Source: Seeking Alpha
Micron Technology (MU) Q4 2014 Results – Earnings Call Webcast Audio
Micron Technology, Inc. (NASDAQ:MU)
Q4 2014 Earnings Conference Call
September 25, 2014 16:30 pm ET
Kipp Bedard – VP, IR
Mark Durcan – CEO
Mark Adams – President
Ron Foster – CFO, VP, Finance
CJ Muse – ISI Group
Betsy Van Hees – Wedbush
Romit Shah – Nomura Securities
Mark Delaney – Goldman Sachs
John Pitzer – Credit Suisse
Rajvindra Gill – Needham & Company
Vijay Rakesh – Sterne Agee
Alex Gauna – JMP Securities
Mark Newman – Bernstein
Good afternoon. My name is Kate and I will be our conference facilitator today. At this time, I would like to welcome everyone to Micron Technology’s Fourth Quarter 2014 Financial Release 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’s now my pleasure to turn the floor over to your host, Kipp Bedard. You may begin your conference.
Kipp Bedard – VP, IR
Thank you very much and welcome everyone to Micron Technology’s fourth quarter 2014 financial release conference call. On the call today is Mark Durcan, CEO and Director; Mark Adams, President; and Ron Foster, Chief Financial Officer and Vice President of Finance.
This conference call, including audios and slides is also available on our Web site at micron.com. In addition, our Web site has a file containing the quarterly operational and financial information and guidance, non-GAAP information with reconciliation, slides used during the conference call and a convertible debt and capped call dilution table. If you have not had an opportunity to review the fourth quarter 2014 financial press release, again, it is also available on our Web site at micron.com. Our call will be approximately 60 minutes in length. There will be an audio replay of the call. You may access that by dialing 4045373406 with the confirmation code of 2237916. This replay will run through Thursday, October 2 at 11:30 pm Mountain Time. A webcast replay will be available on the company’s Web site until September of 2015. We encourage you to monitor our Web site at micron.com throughout the quarter for the most current information on the company, including information on various financial conferences that we will be attending. You can also follow us on Twitter @microntech.
Now please note the following Safe Harbor statement.
Unidentified Company Representative
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 Web site. Although, we believe that the expectations reflected in the forward-looking statement are reasonable, we cannot guarantee future results, levels of activity, performance or achievement. 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.
Kipp Bedard – VP, IR
I’ll now turn the call over to Mark Durcan. Mark?
Mark Durcan – CEO
Thanks, Kipp. We had another strong quarter benefiting from robust market demand as well as solid operational execution. We set a new record for revenue of over $4.2 billion for the quarter. Net income was $1.15 billion or $0.96 per diluted share. For the fiscal year 2014, we generated record revenue of $16.4 billion, record net income over $3 billion, and record free cash flow of $2.6 billion based on record operating cash flow of $5.7 billion less CapEx of $3.1 billion.
As we enter fiscal 2015, I’d like to touch on a few key areas of focus as well as provide a brief industry update. Ron Foster will follow with a financial summary and before turning to Q&A, we’ll close our prepared comments with Mark Adams covering additional details of our operational performance and market conditions.
Beyond ongoing advanced component and technology development, we have three main operational focus areas for fiscal 2015. The first is technology deployment and includes continued 25-nanometer DRAM conversion and 20-nanometer DRAM ramp, completion of 16-nanometer planar NAND conversion and introduction of 3D NAND, TLC NAND deployment for cost sensitive applications and building out our capability to deliver advanced packaging solutions and controllers.
The second is optimizing manufacturing capacity, which includes improving our manufacturing efficiency through line balancing, cycle time, yield, and metrology initiatives, and managing our product mix in order to generate the best possible long-term margins and returns for our business.
And finally in 2015, we will focus on growing our memory systems and subsystem solutions, including expanding the market penetration and our offering breadth of our advanced bit addressable memory solutions, building additional storage solutions such as enterprise SSDs, and designing new and innovative mobile memory systems solutions.
As we outlined at our Analyst Day last month, fiscal 2015 CapEx is expected to be in the range of $3.6 billion to $4 billion. Roughly 30% of this CapEx will go towards non-supply expanding investments, including manufacturing efficiency improvements, emerging memories, backend capability and additional system manufacturing and engineering tooling to support system and subsystem level products. This compares to about 25% of our $3.1 billion CapEx bill in fiscal 2014, and highlights our belief that these investments, which are designed among other things to enhance our value-added product portfolio will generate some of the highest returns going forward.
In terms of the more traditional investments in memory process technology, DRAM will represent about 50% and NAND will represent about 20% of our total CapEx in 2015. This compares to roughly 45% and 30% to 35% respectively in 2014. We expect the bit growth we generated from technology in calendar 2015 to be in line or below the market for both DRAM and NAND. Our big growth profile is reflective of the strategy to grow the mix of premium and value added products while maintaining and improving operational efficiency and costs. While this will lead to less pure supply growth, we expect we will generate more attractive and sustainable margins over time with this approach.
Our long-term outlook for the memory industry remains favorable. For DRAM, we are forecasting 2014 industry supply growth of around 30%. In 2015, we expect DRAM industry bit growth in the low to mid 20% range, and beyond 2015 we expect industry supply growth to slow somewhat ranging from the high teens to mid-20s. Part of this encouraging supply trend is due to the fact that 20-nanometer and sub 20-nanometer process technology ramps significantly reduce the wafer production for existing clean room space.
We believe the DRAM industry; supply demand balance will continue to be favorable for the foreseeable future. Demand elasticity has declined from historical levels, and cost per bit is no longer the major factor driving demand growth. For NAND, we are projecting industry supply growth in the high 30% to low 40% range for 2014. This includes an increase in industry wafer production of just over 10%, with the remaining supply growth coming from technology.
We expect 2015 industry supply growth to be in the high 30% to 40% — to mid-40% range, beyond 2015 when 3D becomes more prevalent in the market, supply growth will depend on new capacity investment. Although 3D technology drives a significant increase in bits per wafer, without capacity investment, this is offset by substantial decreases in wafer output per square foot of clean room space.
The demand profile matches up well with the existing supply growth rate and we also believe that due to elasticity of demand for NAND and client enterprise storage applications, the demand growth could be significantly higher over time. At Micron, we will continue to manage our NAND business, focused on long-term returns.
I want to congratulate the whole Micron team for a tremendous year. We look forward to building on the success in 2015. The memory industry continues to look very attractive. We’ve never been better positioned to deliver differentiated value for our customers and shareholders.
I’ll stop here and turn it over to Ron and Mark before turning for Q&A. Ron?
Ron Foster – CFO, VP, Finance
Thanks Mark. Our fourth quarter 2014 and fiscal year ended on August 28. We posted to our Web site a file containing the financial information I will cover including GAAP and non-GAAP results, certain key metrics for fiscal 2014, the fourth quarter, as well as guidance for the first quarter of fiscal 2015.