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Micron Investor Day with Sumit Sadana – The Six Five Insiders
by Daniel Newman | June 3, 2022

On this episode of The Six Five – Insiders Edition we are joined by Sumit Sadana, Chief Business Officer at Micron for a conversation on the recent Micron Investor Day event.

Their conversation covered:

• A brief review of Micron’s commitments to customers and investors
• How Micron is leading the industry in DRAM and NAND technology
• A dive Micron’s business leadership metrics
• What the future looks like for Micron

If you’d like to watch the 2022 Investor Day webcast, you can do that here. To find out more about Micron, you can visit their website. And don’t forget to subscribe to The Six Five webcast so you never miss an episode.

Watch our interview with Sumit here:

Listen to the episode on your favorite streaming platform:

Disclaimer: The Six Five Webcast is for information and entertainment purposes only. Over the course of this webcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we do not ask that you treat us as such.

Transcript:

Daniel Newman: Hey everybody. Welcome to another episode of The Six Five Podcast, an insider edition today. I’m Daniel Newman, your host, principal analyst, Futurum Research joined by my always esteemed partner in The Six Five, Mr. Patrick Moorhead. Patrick, how are you doing today?

Patrick Moorhead: Doing great, internet got fixed. It was good. I was getting single digit uploads on Spectrum AT&T and T-Mobile, but we are fixed. We are back online baby.

Daniel Newman: Yeah, it’s good to be back. It’s always fun to do these insider conversations. Last few weeks there’s been some great events and one of them was Micron’s Investor Day. Today we’re going to be joined by Sumit Sadana. He’s the Chief Business Officer at Micron. And we’re going to talk a little bit about Investor Day. Now again, The Six Five, for those of you that maybe haven’t listened in or are tuning in for the first time, this podcast is for information and entertainment purposes only.

So while we are talking to executives from publicly traded companies like we are at Micron today, please don’t take anything we talk about here on the show as investment advice. Having said that part, you and I love to do this crossover. We love to get to the bottom of a company’s performance. It’s innovation by looking at the numbers and that’s what we’re going to do today on this show.

Patrick Moorhead: Yeah. Listen, Micron before we bring our guests in, storage and memory are strategic. I think the next five years in those markets is going to be the best that I think this industry has ever seen. So, how about if we bring in our guest?

Daniel Newman: Absolutely Sumit, welcome to The Six Five. How are you?

Sumit Sadana: Thank you for having me Pat and Dan. Really good to be here. I’m doing good.

Patrick Moorhead: That’s great. Yeah, we both tuned into your Investor Day and while we’re industry analysts, I always find it the best one stop shopping to get all the information, and it had been a few years in fact, four years since you had done your last Investor Day and Dan and I are big fans of this notion of say, do ratio. Which is, did you do what you said you were going to do years ago? I think a great way to get caught up is we can talk about what has happened since 2018 in the context of what you said and what you did.

Sumit Sadana: Yeah. That’s a great place to start Pat. In 2018, we did make a few commitments to our customers, to our investors. And happy to just give you a brief synopsis of what has transpired since then. So, first of all, we had said that it is our goal to lead in technology, to be a product leader. Micron had been trailing in technology. Over the past five years, we have really demonstrated tremendous leadership. We are now leading the industry in both DRAM and NAND technology in the first time really in the history of Micron, which is more than four decades long.

So it’s a incredibly exciting thing for us. Our 1alpha DRAM is the industry’s leading node of DRAM technology. Our 176-layer NAND is the leading node of NAND. And we have put both of them into volume production, several quarters ahead of the next player in the industry. At our Investor Day a few days ago, we also announced that we will be putting the one beta node in DRAM into volume production before the end of this calendar year. So look out for that announcement when that happens. Also the 232-layer NAND also to be in volume production before the end of this calendar year. That will sustain our industry leadership in technology.

We also said that we want to lead on products, not just on process technology alone. There we have had an amazing ride in these last five years. As a summary, we are leaders in DDR5 on the DRAM side now, which is our next generation DDR product category that the industry is going to be transitioning to soon. We didn’t have an HPM product in the market, and we just announced at our Investor Day that we are in volume production with high bandwidth memory, which is primarily used in AI and machine learning applications expected to grow really fast over the next decade.

So, super exciting milestone for us. We are in volume production with the world’s largest consumer of high bandwidth memory products, and we have the world’s fastest graphics memory, GDDR6 in volume production as well. It’s the level of performance that is not available from any other DRAM company. So, really exciting changes in our DRAM portfolio. Similarly on the NAND portfolio, we had made a commitment four years ago that we will get over 80% of our NAND bit shipments into high value solutions, and we have done that, reached that milestone ahead of schedule, and so that is doing really well. The NAND portfolio is having great momentum.

Patrick Moorhead: I think you can just drop the mic here and we can just stop this interview.

Sumit Sadana: No, it has been quite a ride. So thanks for that. But I feel like what all of this has allowed us to do is dramatically transform the balance sheet of the company as well. So we have gone to investment grade credit rating on our balance sheet. We have now got almost $5 billion of net cash on the balance sheet, almost 15 billion of liquidity on the balance sheet. These are again, metrics that are at all-time highs for the company, and we have more than doubled investment in R&D over the last few years in a very short time. That momentum of investment in R&D continues. We just announced our 50,000th patent, which is an incredible milestone for any company, but certainly we are ahead of even companies significantly larger than Micron in terms of innovation.

We mentioned to investors we would cut costs and improve our overall infrastructure costs by $9 billion and we got to that milestone ahead of time as well. So really we have checked all the boxes in terms of our commitments and the last five years have been really stellar transformation of the company’s overall competitive positioning.

Daniel Newman: Well we gave you a five year runway to talk, so there was a lot to cover there Sumit. Thanks for doing that. You hit it on all fronts. You mentioned a few things I think are worth pointing out. I think first of all, technology leadership is impressive. I think second of all, a number of the business leadership metrics that you mentioned, are really noteworthy given the current circumstance. Pat and I talk about R&D a lot, especially the R in the semiconductor space, how important it is to make these sizeable investments and ramping that up is significant, it’s important.

It shows that not only are you trying to execute on the market opportunity today, but you’re trying to make sure that you stay in a leadership position into the future. A lot of companies do a lot of the D but don’t always do much of the R. So it’s good to see you ramping that up more. Some of the things on the balance sheet, the free cash flow, given our current market situation and the economics of what’s going on, some of the concerns about potential recessions, the downturns, being in such a good cash position should be something that I would imagine investors would look at very positively.

Having put all that out there though, in the last earnings report one of the things that you guys really leaned into was data center, and you talked a lot about the growth in that particular part of the business. It was growing significantly faster. Again, it’s not to say the growth on the PC and device side wasn’t good, but it was remarkable how fast things are growing in the data center. I want to lean in on that a little bit, because I do believe as the economy might slow, some of the discretionary spend might slow down how many handsets people are buying or how many laptops that companies are buying.

But one of the things I don’t see slowing down is investment in infrastructure and cloud, in 5G and in many of these areas. You guys got a lot of play, and you’ve talked a lot about that on Investor Day. Talk a little bit about this whole data center arena, the opportunity that you foresee and what this is going to look like for the future of Micron?

Sumit Sadana: Yeah, Dan I think that’s a really great question because like you pointed out, we see the data center as a secular growth driver for us. And there are numerous, I would say very exciting aspects of how memory and storage technology are being used in the data center that make us very confident about the trajectory of the business. So first and foremost, the data center has now become the largest segment for memory and storage and, that is an important thing in and off itself because, as you rightly pointed out, it does grow through thick and thin and is a structural growth driver.

You’ve seen some of the results in terms of cloud computing, how the revenue growth of companies like Microsoft Azure, AWS, Google Cloud, et cetera are just on a tear continuing to grow 40% or higher. They have significant CapEx growth plans as well to continue to deploy more servers in the data center. It’s not as much just a story about unit growth of servers, but I think the big exciting part is the growth of content of DRAM and NAND in servers. So we see from 21 to 25 calendar year, the content of DRAM in terms of bits is going to double in servers. It’s going to triple in NAND in this timeframe.

We see that overall data centered TAM will grow on a dollar basis, approximately 14% on a compound annual growth rate basis. For the largest segment of the market to grow at that rate is incredibly exciting. The last point I will point out in the data center that is also super exciting to us is how it used to be a largely monolithic type of CPU DRAM type of an architecture connected by DDR and how the change in the future to go to heterogeneous architectures, so much more high bandwidth memory, graphics memory, accelerator cards with their own memory, and in the future CXL coming onto the landscape.

These are going to be transformational things in the way memory and storage get used in servers. We are incredibly excited about that because, in addition to the overall growth in the business, it creates unique opportunities for differentiation, it creates unique opportunities for us to partner deeply with customers to bring new value to the landscape and how our customers are thinking about their own particular workloads and how to create optimized solutions for their workloads. So it’s a really exciting time to see all of that evolution happening right in front of eyes and I’m incredibly excited over what the next five and 10 years will bring.

Patrick Moorhead: Yeah, it is interesting. An unprecedented time. We have growth in all areas, whether it’s things on the edge or in the data center and everything in between, and the content just keeps going up for memory and storage. We talked a lot about the here and now in the data center but, what I’m seeing when I talk to hyperscalers and even traditional enterprise hardware folks is that memory and storage is going to do more to drive a rearchitecture of the data center that I’ve ever seen before. I’m curious, how is Micron, how are you helping to make the future of the data center a reality?

Sumit Sadana: Yeah, that’s a super important point Pat, and this is something that we are working with customers on an ongoing basis. Like you pointed out there are some important changes happening. We are on the threshold of some very significant changes in how the architecture in the data center is evolving, as well as the role of memory and storage in that evolution. So I’ll just point out a couple of highlights, picking off from my previous comment around the heterogeneous architecture. So if we look ahead for the next few years, we are seeing a move to more specialized processing happening in the data center.

So your typical X86 based processing is giving way to several customized processors that our customers are moving towards. So you are looking at infrastructure processing units or data processing units being connected to the CPU through PCIE. And these tend to have their own memory associated with them. So there is high bandwidth memory attached to CPUs, to IPUs and DPUs potentially, to accelerator cards that are being attached in these servers. Of course the trend to use more GPUs in the data center has been a clear winner over the last few years and that trend is continuing to be very, very strong.

With GPUs again, you can have high bandwidth memory mounted on the same substrate as the GPU itself to give really very high bandwidth access between memory and the processor. And the reason that is important is, most of the time, you’ll see in so many different workloads, especially AI and machine learning type of workloads, they’re memory bandwidth limited more so than being processing limited. In certain cases, you can end up with processing-limited workloads, but a lot of these workloads are memory bandwidth limited.

That’s why the growth of content is so important and the growth of these new solutions is so important. Two important trends I can point out are, how we are continuing to add high bandwidth memory, graphics memory and regular more channels of DDR memory going from DDR4 to DDR5 that’s continuing to increase. And then the exciting evolution coming in the data center with the introduction of CXL, we should have CXL1.1 later this year, moving to CXL2.0 in late 2024, and CXL2.0 should be the first time you start to see genuine connectivity of more DRAM to the server and genuine capability to expand the amount of addressable storage in a cache [inaudible] way, which is extremely important.

So late 2024 is when we start to see that happen, we see the market in 2025 to be a couple of billion dollars, but then growing dramatically from there out into 2030. So the CXL base growth rate itself should get to $20 billion of CXL attached memory out in 2030. So huge growth happening and, it will also enable for the first time, emerging memory usage on CXL and it’ll allow customers to do tradeoffs between cost and performance and get to hot memory, warm memory and really tearing of memory for the first time.

And then CXL3.0 which will come in after that, after CXL2.0 will be really enabling memory pooling and memory disaggregation. So these are enormously important trends for our customers, and it will allow us to create differentiated solutions as a leading memory provider.

Daniel Newman: Yeah, it’s clear the opportunity is significant and the technology that you’re deploying is going to help scale what’s going to be the future of the data center. I want to pivot a little bit here. Early in the conversations, you mentioned about leading in multiple end markets that you’re focused on. Outside the data center, so I brought you into the data center, and now I’m going to take you back out. Talk a little bit about some of the impacts that Micron is making outside of the data center, some of the innovation and market leadership?

Sumit Sadana: Sure. Lot of exciting things in the data center, but definitely lot of growth opportunities in pretty much every major segment that we address. If you look at the mobile market which is around 30% of the overall DRAM and NAND market, a very important market. In this market, we continue to see more usage of AI and machine learning type of capabilities being introduced in the processor to continue to really take the next step in the evolution of photography with computational photography happening. So those trends, as well as higher definition video capture, short form videos, they’re continuing to grow the content for both DRAM and NAND and mobile phones.

So we see that content growth story continuing. We don’t expect a huge amount of unit volume growth in smartphones, but the content growth story continues. As an example, 5G handsets, 500 million last year, we expect it to be over 650 million in 2022. That continues to increase penetration in that 1.3 billion unit smartphone market on an annual basis, that penetration of 5G should continue. And 5G phones have 50% more DRAM content and double the NAND content on average compared to 4G phones. So, that content growth story is continuing to be very exciting. For Micron, we have now become leaders in time to market with newer products for mobile technology.

So this is LP5x and straight up LPDDR products as well. We are first to market with these products. We also have really good MCP, industry leading MCP technology capability. The majority of our shipments now have … on the MCP side 1alpha DRAM and 176-layer NAND products in them. So our mobile portfolio has really made tremendous progress and we are industry-leading capability now. Two other segments I’ll quickly talk about. One is the automotive and industrial segment. This segment is super exciting as well. We see this segment to be the fastest growing segment over the next five and 10 years.

Lot of this is again driven by the growth of smarts and intelligence in the car. We are seeing that definitely in all of the EV models, especially having so much higher content of DRAM and NAND, and lots of new exciting applications being deployed there. So we see that market growing at 28% dollar turn CAGR over the next four years or so from ’21 to ’25. That’s double the growth rate of the data center in dollar terms, albeit from a smaller base in the automotive segment. In that market again, incredibly exciting things for Micron. We are number one in that market by market share.

Again, lead the industry in time to market with lot of the newer technologies that come to the market in that segment. Last piece I’ll mention is the PC market. People don’t think about the PC market as being a very lively, innovative architecture, but if you just see what is happening on the landscape with what Apple has done with M1 Pro, M1 Ultra, these are really significant changes, and the one interesting thing in these is, up to 32 gigabytes of memory and up to 64 and 128 gigabytes skews with some of these processors, which is unheard of amount of memory in a PC platform, which typically you buy a PC, 8 gigabytes, 16 gigabytes plus graphics memory so, much smaller memory content.

But then these higher performing platforms, as well as the growth of gaming platforms again, with tremendous amount of more DRAM graphics memory and SSDs. SSD attached rate is not down to 90% in PC platforms. So, continuing growth of content on an average SSD capacity basis is also continuing. Really not again, so much a unit growth story as much as a growth in content story and the changes in the architecture on these platforms.

Patrick Moorhead: Well, it certainly seems like a good time to be in storage and memory. I think the auto market is just fascinating. Just the percentage of the bomb that are around electronics and what that means for EVs, cars with ADAS and even getting to self-driving. Essentially, we’re gearing up the auto market to be a office living room or something else on wheels. And it’s software to find, it’s essentially requires supercomputing type of power at least to get self-driving, but super exciting and probably one of the biggest changes out there in the market that I think everybody agrees on.

We can figure out the regulations in North America and Western Europe on self-driving, then we’re going to be all moving forward here. Listen, I’m a product person. I love products, right? I spent 20 years doing products before I became an analyst for my company, but there’s more to running a business than having great products. There are different things that you need to do to decrease volatility, limit risk and change the way that maybe you sell or price products. How is Micron innovating in these business practice areas?

Sumit Sadana: Pat, I think you hit upon a very important point. Products and technology are super important and super critical, but at Micron, we have also been actively thinking about business model innovation, as well. As you pointed out our relationships with customers and how we actually work with them as they look to satisfy their needs on memory and storage has also been an important area for us to continue to evolve over time. One thing that Micron did, I believe leading the industry a few years ago with the new Micron management team was to dramatically increase the usage of long term agreements.

Less than 10% of our revenue or in that approximate 10% of our revenue used to be based on long term agreements with customers in 2016-2017 timeframe. We grew that to over 75% of our revenue now being under long-term agreements. Then the rest of the industry followed in our footsteps, and most of the volume that we transact with our large customers now is under these long-term agreements. These agreements are typically a one year type of an agreement by quarter in terms of what volume our customers intend to purchase from us. Even though they’re not take or pay type of agreements, and there is no pricing in these agreements, they have dramatically helped improve visibility, improve planning discipline both at our customers and at the suppliers and have contributed to reduced volatility in the industry.

Now we are very excited to take the next step in that evolution with a new innovation in the business model, and that’s what we are calling forward pricing agreements and what we are doing with this new model and this experiment is to provide … just stepping back and looking at the overall picture. We have pricing in memory that moves up and down based on supply demand balance through the course of a cycle. There is an up cycle, there is a down cycle. There is over supply, under supply and prices tend to be sometimes volatile and move around quite a bit. That obviously creates a lot of ripple effects in the industry.

For us it means our gross margin tends to be variable because of the variability in price and for our customers, it means that their input costs change quite significantly over time. Sometimes they could be going down, sometimes they could be going up a lot. When memory and storage were tiny pieces of the overall bill of materials, it’s something that can be managed easily, but as memory and storage have become so significant in terms of the overall bill of materials, having volatility in this is definitely posing challenges to customers.

So as they think about their products, whether they’re in consumer products that have specific price points that they need to hit, or you look at cloud companies that are doing multi-year deals with their customers on pricing, having that longer term stability on pricing and predictability on pricing can be a win-win solution for both us and our customers. So what we are doing here is to offer guaranteed declines in price every quarter to our customers who agreed to go on this model with us, and we fixed the volumes on a three year agreement, we fixed the price curve going down every single quarter.

We get them to agree to prioritize us for qualifications of new products and technologies that enable us to keep moving the cost down, and the price curve that we provide to our customers is very consistent with the cost curve, and that enables us to have a steady, gross margin. It enables predictability in pricing to our customers. We guarantee them the volumes over this period of time. So, they don’t have to worry about stocking up and using working capital to increase inventory in times when the industry’s becoming tied because we are guaranteeing those volumes to them.

So it’s really a super good model for both our customers and for us. But of course, it requires a leap of faith because no one knows the pricing in the future. Our goal is to make this pricing very, very close to or similar to what the true pricing is that customers are likely to experience on average through the cycle of the ups and downs. And so, that’s the approach we are taking and at our Investor Day, we announced that we are super excited to have our very first top 10 customer off Micron sign up to this model greater than $500 million of annual revenue on the DRAM side with this model.

We are going to be working in the next few quarters and years with more customers to see if we can grow the ground swell behind this innovative business model.

Daniel Newman: Well, Sumit that was a really good spot to wrap things up. I think what you basically just said, if I had to sum it up, was committing to growth to both your customers and to your investors, to be able to as Pat suggested, manage volatile times more successfully by building out the horizon and keeping customers committed to you in the long term. Then of course, if all goes correctly, you should see this enhance the bottom line performance of Micron over the next few years as well. Things that both investors, analysts, and then of course customers all like to see.

Sumit I want to thank you so much for joining us here on the Six Five Insider Edition. We really appreciate all the in-depth, everyone out there has to feel like they know what’s going on at Micron, a little if not a lot better than when we started this conversation.

Sumit Sadana: Thank you Dan and thank you pat for having me here. Really enjoyed the discussion. Thank you.

Patrick Moorhead: Yeah. And we look forward to chatting with you at Micron Insight.

Sumit Sadana: Absolutely looking forward to it.

Daniel Newman: Yeah. We will chat with you more. So everyone out there hit that subscribe button. We appreciate you being part of The Six Five community. For myself and Patrick though, it’s time to say goodbye. We’ll see you all later.

About the Author

Daniel Newman is the Principal Analyst of Futurum Research and the CEO of Broadsuite Media Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise. Read Full Bio