 Live from San Francisco, it's theCUBE, covering Micron Insight 2018, brought to you by Micron. Welcome to San Francisco, everybody. This is theCUBE, the leader in live tech coverage. My name is Dave Vellante, I'm here with my co-host, David Floyer. This is our special presentation of Micron Insight 18, hashtag Micron Insight 18, where the theme is accelerated intelligence, the blending together of memory, storage, and artificial intelligence. Micron is a 40-year-old company, there's a dominant player in the DRAM marketplace. Years and years ago, there used to be 1920 manufacturers of DRAM, there's really three companies now that dominate that market, they own 96% of it. Micron, Samsung, and Toshiba, I believe, right? It's the third one. And so Micron's this $30 billion company, they've got about a 50 billion, just under $50 billion market cap growing like crazy. 70% of their business comes from DRAM. The balance comes from alternative storage and other memory systems that they built. And traditionally, David, memories have been a very cyclical business. Micron, number two semiconductor manufacturer worldwide behind Intel, obviously, competing with a lot of overseas players. And Micron is putting forth the premise that they've begun to be able to dampen the fluctuations, the peaks and the valleys in this business. Why? Because, first of all, the capital expense required to participate in this business is enormous, that's why so many companies have been shaken out. And secondly, the technology transitions are getting much, much more difficult. And so the premise that Micron put forth in May at their financial analyst conference is that the cyclicality of this business is starting to moderate. We've certainly seen this in some regards in the last several years with component shortages. It's been a boon to Microsoft's financials, the stock up until recently has been climbing like crazy. This is a company that has, literally, last quarter had 70% gross margins in its DRAM business. It's not, and if you look at the SSD business, the Flash business, smaller gross margin, maybe 48, 50%. They're going to start blending those together and reporting on a blended basis. I think they don't want Michael Dell advertising to Michael Dell that we're getting 70% gross margins on DRAM, so they're going to stop giving that guidance out, ostensibly to toward competition, but really, it's probably something that's not sustainable. But David, so we're seeing sort of moderation and supply growth, we're seeing a very well run company. This company is growing like crazy. Let me break down some of the businesses and I want to bring you into the conversation. Their compute and networking business very strong. They grew at 53% year over year. The mobile business, up 60% last year. Mobile's taking tons of memory, of course, and storage. The embedded business, which is sort of automobiles and industrial markets, is up about 12%. And the storage business unit actually is going to flat to down. They expect growth, but the storage business has been a bit of a challenge for them, even though they're doing very well and they're gaining share. They've gone through some transitions that we'll talk about to some of the executives here, but David, the theme really is about bringing artificial intelligence to the world and the intersection between AI and memory and storage. Obviously, you need memory. Obviously, you need storage to make AI happen. And Micron in the value chain at the lowest level is right there, making tons of money, shipping a lot of product, driving a lot of innovation and competing very effectively. So your thoughts on Micron and this event. Micron are crushing it, aren't they? I mean, the growth in their revenues from DRAM was 70%. Year on year, last four quarters to the four quarters before that was 70%. That's a very impressive. I think it's 70% of the business. It was about 47% to 50% growth. So, yeah, for the DRAM piece of the business. NAND is about 25, 26% of the business and growing about 20% a year. Yeah, I think they're undercalling it slightly, but so the figures that we're using are even better than that. So I think fundamentally they're crushing it from a business perspective. And they're in, as you said, in a very good place because as AI takes place, as what I call the matrix applications are coming on board, that's a virtual reality, augmented reality. The modern gaming machines, all of these types of compute. And then on top of that, IoT as well with all the sensors and the requirements of memory and compute very, very close to the sensors themselves. All of these different areas are relying on AI to make a difference, relying on that type of workload and that matrix workload. And some of the figures it's very interesting to look at. When you're looking at new workloads, you need at least around six times as much DRAM and more storage as well, more NAND storage as well. Six times, you're talking about the ratio between storage and DRAM. If you can take a traditional processing, you need for AI, for matrix, you need six times more. That's an interesting figure. Micron's ears, I'm sure. And similarly with NAND. And on top of that, when you're looking at graphics work, all the graphics work, that's very, very bandwidth intensive and that requires the very latest technology and again, premium technology to go into the graphics side of things as well. So they are in the right place at the right time in terms of the speed of which memory is developing and the opportunities to make a difference. So if you think about some of the tailwinds and headwinds in their business, a lot of tailwinds, I mean, they're manufacturing efficiencies. They're really starting to see a flywheel effect there. And Micron has made a lot of investment in terms of technology transitions. What's happening is the bit density growth for each new technology transition is starting to moderate. Presumably it's Moore's law starting to moderate, right? Is what's really going on there. And but they've really done a good job of investing in technology transitions ahead of their competition. And so they're getting some good returns on that investment. They lead in a lot of these markets. They're a very well run company. Pricing has been pretty firm for them over the last several years. So that's been a nice tailwind and supply has been short in the last several years. Now, the headwinds are there are CPU shortages in the marketplace today. And so if you can't get the CPUs, you can't necessarily make the box. You can't ship the PC or you need CPU memory and storage to go together. And as a result, there's a pending oversupply that looks like. And so they're having to manage some of that inventory. Import tariffs from China. I would say a huge deal for these guys is something they can manage, but President Trump's tariff posture, it doesn't help a company like Micron. Their tax rate is much higher this year than it was last year. It's about going from 4% to like 28%. And so those are some of the headwinds and that's had the stock moderate a little bit, but the stock has been on fire for the last several years and the company's done very, very well. Cash flow is a phenomenal. Yeah, I mean they're throwing off, I think it's nine billion in free cash flow, which is important because they have to spend $8 billion a year, more even, they're growing that CapEx spending from $8 billion this year to $10 and a half billion next year. So you can get a sense of the various to entry in this marketplace. It takes a lot of tenacity, which Micron has exhibited over the last 40 years. When you think about all the ebbs and flows, but the big changes are this used to be kind of driven by PCs. It used to be a PC-centered world and now we're seeing a much more diverse customer base. Initially driven by mobile, no question about it. The data center guys, the big hyperscalers, the autonomous vehicle folks, the industrial internet, edge computing, they all need memory, they all need storage. The other piece of this is the transition from spinning hard disk to flash, even though it's not a majority of their business today, Micron is in a very well-positioned, very well-positioned to take advantage of that. David, something that you were the first in the industry to call, you were the very first analyst that said that SSD flash is going to replace spinning disk. It's clearly happening and it happened first in laptops and it's clearly happening in the data center. You know, with some exceptions, but generally speaking, that trend is pretty substantial, your thoughts. Absolutely, the technology changes. We keep on saying each year, we've witnessed the most change in technology that we've ever seen and next year it gets faster and it gets faster, it's absolutely amazing. I think there's another area coming into play. When you're looking at the traditional marketplaces, they were the PC and the servers. That's where most of the DRAM went. We're seeing a change with mobile taking an increasing portion of that. You're looking at PCs now, introducing the ARM PCs as well and then- ARM processors. ARM processors in the PCs. So, and that's growing very fast as well and we're predicting that will go fast. And we're looking at also a very aggressive entry into the marketplace of ARM processors in general, all the way through from the edge, all the way through up to the top. And therefore, those are really being designed for this matrix computing I was talking about. Much more attention to parallelism, to the ability to have GPUs inside it, neural networks inside it. That is that change and that requirement to fit in with this new way of doing is a fantastic opportunity. And they have an opportunity really to lead in that. Powering some of these new workloads. We're going to be unpacking this all day here at Micron Insight. Hashtag Micron Insight 18. You're watching theCUBE Dave Vellante for David Floyer. We'll be right back right after this short break.