concern out in the investment community that the price decline in NAND was greater than we all thought this year. I mean really haven’t seen that elasticity kick in specifically in the HDD to SSD market. You pointed out in your answer that there’s sometimes a lag, is that what we are seeing, is there another dynamic, I think, there is a real concern with investors I talked to that maybe this price elasticity thing isn’t going to happen, what sort of your view on that?
So first of all let me point out that Micron in our fiscal fourth quarter that had ended in August, we actually produced excellent gross margins for our NAND business 47% gross margin for NAND business and that just shows how strong our execution is going in the NAND side that even in a quarter that had double digit price decline in our FQ4 we produced in FQ4 that ended in August of 47% gross margin.
So continuing to be very healthy because price decline come in line with the cost declines as well and that overall supports the health of the business. Even for FQ1 the update that I just did why did you earlier that we look at our EPS at somewhat above the mid-range of the EPS guidance we had provided before. Just goes to show that our DRAM, as well as our NAND businesses even in this kind of market environment are very healthy. So we are executing well on this front.
And yes, in terms of the attach rate or average capacity increases, it definitely does take some time, because new platforms have to be designed. They have to be rolled out into production to do a thing definitely affect them and don’t forget, I mean, there has also been some of the effect of CPU shortages you know impacting some of these things as well.
On a cost basis your NAND is now world class. You talked a little bit about the mix and moving up the stack. Can you help us understand and maybe I will use a baseball analogy what inning do you think Micron is in relative to moving up the value added stack within the NAND vertical and what are the key things we should look at it, is it really NVME qualifications what are the drivers should we be thinking about.
So, I would say that with the effect to our share on the managed NAND solutions, as well as on SSD our share is still low and we have a lot of opportunity to continue to gain that share. And that is an important part of how we see over the course of next few years as high value solutions increase in our revenue mix. We will add to our profitability levels going forward as well.
You may recall that at the Investor Day we had discussed that through strong execution and focus on cost reductions and managing our business better and bringing in high value solution from the end of fiscal year ‘16 to fiscal year ‘18, we had brought in $6 billion of operating profitability improvements to the business.
And so if you are assuming the industry environment was same as before, we brought in $6 billion of operating profit improvement with high value solutions and cost competitiveness, and we had also shared that for the next three years, going from ‘18 to ‘21, another $3 billion of operating profit improvement is what we are working towards.
And we continue to make good progress in these areas, and of course, having high value solutions such as SSD, such as high performance DRAM, such as managed NAND solutions and increasing share in these aspects is an important part which I feel very good about our ability to execute.
And I think I commented earlier on NVMe that we are focused on developing our NVMe solutions and we have clearly looked at bringing those products during the course of calendar year 2019 and as we ram those products into production, I believe it will give us opportunity yet again from 2020 onward in SSD to gain share. Multi-chip packages, I absolutely look at on an ongoing basis, Micron continue to do very well.
I think what’s important to understand is that the long-term trends on the demand side, whether you look at cloud or enterprise or smartphones and things driven by AI and machine learning, autonomous vehicles, all these things are requiring more memory and more storage.
I just want to share one data point again with you that, today AI workload servers represent just a sliver, less than 5% of the total servers and those AI-based servers require 6 times more DRAM and 2 times more NAND than a standard server. So and by 2025 half of the servers in the data centers would be you know AI type of workloads, so that points to strong opportunity, that’s just one example and same example apply in other areas.
So we are just when you look at these market opportunities, we are absolutely focused on continuing to strengthen and broaden our product portfolio to address the growing market opportunities and we work very closely with the customers in terms of understanding how we bring greater value to them, greater value that’s more than just price for bid.
It’s really value that enables our customers from their customers to drive more value and in the process Micron to build more value. So we -- I would say, we have made great progress over the last two years to three years and we have still some ways to go, and I’m excited about our opportunities and our execution capabilities.
Sanjay, as CEO, one of the most important jobs you have is allocating capital, it can also be one of the most difficult jobs you have. I wonder if you could talk a little bit about the CapEx guidance you gave for this fiscal year of about $10.5 billion, on the surface holistically it looks like a big increase and I know that investors relative to what’s going on in the pricing environment, the demand environment get a little bit nervous about that increase. Talk about how you came to that decision, how you think about capital allocation and really what that increase is driving?
So I think it’s important to understand that the increase that we pointed to in the last earnings call for fiscal year ‘19 in CapEx, $2.5 billion of that $10.5 million plus/minus 5%, that we had guided to at the last September call, $2.5 billion of that is going toward new clean room space, new shelf space construction of the building, construction of these fab spaces is expensive.
So that $2.5 billion doesn’t go toward any big growth per se, it’s really going toward building the shell and the rest is going toward equipment CapEx that ultimately drives the supply bit growth. So we look at CapEx absolutely from an ROI point of view actually any part of our OpEx and CapEx we are extremely focused on looking at it from ROI point of view.
And as we monitor this on a regular basis in terms of looking at demand and supply and technology transition status to assess, how to best manage our CapEx or our ramp up of new technologies affecting the output in the fab.
So what we look at CapEx is, generally speaking, low 30%, low 30%s of our revenue some years maybe a little bit higher some years perhaps a little bit lower that’s -- and we apply a lot of discipline in terms of ROI and constant look at the CapEx in terms of deciding at any given time what is the best way to approach the next 12 months of CapEx.
And clean room space is important, because we are totally focused on only technology transitions. We are not adding the wafer capacity. We are not adding new wafers. But when you talk about technology transition for new technologies you need to bring new tools into the fab those new tools need additional space and that’s why we build these new shelves in Singapore for our NAND for 96 layered NAND transition and in Hiroshima for our 1Y DRAM transition we need that clean new space and that’s where the $2.5 billion most of building just the clean room space, but the CapEx from our equipping point of view, somewhat of an increase.
But remember, we pointed out that our NAND equipment CapEx in fiscal year ‘19 is actually lower than NAND equipment CapEx in fiscal year ‘18. So, you can see that we are always prudently watching this and making adjustments and we continue to assess our CapEx and our output plans both for DRAM, as well as for NAND.
Sticking with capital allocation, another use of capital, you decided on for this fiscal year is you have actually -- decide to exercise your option on IMFT come the new calendar year. Can you help us walk through why you decided to do that, and I guess, it’s a little bit of a concern, because right now you are a little bit further behind on the -- on productizing IMFT, you are actually taking some underutilization charges in the current P&L, how do you think about developing that capacity and the economics of that capacity longer term?
As I said in the very opening, 3D XPoint, we absolutely look at it as a very exciting technology opportunity, a very exciting technology opportunity that can apply and towards memory semantic, as well as towards storage semantic.
So, Micron has done a great job in developing this technology, but in terms of products, we staffed our resources in this area only in the second half of last year. So as we have said before, we will have our first product sample with 3D XPoint in late calendar 2019, where revenue opportunities starting to build in 2020 -- calendar 2020 following customer qualifications.
So, we look at this as a unique differentiator for the company, again having a DRAM, NAND, as well as 3D XPoint and being able to address the full stack of memory and storage applications for a data center, as well as looking for working with customers in terms of looking at 3D XPoint technologies in other parts of the market segment as well.
So, 3D XPoint, IMFT, joint venture I think that’s what you are asking about. We announced that we will -- we have an option starting January 1, 2019 to call for the interest of Intel in their joint venture and we announced that we intend to exercise that option, which is available to us starting January 1, 2019.
And it’s a great opportunity for Micron. We believe will provide strong shareholder return. It will impact when we exercise to close that transaction. It will mean about $1.4 billion to $1.5 billion of cash outflow.
In terms of that joint venture, it’s already consolidated in Micron’s both and the CapEx guidance, et cetera we provide. It already takes care of those aspects as well in terms of CapEx being in low 30s of our revenue and as we bring our products to the marketplace, we will be able to utilize that joint venture for production of 3D XPoint, which is very, very important differentiated technology and product opportunity for us in the future.
And I think important thing to understand is that this joint venture facility, which is in IMF -- in Lehi Utah is actually the only manufacturing site in the world that manufacture 3D XPoint and has been doing so now for a few years. The tremendous engineering and manufacturing capability at that site and we will look forward to having that team become part of Micron, it will strengthen Micron’s future position even further.
And relative to filling capacity, a point of closure, Intel will still have a supply agreement with you for at least six months, and perhaps, as long as the year, is that correct?
So let me be clear that once we exercise our option, Intel will have the option to decide when the transaction is closed. It can be closed six months later or 12 months later after our call is exercised. And so during that period, Intel will be taking until it closes, it will be taking its portion of the joint venture production output.
Our output will either continue to be idle or if Intel have additional demand for it, we will be prepared to supply that demand to Intel or once our products are ready, we will be able to use the capacity for those products as well. So after the transaction closes, there’s a certain period of time that we can still continue to supply output depending upon Intel’s needs.
Third element of capital allocation, I think probably the second most impressive thing is that the Analyst Day beyond the $6 billion of operational efficiencies was the buyback authorization. If you look at the valuation of the stock today, it’s very cheap, especially if you believe in the operational efficiency gain to-date and what lies ahead of you, where does buyback sit in your priority and how should we as investors think about the pace of buying - of completing that authorization?
Right. So we had announced buyback in -- at our Investor Day in May, and I absolutely believe that our stock is undervalued, particularly considering not only the pace of operating profit improvements that we are bringing, $6 billion plus the $3 billion that I discussed earlier, but also looking at overall demand drivers in our market.
And the supply trends and healthy environment and strong ability to generate free cash flow even in times where pricing may come down, the fundamentals of profitable are strong and Micron has strong capability to continue to produce healthy free cash flow as well.
And so we absolutely did say that we will be putting in more than 50% of our free cash flow on an annual basis toward the share buyback and we had also talked about in the September call that we’d be looking at opportunities to accelerate that share buyback. And in FQ1 itself in our September call, we had said that we will be buying back more than $1.5 billion and I think if you look at our recent 10-K, we will show you that we have in place share buyback for fiscal Q1 that points to $1.65 billion plus.
Perfect. With that I think we have run out of time in this setting. But I want to thank everyone in the audience for joining us and most importantly for Sanjay to spend the last 45 minutes with us discussing Micron. Thank you very much.
Thank you. Thank you for your time.