Inventory clearance in the final stage, AI adds new momentum (Micron 3QFY23 conference call)

Micron Technology (MU.O) released its fiscal Q3 2023 earnings report (ending in May 2023) after the US stock market closed on June 29, 2023. The key points are as follows:

1. Revenue: Micron Tech.US generated $3.752 billion in revenue (YoY -56.6%), slightly exceeding market expectations of $3.702 billion.

2. Gross Margin: The GAAP gross margin was -17.8%, better than the market expectation of -22.9%.

3. Net Profit: The GAAP net profit was -$1.896 billion, slightly better than the market expectation of -$1.916 billion.

4. Business Segments:

(1) DRAM: Revenue from DRAM was $2.672 billion (YoY -57.4%), accounting for 71.2% of the total revenue. The market expectation was $2.632 billion. The shipment volume (in bits) increased by approximately 10% QoQ, while the average selling price decreased by approximately 10% MoM.

(2) NAND: Revenue from NAND was $1.013 billion (YoY -55.7%), accounting for 27% of the total revenue. The market expectation was $0.955 billion. The shipment volume (in bits) increased by upper 30-percentage range QoQ, while the average selling price decreased by mid-teens percentage MoM.

(3) Others: Revenue from other products was $0.067 billion (YoY -19.5%), accounting for 1.8% of the total revenue. The market expectation was $0.122 billion.

For more detailed financial information, please refer to Dolphin's analysis article: "Micron Technology: Riding the AI Wave, Is the Turning Point Here?"

2. Conference Call Highlights

1) Risk Exposure: Micron's revenue comes from both direct sales and indirect sales through distributors in Mainland China and Hong Kong, accounting for approximately one-fourth of Micron's global revenue. This remains a significant risk, with around half of this revenue (equivalent to a low double-digit percentage of global revenue) being exposed to potential impacts.2) Downstream Situations:① Most customers' inventories in the PC and smartphone sectors are currently close to normal levels, consistent with our forecast six months ago.

The current prices are considered temporary and unsustainable, as customers are trying to take advantage of the current prices to purchase more products before prices rise significantly. ② Customer inventories in the data center sector are also improving and may return to normal around the end of this calendar year or later, depending mainly on the growth of traditional data center spending. Cloud and enterprise revenues in the third quarter have shown strong consecutive growth;

3) Generative AI: The adoption of generative AI is driving industry demand for AI server memory and storage at a higher rate than expected. Among them, the usage of DRAM in AI servers is 6 to 8 times that of regular servers, and the usage of NAND is 3 times that of regular servers;

4) Industry Outlook: Expectations for industry demand growth in 2023 have further reduced to mid-single-digit for DRAM and high-single-digit for NAND, much lower than the expected long-term CAGR of 10% for DRAM and 20% for NAND. While AI-driven demand is stronger than our expectations three months ago, demand forecasts for PC, smartphones, and traditional servers are now lower. ;

5) Capital Expenditure: The capital expenditure plan for fiscal year 2023 is $7 billion, a decrease of over 40% from last year, with WFE down over 50%. We still expect net income to decline YoY in fiscal year 2024. Recently, we further reduced the wafer start rate for DRAM and NAND to around 30%. We currently expect the decline in wafer start rate to continue until 2024 as we continue to focus on inventory management and supply control;

III. Transcript of Conference Call

Management Remarks

Revenue for the third quarter of fiscal year 2023 was within our guidance range, with gross margin and earnings per share above the guidance range. The continued improvement in customer inventories and growth in memory content are driving industry demand, while industry-wide production cuts continue to help reduce excess supply. As a result, pricing trends are improving, and our confidence in the industry's quarterly revenue bottoming out and YoY revenue growth is increasing. Our technology leadership position and strengthened product portfolio, as well as growth in different markets, including artificial intelligence and memory-centric computing.

We expect to see record TAM in 2025, followed by a return to more normal levels of profitability. The impact of the decision by the National Internet Information Office on our business, issued on May 21, is still uncertain and unstable. Some key information infrastructure operators or government representatives in China have contacted several Micron customers, including mobile host manufacturers, regarding the future use of Micron products. As previously stated, revenue from Micron's operations in mainland China and Hong Kong, including direct sales and indirect sales through distributors, accounts for about one-fourth of Micron's global revenue and remains a significant exposure.We estimate that approximately half of this revenue (equivalent to a low double-digit percentage of global revenue) is at risk of being affected. This significant headwind is impacting our outlook and slowing down our recovery. Micron is working hard to mitigate this impact over time and expects increased revenue variability from quarter to quarter. Micron's long-term goal is to maintain its global market share in DRAM and NAND.

In terms of core technology, Micron continues to lead the industry in DRAM and NAND technologies. We are making cautious investments to maintain our technological competitiveness while managing capital expenditures. Node ramps and wafer starts are decreasing to align with demand and reduce our bid supply. Our industry-leading 1-β DRAM and 232-layer NAND nodes are achieving world-class yields, ramping faster than any of our previous nodes. These leading nodes offer strong cost capabilities and best-in-class power and performance specifications, which will be fully leveraged in our DRAM and NAND product portfolio.

In the third quarter, we achieved several important product qualifications on these advanced nodes and prepared for their ramp in fiscal year 2024. We are also making good progress on the introduction of EUV-based 1-γ nodes in 2025. These nodes will initially be manufactured in our Taiwan fab, where we have installed and operated EUV capabilities in preparation for the ramp. We recently announced plans to introduce EUV technology into our fab in Hiroshima, Japan, with the support of the Japanese government. Micron will be the first company to bring EUV technology into production in Japan.

We are also advancing our global assembly and test network to support our product portfolio and expand our future capacity to meet global customer demand. In China, we announced an investment of approximately $600 million in Xi'an over the next few years. This builds on our long-term investment in assembly, packaging, and testing operations in Xi'an. As part of this investment, we have decided to acquire the assembly equipment of our partner Powertech Semiconductor in Xi'an, which has been operating in our Xi'an fab for the past eight years. We also plan to construct a new building in our Xi'an fab to provide space for increased product capabilities. Over time, this will enable us to meet the growing demands of our customers in China.

In India, with strong support from the Indian government, we will establish a new assembly and test facility in the state of Gujarat to meet the demand in the latter half of this decade. We have also increased our investment in high-bandwidth memory product assembly and test capabilities in Taiwan to address the strong demand in this segment driven by the AI wave.

In terms of the end market, customers continue to make progress in reducing excess inventory. Most customers in the PC and smartphone segments currently have inventory levels close to normal, consistent with our forecast six months ago.The current prices are considered temporary and unsustainable, and customers are trying to take advantage of the current prices to purchase more products before a significant price increase, which may distort some inventory levels. Customer inventory in data centers is also improving and may return to normal around the end of this calendar year or sometime thereafter, depending on the growth of traditional data center spending. In the data center segment, we have seen strong sequential growth in cloud and enterprise revenues, driven by a recovery from the weak sales levels in the second quarter.

Recently, the adoption of generative AI has accelerated the demand for AI server memory and storage beyond expectations, while the demand for traditional servers in mainstream data center applications remains sluggish. Micron's product portfolio and innovative product roadmap enable us to capitalize on growth opportunities from AI and data-centric computing architectures. As the number of parameters grows exponentially, larger AI models are driving the need for higher memory content. As we mentioned before, AI servers consume 6 to 8 times more DRAM and 3 times more NAND compared to regular servers. In fact, some customers are deploying AI compute capabilities with even higher memory content. A notable example is NVIDIA's DGX GH200 supercluster, which showcases the memory-intensive nature of AI workloads. It provides developers with the ability to support giant models with a massive shared memory space of 144TB. One joint development project between our two companies extends low-power DRAM down to the server level, achieving a significant memory footprint. We are proud to be the first to introduce this differentiated LPDRAM innovation, which significantly reduces data center power consumption and helps support our customers' green initiatives.

Driven by the demand for generative AI, there is strong demand for high-bandwidth memory for high-performance computing this year. We are working closely with customers and have started sampling our industry-leading HBM3 products. The customer response has been strong, and we believe our HBM3 products offer higher bandwidth than competing solutions, establishing new benchmarks in performance and power consumption with the support of our 1-β technology, TSV, and other innovative features, enabling differentiated advanced packaging solutions. We expect to begin volume ramp of this exciting HBM3 product in early 2024 and achieve meaningful revenue in fiscal year 2024.

Micron also holds a strong position in the industry transition to D5, the latest generation of DDR memory. From the second quarter to the third quarter, our D5's percentage of DRAM shipments has more than doubled, and we expect Micron's D5 shipments to surpass D4 in the industry by the end of the first quarter of 2024. Micron's 1-α D5 modules have been qualified and are shipping to data center customers. We have also made good progress on testing a high-density 28g D5 module that uses 32g dye, optimizing cost and performance, providing customers with a lower-cost ownership solution.For memory-intensive workloads like AI, we anticipate significant growth in these high-density modules in the second quarter of 2024. Compared to the expensive TSV-based solutions currently prevalent in the industry, the cost will be substantially reduced. Our 96-gigabit D5 high-density modules, based on Alpha technology and utilizing 24-gigabit dyes, have already been shipped in bulk. These modules offer equivalent performance to the more expensive TSV dual-dye package based on 128-gigabit modules in most workloads. In data-centric SSDs, the entire configuration now consists of either 176 or 232 layers of NAND. We have showcased our products and technological leadership, positioning ourselves strongly to meet the demand for fast storage in these data-intensive applications. In the third quarter, we launched the world's first 200+ layer NAND data center SSD, and qualification certification for installation support by multiple key customers for AI clusters is currently underway. In fact, we have already passed the qualification of this product with a critical server OEM partner. We have also introduced extremely durable data-centric SSDs that offer superior scalability and affordability compared to hard drives.

PC Market -

We now predict that PC sales in 2023 will decline by double digits compared to the previous year, and PC sales are expected to be lower than pre-pandemic levels in 2019. We are excited about the ongoing industry transition to D5 and have prepared adequately for it. With our robust D5 product lineup, we expect the industry customer D5 mix to surpass D4 in early 2024. In the third quarter, driven by the adoption of our industry-leading solutions and the growth of customer SSD market share, we achieved record quarterly customer SSD bid shipments. Our SSD QLC bid shipments reached a new high for the third consecutive quarter, with growth from both customers and consumers. Last month, we launched the critical T700, the world's fastest 5th generation consumer-grade PCIe SSD, featuring our 232-layer NAND chips.

Graphics Market -

Industry analysts continue to forecast that the CAGR of graphics temp will exceed the broader market, supported by client and data center applications. We expect customer inventory to normalize in the third quarter of the calendar year. We plan to launch our next-generation G7 product on our industry-leading 1-β node in the first half of 2024.

Mobile Market -

We now anticipate a mid-single-digit percentage decline in smartphone sales in the natural year of 2023 compared to the previous year. Despite the decline in sales, we see strong growth in memory content, driven by the shift towards high-end and foldable phones. As customers prepare for products slated for release in the second half of 2023, we expect consecutive growth in the fourth quarter. In the third quarter, we obtained crucial mobile customer qualifications on our LP5x database and began generating significant revenue for top OEMs.In addition, we have achieved significant milestones in the UFS field, obtaining certification and ramp-up for high-capacity UMCP5, which features 16g of DRAM and 512g of NAND. We have also started sampling new USS4 products based on our latest 232-layer NAND technology, which provides industry-leading performance for flagship smartphones.

Automotive and Industrial Terminal Markets—

Micron continues to maintain a leading position in the automotive sector, which is a key market and driver of growth for us. In the third quarter, our automotive business achieved record-breaking revenue and grew by a high single-digit percentage compared to the same period last year. We continue to anticipate growth in automotive memory demand in the second half of the 2023 calendar year, driven by the relaxation of non-memory semiconductor supply, normalization of customer inventory levels, and increased memory content per vehicle. The industrial market showed early signs of recovery in the third quarter, with stabilization of inventory levels among distribution partners and most customers. Therefore, we expect demand to improve in the second half of the 2023 calendar year. We are excited about our growth prospects in this market as industrial customers continue to adopt and implement IoT, AI, and machine learning in their factories.

Industry Outlook—

Our expectations for industry demand growth in 2023 have been further lowered to low to mid-single digits for DRAM and high single digits for NAND, significantly below the long-term CAGR expectations of 10% for DRAM and 20% for NAND. While AI-driven demand is stronger than our expectations three months ago, demand forecasts for PCs, smartphones, and traditional servers are now lower.

We continue to anticipate stronger industry bit shipments for DRAM and NAND in the second half of the year, driven by long-term content growth and ongoing improvement in customer inventory. Although current demand forecasts for the 2023 calendar year are lower, significant supply cuts across the industry have started to stabilize the market. We expect negative year-over-year supply growth for DRAM and NAND in 2023 due to reduced industry utilization rates and capital expenditures, which will impact supply growth. While the supply-demand balance is improving due to inventory reduction, profitability and cash flow will still face significant challenges for some time. If industry output further decreases and production cuts continue into 2024, market recovery may accelerate.

To address the industry environment, Micron has taken decisive actions to restore supply-demand balance. We expect negative year-over-year supply growth for DRAM to be significant. We also anticipate that NAND bit production in 2023 will be lower than in 2022.

Our capital expenditure plan for fiscal year 2023 is $7 billion, a decrease of over 40% compared to the previous year, with WFE declining by over 50%. We still anticipate a year-over-year decline in net income for fiscal year 2024. Recently, we further reduced wafer starts for DRAM and NAND to approximately 30%. We currently expect the decline in wafer starts to continue into 2024 as we remain focused on inventory management and supply control.FY23Q4 Outlook

As mentioned in the document and our comments today, CAC's decision has a negative impact on our prospects. We expect the revenue impact to vary by quarter, with a smaller impact in the fourth fiscal quarter compared to the first half of the 2024 fiscal year. Over time, our goal is to maintain our global market share in DRAM and NAND. In the fourth quarter, despite the impact of CAC's decision on our business, we continue to see record-breaking betting shipments due to the sustained improvement in industry demand. The fourth-quarter gross margin will be affected by underutilized costs, low pricing levels, and product mix. In the current business environment, there is a significant gap in profitability between our DRAM and NAND, and changes in the mix can result in significant variations in gross margin. Our gross margin guidance does not take into account further inventory write-downs. We continue to actively manage our operating expenses and remain on track to end the fiscal year below $850 million.

Looking beyond the fourth quarter, we anticipate an increase of over $50 million in operating costs for the first quarter of the 2024 fiscal year. This is mainly due to the expense allocation of R&D projects and a reduction in employee compensation. Taking all these factors into consideration, our Non-GAAP guidance for the fourth fiscal quarter is as follows:

• We expect revenue to be $3.9 billion, with a fluctuation of plus or minus $200 million.
• Gross margin is expected to be -10.5%, with a fluctuation of 250 basis points.
• Operating expenses are projected to be $845 million, with a fluctuation of plus or minus $15 million.
• Tax expenses are estimated to be $40 million, based on approximately 1.1 billion shares of stock.
• Earnings per share are projected to be -$1.19, with a fluctuation of 7 cents.

Q&A

Q1: How do you consider the potential changes in customer purchasing behavior due to the expected normalization of inventory in the coming quarters?

A1: We will continue to closely collaborate with our customers. As we mentioned, customer inventories are improving, with most of our other end markets approaching normal levels, except for data center inventories. For data centers, we have said that inventory improvement will occur towards the end of this year or slightly later. We will continue to work closely with our customers. Some customers are certainly more interested in the long-term outlook of the business, while others operate on a month-to-month basis. Of course, overall, we are also continuing to mitigate some of the impacts of the China decision. But the value proposition we bring to customers is constantly strengthening. Micron is very focused on navigating through the current downturn and working closely with our customers to meet their future needs. As I mentioned in my remarks, given the low prices that exist in the industry right now, some customers may consider purchasing more quantities at this time before prices start to rise significantly. However, overall, the inventory levels throughout the entire supply chain are continuously improving, including direct customers and third parties that may supply customers. As you know, supplier inventories are also decreasing.Q2: Regarding the performance of HBM3 products in the fiscal year 2024, can you provide further insights? What kind of scale can we expect in the next 3 to 5 years?

A2: We are extremely excited about HBM3. Micron has been focused on delivering three industry-leading products, including the early sampling stage of HBM3. We anticipate that the production volume of this product will start to grow in early 2024. It offers significantly higher performance in terms of bandwidth and lower power consumption. In fact, as a product, it is on the verge of surpassing any other product in the market in terms of generational leap. We have received strong recognition for this product in the market, and we expect a steep sales ramp for this product, which will provide us with strong revenue growth opportunities in the fiscal year 2024.

Therefore, we are thrilled about this outstanding product. It will be a significant growth driver for Micron. Of course, everything we do here is built on our industry-leading β technology and applied to it, along with advanced packaging, differentiated packaging, and TSV capabilities. Hence, we believe this will be a standout product for us. We expect that if we target this industry-leading product and share the market with HBM, it will also exceed our average DRAM share in the industry.

Q3: Regarding the financial guidance for the fourth quarter. I understand that you mentioned the impact of the cycle will actually worsen in the first half of the fiscal year, so is it as simple as the low double-digit impact you mentioned for the fourth fiscal quarter, or does it sound like it might be smaller in the fourth fiscal quarter, and then you expand it to this range in the fiscal year 2025. Can you provide a new hurdle?

A3: The impact in the third quarter was minimal. It will have a greater impact in the fourth quarter. The actions we are taking will help offset this impact. However, the headwinds are evident at the moment. We are taking mitigating measures, and the impact will continue to evolve, which is highly uncertain. The impact we see in the fourth quarter is already reflected in our guidance.

Q4: What changes might occur in customer relationships?

A4: Our customers are certainly engaged in long-term contracts with us. As we mentioned, LTAs are typically tied to their forecasts for the year. While some customers may have shorter terms, and others may have longer terms, generally, their terms are on an annual basis.

Long-term contracts involve commitments from both the supply and demand sides. Of course, sometimes adjustments may be made to these long-term contracts as the industry environment of both supply and demand changes. We work closely with our customers in these aspects, and we maintain a close relationship with them.

Our product momentum is very strong. You specifically mentioned the data center. Let me tell you, our product momentum aligns well with the strong solution portfolio we have for the data center, especially addressing the growing interest in AI within the data center, making AI a tremendous opportunity. We consider 2024 as an important year for AI, memory, and storage.And Micron will be in a favorable position with this product.

When we address their future procurement requirements, when we address LTA requirements, these are all part of our discussions. Of course, we have made necessary investments in our production portfolio based on strict requirements, as well as our assembly and testing requirements. We truly collaborate closely with our customers to help manage these demands.

Q5: How do you consider the overall DRAM demand with the growth of AI?

A5: When we look at the overall DRAM demand, AI is driving growth, and of course, automotive is also driving growth. As for other end markets, such as smartphones and PCs, their terminal demand is somewhat subdued for all consumers. AI-driven demand from data centers, whether in enterprises, will certainly drive a healthy growth trend in memory. Certainly, the demand for enterprise servers and some data centers has been recently affected by macro trends, but the trend of AI and more memory is definitely ongoing. That's what you know, when we look at our overall demand growth for 2023 and our previous CAGR forecast, we have taken these factors into account.

This is the early stage of AI, and AI is indeed everywhere. Cloud applications, enterprise server applications, generative AI, and other applications will also appear in enterprises because enterprises will build their own large-scale language models due to the confidentiality of data. And as you know, although the large-scale language models of enterprises may not be as large as those you see in examples like superclusters. But they do tend to have a larger number of parameters. Now we are discussing the parameters of generative AI reaching even trillions. Not long ago, these were still in the billions range, requiring more memory. So whether the application is on the enterprise side or the cloud server side, the demand for memory is constantly increasing. I want to point out that the DRAM demand for AI servers we mentioned is 6 to 8 times that of standard servers. Of course, as we emphasize, there are many computing configurations, such as the supercluster example we gave you, where the required DRAM content is hundreds of times higher than that of standard servers.

So really, I think the journey ahead of us will be very exciting. And as we focus on machine-to-machine communication, as we focus on the opportunity of virtual cycles, for growing data, applications for training large-scale inference, and various edge applications, including automotive, are driving the demand for memory and storage and will continue to maintain good growth. And Micron will also be in a favorable position with our products. We believe that 2024 will be an important year for AI, memory, and storage, and Micron will seize this opportunity with a strong product portfolio ranging from D5 to LP5, from HBM to high-density modules, and even including graphics.

Q6: How do you consider the impact of inventory write-downs on prices? If the decision on CAC does indeed worsen, and your sales are affected by 15% to 25%, is there more risk of inventory write-downs, or is this unrelated to inventory write-downs?A6: Because this topic is quite complex and involves various aspects, let's take a few minutes to discuss it. Our reported gross margin and outlook are influenced by many factors, including pricing, inventory write-downs (which include our forward-looking view on pricing), and the impact of utilization rates that you heard about today. As discussed in previous quarters, we have further increased the number of wafer starts in our fabs and leveraged the associated cost during this period. These factors are constantly changing due to market conditions and our actions. As I mentioned earlier, in a situation of lower profitability, our profit margin forecasts and performance are more sensitive to slight changes in assumptions such as pricing.

Given our current views on pricing and costs, we conducted material write-downs in the second quarter, with a write-down of $1.4 billion in the quarter and an additional $400 million in this quarter. Through these write-downs, we accelerated the recognition of inventory costs and reduced the book value of inventory on hand.

Since the clearance rate of cost inventory is relatively slow in the coming quarters, the revenue we realize in these quarters is higher compared to if we didn't have this expense. For example, we made an additional write-down of $400 million for production inventory in the third quarter. Considering our latest view on the mix of transactions, we also realized a profit of nearly $300 million by selling low-cost inventory affected by the write-down in the second quarter. So, I want to point out that due to the uncertainty, complexity, and sensitivity of these profit levels, the write-downs and earnings in the third quarter are not far off from our estimates in the guidance. I believe this reflects our handling of business development quite well.

Now, we are also experiencing the impact of reduced capacity utilization, which is resulting in higher costs and inventory, and increasing period costs. We expect an impact of approximately $1.1 billion from underutilization in the fiscal year 2023. Therefore, most of it will affect this year's P&L. Some of it will carry over to next year, but due to the impact of write-down accounting, the portion carried over to next year will be less compared to other scenarios. After this write-down impact, the decline in wafer starts will begin to affect period costs and higher inventory costs, with the impact on profit margin being in the high single digits as revenue increases, rather than dropping to the mid-single digits and lower.

So, considering all of this, I can only provide you with a rough guideline for profit margin. In turn, regarding profit margin and pricing, we projected that the second quarter would be the trough in profit margin, driven by the $1.4 billion write-down. As expected, the inventory spending in the third quarter slowed significantly, resulting in an increase in profit margin of approximately 15 percentage points. We mentioned this in the previous quarter as well. We stated that the write-down in the fourth quarter would be better than the third quarter, so our guidance today is 5 percentage points better than the third quarter.

Similarly, these estimates are sensitive to pricing changes, but based on our current perspective, we expect the profit margin to continue improving gradually on a reported basis. Now, if you consider our non-GAAP gross margin for the third quarter (-16%), we will exclude the impact of write-downs, including the downward adjustment and realized benefits, as well as the settlement of insurance claims in the third quarter. Even after excluding these factors, we will still largely offset these two things.Therefore, our gross margin remains around -16%. This is due to the impact of net inventory exceeding $100 million, offset by realized revenue of less than $300 million out of the $400 million write-down, and approximately the same amount of inventory reserves exceeding $100 million. This is a function of the pricing environment, and I believe we have captured this function well in our guidance. Now, compared to the adjusted gross margin of approximately 7% in the second quarter, the adjusted gross margin of -16% has clearly declined by 23 percentage points. Therefore, from this adjusted perspective, our gross margin will bottom out in the coming quarters and then improve from these low levels before the 24th fiscal year. This is consistent with what we discussed before. These levels are lower and more lagging. I hope this provides you with some insights into how we view pricing and how we view the gross margins of all put and call options.

Q7: Does the guidance for gross margin in the fourth quarter take into account further increases in underutilized expenses or period costs related to underutilized expenses? Is the 5% reduction in utilization primarily due to CAC constraints?

A7: No, it is not. This is more like an industry dynamic, and our intention is to establish supply discipline in the market. Considering the inventory level, supply needs to exit the market, which is the main driving factor. The impact of utilization is already reflected in the guidance. The period costs in the fourth quarter are approximately $200 million, and this is also taken into account in the guidance.

Q8: Regarding the gross margin guidance, is the actual gross margin for the third quarter much worse than expected?

A8: No, I don't think it is much worse than you expected. If you exclude the impact of underutilization and consider insurance settlements, you will find that the gross margin is close to what we said.

Q9: How will the 15% revenue loss in China be compensated? Is this based on the assumption that growth or bit supply will be restricted? If other suppliers have demand in China, will they leave other regions for you to pursue? Are there pricing factors involved? Are you certain?

A9: What we are saying is that approximately 15% of our business in China is at risk of being affected. Our focus is to minimize the share loss of global customers that are not influenced by CAC decisions. So please keep in mind that we have a market share of about 23% in the DRAM market and about 12% in the NAND market. Therefore, it is clear that we have opportunities to gain share from other customers, and that is our focus. This will take some time, and CAC decisions may harm our business. It is slowing down our recovery. It may also result in differences between quarters. But in the long run, our goal is to maintain our share. Although recent CAC decisions are challenging, in the long run, we will work with global customers unaffected by CAC decisions to increase our share. And we have a long history of cooperation with our customers. We bring tremendous value of innovation to them with our supply, our product portfolio, supporting their innovation and market roadmap.Our clients expect to see a strong performance from us. Our strategy is to maintain our target market share in the long term, which is currently aligned with our current market share. Our clients understand this and support our approach because they want to see a strong performance from us. We will continue to collaborate with our clients. Of course, as we deliver value to our clients with our products and product portfolio, we will focus on ROI, our investments, and improving the profitability of our business from its current level. Profitability is definitely a priority for us. Once again, it is important to emphasize that Dolphin is a strong partner for our clients, and I believe our clients understand the various benefits that multiple strong participants in the industry bring to our client ecosystem.

Q10: Recently, we have seen some changes in HBM to EU. Considering the limited capacity of HBM3, is the company now considering the ability to serve the EU market?

Previously, it was mentioned that AI servers have seen approximately 6 to 8 times improvement in DRAM. I believe this is considering some HBM, but what you are now discussing is some tailwind in AI, and you actually haven't provided that many services for this market. Can you talk about the multiplier effect of HBM on DRAM?

A10: Certainly, we have introduced HBM products in the market, which have provided us with valuable experience in enhancing our technology and production capabilities. HBM. As I mentioned, the market has changed and is shifting towards HBM3 and HBM3+ products, which I consider to be a generation leap ahead in the industry. This will position us favorably as we ramp up production in volume during the 24 fiscal year (starting early in the 2024 calendar year), bringing in hundreds of millions of dollars in revenue opportunities over time. Regarding the AI segment of the market, I want to be very clear that yes, in terms of high-density modules and high-bandwidth HBM3 solutions, this segment is growing this year. This is an opportunity we want to seize, and I believe we can capture it well. As I mentioned, our goal is to capture a share of the HBM market, and our products are definitely leading the average market share of the DRAM industry. But it's important to understand that AI is not only served by HBM or high-density DRAM modules, but also by D5 memory and LP DRAM. We have provided some examples of our D5 and LP DRAM products before. LPDRAM is heavily used in leading high-performance computing platforms in the industry. In fact, out of the 144TB mentioned in the DGX GH200UM, approximately 122TB is LPDRAM. Micron is well-positioned today with differentiated solutions in LPDRAM. So I think it's important to understand that the AI server market is composed of HPM, high-density DNI modules, including DDR5, LP5, and some DAFX memory elements. Therefore, we do have a wide product portfolio, and in 2024, with the production ramp-up of HPM and high-density DM modules, I truly believe we will be very capable of capturing the growing opportunities in the AI field.Nowadays, 75% of the DRAM on artificial intelligence servers is DDDR5. As I have emphasized, I believe you are also aware that we have been actively involved in the D5 field. In fact, our D5 products have led the industry.

Looking back at Dolphin's articles related to Micron and the semiconductor industry:

Earnings Season

June 29, 2023, Earnings Review " Micron Technology: AI Wave Surges, Turning Point Approaches? "

March 29, 2023, Conference Call " Enduring the Worst Times, Semiconductor Industry May See Dawn (Micron FY23Q2 Conference Call) "

March 29, 2023, Earnings Review " Micron's "Great Hemorrhage" Might Not Be a Bad Thing "

In-depth Analysis

April 13, 2023, " Micron: GPT Cools Down, Storage Chips Bottoming Out "

March 15, 2023, " Micron: Has the Winter for Memory Chip Giants Passed? "

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March 7, 2023, " NVIDIA: After the Enchanting Performance, Will There Be a Great Comeback? "

December 29, 2022, Semiconductor Industry Review " Semiconductor Avalanche? True Resilience Comes After the Steepest Decline "

June 24, 2022, Semiconductor Industry Review " Order Cancellations, Is the Semiconductor Industry Really Going Through a "Transformation"? "

June 17, 2022, Consumer Electronics Industry Review " Consumer Electronics "Fully Ripe": Apple Holding Strong, Xiaomi Struggling "

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