Micron CIS Business Improving

Micron has announced its Q2 results yesterday. SeekingAlpha conference call transcript reveals few details on image sensor business state.

Mike Sadler, VP of Worldwide Sales says:

We are seeing an improving demand for image sensors as the mobile phone supply chain has recovered from an inventory overhang dating back to last year.

Our customers in the mobile phone arena appear to have worked through inventories, and are now back to consuming Micron image senators to meet current sell-through demand. Our imaging business saw only a moderate revenue decline quarter-over-quarter, after substantially negative growth associated with the inventory correction in fiscal Q2.

The entire portfolio of sensors utilizing our advanced 1.7-micron pixel, ranging from VGA through 8-megapixel density, are being embraced by our customers. We have stacked up a number of design wins that are in the early stage of production, or moving to production throughout the balance of the year.

Peter Trigarszky- Citigroup

That is helpful. And then on image sensors, if you could talk about, I know last quarter you had lowered your loadings going into this quarter. Could you talk about how inventory could be worked down there, or how you see that potentially progressing? Also in VGA, what are your plans for competing in that space from a cost perspective? And maybe give us some sense of low end versus high end, how that mix is progressing for you?

Mike Sadler

Sure, sure. I mentioned that we brought our finished goods inventory down on image sensors. We are at about a quarters worth of finished goods inventory. We had crept up slightly higher than that as we exited fiscal Q2. We will take inventories down again in the current quarter.

So we are getting back to where we consider to be a comfortable level of finished goods inventory on image sensors. We are continuing to take more market share in the high end, our 5-megapixel sensor has been a hit in the marketplace on a couple of high end phones, and the volumes continue to increase with that particular chip.

On the low end of the market, the VGA chip, we have introduced a 1/11" VGA chip, or are in process of introducing it to the market currently, and that is basically going to be our low end cost-aggressive solution, if you will, to trying to attack the low end of the market.

Daniel Amir - WR Hambrecht & Co.

Can you comment what is your image sensor mix here on 1-megapixel and above and VGA?

Mike Sadler

Sure. Let me just do some quick math here. In the quarter that we just completed, at 1-megapixel and above, well, well over half. Probably closer to two-thirds to three-quarters of total unit shipments were 1-megapixel and above.

Eric Rubel - Miller Tabak Roberts

Could you break out the segment revenue for image sensor, and talk about the segment gross margin?

Bill Stover, CFO

The revenues for the quarter came in just above 10% of the total, and we have not been giving specific margin information.

Eric Rubel - Miller Tabak Roberts

Okay. Then if I can ask on, back in September in New York at the Analyst Day, you guys updated us on process at, I believe, 0.11 pixel size 1.75, and a wafer size of about 200-millimeter. Can you update us on how you see that playing out for fiscal 2008 for process, pixel size, and wafer? And I have one more follow-up.

Bill Stover

Well, at the leading edge, a lot of our imagers now are transitioning to the 1.75 Micron pixel technology. We previously announced the 1.4 Micron pixel but that will be a bigger part of our production, a little further out in the future. And was the other question on 200-millimeter versus 300-millimeter wafer capacity?

Eric Rubel - Miller Tabak Roberts

Yes.

Bill Stover

300-millimeter wafer capacity obviously continues to increase as a percent of the total as we ramp out Lehigh, and complete the conversion at tech. I think the way to think of it is in terms of…

Eric Rubel - Miller Tabak Roberts

I am sorry to interrupt, but I am speaking specifically with image sensor, for the image sensor segment, that all of those products were being done on 200-millimeter. Any change on that?

Steve Appleton

That is right. We continue to manufacture the image sensor on 200-millimeter. There has always been discussion around the industry thinking about running 300-millimeter, in fact I think one of our competitors has done so, I think they are primarily doing that, because they have old 300-millimeter equipment they can't really use anymore for memory.

In our particular case, when we look at the cost crossover on that, we don't think it will be cost effective for quite some time. The reason is really a pretty simple one. If you want to go out and buy a piece of a 300-millimeter equipment today then you're going to buy a piece of equipment that can run 50, 60-nanometer type capability, and frankly none of us are running our image sensors on processors that are down at 50 or 60-nanometers, nobody does.

So you are paying for the tool, but you're not utilizing it for the capability. In our particular case, I think as many of you know, we run a model where it's on a tool set that as an X minus 1 or X minus 2 generation, and that tool set has already used its life so to speak for us on the memory front, so it's very, very cost effective for us to use it, because in large part it has been depreciated, and it is a tool set that we would have sold for lower cents on the dollar, then actually get use out of it. So, from our perspective, it’s a great model that works for us. And that’s why we continue to do the 200-millimeter.

As a follow-on note, there clearly will be a time when we are in that situation for 300 millimeter equipment, and as that occurs, we’ll look at the cost effectiveness of taking 300-millimeter equipment that was running memory, and then transferring it over and running image sensors on it, much like we do today on the 200-millimeter, because we think that’s really the way to get the most cost effective part out.