Micron Technology (MU) Q4 FY26 Earnings Call Transcript

Sanjay Mehrotra00:00

Micron Technology leadership strong product portfolio strategic customer agreements and manufacturing excellence position us to capitalize on these opportunities.

Sanjay Mehrotra00:16

Micron is the industry's technology leader our one gamma DRAM node and G9 NAND nodes are our largest production nodes today and are on track to become the highest volume nodes in Micron's history.

Sanjay Mehrotra00:29

Development of our next generation DRAM and NAND technology nodes is also progressing well, and they are on track to begin volume production in the second half of calendar 2027.

Sanjay Mehrotra00:49

We are leveraging these technology nodes and our advanced packaging capabilities to deliver leadership products across the memory hierarchy such as industry leading HBM, high capacity SOCAM, high capacity and high performance DDR modules, and data center SSD products.

Prepared remarks

Sanjay Mehrotra01:27

We are focused on our global manufacturing expansions to help address customer demand growth through the end of this decade and beyond. Micron is investing to provide long term US based supply assurance for DDR LPDDR and HBM products through our fabs in Virginia, Idaho and New York to support our customers across a variety of markets including data center, PC, mobile, automotive, aerospace and defense, medical, humanoid robotics, and other industrial and consumer markets.

Sanjay Mehrotra01:39

During the last quarter, we celebrated a concrete pour milestone for our first New York fab with initial wafer output expected in calendar 2030.

Sanjay Mehrotra02:08

Our ID1 fab is on track to commence wafer output in mid calendar 2027 and ID2 is on track to commence wafer output in late calendar 2028. In fiscal Q4, we held a groundbreaking ceremony for our DRAM fab expansion in Japan with initial output expected in late calendar 2028 to support technology node transitions.

Sanjay Mehrotra02:31

In Taiwan, we are on track for meaningful product shipments from our Tongluo facility in mid calendar 2027. In Singapore, clean room preparation is ahead of plan at our HBM advanced packaging facility with initial output expected in early calendar 2027.

Sanjay Mehrotra02:40

Also construction is on track for our new NAND facility in Singapore to begin output in the second half of calendar 2028.

Sanjay Mehrotra02:53

Production from new DDR and NAND fabrication facilities takes time to ramp and gradually becomes more meaningful starting a few quarters after initial output.

Sanjay Mehrotra02:59

Micron's strategic customer agreements accelerate the transformation of our business.

Sanjay Mehrotra03:11

These multi-year take or pay agreements sharpen our long-term supply planning and enhance the durability and predictability of our strong financial performance.

Sanjay Mehrotra03:32

Further, they provide our customer our customers supply assurance and deepen technology roadmap collaboration. This in turn helps our customers invest more confidently in their business and enables their end consumers to benefit from their products and services.

Sanjay Mehrotra03:54

To date, we have signed 26 SCAs which we currently estimate to be over 35% of our revenue through 2030. Three quarters of this estimated revenue has a defined pricing framework a majority of which have pricing bands with floor and ceiling prices.

Sanjay Mehrotra04:02

The remaining quarter of this SCA revenue expectation has pricing negotiated periodically based on market prices.

Sanjay Mehrotra04:16

Customers want SCA assured supply beyond 2030 and we have now signed SCAs that extend into 2031 as well as one year extensions to 2031 for two agreements.

Sanjay Mehrotra04:27

Any new discussions on SCAs where pricing is involved are negotiated with higher pricing based on prevailing market conditions and outlook.

Sanjay Mehrotra04:40

For the 26 signed SCAs and extensions financial commitments from customers have increased to $32 billion the vast majority of which are cash deposits.

Sanjay Mehrotra04:47

These financial commitments reflect our customers confidence in their long term demand for memory and storage.

Sanjay Mehrotra05:24

Turning to our end markets. please see our earnings press release for highlights across our high capacity DDR and LP server DDRAM data center SSD PC smartphone and physical AI product portfolios we expect server unit growth in the high teens percentage range in both calendar 2026 and 2027 this strong server unit growth is supported by a modestly lower rate of content growth than prior expectations amid tight memory supply.

Sanjay Mehrotra05:36

Growing model parameter size longer context length and higher concurrency continue to increase the memory and storage content required to execute AI workloads efficiently.

Sanjay Mehrotra05:47

Micron is leveraging our technology leadership and manufacturing excellence to deliver innovative products across the memory hierarchy to data center customers.

Sanjay Mehrotra06:04

In HBM, our revenue for fiscal Q4 2026 grew faster than total company revenue in the quarter as we ramp HBM shipments across a growing number of customers.

Sanjay Mehrotra06:18

We have completed agreements for the vast majority of our calendar 2027 HBM bit supply with significant price increases year over year narrowing the gross margin gap with conventional DRAM.

Sanjay Mehrotra06:41

We continue to execute well on our ramp of HBM4. We have a strong roadmap for future HBM products and are proud to be working with NVIDIA on the industry's first custom HBM4E implementation NVHBM to be adopted on next generation of GPUs and NVLink Fusion platforms.

Sanjay Mehrotra06:53

In NAND, AI context memory storage used for KV cache offload and HDD displacement opportunities are expanding the addressable market for SSDs.

Sanjay Mehrotra07:06

Data center SSD revenue in fiscal Q4 was nearly $10 billion more than 10 times the year ago quarter and was over two-thirds of total company NAND revenue.

Sanjay Mehrotra07:16

We are on track to deliver the fifth consecutive year of record market share in data center SSD in calendar 2026.

Sanjay Mehrotra07:32

This performance is driven by the strength of our NAND technology leadership end to end data center storage portfolio and close collaboration with customers which has resulted in design wins across the largest data center deployments.

Sanjay Mehrotra07:48

PC and mobile industry revenue remain on track to grow this calendar year driven by strength at the premium end of the market despite potential double digit overall unit declines in both markets.

Sanjay Mehrotra08:01

OEMs continue to introduce new AI capabilities in flagship PCs and smartphones driving robust demand for higher performance devices with increased DRAM and NAND content.

Sanjay Mehrotra08:15

Micron is focused on these premium segments and is well positioned to support customers as they expand edge AI capabilities with our industry leading memory and storage portfolio.

Sanjay Mehrotra08:31

Nearly half of MCBU revenue in fiscal Q4 was generated by one gamma products as customers accelerate qualifications and adopt our latest technology which delivers lower power consumption and higher performance.

Sanjay Mehrotra08:44

Autonomous vehicles are the first major deployment of physical AI which we believe will expand over time to humanoid robots and other intelligent autonomous systems.

Sanjay Mehrotra08:55

These increasingly complex systems require substantially higher performance and more power efficient memory and storage to operate in real time.

Sanjay Mehrotra09:13

Memory content in level four and higher autonomous vehicles typically exceeds 200 gigabyte while storage content reaches multiple terabytes each more than an order of magnitude greater than in today's level two plus and level three semi-autonomous vehicles.

Sanjay Mehrotra09:33

Humanoid robots are expected to have comparable memory and storage requirements to autonomous vehicles. With the anticipated increase in both units and memory content, physical AI can become a significant driver of memory and storage demand by the end of this decade.

Sanjay Mehrotra09:45

Several physical AI customers are sampling our next generation products and we are increasing investments in our technology roadmap to ensure we are prepared to capitalize on this opportunity.

Sanjay Mehrotra10:01

Now turning to market outlook. We expect memory and storage supply demand conditions to be much tighter in calendar 2027 and 2028 than they were in 2026.

Sanjay Mehrotra10:13

In NAND, for calendar 2026, we expect industry bit shipments to grow in the low 20s percentage range slightly above our prior expectations.

Sanjay Mehrotra10:36

We expect Micron NAND supply to grow less than industry supply growth in calendar 2026. For calendar 2027 and 2028 we expect industry NAND bit shipments to grow approximately in the mid 20s percentage range and the industry to remain supply constrained in both years.

Sanjay Mehrotra10:55

In DRAM for calendar 2026 we expect industry bit shipments to grow in the mid 20s percentage range we expect Micron DRAM supply to grow approximately in line with industry supply growth.

Sanjay Mehrotra11:08

For calendar 2027 and 2028 we expect industry DRAM bit shipments to grow approximately in the low 20s percentage range and the industry to remain supply constrained in both years.

Sanjay Mehrotra11:18

We expect industry HBM bit shipments to grow faster than conventional DRAM through calendar 2028.

Sanjay Mehrotra11:32

The structural gap between DRAM supply and demand growth rates is resulting in ongoing supply tightness, and clean room additions are required to augment node transition supply growth and help narrow the gap.

Sanjay Mehrotra11:47

Even with additional industry DRAM clean room space plans, with robust demand trends including new upside requests from customers, we do not have line of sight to when supply and demand will return to balance.

Sanjay Mehrotra12:16

Given the need for DRAM clean room space and supported by greater visibility from SCAs into our demand through the end of the decade and beyond we plan to increase our capex in fiscal 2027 versus prior plans a majority of the increase is for construction capex most of which is to help accelerate clean room space availability in late calendar 2028 and beyond

Sanjay Mehrotra12:25

We are also working to optimize production from available clean room space which is resulting in some pull forward of equipment spending.

Sanjay Mehrotra12:29

Mark will provide more details on capex.

Sanjay Mehrotra12:43

As we make these clean room space investments we will remain disciplined in our approach and anticipate ramping equipment capacity appropriately with our demand and the market environment.

Sanjay Mehrotra13:04

To further accelerate execution and innovation across the company, last month we announced leadership appointments. Manish Bhatia has been appointed to President and Chief Operating Officer, and Scott DeBoer has been appointed to President and Chief Technology and Products Officer.

Sanjay Mehrotra13:28

Manish leads Micron's business units and global operations with accountability for our operating P&L. In his role as COO, Manish has end-to-end responsibility for demand through supply enabling faster more integrated decision making and stronger alignment across the organization to meet our customers evolving needs.

Sanjay Mehrotra13:56

Scott leads Micron's innovation technology and products organization. In his role as chief technology and products officer Scott is responsible for advancing Micron's industry leading memory and storage roadmaps accelerating innovation to meet customers rapidly evolving requirements and overseeing Micron research labs a global flagship research hub dedicated to breakthrough memory and compute technologies.

Sanjay Mehrotra14:02

I'll now hand it over to Mark for our fiscal Q4 financial results and outlook.

Mark Murphy14:20

Thank you, Sanjay, and good afternoon, everyone. Micron delivered exceptional results to close out the fiscal year. With fiscal Q4 revenue gross margin and EPS all exceeding the high end of our guidance.

Mark Murphy14:47

For the full year we achieved record revenue of 133.2 billion dollars up 256% year over year fiscal 2026 gross margins expanded to 81.1% a 40 percentage point improvement from fiscal 2025. And EPS increased 811% year over year to 75.52

Mark Murphy15:00

To date, we have signed 26 SCAs in total and our remaining performance obligations or RPO is approximately 150 billion dollars.

Mark Murphy15:04

All SCAs have take or pay contracted volumes.

Mark Murphy15:18

And RPO reflects the contract value for only SCAs that have a determined pricing framework which can be either a fixed price or subject to a pricing floor and ceiling.

Mark Murphy15:27

RPO is based on committed volumes and minimum pricing and is inherently conservative.

Mark Murphy15:45

As mentioned in our last earnings call even at floor prices we expect margins meaningfully above any prior cycle peak margins. We expect revenue to well exceed the associated RPO over the terms of the agreements.

Mark Murphy15:58

Consolidated fiscal Q4 revenue was $54.2 billion up 31% sequentially and up 379% year over year.

Mark Murphy16:06

Fiscal Q4 revenue was our sixth consecutive quarterly revenue record.

Mark Murphy16:17

Fiscal Q4 DRAM revenue was a record $39.8 billion up 343% year over year and represented 73% of total revenue.

Mark Murphy16:36

Sequentially DRAM revenue increased 27% Bit shipments were up mid single digit percentage range prices increased high teens percentage range driven by tight DRAM industry conditions

Mark Murphy16:49

Fiscal Q4 NAND revenue was a record 14.1 billion dollars up 526% year over year and represented 26% of total revenue.

Mark Murphy16:56

Sequentially NAND revenue increased 42%

Mark Murphy17:06

Bit shipments increased approximately 10% prices increased approximately 30% driven by tight NAND industry conditions.

Mark Murphy17:15

Consolidated gross margin for fiscal Q4 was 87% up 210 basis points sequentially.

Mark Murphy17:24

This improvement was driven primarily by higher pricing and strong execution, partially offset by mix.

Mark Murphy17:32

Now turning to quarterly financial performance by business unit.

Mark Murphy17:39

Cloud memory business unit revenue was a record 16.3 billion dollars and represented 30% of total company revenue.

Mark Murphy17:47

CMBU revenue was up 18% sequentially driven by higher pricing and bit shipments.

Mark Murphy17:58

CMBU gross margins were 83% flat sequentially driven by higher pricing offset by higher HBM mix.

Mark Murphy18:09

Core data center business unit revenue was a record 18 billion dollars and represented 33% of total company revenue.

Mark Murphy18:17

TDBU revenue was up 56% sequentially driven by higher pricing and bit shipments.

Mark Murphy18:27

CDBU gross margins were 90% up 290 basis points sequentially driven by higher pricing and favorable mix.

Mark Murphy18:39

Mobile and client business unit revenue was a record 13.1 billion dollars and represented 24% of total company revenue.

Mark Murphy18:49

MCBU revenue was up 14% sequentially driven by higher pricing partially offset by lower bit shipments.

Mark Murphy19:00

MCBU gross margins were 90% up 260 basis points sequentially driven primarily by higher pricing and favorable mix.

Mark Murphy19:11

Automotive and embedded business unit revenue was a record 6.8 billion dollars and represented 13% of total company revenue.

Mark Murphy19:20

AEBU revenue was up 47% sequentially driven by higher pricing and higher bit shipments.

Mark Murphy19:30

AEBU gross margins were 84% up 470 basis points sequentially driven by higher pricing.

Mark Murphy19:54

Operating expenses in fiscal Q4 were 2.6 billion dollars up 1.1 billion dollars quarter over quarter. The sequential change was primarily due to the increase in incentive compensation for every global team member along with our decisions to contribute 300 million dollars to community investments.

Mark Murphy20:12

We generated operating income of 44.6 billion dollars in fiscal Q4. resulting in an operating margin of 82.3% up 110 basis points sequentially and 47 percentage points year over year.

Mark Murphy20:20

Fiscal Q4 taxes were $6.8 billion on an effective tax rate of 15%.

Mark Murphy20:31

Non-GAAP diluted earnings per share in fiscal Q4 was $33.42 up 33% sequentially.

Mark Murphy20:52

Turning to cash flow and capital expenditures in fiscal Q4 operating cash flows were 44 billion dollars capital expenditures were 10.8 billion dollars resulting in free cash flow of 33.2 billion dollars

Mark Murphy21:06

As noted in previous disclosures customer cash deposits associated with the SCAs are reported within financing activities and therefore do not affect our free cash flow

Mark Murphy21:14

Customer cash deposits received during fiscal Q4 were 12.3 billion dollars

Mark Murphy21:25

Ending inventory for fiscal Q4 was 10.4 billion dollars with days of inventory at 129. an increase of nine days sequentially.

Mark Murphy21:40

The increase in DIO includes the effect of node end of life related build ahead and manufacturing related incentive compensation in fiscal Q4 that was absorbed into inventories.

Mark Murphy21:45

Our inventory levels and supply remain extremely tight.

Mark Murphy21:52

And we expect DIO to decline in the coming quarters.

Mark Murphy22:07

We reached record levels of cash and investments of $73.5 billion at quarter end. customer cash deposits on our balance sheet at the end of fiscal Q4 were 12.7 billion dollars

Mark Murphy22:21

SCA cash deposits are unrestricted and will be returned to customers over time toward the latter half of each agreement's term assuming minimum purchase requirements are met

Mark Murphy22:32

During fiscal Q4 we reduced debt by approximately 500 million dollars including a note redemption that reduced senior notes by approximately 300 million dollars.

Mark Murphy22:38

The weighted average maturity on our outstanding debt is approximately nine years.

Mark Murphy22:46

We closed the quarter with 5.2 billion dollars of debt and a net cash balance of 68.3 billion dollars.

Mark Murphy22:59

During the quarter we received two credit rating agency upgrades and are now rated at triple B plus or equivalent with all three major credit rating agencies.

Mark Murphy23:10

Our balance sheet has never been stronger and we expect it to strengthen further even as we increase investment in technology and needed capacity.

Mark Murphy23:25

As noted previously, we intend to increase our capital return from December 9th, 2026 the second anniversary of the signature of our definitive chips agreements

Mark Murphy23:32

Over time we expect to return 100% of our excess cash to shareholders.

Mark Murphy23:46

Now turning to guidance. We expect fiscal Q1 revenue to be a record $61.5 billion plus or minus 1.5 billion dollars.

Mark Murphy23:56

Gross margin to be approximately 86.25% and operating expenses to be approximately 2.06 billion dollars.

Mark Murphy24:08

Based on a share count of approximately 1.15 billion shares we expect EPS to be 38 dollars 15 cents per share plus or minus a dollar.

Mark Murphy24:18

We expect fiscal 2027 to be another record year with sequential revenue growth each quarter

Mark Murphy24:30

Consistent with projected strong execution and record company financial performance, we expect fiscal 2027 to have higher incentive compensation levels.

Mark Murphy24:46

We anticipate fiscal Q1 to be the floor for gross margins in fiscal 2027. As Sanjay mentioned, we made a decision to increase fiscal 2026 incentive compensation in fiscal Q4.

Mark Murphy25:05

Most of the increase in fiscal 2026 incentive compensation pertaining to manufacturing was absorbed into inventories in fiscal Q4. As a result the effects from the sale of these higher cost inventories principally impact fiscal Q1 gross margin.

Mark Murphy25:22

Fiscal Q2 benefits from less of this fiscal Q4 related compensation expense but this benefit is offset by the impact of higher fiscal 2027 incentive compensation

Mark Murphy25:35

We expect higher gross margins beyond fiscal Q1 for the remainder of fiscal 2027. with a more moderate rate of price increases.

Mark Murphy25:55

We project operating expenses to increase by approximately $2.5 billion in fiscal 2027. primarily from higher R&D to support an unprecedented set of opportunities in memory and storage and from higher incentive compensation plans.

Mark Murphy26:07

We expect a fiscal Q1 and fiscal 2027 tax rate of around 15%.

Mark Murphy26:15

Micron continues to invest in a disciplined manner across our global footprint to address customer demand.

Mark Murphy26:21

As a reminder, our capex is net of anticipated government incentives.

Mark Murphy26:43

In fiscal Q1, we project capex of around $11.5 billion and anticipate first half fiscal 2027 capex to be approximately 25 billion dollars We project capex to be higher in the second half of fiscal 2027

Mark Murphy26:51

We expect a meaningfully higher growth rate in construction capex as compared to equipment capex in fiscal 2027.

Mark Murphy27:08

Before I close I would also like to add my thanks to all Micron global team members for their focus on technology and product innovation and disciplined execution that makes these strong results and outlook possible.

Mark Murphy27:11

I'll now turn it over to Sanjay to close.

Sanjay Mehrotra27:25

Thank you Mark. Super intelligence is creating the most compelling opportunity for Micron in its history. Fiscal 2026 was an outstanding year and we expect fiscal 2027 to be even better.

Sanjay Mehrotra27:39

As we celebrate the 48th anniversary of Micron's founding I would like to acknowledge the nearly five decades of innovation disciplined execution and perseverance that have prepared Micron for this moment.

Sanjay Mehrotra27:42

We will now open for questions.

Operator28:11

We will now begin the question and answer session please limit yourself to one question and one follow-up if you would like to ask a question please press star one to raise your hand to withdraw your question press star one again we ask that you pick up your handset when asking a question to allow for optimal sound quality if you are muted locally please remember to unmute your device please stand by while we compile the Q&A roster

Questions and answers

Operator28:25

Your first question comes from the line of Timothy Arcuri from UBS Securities LLC. Your line is now open. Please go ahead.

Timothy Arcuri28:55

Thanks a lot. Um Mark I wanted to ask about capital return. I know you don't want to front run yourself but can you give us any mileposts here like what are you thinking of minimum cash balance you have pretty much double the cash that Apple or NVIDIA have so sort of what's enough cash do you think you know do you want to keep a hundred billion dollars in cash and you're return everything beyond that can you give us I know you don't want to front run us all you know yourself but can you give us some sense of what the mileposts are

Mark Murphy29:32

Sure, Tim. I'm I'm happy to provide some perspective yeah the market conditions Micron's technology and product position and operational execution you know all combined to deliver very strong free cash flow we had 33 billion as reported here in fiscal Q4 we expect a strong free cash flow growth to continue on the market conditions and disciplined execution even while we invest in more R&D and capex as you heard today

Mark Murphy30:56

So with these demand drivers and supply factors and long term and committed agreements that you heard about today plus Micron's technology position and execution we think this free cash flow strength is more durable so near term based on our Q1 guide and including the capex number that that you heard you will see free cash flow significantly higher than the 33 billion we reported in fiscal Q4 you know on target cash we expect to be around a target cash level by the end of fiscal Q1 now over time and with the you know rate and pace determined by various factors yeah we plan to return excess primarily done through share repurchase we intend to increase capital return as we've talked about before and in the script today from December 9th and then finally I'll just add that you know our current authorization that you can see from our previous filings for share repurchase stands at 2.2 billion dollars and you can assume that we will seek additional authorization in the near term on more authorization

Timothy Arcuri31:30

Thanks a lot for that, Mark. And then just a follow up. So capex you're not guiding the full year, but it sounds like maybe it's going to be 55 maybe a little higher this year. Which seems like it's maybe in the high teens as a percent of revenue for fiscal 27. I know that you know revenue is a lot higher so it's going to take time for the capex to kind of you know catch up but how do we think about capital intensity over the longer term for the business I I know you used to talk about mid 30s that seems a little high you know probably given what's going on now but is is is like 20 to 25 the new norm can you kind of you know walk us through that thanks

Mark Murphy32:36

Yeah, Tim, I would just comment that you capture correctly that you know we gave you a first half capex number we indicated second half would be higher importantly that mix of capital spend is shifting to more construction and we gave you some commentary on that versus equipment and you know we would expect that trend to continue here next few years now you know as it relates to capital intensity I think as you point out the capital intensity is low on historic levels and that is reflective of you know the strategic asset that that memory and storage has become and you know the bit the industry is structurally reset and we will continue to work to you know add capacity in a very disciplined manner ensuring that we're getting adequate return on that capacity investment going forward.

Timothy Arcuri32:39

Okay, thank you.

Operator32:50

Your next question comes from the line of CJ Muse at Cantor Fitzgerald. Your line is now open. Please go ahead.

CJ Muse33:07

Yeah, good afternoon. Thank you for taking the question I guess first question on gross margins within the guide for November can you quantify the impact from the higher ASP inventory and are there other sort of mix shifts that we should be thinking about that are impacting the sequential

Mark Murphy36:34

Yeah CJ I will this is Mark I will take this opportunity to just provide a bit more perspective on fiscal Q4 and fiscal Q1 to help walk you through you know the puts and takes on margin you know in fiscal Q4 we made the decision to increase incentive compensation and you can see that most clearly in actually the OPEX number and you know and that you can see it you know clearly in the third quarter to fourth quarter OPEX now in manufacturing expense most of these costs yeah they're absorbed into you know into inventories in Q4 so there was only a small effect in Q4 yeah the higher cost inventories as a result of the increase in incentive comp you know booked in the fourth quarter the impact of that you'll see you see in the fiscal Q1 guide and we also have some startup costs which I've talked about previously and some other costs but incentive comp is is the big driver to that gross margin outlook and in total these factors in the first quarter roughly a billion dollars of higher cost in Q1 so that gives you the you know gives you a sense of the margin impact now I think it's important to note that that we also have significantly increased fiscal 27 incentive compensation and you'll you see the effect of that in first quarter again in the OPEX number in fiscal Q1 OPEX guide on manufacturing most of the higher FY 27 incentive comp will start to impact margins in fiscal Q2 Now, you know, beyond the normal cost increases from higher volume and depreciation yeah you have this you know roughly billion dollars of ongoing costs from incentive comp higher startup and some other costs in fiscal 27 so you know while it's a you know a headwind in the first quarter and there are some sustained costs through the year I just it's important to keep in mind how structurally different the business is as far as profitability and return we're operating at a much stronger level and have talked about how 27 28 we expect to be stronger market conditions in 26. and long term agreements give us you know take and take or pay agreements give us visibility beyond that and I think it's important also note that that these costs you know these some of these costs can be considered variable or temporal so for 27 we also discussed how we expect Q1 to be the floor and gross margin and we expect higher gross margin for the balance of the year

Mark Murphy36:40

As we have continued price increases and strong operating performance

CJ Muse37:05

Very helpful. I guess as a follow-up, could you speak to, I guess, HBM? You talked about raising pricing to be closer to conventional DRAM. Should we assume that that's a Jan 1st increase and you know how should we think about the relative growth of that business overall is there sort of a percentage that that you're comfortable sharing?

CJ Muse37:07

Thanks so much.

Sanjay Mehrotra37:28

So I can take that question, CJ. So as you know, for 2026, our prices for HBM were negotiated with our customers last year, and we mentioned that now for 2027, a large part of the volume is already sold out for 2027 for HBM.

Sanjay Mehrotra37:39

And the prices are much higher than 2026 prices. And you know of course that is helping us narrow the margin gap with the non-HBM memory there.

Sanjay Mehrotra38:37

So overall our HBM is on a very good trajectory. We indicated that you know overall for the industry we expect HBM to be outgrowing the DRAM in terms of the demand growth so HBM is on a strong trajectory our portfolio is very well positioned you know our HBM 3e HBM 4 products late next year with HBM 4e products so we continue to see strong momentum with our HBM products and well positioned to address the opportunities ahead so I hope I answered your question regarding the growth here strong growth strong products and with the price increases starting in calendar year 2027 narrowing the margin gap with non-HBM part of the DRAM market

CJ Muse38:39

Very helpful. Thank you.

Operator38:51

Your next question comes from the line of Vivek Arya from Bank of America Security. Your line is now open. Please go ahead.

Vivek Arya39:35

Thanks for taking my questions. For the first one, Mark, I wanted to go back to cash returns um you know at this pace Micron could generate over a 100 billion I think from Q2 to Q4 so even if let's say Q1 you're building cash to get to your target balance sheet your cash generation from Q2 onwards should get you to at least 100 you know plus billion so if that is the case why shouldn't we expect that level of cash return in fiscal 27 so I know you're not providing a specific number but what am I missing in that high level analysis right beyond just you know going through the outline of sales and margins and capex estimates that you're providing

Mark Murphy39:56

Yeah, Vivek, all I can add is that, and hopefully made it clear in the prior response, that we have the ability and the intent to increase our capital return and we you can expect us to seek to increase our authorization.

Mark Murphy40:07

And commence stronger capital return from December 9th. in accordance with the agreements we have with on chips.

Vivek Arya41:10

Um for my follow-up maybe one for um Sanjay when we look Sanjay at the just the valuation of memory stocks right very depressed which suggests that people feel that next year might be a peak for pricing you know might be a peak for earnings um in this cycle uh either because the industry is bringing on incremental capacity or there is a narrative that maybe some of your customers even in the data center might de-spec products because either because of shortages of memory or just because right it's such a bigger part of bill of materials so I know you don't talk about specific pricing but as you were to think about conceptually in 2028 for the industry what is the potential for industry pricing to continue to stay favorable to even potentially increase versus 27 given these you know headwinds from either incremental capacity coming online or some customers wanting to de-spec their products to cope with market conditions.

Sanjay Mehrotra45:53

So as we noted, calendar year you know in calendar 27 as well as 2028 we see demand exceeding supply and in fact we see greater tightness in the industry in 27 and in 28 versus 26. So overall supply demand environment is only getting tighter and of course you know even as we work hard to bring up capacity as I shared in my prepared remarks even with any new clean room space coming up in 2028 we see continuing tight supply conditions because first of all clean rooms take a long while to build even after they are built even after first wafer output production ramps up only gradually in the clean rooms that's just the nature of what it takes to bring up production and you know with HBM going from 3e to a greater mix of 4 and 4e and with the trade ratio that exists that again creates headwinds with respect to supply growth node transitions of the future give less productivity gain per wafer as well so there are a lot of factors these key factors that are you know headwinds to the supply growth and even in 2028 even as some of the new clean rooms start ramping up the supply is tight and that is in the backdrop of strong demand while some level of content growth may be moderately lower in some of the servers compared to prior expectations overall unit demand for servers continues to increase 26 as well as 27 we expect you know high teens in terms of server unit shipments and that sets the stage well for data center growth of shipments for DRAM in 2028 as well so it's a strong demand environment and customers work with you know they fully understand this extremely tight supply outlook that we have shared with you that we do not see line of sight when supply catches up with demand because the demand trends of larger models growing context more concurrency greater agents across enterprise and consumer only continue to drive greater need for memory content as well as for higher performance memory so when customers reduce their content growth versus prior expectation as I referred to in certain platforms that really is to enable them to ship more units as reflected in the strong server growth in 26 as well as 27 which sets the stage up well for 2028 time frame so I see a healthy demand supply environment here you know going forward for the factors related to demand as well as for supply and that obviously bodes well for the industry pricing environment as well and I'll just add here that our SCAs give us tremendous visibility with our customers and we mentioned here that our customers are actually coming to us um you know asking for more supply SCA customers are asking for more supply non SCA customers I mean we are getting POs I'll tell you that 2027 70 more than 75% of our output is already committed for 2027 and majority of discussions with our customers today are already around 2028 so overall the industry demand supply environment and the outlook is in a very healthy place here and we do not have in this strong demand environment we do not have line of sight to when supply and demand will get in balance and customers want assurance now even beyond 2030 time frame I mean we mentioned that we concluded some extensions to our SCAs as well as we to 2031 time frame as well as new SCAs for extending out to 2031 time frame

Operator46:05

Our next question comes from the line of Chris Sankar from TD Cowen. Your line is now open. Please go ahead.

Krish Sankar46:24

Yeah hi thanks for taking my question. I had two of them too Sanjay you know there's been talk of one large customer de-specing HBM I'm kind of curious what your view on that is and also implications given the fact that HBM has higher trade ratio if those wafers get reallocated to DDR would that increase DDR supply quite a bit and then I had a follow up

Sanjay Mehrotra48:10

So as we mentioned we actually see the overall HBM supply I mean HBM demand outpacing the industry demand in 27 as well as in 28 and we continue to see you know tight memory conditions in both 27 and 28 time frame. And you know the latent nature of need for more memory in the applications continues to be strong because you know AI platforms in order to deliver their maximum capabilities and potential just need more and faster memory you know to again address the growing context concurrency and of course the larger model sizes as well so overall the demand trends are in a very strong place and when customers make optimizations they make these optimizations mainly to be able to ship more units to drive their own more growth as well as to address the end market opportunity of growing scaling up AI and you know these optimizations you know when they occur you know they do not take away from the latent nature of need for more memory in the systems and these optimizations also have you know diminishing you know return for any further optimizations and if you contrast optimizations with actually the secular demand and the value proposition of memory in the platforms you will see that the overall demand trend continues to be very healthy for memory and storage and again we see 27 and 28 tighter than 26.

Krish Sankar48:13

Got it that's very helpful

Krish Sankar48:18

And HBM continues to grow faster than conventional DRAM through 2028

Krish Sankar48:34

Got it. Thanks for that, Sanjay. And Mark, just a quick follow-up. I know clearly like FY27 capex higher than 50 billion, and looks like your free cash flow is going to be over 100 billion. And higher growth rate in construction capex versus equipment.

Krish Sankar48:48

I'm just wondering, is that because you are constrained in getting semi equipment next year? Or is it not an issue? I'm just trying to wonder if there is a natural cap on capex next year because you're constrained in securing the equipment.

Mark Murphy48:57

Kirsh, it's related to just the

Mark Murphy49:52

You know strong supply demand imbalance that we have and the lead time it takes to get greenfield capacity in place so that you know we talked through many fabs that we're building out and coming you know ID1, ID2 Japan Singapore Tongluo and so and we've got now the visibility through these you know strategic customer agreements to build out this greenfield capacity and then you know we will equip those fabs as appropriate given our most current views on demand.

Krish Sankar49:57

Thanks a lot Mark very helpful.

Operator50:07

Our next question comes from the line of Harlan Sur at JPMorgan. Your line is now open please go ahead.

Harlan Sur51:03

Hey good afternoon thanks for taking my question last earnings with 16 SCAs secured your view was the potential for 50% plus kind of SCA coverage on forward revenues given the pipeline of SCA signed and under negotiation fast forward to this quarter 26 SCAs now secured under coverage and you and your customers have updated industry view that is even further supply constrained in calendar 27 and calendar 28 so what do you think your forward revenue coverage will be if all of your current SCA negotiations are completed I think Sanjay you said 70% of revenues covered in fiscal 27 by customer commits including SCAs but should the team actually see 60 70% SCA coverage on forward revenues over the next few years when all of your negotiations are completed

Sanjay Mehrotra53:43

So regarding my comment on 27 that more than 75% of our output is already committed as I had said that is of course between the SCA customers as well as non SCA customers keep in mind that we have large certain large customers where we of course are doing business with them on annual basis as well so you know that volume coverage comment I just wanted to clarify it is across our customer base SCAs as well as non SCAs and given the strong demand trends uh you know we are getting purchase orders for 2027 from non SCA customers as well early on here um and regarding your question on you know where could SCAs ultimately reach to so that you know basically is still around 50% of our revenue you know through the 2030 time frame that we had previously commented on that comment still remains about the same that you know we could reach around 50% of our revenue to be covered by SCA of course you know that could be less too depending upon the revenue of all the rest of the business right so but you know overall that objective remains by and large the same and of course we are always managing the mix of the business it is important for us to be able to maintain flexibility in terms of you know managing our supply across our customer base across the end market segments across new customers too that may be evolving over the course of the next few years particularly given the dynamic nature of our industry the tremendous amount of innovation that's just happening across the board you know we want to be in a position to basically remain in that position so basically I think you know we are really making very good progress in this regard and the benefit of SCAs to give us visibility into the demand out there in the future it really helps us plan our investments and that really is a fundamental change to the nature of this industry when you think about it that it helps us manage our investments manage our supply expectations with a long lead time long time horizon that is really good for the health of the industry versus the past when you would experience more volatility in our industry

Harlan Sur54:43

I appreciate that. And then on the NAND side of the business, you know, relative to your competitors in NAND, the Micron teams, I think, total bit supply share puts you sort of in that number four, number five sort of global market share regime, right? Yet the team continues to drive this very, very strong like number two market leadership position in data center and enterprise SSD, strong performance differentiation is required here, right? It's not just you've got this great base G9 technology but it's also the controller technology firmware customization you're also a part of the Nvidia SCADA initiative for direct GPU access to storage and it seems like more and more of the inferencing related KV cache functionality is being offloaded to storage right and so with the expansion of memory curing to include more and more flash based architectures like has that changed the team's view on your R&D and capex investments in your NAND franchise?

Sanjay Mehrotra56:50

So you know certainly as you noted the memory hierarchy from HBM to DRAM to SSD I mean it continues to be leveraged as context windows grow and as AI advances and we are very pleased with our product portfolio position and as we noted I mean our portfolio is in the best position ever in the industry particularly to capture these huge growing market opportunities with AI and of course very proud of our team's strong execution on the side of SSD which is critical you know for data center SSDs which are absolutely critical in the memory hierarchy that is needed to drive the growth of AI and you're seeing the results of that you know five consecutive years now of share growth in the data center market you know our revenue reaching 10 billion dollars in fiscal Q4 for data center SSD becoming two-thirds of our total NAND revenue so we are of course you know continuing to invest in R&D you know related to the products as well as making the investments on the manufacturing side our investments related to NAND as part of our overall capex you know certainly are increasing as well and you know we are as you know we have talked about the next fab for NAND that we are also building in Singapore which is currently on track for late calendar 2028 time frame and our capex is supporting our you know G9 NAND tech transition of course driving toward equipment productivity optimization NAND R&D you know and you know other aspects of our Singapore operations as well.

Harlan Sur56:57

Thank you, Sanjay.

Operator57:03

This concludes the Q&A session and today's call. Thank you for attending. You may now disconnect.