Sanjay Mehrotra
President & CEO at Micron Technology
Thank you, Farhan. Good afternoon, everyone. Micron delivered fiscal first-quarter revenue and EPS within our guidance range despite the pricing environment which deteriorated significantly from our prior call. The industry is experiencing the most severe imbalance between supply and demand in both DRAM and NAND in the last 13 years. Micron is exercising supply discipline by making significant cuts to other capex and wafer starts while maintaining our competitive position. We are also taking measures to cut costs and OpEx across the company.
Customer inventory which is impacting near-term demand is expected to continue improving and we expect most customers to have reduced inventory to relatively healthy levels by mid-calendar 2023. Consequently, we expect the fiscal second-half revenue to improve versus the first-half of our fiscal year. We expect our days of inventory to peak in our current fiscal Q2 and gradually improve over the next few quarters as our big shipments, improve and our supply growth is significantly reduced. Despite this improving big shipment and revenue trajectory, we expect industry profitability to remain challenged through calendar 2023. The combination of our technology leadership, manufacturing expertise diverse product portfolio, strong balance sheet and our decisive actions provide a solid footing to navigate this challenging near-term environment.
I'll start today with an overview of our technology position. Micron continues to lead the industry in both DRAM and NAND technology. We are first to market with 1-beta DRAM and 232-layer NAND. While both 1-beta DRAM and 232-layer NAND offer strong cost reductions, we have slowed their ramps to better align our supply with market demand as we previously indicated. Yield trajectory for these nodes is on track, and we are continuing to qualify these nodes across our product portfolio and will be well-positioned to ramp these nodes when industry conditions improve. Our 1-beta DRAM node, which we introduced in fiscal Q1, delivers around a 15% power efficiency improvement and more than a 35% bit density improvement versus 1-alpha. 1-beta will be used across our product portfolio including DDR5, LP5, HBM, and graphics.
Now turning to our end markets. Across nearly all of our end markets, revenues declined sequentially in fiscal Q1 due to weaker demand and steep decline in pricing. Shipment volumes were impacted by our customers inventory adjustments, the trajectory of their end demand, and macroeconomic uncertainty. We believe that aggregate customer inventory, while still high, is coming down in absolute volume, as end-market consumption outpaces ship-in.
In data center, we expect cloud demand for memory in 2023 to grow well below the historical trend due to the significant impact of inventory reductions at key customers. End demand at cloud customers is not immune to macroeconomic challenges but should strengthen once the economic environment improves.
DDR5 is extremely important for data center customers as the industry begins its transition to this new technology in calendar Q1. As modern servers pack more processing cores into CPUs, the memory bandwidth per CPU core has been decreasing.
Micron D5 alleviates this bottleneck by providing higher bandwidth compared to previous generations, enabling improved performance and scaling. Feedback from our customers across the x86 and ARM ecosystem suggests that Micron leads the industry with the best D5 products. We expect server D5 bit shipments to become more meaningful in the second half of calendar 2023, with crossover expected in mid-calendar 2024. Building on our existing D5 products, in fiscal Q1, we began qualifying 1-alpha 24Gb D5, and we announced availability of D5 memory for the data center that is validated for the new AMD EPYC 9004 series processors.
In addition, we are also making progress on CXL, and in fiscal Q1, we introduced our first CXL DRAM samples to data center customers. In data center SSDs, we are continuing to proliferate our 176-layer SSD, and in fiscal Q1, we nearly doubled the number of customers where we are qualified. We have also completed the qualification of our 176-layer QLC with an important enterprise customer.
In PCs, we now forecast calendar 2022 units to decline in the high-teens percentage and expect 2023 PC unit volume to decline by low to mid-single-digits percentage, to near-2019 levels. Client D5 adoption is expected to gradually increase through calendar 2023 with crossover in mid-calendar 2024, and we are well-positioned for this transition with leading D5 products.
We also continue to lead the industry in QLC, and it is an important competitive advantage for us. In fiscal Q1, client and consumer QLC SSDs had very strong growth, which helped increase our NAND QLC mix to a new record.
Earlier this month, Micron began shipping the world's most advanced client SSD featuring 232-layer NAND technology. As the world's first client SSD to ship using NAND over 200 layers, the Micron 2550 NVMe SSD demonstrates superior speed, density, and power savings -- enabled by our industry-leading NAND node.
In graphics, we expect bit growth to outpace the broader market in calendar 2023. Micron continues to drive the industry's fastest graphics memory with 24Gbps 16Gb GDDR6X shipping in high-volume production.
In mobile, we now expect calendar 2022 smartphone unit volume to decline 10% year over year, versus our high single-digit percentage decline projection in our last earnings call. We forecast calendar 2023 smartphone unit volume to be flattish to slightly up year over year, driven by improvements in China following the reopening of its economy.
Micron continues to build on its strong product momentum in mobile. As of fiscal Q1, 1-alpha comprised nearly 90% of mobile DRAM bits, and 176-layer made up nearly all of our mobile NAND bit shipments. We are also well-positioned for the LP5 transition, and in FQ1, the majority of our mobile DRAM bit shipments were LP5. In fiscal Q1, our LP5X was validated for Qualcomm's latest platform and integrated into Snapdragon 8 Gen2 reference designs. In addition, we shipped the industry's first 1-beta DRAM qualification samples with our 16Gb LP5.
Last, I'll cover the auto and industrial end markets.
Micron is well-positioned as the leader in automotive and industrial markets, which offer strong long-term growth and relatively stable margins.
In fiscal Q1, auto revenues grew approximately 30% year over year, just slightly below our quarterly record in Q4 FY '22. The automotive industry is showing early signs of supply chain improvement, and auto unit production continues to increase. The macroenvironment does create some uncertainty for the auto market, but we see robust growth in auto memory demand in fiscal 2023. This is driven by the volume ramp of advanced next-generation in-vehicle infotainment systems as well as the broader adoption of more advanced driver-assistance systems. Over the next five years, we expect the bit growth compound annual growth rate (CAGR) for DRAM and NAND in autos to be at approximately twice the rate of the overall DRAM and NAND markets.
The industrial market saw continued softening in Q1, as our distribution channel partners reduced their inventory levels and end-demand weakened for some customers. The fundamentals of industrial internet of things (IoT), artificial intelligence and machine learning (AI/ML), 5G, and Industry 4.0 all remain intact, and we expect volumes to improve in the second half of our fiscal year. In our fiscal first quarter, Micron continued to collaborate closely with customers and achieved advanced product sampling and design-in across automation OEMs, ODMs and integrators with our latest generation of D5, LP5 and 3D NAND solutions.
Now, turning to our market outlook. We expect calendar 2022 industry bit demand growth in the low to mid-single-digit percentage range for both DRAM and NAND. For calendar 2023, we expect industry demand growth of approximately 10% in DRAM and around 20% in NAND. For both years, demand in DRAM and NAND is well below historical trends and future expectations of growth, largely due to reductions in end demand in most markets, high inventories at customers, the impact of the macroeconomic environment, and the regional factors in Europe and China.
Near term, over the next few months, we expect gradually improving demand trends for memory, as customer inventory levels improve further, new CPU platforms are launched, and China demand starts to grow as its economy reopens.
Longer term, we continue to expect strong demand growth across diverse end markets, with DRAM bit demand CAGR in the mid-teens percentage range and NAND bit demand CAGR in low to mid 20s percentage range. Our long-term demand bit growth expectations for both DRAM and NAND have declined from our expectations earlier this year primarily due to lowered growth expectations from PC and smartphone markets and some moderation in the strong long-term growth in the cloud.
Turning to industry supply growth. Industry supply growth in calendar 2022 for DRAM and NAND is closer to their respective long-term demand CAGRs and well above the industry demand growth in calendar 2022. Given the current pricing and resulting industry margins, we expect a significant decline in industry capital investments as well as a reduction in utilization rates for the industry. We expect that DRAM and NAND industry supply growth in calendar year 2023 will be well below their long-term CAGRs and also well below expected demand growth in 2023.
Due to the significant supply demand mismatch entering calendar 2023, we expect that profitability will remain challenged throughout 2023. The timing of the recovery in profitability will be driven by the rate and pace at which supply and demand are brought into balance and inventories are normalized across the supply chain. We believe that negative year-on-year calendar 2023 industry DRAM bit supply growth and flattish year-on-year calendar 2023 industry NAND bit supply growth will accelerate this recovery.
Micron is taking a number of decisive actions in this environment to align supply with demand and to protect our balance sheet.
First, we are reducing our capex investments to reduce bit supply growth in 2023 and 2024. Our fiscal 2023 capex is being lowered to a range between $7 billion to $7.5 billion from the earlier $8 billion target and from the $12 billion level in FY '22. This represents an approximately 40% reduction year on year, and we expect fiscal 2023 WFE to be down more than 50% year on year. We are now significantly reducing our fiscal 2024 capex from earlier plans to align with the supply-demand environment. We expect fiscal 2024 WFE to fall from fiscal 2023 levels, even as construction spending increases year on year.
Second, we have reduced near-term bit supply through a sharp reduction in wafer starts. As we have previously announced, we reduced wafer starts for DRAM and NAND by approximately 20%. Through a combination of these actions, we expect our calendar 2023 production bit growth to be negative in DRAM and up only slightly in NAND. Given the manufacturing cycle times, the full impact of the wafer start reductions on supply will be realized starting in our fiscal Q3. Due to our reductions to our fiscal 2024 WFE capex, our bit supply levels in 2024 will be materially reduced from the prior trajectory. We continue to target a relatively flat share of industry bit supply.
Third, in response to the decline in expected long-term CAGR for DRAM and NAND bit growth, we are slowing the cadence of our process technology node transitions. This change will help us align our long-term bit supply CAGR with demand and improve the ROI of our R&D and capex investments. Given our decision to slow the 1-beta DRAM production ramp, we expect that our 1-gamma introduction will now be in 2025. Similarly, our next NAND node beyond 232-layer will be delayed to align to the new demand outlook and required supply growth. We expect these changes to the technology node cadence to be an industrywide phenomenon. With our industry-leading technology capability, we expect to remain very well-positioned.
Fourth, we are taking significant steps to reduce our costs and operating expenses. We project our spending to decrease through the year, driven by reductions in external spending, productivity programs across the business, suspension of a 2023 bonus companywide, select product program reductions and lower discretionary spend. Executive salaries are also being cut for the remainder of fiscal 2023, and over the course of calendar year 2023, we are reducing our headcount by approximately 10% through a combination of voluntary attrition and personnel reductions. We expect to exit fiscal 2023 with quarterly opex of around $850 million, with additional savings in COGS in our P&L.
Although we have taken these aggressive steps, we are prepared to make further changes and remain flexible to exercise all levers to control our supply and manage our cost structure.
I will now turn it over to Mark.
