Operator
Hello, everyone. Thank you for joining us, and welcome to Micron's fourth quarter post-earnings analyst call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Satya Kumar, Corporate Vice President, Investor Relations and Treasury. Satya, please go ahead.
Thank you, and welcome to Micron Technologies' Fiscal Fourth Quarter 2026 Post-Earnings Analyst Call. On the call with me today are Manish Bhatia, President and Chief Operating Officer, Dr. Scott DeBoer, President and Chief Technology and Products Officer, and Mark Murphy, our Chief Financial Officer. As a reminder, the matters we're discussing today include forward-looking statements regarding market demand and supply, market trends and drivers, and our expected results and guidance in other matters. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today. We refer to documents that we have filed with the SEC, including our most recent Form 10-K and upcoming 10-Q, for a discussion of risks that may affect our results. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.
Operator
We are under no duty to update any of the forward-looking statements to confirm these statements to actual results we can now open up the call for q a 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 your first question comes from the line of ben
writes this from melius your line is now open please go ahead hey guys thanks a lot for the question uh and congrats on the promotion scott and i'm not sure if my niche is on but congrats so um wanted to ask about hey how you doing uh congrats so uh wanted to uh talk about 2028 um new commentary here you know regarding 28 and you know you guys felt compelled to kind of say you see things tighter in 28 than this year, as well as 27. I wanted to know a little bit more about what changed and what that means for margins. You gave more margin commentary than you usually do around 27, which was great, by the way. But I just don't see any reason why margins would change in 28 from the level you implied for 27. So just a little more comment around 28 would be great.
Sure, Ben. I can start, and then if Mark wants to add anything. And thank you for the shout-out. In terms of 2027 and 2028, our commentary, we are seeing stronger demand drivers than we've seen before. You know, we commented about the server units continuing to grow into 27. And, of course, I think everybody's talking about how agentic AI is really growing fast, and that's creating a, you know, CPU-driven demand stream as well. And so as we've gone through, you know, working on our fiscal year 27, and we commented that we have more than 75% of our, you know, shipments committed for the year, that shows a strengthening demand and allows us to shift our conversations on allocation with our customers out to 2028. And so that's one element of our confidence is that 27 is shaping up with stronger demand than maybe we had seen before. And then, of course, as we also have now more SEA conversations with customers, including extension that we've now negotiated, that gives us more confidence in the long term as well. And so, you know, the combination of those who think of this very strong, you know, outlook for demand, you know, through 2028. And then on the supply side, there's still the same, you know, structural constraints on supply growth that we've talked about before, which is, you know, diminishing returns from technology transitions versus past technology transitions. HBM growing faster than conventional DRAM through 2028, which means that as a portion of the industry's output capability, HBM is growing in terms of that share. And of course, the trade ratio, not just today's trade ratio for HBM, but future more complex HBM having higher trade ratios, you know, that's, you know, that's also going to be constraining supply. And then it just takes a long time for these new clean rooms that, you know, the whole industry is working on to be able to build and then qualify and then equip. And, you know, it takes, even from the time they open, it takes, you know, a few quarters for, you know, meaningful shipments to come. So, you know, that really gave us, you know, the combination of that demand outlook and this, you know, supply outlook, you know, we made the statement that, you know, we really don't have line of sight to when, you know, supply and demand balances.
Yeah, Ben, Ben, I would maybe just add to Manisha's comments that, you know, as you noted, in 27, we had indicated for the balance of the year that we would see margin expansion relative to Q1, a function of continued price increases, albeit at a more moderate pace. And we've said that for some time, that eventually price increases would moderate. And then at that point, in addition to just price increases at a lower rate, we would we have a better mix of products and we would work our mix based on our technology and product leadership. And the market conditions, as we said, we would expect to remain tight and that would be supportive through 28. And of course, the partial offset that price and favorable mix would be startup costs. But these are all things we're managing, we've been managing them and we would expect to be able to sustain strong financial performance.
Great, and if I could just sneak one other in, I mean, Sanjay had a great seat at the Trump, I guess, lunch, dinner, whatever, lunch. And I'm just wondering, did he come away feeling good about the industry's ability to grow and, you know, self-regulate and the future coming out of that meeting, did that lend a hand to any of the upbeat guidance you gave or just any color out of that and how he felt coming out and even if memory came up a lot at the meetings? Thanks.
Well, you know, Ben, Sanjay's not here, but I'll give you what, you know, conversations, you know, I'm aware of, I mean, for sure, you know, we're very happy to participate in that, you know, that forum. And it does show the importance of memory that, you know, Micron was, you know, invited there along with, you know, the model companies as well as the, you know, accelerator companies. I think that the framework that, you know, in the white paper that was published out of that, that, you know, many of the model companies have already signed is that framework is constructive toward continuing to have advancement in AI infrastructure and AI, in particular, AI hardware infrastructure. And, you know, I know that one of the concepts that got discussed quite a bit was that, you know, the way to manage, you know, some of the security aspects is to actually have, you know, security solutions, which will require more advanced hardware, including higher performance memory, lower latency memory as part of those, you know, security solutions, higher bandwidth memory. Because if you can imagine, you know, setting up a gateway to be able to manage much of the security aspects that could be proposed in the future, you know, those, you know, the responsiveness of those gateways are going to, you know, depend a lot on, you know, the availability of high performance and low latency members.
Operator
Your next question comes from the line of Melissa Weathers from Deutsche Bank. Your line is now open. Please go ahead.
Hi there. Thank you for the question, and my congrats as well to the two new promotees. In past quarters, you've given us a view on where you think the HBM total TAM could be by 2028, 2030. Really, the pricing environment has changed since those updates. I don't know if you want to give us an official new number for where you think the HBM TAM could go, but directionally, can you help us sort of try to size, like, how much is coming from bets and how much is coming from pricing and just any updated views on how big you think that market could be.
Sure, Melissa, and thank you again. You know, we're not updating that TAM outlook right now, but what we have said is that HBM shipments, we expect to grow faster than conventional DRAM. that means that HBM will continue to grow as a portion of the industry's capacity here through 2028. And the pricing for HBM, at least for us, we did comment that we have increased that pricing significantly for calendar year 27, which will reset at the beginning of the calendar year to narrow the profitability gap with conventional DRAM. But beyond that, we haven't made any comments on the specific outlook for the HBM TAM. It continues to grow, continues to be a very important enabler. HBM deployments continue to be an important enabler of much of the rest of the AI to be able to reach its potential as well. So it's an important part of the market.
Maybe following up on that, from a market share perspective, any updated view on how you guys are targeting market share for HBM? In the past, you said you want to get it to within the corporate average, kind of low 20s percent market share. So is that still the case? And then I noticed in the prepared remarks, your comments on HBM 4E and the engagements with NVIDIA there. So just any more color on 2027 and HBM4E and the progress that you're making there with customers would be great.
Sure. So, Melissa, I'll take the first, and maybe Scott can take the HBM4E since his team is driving that product development. You know, in terms of the HBM market share, about a year ago, you know, We had achieved the milestone that we talked about, that our HBM market share reached our broader DRAM market share. And at that time, we said that our goals would then move around based on various different factors. And we haven't really updated exactly our HVM share target other than to say that we do expect our HVM share to be around our broader DRAM market share, but we're not necessarily targeting one number or the other. It will move around based on various different factors there. But as I mentioned on the prior question, it's a really important part of the market. It allows us to be very close to the leading edge of the accelerator platforms that many of our customers are designing and then deploying. And it's a key enabler for all the rest of, you know, AI to be able to deliver on its promise and its potential.
And then I can just add a little bit about the work with NVIDIA on what really will be the first major custom HBM product out in the market. And we've been working with NVIDIA for over a year on HPM 4E, what's called Envy HPM. And we see substantial opportunity there for us in the co-design of that product with, obviously, a key customer to have this be a product that delivers really substantial value beyond standard HPM 4E. I think it'll be a real impact on industry, you know, future systems with optimized network.
Operator
Your next question comes from the line of Atif Malik from Sviti. Your line is now open. Please go ahead.
Thank you for taking my questions. The first one on the 26 SCA, 35% of sales by 2030. Are these for both DRAM and NAND? And if you can just split them out.
Hi, Thief. Yeah, we're not, you know, we're not splitting those out, but the SCA agreements do cover both DRAM and NAND. And it is through 2030, but we're not, we're not breaking it out, you know, specifically. You know, I can tell you that the DRAM volume is a little bit less than that, approximately 35, and the NAN BIS volume is a little bit more. And, you know, as we, you know, think about these going forward, we are – we have more availability. We said that, you know, this number could get up to be higher, you know, in the future as we continue negotiations for SCA.
Understood. And then on the impact of China competition, firstly, if you can confirm that your China sales exposure is fairly minimum, and if Scott can comment on how should we see China competitors closing the gap on technology, if you can provide any color?
Yes. Our exposure to China has been reducing over the last couple of years and the last several quarters, and we expect that exposure will be in the single-digit range.
Then I could comment a little on the technology side. Currently, our technology leadership is at least two nodes ahead of the China competition. I think it's important to say that our focus is on maintaining technology leadership and having true differentiation in our products in how we compete. We're, as Manish, I think, mentioned earlier, and as it was mentioned in the call, our one gamma DRAM technology is already the majority of our bits, and it's set up to be the largest node in the company's history. It is dependent on EUV technology. The next generation, one Delta's, is well underway, and, you know, we're focused on the ramp of that in the second half of next year. EUV technology is critical to all advanced DRAM nodes going forward, and our expertise in that, both from the, you know, the technology side in partnership with our supplier there, and as well as math technology and other things is continues to be a key differentiator for for microns hey um thanks and many well-deserved description thank you and can i just clarify that the you know the response in terms of DRAM and NAND was actually a bit comment uh just uh make sure that that was clear i'm not sure i specified so making sure it's clicked got it Your next question comes from the line of Carl Ackerman from BNP Paribas.
Operator
Your line is now open. Please go ahead.
Yes, thank you, gentlemen. You are seeing robust demand across much of your portfolio, but this quarter does appear to you the second quarter in a row that mobile and client segment saw a bit shift in this decline. Are higher memory prices reducing demand in this area of the market? And while this area of the market has been slow to adopt SEAs, I'm curious if your growth in SEAs is coming from this cohort.
Thanks, Carl. You know, we did see sequential bid decline in our mobile and client business unit. But we did see revenue growth, obviously, with both higher pricing and favorable mix. I think what's important to note is that the premium segments of both client as well as the flagship smartphones do see, you know, robust demand for higher content, higher performance solutions. And, you know, that's a segment that, of course, those are the segments that, of course, we're very focused on. And, you know, with that wind at their back, you know, we see the PC and mobile industry revenue to be growing, even though we do see units volumes declining. And, you know, in terms of SCAs, I'll just, you know, comment that, you know, we do have SCAs across all of our business units, including the mobile and client business unit. And, you know, we're not specifically breaking them out, but I will tell you that we have SCAs because it's important for us to be, you know, maintaining, you know, diversified supply to all our end markets.
Got it. Yes. Maybe a question for Scott, if I could. How do you view the competitiveness of your in-house optimized based eye on HBM4E versus peers? Certainly some of these customers are seeing custom solutions. Does the complexity and economic value flow primarily to the compute customers? or to the HVM providers? Thank you.
So maybe just a little clarification first. On HVM 4E, we have co-designed with NVIDIA, but not in-house-based I like we use on HVM 4. So I think just to be clear on your question, I just wanted to be sure I was answering it in the right way. On HBM 4E, this co-design is on a foundry process, both for the customized product and for the, say, JEDIC. Yeah, understood. Okay. Okay. And then I think maybe to add a little color to that, the differentiation, just as we have demonstrated in the past on prior HBM products, winds up being in the power and the ultimate speed performance and the margin of the product working with our customers. That in all previous generations hasn't been the same between suppliers and that we think will continue to be a strength of Micron in terms of quality of the product and the capabilities that we're able to.
And then in terms of your question on economic value um you know hbm uh is a is a premium product um and you know as you know scott mentioned as we look at you know the envy hbm with you know customization you know we do expect that to be a high value product as well and uh you know we're confident hbm will continue to contribute and be a be a strong roi product your next question comes from the line of jim schneider from Goldman Sachs.
Operator
Your line is now open. Please go ahead.
Well, good evening. Congratulations, Manish and Scott. I just wanted to maybe get a sense about, you know, of the 10 new customer SCAs you signed in the quarter, maybe give us a little bit of color on what customers are asking for. Obviously, they want supply and they want longer-dated supply, but is there any kind of change in the pricing construct you either you or they are asking for sort of given the reason I ask questions kind of given the you know the expectation about tightness through calendar 27 and 28 are you maybe a little bit less uh inclined to call for you know the fixed ceiling and floor pricing if you think you can capture a little bit more upside give over the next couple years yeah well thanks Jim and thanks for the shout out um I would say that the framework of the SCAs that we have is similar, but what's different is that the negotiations reflect current market conditions and outlook for market pricing, right?
And so the direction of travel has been for higher pricing, and so those are now factored into the discussions that we're having with customers versus the prior ones, which we had talked about that were set at CQ2 kind of market conditions. And, you know, I think we gave color that, you know, about three quarters of the SCA have this – of the SCA revenue has a defined pricing framework, and about one quarter is open to periodic negotiations of pricing that, you know, move with market dynamics. of the of the i guess i would answer that you know in terms of the overall uh you know framework uh similar the majority of the pricing frameworks uh you know floor and ceiling bands but the newer ones are negotiated with an eye towards the you know current market conditions and the future
market tightness that we see got it i mean just to be clear does that mean all the pricing ceilings and floors just reset to the higher market conditions you're seeing today? Or is the nature of the pricing conditions actually different too? And then just to maybe just to ask, just curious as to whether, I don't think you disclosed signing additional hyperscale customers, but I'm wondering if any of those are included in the 10.
So, I mean, there are multiple different frameworks. What I commented on is that the majority of the frameworks that have pricing, you know, are set with floor and ceilings, but there are multiple different, you know, frameworks that we're continuing to use. And, you know, since the last call in these new 10, we've signed a range of agreements from small to large SCA customers. We're not commenting specifically, even in the previous question, not specifically breaking out, you know, which one, just commenting that, you know, we now have SCAs across all of our, you know, business units, and we have SCAs ranging from small to large, even in the last 10 that we signed, and, of course, in the total 26.
Operator
Your next question comes from the line of Chris Casso from Wolf Research. Your line is now open. Please go ahead.
Yes, thanks. Good evening. I guess our first question, if you could address the CapEx and the fab construction CapEx, the construction CapEx as compared to the tool purchases. And what I seem to hear in the comments is that the construction CapEx was increasing faster. And I'm not sure I interpreted that correctly. But, you know, understand that there's the clean room space constraints are constraining the ability to, you know, bring in tools for this year.
But, you know, the increase in construction CapEx is obviously interesting because it doesn't result in bit production until, you know, at least 29, probably beyond that. um you know so chris i can start and then maybe mark can add but i mean that's exactly right is that you know the the principal constraint in the industry um is on clean room space you know because we um you know if the the strong growth of ai and this demand vector has come on you know relatively recently in terms of the the timeline that it takes to build these clean rooms so while we're you know we're all starting that's that's why we're focusing there and then um you're right that we did comment that the majority of the construction CapEx increase for fiscal 27 versus our prior plans is for clean rooms that will come online in late 28 and beyond, which shows both how long it takes to build these clean rooms and why we need to get started with the construction investments now, but also shows our confidence in longer-term demand, both through the observation of the demand trends and the near-term market trends that we're seeing, as well as the structure of the SCAs and the discussions we're having with SCAs and customers now extending those commitments beyond 2030. I mean, these SCAs are transformational for us in terms of being able to match supply with future demand and to be able to invest with confidence.
Yeah, Chris, maybe I can just add that just to make it clear that the majority of the increases is for a construction CapEx. Most of that is of that construction increases to accelerate clean room space availability in 28 and beyond. I mean, it is a trend that we would expect to continue to, you know, beyond 27. And I think you made a very important point that just the spend there doesn't translate into bits and that, you know, these fabs will be, you know, made. We put the equipment in the fabs and produce wafers when needed based on our view of the market. And these SCAs are a good way for us to keep a pulse on the market and make sure that, you know, we get a return on that CapEx.
And I think just one other point. One other point, Chris, is that, you know, we will equip the, you know, clean rooms and build capacity to the demand trends that we see. So, you know, that's just another important part. And we, you know, we have been, you know, executing, you know, long-term supply agreements with equipment suppliers to, you know, be able to make sure we have access to equipment as needed. But, of course, we'll still, you know, equip and build the production capacity in those clean rooms in line with demand trends at the time.
Of course. Of course. As a follow-up question, I want to ask a question on the impact of CPU strength on, you know, both overall bit demand and your view of supply-demand balance. And, you know, obviously, that's probably been the biggest incremental surprise since the beginning of the year. You don't have the same trade ratio effects on CPU as you do on HBM.
But I guess the question is, how significant is that in contribution to the supply-demand I think definitely the realization that agentic workloads are executed across CPU has been a big driver. There is a large attach rate of both LP as well as DDR memory and SSD to enable those agentic workflows. You know, those agentic workloads are already starting. You're already starting to see multiple ones, whether in the enterprise or consumers, implemented and driving real value. And that's been one of the reasons that server units are growing so strongly, as we noted in the high teens. And I think the other thing that this shows is that, you know, while it's just another vector of logic and logic silicon to grow, to be able to take, you know, take advantage of the AI trends. And so that is driving higher logic silicon into the overall demand for AI compute and, you know, frankly, creating more of a constraint on DRAM and making clear that, you know, DRAM is the principal constraint versus logic or, you know, power to the data center. You know, I mentioned, you know, the new, you know, there are many different, you know, software implementations for enterprise agentic workflows that we're all seeing. But seeing how quickly, you know, Meta's Muse has been, you know, just in the last couple of weeks since being released is just an example of how quickly these agentic workloads are realizing, are enabling consumers to realize real value. Okay.
Operator
Your next question comes from the line of Joseph Moore from Morgan Stanley. Your line is now open. Please go ahead.
Great. Thank you, guys. In terms of supply growth decelerating next year, you know, I guess that's a little surprising in the context of the CapEx. And I know you talked about some of the dampening effects of HBM, but I don't think that delta should be changing that much. So I just wonder if you could just kind of explain what the puts and takes are that supply would decelerate given the capex that you see.
Sure, Joe. And you're asking for both DRAM and NAND?
Yeah, but principally DRAM.
Okay. I mean, I think that, you know, we gave the color that, you know, HBM, you know, is growing faster than conventional DRAM. And the trade ratio as you move, the more of the industry is shifting from HBM 3E to HVM4, and then towards later in the year in 27, HVM4E, and these are increasing trade So if you just look at both of those two things happening together, that has a dampening effect on the ability for big growth to be growing. And keep in mind that both the big growth for us and other industry participants from new technology nodes, both over time as you make more of your transition, you don't have the timing of transitions affects how much big growth you can have, as well as the nature of the diminishing returns of each of those newer nodes. So these are all the factors that are going to be constraining supply. But of course, the principal one is clean room space for everyone. And even though we're going to be having first wave for output from our Idaho facility mid-Calendar 27, and others in the industry as well, maybe opening clean rooms, meaningful supply growth takes a few quarters after that, so I think that's really the, you know, those are all the reasons why we see that DRAM is producing supply, industry shipments next Okay, that's helpful.
And then to the extent that if you end up having been conservative on industry supply and there's more supply next year. Can you talk about, I mean, it seems like there's a lot of pent-up demand, there's a lot of appetite to have more supply. We've seen de-specking out of necessity for some of these AI racks and things like that. It seems like they'll just respec to higher levels if there's more supply, but am I too optimistic there? Just how do you think about that?
Yeah, no, I think that's exactly the point that, you know, these, you know, are, and Sanjay mentioned this on the main call, we definitely think that the, you know, our customers are choosing to maximize the, you know, compute silicon shipments they can make with the available memory supply that they have. And, you know, as you know, that does create latent demand for more memory to attach to those, which would then end up, you know, delivering higher system performance and, you know, improve performance at the end customers. And so, yes, that latent demand, I think, is aligned with your concept that, you know, were more memory to become available, it would have a, it would easily get put into use in higher content growth in, you know, AI workloads, whether attached to accelerators or CPUs.
Operator
Your next question comes from the line of Mehdi Hosseini from Susquehanna International Your line is now open. Please go ahead. Okay.
Yes, thanks for taking my question. A couple of follow-ups for me. You did highlight your non-bit shipment in 26 is tracking below industry average, but what should we expect 27 through 28? Would you be able to be growing non-bit demand of the shipment in line with the industry average of 25 percent?
Mehdi, we're not commenting out that far, frankly, on either DRM or NAND. We do expect conditions to be tight on NAND overall, even as the industry is expected to grow in the mid-20 percent range in calendar 27 and 28. You know, some of the factors that account for our supply growth, you know, we did, you know, we are utilizing some of the clean room space in Singapore now for, you know, our advanced R&D line for future NAND growth. We are also preparing for the ramp of our HBM facility in Singapore next year. And so some of the existing clean room is with some pilot HBM operations. And so that's some of the reasons why our, you know, supply growth grew less than the industry, you know, this year. But, you know, we feel confident in our technology and we do expect that our continued ramp to Gen 9, you know, will provide good, you know, very high ROI, cost effective supply for us as we move forward. And then, of course, we do have the new clean room that we broke ground on earlier this year that will come online in the second half of calendar year 28.
Yeah, maybe just... Got it. Thank you. Mehdi, just maybe if I could interject just because of time here. And then if you've got an additional... Well, why don't you start with your question and then second question and I'll make a comment after that.
Sorry, Mark. I didn't mean to interrupt you. But very quickly, I just want to give the team's opinion. When I look at DRAM, especially at the wafer level, the devices are all the same. And I argue that there is a fungibility of DRAM at the wafer level. And then there are some differentiation in the back end. And this fungibility at the wafer level hasn't been seen before because in the past, the cycles were driven by just one product and there there was a significant concentration of customers so am i right with this assumption that fungibility of the DRAM at the wafer level gives you a better way of managing DRAM costs does that make any sense to you start with with one thing I think there's there's a bit of what you say but I actually probably would have gone the other direction in if you if you look at the front end variability or what we do differently
on the DRAM processes between optimizing for HBM optimizing for high performance SOCAM LP DRAM and optimizing for you know DDR6 there's at this moment in time probably more difference than ever in the history of DRAM in the same node the different kinds of products that we have to build on it and a lot more differentiation built into those, you know, I don't know what you would add.
Yeah, I mean, I would say that what it really helps us with in the near term, the fact that we do run the different products in the same manufacturing lines, it does help us adjust, you know, makes we don't have to run products in different paths, we can run them on the same lines. But, you know, as Scott mentioned, you know, each product has its own vector that it's trying to optimize. Obviously, in HBM, it's bandwidth with the TSVs, and that requires unique process steps. In PDR and LP, they each have their own, as well, process steps that are unique. And so I think the most important part of the fungibility is that we do have the ability to flex wherever demand is, or even mix adjustments to try and meet our customer's requirements. I think that's probably all within the same fab. That's probably the most important part. But I wouldn't say that it helps necessarily with cost.
Yeah, I think, Manny, just I think we're at the end of the call. And I am really happy to hear the nature of the questions being focused on technology and the longer term strong foundation and performance of the business. And I just thought there'd be a question And let me just do a couple of housekeeping things that I thought would come up earlier. Our first quarter guidance factors in a single-digit sequential BIC growth and double-digit for cost for both DRAM and NAND. And I wanted to make sure you had that for your modeling. And then also, excluding the incentive comp effects, the year-over-year R&D decrease is going to be more than the billion that we said last quarter would be over a billion. in 27 as we have added additional R&D activities. So again, I wanted to just make sure we got that out for your modeling.
Operator
This concludes the Q&A and today's call. Thank you for attending. You may now disconnect.
