Micron Technology, Inc.,announced results of operations for its third quarter of fiscal 2018, which ended May 31, 2018.

Fiscal Q3 2018 Highlights

Revenues of $7.80 billion, up 40 percent compared with the same period last year

GAAP net income of $3.82 billion, or $3.10 per diluted share

Non-GAAP net income of $3.90 billion, or $3.15 per diluted share

Operating cash flow of $4.26 billion, compared with $2.41 billion for the same period last year

Ended the quarter with a net cash positive position

"Micron delivered record results in financial performance for the third fiscal quarter, supported by strong execution and ongoing secular demand trends," said Micron President and CEO Sanjay Mehrotra. "We strengthened our competitive position and grew our revenue across virtually all of our high-value product segments. We set new records for revenue in SSDs, Mobile Managed NAND and Automotive solutions along with Cloud/Enterprise and Graphics DRAM Memory. We see ongoing momentum and healthy industry fundamentals in the fourth quarter to close out an exceptionally strong fiscal 2018."

Revenues for the third quarter of 2018 were 6 percent higher compared to the second quarter of 2018, reflecting increased demand broadly across our products and end markets. Our overall consolidated gross margin of 60.6 percent for the third quarter of 2018 was higher compared to 58.1 percent for the second quarter of 2018 primarily due to execution across our product portfolio.

Investments in capital expenditures, net of amounts funded by partners, were $2.10 billion, which resulted in adjusted free cash flows(3) of $2.16 billion for the third quarter of 2018. During the quarter, we repurchased or converted $2.31 billion principal amount of our debt, lowering our total carrying value of debt to $7.34 billion exiting the quarter. We ended the third quarter in a net cash positive position with cash, marketable investments, and restricted cash of $7.68 billion.

Sanjay Mehrotra -- Chief Executive Officer

Thank you, Shanye. Good afternoon everyone. Micron continues to perform exceptionally well, achieving record revenue and profitability and generating strong operating cash flow in the third quarter. Our focus on structural improvements and consistent execution is driving improved financial performance. First, we are accelerating advanced technology development and rapidly deploying it into production to meet our supply growth and product cost reduction targets. Second, we are gardening our portfolio of high-value solutions to drive increased profitability and strengthen our customer relationships. And third, we announce a capital return program to repurchase up to 10 billion of our shares outstanding starting in fiscal 2019. These initiatives underscore our commitment to enhancing long-term shareholder value.

Turning to our businesses, we delivered strong results across the breadth of our end markets. We were particularly pleased with our mobile business where we increased revenue by 12% sequentially, setting a new company record. Revenue from high-value mobile NAND nearly doubled quarter-over-quarter enabled by the lamp of MMC and eMCP products to multiple smartphone OEMs. 85% of managed NAND gigabytes that we shipped in fiscal Q3 were lower cost to TLC NAND as compared to virtually no TLC NAND just one year ago. Memory and storage content for phone continues to rise, creating ongoing demand for our mobile solutions. We are strategically shaping our mobile portfolio to put us in the best competitive position, including the production launch of our one vine nanometer low power DDR four memory and several new 64-layer TLC USS and eMCP managed NAND solutions all later this year.

Data center trends are always driving momentum for Micron's DRAM and NAND solutions with combined revenue of 87% year-over-year. In the third quarter, ongoing demand for our memory and storage solutions in cloud computing was a key highlight. Our DRAM and NAND revenue from cloud customers increased sequentially by 33% and 24% respectively. This performance was enabled by our improving execution, ability to expand share, and strengthening relationships with key customers in this rapidly growing segment. We stand to benefit from the significant investments cloud service providers are making to build our IT infrastructure. Cloud CapEx is expected to be 50 billion in 2018 and as we shared during our investor event, analysts project this CapEx to reach 108 billion by 2021. We achieved record revenue across all market segments of our embedded business, enabled by shifts to higher value products and continuing healthy demand. Growth was vertically robust in consumer and industrial markets driven by trends in home and industrial automation, drones, and IOT.

We completed qualification of a 64-layer 3D NAND surveillance grade micro-SD card, which is designed for smart surveillance deployments that move AI capabilities to edge devices. We also had notable design NAND activity on low power automotive DRAM and see growing a portion of these in the near term for our portfolio of entertainment, dashboard, and ADAF solutions.

We studied multiple new products for customer qualification this quarter, including the first one next nanometer low power automotive DRAM and the GDDR6 solution for ADAF and autonomous applications. These advanced new products extend an industry-leading portfolio of unique automotive and industrial solutions that coupled with long-term customer relationships has held the embedded business unit delivers consistent, profitable growth for Micron. All in all, we continue to strengthen our product portfolio as we shift our mix away from components and toward high-value solutions. We are outpacing competitors in the high-value graphics market and our graphics revenue more than doubled year-over-year. We also set another company record in overall SSD sales, increasing our revenue by 37% versus a year ago. We've begun volume production shipments of our 64-layer 3D NAND enterprise SATA SSD and ship the world's first QLC based SSD, a high capacity drive ideal for read-centric applications like streaming media servers. This QLC SSD is built on our industry-leading 64-layer 3D NAND, utilizing the first ever terabyte NAND industry.

As we continue to introduce new SSD solutions on lower cost, next-generation technologies, we believe that we can unlock new pools of demand that are currently being served by HIDDs. Our technology and operational execution continue to pay dividends. As we recently shared, we achieved yield maturity and production output crossover on our 64-layer 3D NAND ahead of schedule. We still expect to have production shipments on our 96 layer 3D NAND in the second half of the calendar year 2018. We are also making good progress on the development of our fourth generation 3D NAND, which will utilize our novel replacement gate technology. In DRAM, we are on track to reach bit crossover on our 1X technology and to begin production shipments on our 1Y technology, both in the second half of the calendar year 2018. As we noted at our analyst event, we have a strong product and process roadmap for DRAM bit 1z and 1 elf development programs already under way.

Turning to 3D XPoint technology, as you know, we have partnered with Intel in the development and manufacturing of 3D XPoint. As part of that ongoing relationship, we have been discussing the commercial terms of our future generation 3D XPoint collaboration. Our goal in these discussions is to ensure that Micron has a path to strong auto-y for our investments and technology contributions. We will provide updates as appropriate as this discussion progress further.

As we highlighted at our investor day, we are excited about the potential for 3D XPoint technology to create a new tier of memory and storage between DRAM and NAND flash with a main focus on our 3D XPoint product development and are on track to introduce our first products in later calendar 2019 with meaningful revenue in 2020.

In summary, we continue to see strong market demand for memory and fast storage products due to the value these solutions provide in an economy where data and fast access to that data is increasingly important. Growing capabilities in the data center has enabled greater functionality at the edge, increasing users, and creating more data. And in turn, driving a portion of these for expanded, higher value data services. We believe this virtuous cycle has driven the secular growth patterns we are currently seeing across nearly all of our markets and believe that this will persist into the foreseeable future. I will now turn the call over to our CFO Dave Zinsner to provide details on our third quarter results and outlook for the remainder of fiscal 2018.

Dave Zinsner -- Chief Financial Officer

Thank you, Sanjay, and good afternoon everyone. Micron's relentless focus on execution is evident in our third quarter results. We set new records for revenue, gross margin, operating income, and earnings per share. In addition, we delivered on our goal of achieving a net cash positive position with our cash balance nearly $350 million above GAAP debt position.

We are on the strongest financial footing in company's 40-year history, allowing us to make investments that will capitalize on the secular growth trends driven by the data economy. Our focus on growing high-value solutions, including managed NAND and low power DRAM products for the mobile market, SSDs for the cloud market, as well as graphics DRAM, drove our fiscal third-quarter results. We also saw the benefit of strong execution on technology transitions. Total revenue was $7.8 billion, up 6% from fiscal second quarter and 40% from the prior year. Non-GAAP gross margins for the period expanded to a record 61%, up 250 basis points from the prior quarter and up from 48% in the prior year.

A robust business environment, more favorable mix, and good execution on cost reductions drove significant gross margin expansion. It's important to note that we were able to achieve record gross margins while we continue to incur underloading charges in advance of volume ramp of our 3D XPoint solutions, which will follow product introductions that are targeted for late calendar 2019. We estimate that these charges impacted gross margins by approximately 100 basis points. Our record revenue and gross margin performance drove strong profitability in the third quarter.

Operating income grew to $4 billion on a non-GAAP basis, representing 52% of revenue. This compares with operating margins up 49% in fiscal second quarter and 37% in the year-ago period. Non-GAAP operating expenses came in at $733 million, up approximately 10% from fiscal second quarter and in line with our planned investments in technology and product development. Moving forward, we expect to increase our OPEX from the current run rate, particularly for R&D as we continue to accelerate the development of new products and technologies.

Now turning to the performance by business unit. We achieved record revenue for the compute and networking business unit, up $4 billion in the third quarter, up 67% year-over-year and 8% from the prior quarter. Every CMBU business contributed to this growth except the client business, as we directed supply to customers in markets experiencing robust demand. We saw broad-based demand for our memory solutions with sales of both cloud server and graphics memory products, more than doubling year-over-year.

Operating income for CMBU increased by 12% sequentially to 2.6 billion or 66% of revenue and more than doubled on a year-over-year basis. Revenue for the mobile business unit increased to a record $1.8 billion up 12% quarter-over-quarter and 55% year-over-year. We are experiencing ongoing momentum for our managed NAND products with multiple customer qualifications under way for our eMCP solutions. We also continue to see healthy demand for our industry-leading low power DRAM products. The benefits of shifting more of our supply to these high-value mobile products are evident in our profits. Operating income increased to $860 million or 49% of revenue, up from $689 million last quarter and $304 million in the year-ago period.

The embedded business unit continues to deliver solid results with record revenue of $897 million up 8% versus fiscal second quarter and up 28% year-over-year. Growth was driven by demand for consumer and industrial applications, including set-top boxes, factor automation, and industrial drones. ADAF and in-vehicle experience applications supported record automotive sales for the quarter. Fiscal third-quarter operating income was $386 million, which translates to a healthy 43% of revenue, roughly flat with the prior quarter and up by 600 basis points from the prior year.

And finally, turning to the storage business unit, third quarter revenue was $1.1 billion, which is comprised of SSD NAND components and 3D XPoint sales. We continue to build momentum with our SSD portfolio and set a new record for SSD revenue, which now represents over 50% of total SBU revenue. Consistent with our strategy and as we shared at our investor event, we're shifting more of our NAND supply away from components and to high-value products such as managed NAND, which are targeted for our mobile and embedded markets, as well as SSDs. This shift in NAND supply and lower 3D XPoint sales to our partner resulted in a 9% sequential decline in our storage business unit revenue.

The underutilization costs associated with 3D XPoint production that I previously mentioned, had a negative impact on SBU operating margins of approximately 700 basis points in the third quarter. Our resulting SBU operating income was $156 million or 14% of third quarter revenue compared with 20% in fiscal second quarter. Today, a majority of our SSD sales are based on 32-layer 3D NAND. As Sanjay pointed out earlier, we're starting to ramp SSD solutions built on our 64-layer 3D NAND, initially targeting consumer and cloud customers. Our SBU cost structure will benefit from this transition to lower cost 64-layer SSDs.

Moving to performance by product line, DRAM represented 71% of total company revenue in the fiscal third quarter. DRAM revenue was up 6% from the prior quarter and 56% year-over-year reflecting strong execution on our strategy and a robust market environment. ASPs increased in the mid to upper single-digit percentage range, supported by broad base demand and a richer mix of high-value sales including server and graphics DRAM products. Shipment quantities were relatively flat quarter-over-quarter and our resulting non-GAAP gross margin was 69%, up from 66% in fiscal second quarter and 54% from the year-ago quarter.

We achieved $1.9 billion in trade NAND revenue, representing 25% of total company revenue for the fiscal third quarter. Trade NAND revenue was up 8% quarter-over-quarter and 14% year-over-year, reflecting healthy demand for our products. While on a like for like basis, NAND pricing declined modestly sequentially. Our overall NAND ASP increased in the mid to upper single-digit percentage range, driven by a richer mix of high-value solutions in our NAND portfolio. We ramped eMCP solutions to our mobile customers, which tend to carry higher ASPs relative to other NAND products.

Trade NAND shipment quantities remained relatively flat compared to the prior quarter and trade NAND gross margins were 47% on a non-GAAP basis up 50 basis points from the prior quarter and up 600 basis points from the year-ago quarter. Our solid execution and healthy industry environment led to a record non-GAAP earnings per share of $3.15 up 12% from the prior quarter and 94% from the prior year. We generated $4.3 billion in cash from operations representing 55% of revenue. Capital spending net of third-party contributions was $2.1 billion in the third quarter. We expect the full fiscal year 2018 CapEx to be approximately $8 billion, which includes previously discussed investments associated with our clean room expansions in Singapore and Hiroshima.

Our resulting free cash flow was $2.2 billion flat with the prior quarter and nearly double that of the year-ago period. We ended the quarter in a net cash positive position with approximately $7.7 billion in cash, marketable investments, and restricted cash, and $7.3 billion in GAAP debt, including approximately $300 million of incremental debt incurred in the third quarter by our jointly owned 3D XPoint fab. We're very pleased to have achieved a net cash positive position one quarter earlier than we had originally committed.

We reduced our gross debt position by approximately $2 billion in the fiscal third quarter and we expect to reduce our debt by another $2 billion in the fiscal fourth quarter. We also used $1.1 billion in cash in the third quarter to settle the debt and equity components of our convertible notes. In addition, we received another 550 million of convertible note redemptions in the third quarter, which we will cash settle early in the fourth quarter. Combined these convert notices equate to roughly a 20 million share count reduction. This is a great start to our strategy of reducing our fully diluted share count, which we expect will continue in fiscal 2019 when we begin utilizing at least 50% of our annual free cash flow to repurchase shares under our $10 billion share repurchase authorization.

Turning now to non-GAAP guidance for the fourth fiscal quarter. The market for our products continues to be robust and we are executing well on our strategy. We, therefore, expect sequential revenue growth again in the fourth quarter. We expect revenue to be in the range of $8 billion to $8.4 billion. Gross margins to be in the range of 59% to 62%. Operating expenses are expected to be $750 million plus or minus $25 million. And based on a share count of approximately 1.23 billion shares, these results should drive EPS of $3.30 plus or minus $0.07. I'll now turn the call over to Sanjay for some concluding remarks.