>> Announcer: Live from San Francisco, it's theCUBE. Covering Micron Insight 2019. (upbeat music) Brought to you by Micron. >> Hi, everybody, welcome to Pier 27 in San Francisco. My name is Dave Vellante and I'm with my co-host, David Floyer. And you're watching theCUBE, the leader in live tech coverage. This is our coverage of Micron Insight 2019, #microninsight. David, I love this show because, well, of course we're going to talk about Micron and memories and DRAMs and NANDs and all that techy stuff. We're also going to sort of set the tone on this day. It's a really thought leadership day and we talk a lot about AI and Edge and the big mega trends and superpowers, the cloud, mobile, that are really affecting demand and it all starts with data. So, Micron is a company that we're going to talk about and talk about in detail. But what are you seeing, David, as the big trends that are driving demand for bits? >> For bits. Well, let's start with the Edge that you were talking about. The Edge is growing and it's going to grow very, very strongly indeed. It's going to grow with smaller processes, it's the ARM processors at the Edge doing inference processing, capturing the data, and wanting to do that capturing of the data and the processing of that data as close to the origin of that data as possible. So memory and all of the, the NAND is moving out to the Edge itself. And it's going to be lots of smaller processes as opposed to the lots of big processes. >> Let me ask you a question. We've been following these markets for many, many years and, of course, when we started in the business it was all mainframe, and that was really what drove the consumption of data, and then the PC changed that. >> David: Took over, yep. >> And then that, you used to count markets. We used to do that all the time, and there was much more data going to the laptops and desktops, the Internet began to change that and of course, cloud sort of re-centralized a lot of the spending, and a lot of the buying power. Do you see, is it a pendulum swing again, is it that dramatic? Or do you see it as different? >> Like all big trends, the center still remains. So, the center now is cloud. Still mainframes is part of that cloud. That has to remain, and that is just much more economical for large-scale processing. That's the most economical. However, also the economics of it is that moving data is very expensive. It's very expensive in terms of the effort and it also, when you move data, you lose context. So, if you want the best context, and if you want to do things in real time, you want to process that data in real time as close to where it was produced as possible. So, yes, there will be a very big swing in the amount of processing and the amount of important processing that happens at the Edge. >> So, from the standpoint of things like NAND and flash, Steve Jobs changed everything when they decided to put flash inside of the iPhone. >> Actually not the iPhone. >> In the iPod, actually. >> iPod, yes. >> That drove massive massive, that was the beginning, the dam breaking, and what happened is that volumes went through the roof, cost went down, and that's really when you first predicted way back in the early part of this decade that NAND and flash would affect spinning disc, and it clearly has. Pricing maybe hasn't come down as fast as we thought because of supply constraints. But, nonetheless, it's happening. And now the prices are coming down more. You've seen somewhat of an oversupply in NAND. Prices have come down pretty substantially. And there's elasticity. Ever since we've been following this market, you've seen when prices drop, people buy more. At the same time, you saw like Pure Storage last quarter said, well, the prices dropped faster than we thought, it actually hurt our revenue. Because it just happened so fast in the middle of the quarter, that it hurt pricing overall for the subsystems, but nonetheless, that's the trend that we see happening. It feels like there's a new wave or a new step function of consumption going on with regard to flash. What are you seeing? >> Yes, flash was always about performance before, and there were two constraints to flash, in terms of its impact on the whole industry. The first was that the protocols that were used in flash were the old fashioned protocols that were used for HDD. Now, those have improved enormously with NVMe, et cetera, and those have got much, much better. So, that increases the demand for that flash. The usefulness of flash is now much better. And the second is, in terms of, that's high performance, there's high-capacity flash, and now flash is growing in two dimensions. It's growing in the number of layers, but it's growing from SLC to MLC to TLC to QLC in terms of the number of bits that it can pack into it. >> So, those all have cost implications on the cost per bit, obviously? >> Sure. Both of those are reducing the cost per bit, and making it available for different markets. So the capacity market, now as the prices come down, mean that it's going to take a bigger bite into the HDDs. In data center, it's going to become the norm just to have flash only. >> Micron's a little bit late to NVMe, but they're now hopping on board. Actually, you've made the comment to me in previous discussions, that they've actually timed things pretty well. >> Yeah. >> You kind of didn't want to over-rotate to NVMe. I know Pure was first, but Pure's a relatively small part of the marketplace. It seems like now everybody's going to NVMe. And basically what this does, as you pointed out, it eliminates a lot of the sort of older, slow, over head chatty protocols, and now it's like a bat phone right to the data. What are you seeing in terms of NVMe adoption? Is it now mainstream? >> Yes, we're predicting that in 2019 50% of the drives will be NVMe drives. That's a very rapid change. >> Let's up-level a little bit. We're talking about all of this geeky stuff down here, but what I'm interested in is why we need this. And the obvious question is there's so much more data now but it's also, AI. We talk a lot about the new innovation sandwich of being data plus AI plus cloud, combine those things together and that's really what's driving innovation. How real is AI? I presume we need all this stuff to be able to support these data-driven workloads, but how real is AI? It feels like it's pretty substantive. When we go to a lot of these shows, you hear about digital transformation and all these buzzwords and the Edge and IOT. 'Course, AI's one of the big buzzwords, but it does really actually feel like a superpower to invoke one of Pat Gelsinger's words. >> Yeah, it is. And AI could only operate if there was all that data available, so it's the availability of that data, because the algorithms and AI go back a long way. There's nothing new in that. But AI has now the availability of processing that data, large amounts of data, which makes it much more powerful. And now you're getting AI in things like a cellphone, the amount of AI that goes into recognizing your face is enormous. And it's now practical, everyday things are being done in AI, and it's going from being a niche to being just everyday use. And it's impact longterm is profound. It'll do all the jobs that humans do, many of the jobs that humans do, much more efficiently. Driving a car. It'll be better at driving a car than human beings are. >> Yeah, you see AI everywhere, you're right. Ad serving still stinks, but it's getting better. Fraud detection's getting much, much better. Email is now finishing my sentences for me. Right, you've noticed that in the last year or so. Basically say, oh, I like that choice, boom, I'll take it. And so as much as we hate autocorrect... And so those are some small examples, but what the industry likes to talk about is how it's changing lives, what it's going to do for healthcare, autonomous vehicles. Those are some of the big-picture items. >> David: Really big things. >> Which really haven't kicked in yet, just in terms of, or have they? In terms of consuming demand, for things like DRAM and NAND? >> It's relatively small at the moment but it has the potential to be very large, obviously. >> Dave: Go ahead, finish your thought. >> Because in the next 10 years we're going to see automated cars, it's going to be in pieces. You're going to have the trucks going first, and then other cars later. >> I know you're fairly sanguine and optimistic about autonomous vehicles, I know there are a lot of skeptics out there that talk about, we don't have enough data and we'll see, but we'll talk more about that. But I want to talk about Micron a little bit. Micron's a company, last year they were a $30 billion company, they got $23 billion in revenue this year so dramatic drop in revenues. And that was really due to the change in the supply/demand dynamic. Now, historically, when these things happen the stocks of these companies would just, you could predict it, you'd say, okay, time to sell, 'cause here comes the over-supply. And then when they hit the bottom, time to buy. Micron's done an amazing job of sort of steadying that. Managing its demand and supply balance. Also, obviously doing share buybacks that help the stock price, but the stock price has held up pretty well. So Micron's now a $23 billion company, last year they threw off $17 billion in free cash flow, this year, 13 billion. But still, well over 50% of their revenue's going back to free cash flow, which is quite large. Their market cap's 51 billion, so they're trading at a 2.2X revenue multiple, which is very strong. And they've got a 30% gross margin, right? The PC business, think about that. The DRAM, this is a good business, right? That's a nice business, because they don't have a giant direct sales force, so they don't have that cost, it's all through OEM. It's a fairly efficient business, and they've managed it pretty well. Your thoughts on Micron as a company. >> Yes, they have. They've managed the timing of every new release very well indeed. If you go too early, you over-rotate, then you are struggling to get that out. The costs are higher, and the people who are selling the previous generation are going to do better. But they've always timed it perfectly. >> Yeah, now they're facing some challenges. I talked about the supply/demand imbalance, but they're managing that. China, the tariffs hurt them. Huawei, was a big customer. They can't sell the Huawei anymore. China coming after companies like Micron, really going after consumer flash, building fab capacity to begin with, and then eventually China is going to aim at the higher value enterprise. What are you seeing there? >> I agree with you. They've had to rotate because of this problem with the tariffs that have been put on China. So, what's the reaction? They're going to have to invest. And that, long term, is good news for consumers and good news for everybody else, but it's going to be bad news for other people in the business. >> So, a bunch of announcements today. We can't talk about it, 'cause they're not public yet, but you're going to see some SSD stuff coming out. Maybe some acquisitions announced, you might see some other things around 3D XPoint, which is something that we really haven't talked much about but we will, I know your thoughts on that are it's still kind of niche. Remember the HP Memristor, right? Which is, nobody talks about that anymore. But now Micron's in a different situation. They'll figure out, okay, where that fits, but it's still a niche in your view because it doesn't have the volume. But we're going to be talking about that stuff. But, again, up-leveling the conversation to some of those big mega trends, those superpower drivers, data, AI, IOT, and the Edge, and some of the things that are really driving change, in not only industry but also our lives. So, David, appreciate the insight. David and I will be here all day today. You're watching theCUBE from Micron Insight from San Francisco. We'll be back with our next guest right after this short break. (upbeat music)

live from San Francisco it's the queue covering micron insight 2018 brought to you by micron welcome to San Francisco everybody this is the cube the leader in live tech coverage my name is Dave Volante I'm here with my co-host David flora 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 they 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 is the third one and and so microns is 30 billion dollar company they've got about a 50 billion just under 50 billion dollar 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 in the valleys in this business why because first of all the capital expense required to participate in this business is enormous that's why somebody 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 cyclic allottee 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 you know up until recently have been been climbing like crazy this is a company that has literally last quarter had seventy percent gross margins in its in business it's not and much much you know and if you look at the SSD business the flash business smaller gross margin maybe 48 50 percent they're gonna start blending those together and reporting on a blended basis I think they don't want Michael Dell you know advertising to Michael Dell that we're getting 70% gross margins on T Ram so they're gonna stop giving that guidance out excessively B to thwart competition but really it's probably examination 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 the compute and networking business very strong a grew at 53 percent year-over-year the mobile business up sixty percent last year Mobile's taking tons of of memory of course and and storage the embedded business which is sort of automobiles and and industrial markets is up about 12% and the storage business unit actually is gonna flat to down they expect growth but you know the stores business has been you know a bit of a challenge for them even though you know 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 but David the theme really is about 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 you know 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 right those are this event my car crushing it I mean the the growth in in in their revenues from DRAM with 70 percent year-on-year last four quarters to the four quarters before that was 70 percent desam that's actually was it's 70 percent of their business it was about 50 percent 47 to 50 percent growth so yeah well for the DRAM piece of the business well NAND is about 25 26 percent of the business and and growing you know about 20% a year yeah I think they're on the calling it's tiny but so the the figures the we're using a even better than that so I think as it fundamentally they're crushing it from 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 the modern gaming machines all of these types of compute and then on top of that IOT as well with all the sensors and and the requirements of memory and and compute very very close to the Census themselves all of these different areas are relying on AI to make a difference of lying on that type of workload that matrix workload and some of the figures is very interesting to look at when you're looking at new workloads you need at least around six times as much DRAM and and and more storage as well more and Nan storage as well six times you're talking about the ratio between storage and the if you can take traditional processing you need for a tree you need six times that's interesting figure and and similarly with an and and and the 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 a the right place at the right time in terms of the speed of which memory is is developing and the opportunities to make a difference so if you think about some of the tail winds and headwinds in their business there's a lot of tailwind I mean they're manufacturing efficiencies they're really started to see a flywheel effect there and they're did micron has made a lot of investment in of technology transitions what's happening is the bit density growth for each new technology transfer transition is starting to moderate presumably Moore's Law story 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 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 they're the the headwinds are there are CPU shortages in the marketplace today and so if you can't can't get the CPU you can't necessarily make the box you can't ship the PC or you can't you know you need you need CPU memory and storage to go together and as a result there's a pending oversupply it looks like and so they're having to manage some of that inventory import tariffs from China not you know that's a I would say huge deal for these guys is something they can manage but you know 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 the headwinds and that's ahead the stock moderate a little bit but the stock has been on fire for the last several years and the company has done very very well cash flow is it's nine billion free cash flow which is important because they have to spend eight billion dollars 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 get a sense of the various to entry in this marketplace it takes a lot of tenacity which I like micron is 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 customer base probably driven by mobile no question about it the data center guys the big hyper scale is 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 position very well positioned to take advantage of that David something that you were the first in the industry to call he was a 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 in the data center you know with some exceptions but generally speaking that trend is pretty substantial you don't absolutely the that the technology changes we keep on saying each year we've witnessed the 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 what we're most of the of the DRAM went we're seeing a change with mobile taking an increasing portion of that you're looking at PCs now they're introducing the the arm pcs as well and then grow ARM processors in the PCs so and that's growing very fast as as well and we're predicting that will go fast and we're looking at also at a very aggressive entry into the market place of ARM processors in general all the way through from from from the edge all the way through up to the top and therefore there's and those are really being designed for this matrix computing I was talking about met much more attention to parallelism to the ability to have GPUs inside it neural networks inside it that is that change and that that that requirement to fit in with this new way of doing is is a fantastic opportunity and they have an opportunity really to lead and powering some of these new workload so we're gonna be unpacking this all all day here at micron inside hashtag micron insight 18 you're watching the cube Dave Volante for David floor we'll be right back right after this short break