Okay, we're back. So thanks for joining us, everyone, at Wolf's Auto, Auto Tech, and Semiconductor Conference. I'm Chris Casso, Wolf's Semiconductor Analyst, so thanks for joining us. We're pleased to have with us this morning Micron. From Micron, we've got Mark Murphy, the CFO, and Sacha Kumar, Head of Investor Relations for Micron. Gentlemen, thanks for joining us today. Good to have you as usual.
Thank you for having me.
So I guess before we'll start with Q&A, there's a lot to talk about because we're really in extraordinary time in the memory market right now. But why don't I pass to you, Mark, if there's any sort of opening remarks you'd like to make, kind of set the table for us here.
Sure. So I'll start with Safe Harbor. I'll be making forward-looking statements. those statements have risk and uncertainties associated with them. I refer you to the risk factors disclosed in our public filings, including our recent thank you and 10k at the end of last year. So our business is on an extraordinary trajectory. Since our last earnings call our business has strength our financial outlook has strengthened further demand is significantly higher than our ability to supply and the industry's ability to supply we continue to expect supply demand to be tight beyond 26 we are doing everything we can to plan and invest appropriately for our customers' needs over time. We're making good progress on multi-year agreements with specific commitments. We are preparing clean room space that will come online over time, and that will give us the ability to grow our bit supply in line with market demand. Now, during the quarter, we announced two new groundbreakings, one in New York for DRAM, one in Singapore for NAND. The new NAND fab will have first wafer outs in second half, 28. We also announced the Tonglo site acquisition in Taiwan, which we expect to close in the calendar second quarter. And that Tonglo fab will be used to support DRAM production. Micron is executing extremely well across technology, products, and manufacturing. And let me at this time address some recent inaccurate reporting by some on our HBM4 position. We have been in high-volume production on HBM4. We've commenced customer shipments of HBM4. And we see shipment volumes ramping successfully this calendar Q1. This is a quarter earlier than we mentioned during our December earnings call. Our HVM capacity is ramping well, and we have sold out our calendar year 26 HVM supply as we highlighted a few months ago. Our HVM yield is on track. Our HVM4 yield is on track. Our HVM4 product delivers over 11 gigabits per second. speeds, and we're highly confident in our HBM4 product performance and quality and reliability.
Well, you've given us lots to talk about, so that makes my job a lot easier, so I appreciate that. So maybe we could start with the comment about, you know, the business has strengthened further since the start of the quarter, and really the guidance kind of coming into this quarter was quite extraordinary. I think it's up 37% sequentially with about 11% in gross margins. So I guess maybe the first question that while demand has strengthened, we know you're supply constrained. And so how should we think about that with respect to fundamentals for both the quarter and for the outquarter, given the supply constraints?
So we have a very positive setup for the business. And Micron is in the best competitive position it's ever been in at a perfect time. And it's positive in both the demand setting and it's positive on the supply backdrop. Of course, on the demand side, we have this AI-driven demand. And as AI works to, you know, as companies work to improve the intelligence of AI systems, these are requiring more and better memory. As the models get larger, as the context windows get longer, as the reasoning becomes more intense, these are all driving higher performance memory and storage. And so we're seeing this proliferation in the amount of tokens generated, the demands on the processor, the re-architecture of memory systems in order to support that. And we're seeing high-performance memory being added throughout the architecture. um that demand has been very strong you we saw that happen through 25 where um server demand increased through the year from what was going to be in the single digits to you know mid-teens and we also saw related a traditional uh server growth through increase through through last year as workloads begin to affect even traditional server. So we see growth, that strong growth continuing. And then I think just the latest CapEx investments that you've seen from the hyperscalers, I think for 26 now expecting close to $800 billion when just a few years ago it was $200 billion. So we have a lot of very positive things, and we can talk through the fireside here on the different memory products and the performance attributes of those. But the demand picture is very strong. And that is, you know, it's been data center driven, but we are seeing it, you know, proliferate to the edge. And we've seen the content increase there, but eventually with more autonomous related activities, more capabilities in smartphone and PC, we're going to see, we believe, that will further strengthen demand. The supply side is very important as well in contributing to this positive financial performance. um you know we work down inventories through 25 um we have um you know uh we just simply do not have enough supply to meet demand and uh by a substantial margin um sanjay said on the on the earnings call that some key customers were only able to meet 50 to two-thirds of their demand so that gives you a sense that it's large customers it's smaller customers it's broad based across markets that we are unable to provide supply so we are we are actively working that around the clock whatever we can do to bring on supply we're certainly sweating the assets best we can to get incremental bits. Our inventories are lean, especially in DRAM. So incremental bits are coming through the ramp of our one gamma node. Now we'll provide us the supply in calendar 26. We have, you know, incremental greenfield capacity coming online in mid-27 with Idaho This Tangelo acquisition will be able to provide some supply, you know, near the end of 27 going into 28. and um and then we have idaho 2 which will be beyond that and and uh and so the the point is that supply is coming on but it takes a long time to bring it on because it's greenfield a traditional node transition is still the most efficient way for us to bring on supply but those nodes are less efficient than it used to be and they're simply not enough ability to produce enough supply out of no transition. Adding to the supply challenge as we know is the increase in high bandwidth memory which is more silicon intensive and that trade ratio which we talked about 3 to 1 historically for HVM3 that is increasing over time as we go to 4 and 4E and 5 that trade ratio simply expands so that further pressures supply so with that you know backdrop we see continued strong demand we see supply demand tightness beyond 26 uh we're committed to our uh investment plans to invest in a disciplined way to supply customers what they need over the long term and we are working feverishly to get that in place but it's resulting you know in a in a favorable price environment which um you know as i mentioned our you know since our since our earnings um you know our financial outlook has strengthened further and that's been driven by price right we're not we're not
quantifying that at this time however we're not um the the other thing you mentioned in your in your remarks also was progress on supply agreements with the customers so maybe you could expand on that a little bit um and again it's extraordinary times in an industry that historically has negotiated a quarter in advance so maybe the question is you know what is that progress and and what are your customers asking you and and and how is that different from before
yeah so uh we've mentioned for a few quarters now that customers have approached us for these multi-year agreements with specific commitments. And I think it reflects a natural progression of the business that memory and storage have become more important to AI systems and more important you know broadly to you know pc devices and smartphones and we we expect this trend to only continue and um you know and the and the value we bring is real i mean if you look at uh hbm3e for example we you know our product was 30 percent lower power than the competition and hbm itself is a very efficient way to power efficient way to deliver data to the processor just on just on generations of hbm3 e hbm4 you know we've more than doubled the terabits per second bandwidth in just that generation so that provides a lot of value. Furthermore, on another example of value, and we'll talk more about LPD RAM, but we introduced LPD RAM to server configurations to be able to, you know, move some memory functionality to LPD RAM, and LPD RAM offers 60% lower power than traditional DDR. So again, we provide innovation and great value to the customers and and on the NAND side um you know there's uh you know on a on a read to watt basis you know we we have 15 times better performance than HTD so there's um you know there's an opportunity that you know we are bringing value to customer systems and i think um you know our technology position our leadership in technology our leadership and products enables us to um you know customers appreciate that and we have a deep engineering relationship so you combine that added or increased value of memory and storage with this pressing concern of supply assurance then customers want to make sure that they have supply and that they have supply over the over the next you know three to five and longer periods of time so um yeah so we we have um you know so we're working with customers it's a It's a positive for them because they work with a technology leader. They gain supply assurance. They know that they can work with us and get reliable supply and high-quality supply. We're best in market there. And maybe lastly, I'll mention that we now have U.S. supply that will be coming online. That has become of interest to customers. so um so when you add all that up it's a it's a you know we think it's a win-win um you know customers get the best technology the best products uh what we believe are the best operator in in the in the business and they get supply assurance and then we also we get uh you know a firmer commitment and a clarity as we invest, you know, the large amounts of capital and R&D required to support their needs and advance the industry.
And how far out are customers willing to give you visibility now? I mean, is it a year or is it more than a year? And how firm are the commitments? Because these LTAs have been in place for a while, but there were fewer hard commitments in those LTAs, right?
Yeah, I mean, they're longer than the LTAs we've done, but we've not provided specifics and negotiations are underway. We'll provide those specifics at a later date. I would say that the time horizon of the customers as it relates to memory and storage has extended. And it's extended because the product roadmaps are hugely important for them and us. And these are multi-year efforts requiring very deep customer engagement, engineering collaboration, co-design efforts. And that time horizon on just the memory product side has extended versus what you would maybe think it was, what it was, 10, 20 years ago. And so that's a positive and provides visibility. um further more um i would say even the even our customers um certainly as it relates to capital investment their time horizon has has extended right they're investing more capex in their own businesses and they than they ever have um and that you know you have a certain time dimension you think when you're putting you know assets on the ground and that that time dimension is longer than many of them typically have operated as far as physical assets. And so that has, you know, they have to marry those capacity plans up with our ability to supply product over time as they fill those facilities and play their technology. So, I think there is a positive things that both support longer-term agreements and we bring value in a way that customers are wanting tighter arrangements.
okay um maybe moving on and uh i think your opening comments uh were pretty clear about what you felt with regard to your technology on hbm4 uh so really no changes versus your your your past comments uh uh and i guess i infer from that that your view in the past was that your share of HBM this year would be about equal to where your commodity DRAM share is, and I presume that's still your view. We've not given an update. We said, as you mentioned,
we said that when we launched initially in HBM for our high volume products, we said that we would we would ramp you know our hvm3 high to to the 12 high into getting you know hvm share uh in line with our conventional de-rent share and we achieved that and um and now it's you know it's a it's a product like others that we are always making decisions on um you know portfolio based decisions on what our customers need, what our footprint will support, where the value is in the space. I mean, fortunately, with our technology and product portfolio, we have the flexibility. We can be agile in directing our bits to places we find value. But we're thrilled with our hbm performance we believe uh best performing product in the business um very deep customer engagement um you know a very rapid um cycle time each you know for each generation that we think um you know makes being a technology leader all the more important and um you know i would encourage you, we first started, we mentioned HBM4 sampling back in the September call, and then we had Scott DeBoer at a November conference that, you know, he provided more detail on HBM4, including the technology aspects, you know, the metallization characteristics, the design attributes, the CMOS that we do in-house. He talked about all these things, working to be first to market in this over 11 gigabits per second, or first to achieve. And we talked further about our confidence in the December call. So, again, as we mentioned today, we're in high-volume manufacturing of HVM-4. We're command shipments to customers. We're ramping calendar Q1. Again, that's an improvement versus what we said in the December call, which was calendar Q2. So, we're thrilled with where we are in the future. roadmap for that product is very strong. Understood. Maybe I'll pivot to some of
the financials as well. And obviously, gross margins have been very strong, both as a result of HBM, AI, and pricing that's going on in the broader market. How do we think about margin progression from here, from these levels? And I think one of the things you mentioned in the call was that pricing improvement at these margin levels doesn't have the same incremental benefit. So maybe perhaps the level set us with where margin expectations should be given this
environment. I, you know, we, we guided 68%. So we, you know, and we've indicated today that that our financial outlook has improved since our earnings. And we did talk about how just the math and that as you increase price at this level, you get less of a margin effect than at lower margin levels. But, you know, we do believe that margins will expand, you know, from our second quarter here to the third quarter. And we believe that, you know, the market environment, as we mentioned, we expect the market to remain tight beyond 26. and you know so that clearly supports the pricing environment and then the you know of course we're ramping our one gamma node for bit supply and so our cost performance has been good and we're operating really well I mean we didn't really talk about it much on the call but um you know our spend control um is very good and um so our cost performance between that and the and the just the volumes as absorption has been has been good um and then on mix um that's also been a positive story for us we have the flexibility in our premium technology and our portfolio to have Mix be a contributor over time. And so we're working our best to optimize business.
Maybe I'll pivot over to NAND. And it's a smaller part of your business, but maybe you could talk about how your outlook for NAND may have changed you know since this time last year obviously pricing is up a lot but where does that fit in into micron strategy and you know is this a situation where you know you're leaning into NAND a little bit more is it it what tell us where you are NAND's NAND's an important business
for us um always has been and um but as you know last year uh you know sort of from from late 22 on uh the industry had ample supply of man and you know we had brought utilization down in the in fabs or in the fab um we had um slowed node migrations um and you know and you know in an effort to get supply demand balance um we concurrently had you know over the years um including through the downturn you know really worked to improve and sharpen our portfolio um we brought controller capability in-house we um you know extended our leadership on on you know technology 232 layer at the time process technology um and you know we just worked to build the best business we could um in in that environment and today we we enjoy really really a preeminent position in the NAND market where we have the best portfolio products serving the most attractive part of the market, which is the data center SSD market. And, you know, and we have ranging from, you know, our performance SSDs where we do TLC, to our capacity drives, where we have world-class QLC, we've gained share in those markets. And then the last quarter, we mentioned that we had achieved over a billion-dollar run rate again. Again, it's maybe a similar story as broader Micron. Micron's in the best position it's ever been in in its history at a perfect time. This AI revolution has afforded us the opportunity to serve very important customers, driving very important technology forward, and the financial result for us has been positive. Likewise, on the NAND business, while it was not performing financially as we would have wanted due to supply-demand balance in the market, that has tightened up pretty quickly. And it became particularly clear during CES where the processor loads are so high in AI systems that there are very active efforts to reconfigure the memory and storage to allow that processor to be most efficient. And so you're seeing a tiering of memory and storage that storage has emerged as an important part of the architecture. You have the hottest data. It's an HBM serving the GPU or ASEC very aggressively. You can offload some of that through LPD-RAM, which we innovated in bringing that into servers. and there's an efficiency there and that's warm data and then you've got cooler data which now if it doesn't need to be used immediately or with a latency that is acceptable you know it can it can reside in in a drive and so that that that's occurring and it's a function of this As the context windows get longer, as the reasoning becomes more intensive, this offload to KV cash has become more important. It's bigger, and that is helping drive storage. So as a result, we do see the need for additional greenfield space on NAND. and hence we announced the fab in Singapore. And that'll be, you know, 28. We said first wave routes in that, second half, 28. So it's a ways out, but until then, we will supply the market as needed through node transitions. And in this case, it's a G9 node transition. but we're in a great position on nand and and maybe satya if you want to talk about lpd ram specifically since we're talking about the data
chris i know the question was on nand but mark touched on an important point the hot warm cold kv cash tiering and we actually published a paper white paper last week on LPDDR, which sits in the warm tiers. If you search LPDDR micron, you'll find that white paper. And what it talks about is the importance of content increase in that tier. So it talks about how you're going to see systems that will be coming out this year, which will have tripled the amount of LPDDR compared to what we had last year and how adding that additional DDR content, LPDDR content, cuts the time to first token by 98% and improves inference significantly. So do take a look at that. Good information there.
Yeah, we can include a link to that in the note that we write up after this discussion. We've got about six minutes left. We could take a question from the audience if there are any, not to put anybody in the pressure. I'm happy to keep going. But nobody's raising their hand. That's your usual response. response. You know, maybe I could, you know, follow on with, you know, one of the most frequent investor questions here is the sustainability of what we're seeing right now. And we've all been through a number of cycles. Boy, this one sure feels different than the other cycles. But what's giving you confidence in the the sustainability of of what we're seeing and and and for how long
so um we talked about it you know um quite a bit at the beginning of the chat here what gives us confidence is that both the demand and the supply factors are very positive and they are improving actually um so um on the on the demand side um you know i want to repeat everything earlier but it's clear that as this ai technology advances and the token generation is increasing to produce better results to become more intelligent. That is demanding. An efficient way to do that, an important way to do that is through more memory and storage. More as in more of it and higher performance memory and storage. That is becoming clear, and that's from the data center to the edge, and the edge will become increasingly important here as you think about robotics and autonomous activities. It's been largely training and then focused on training and reasoning and referencing. and you know what will be the next I think this year there'll be a lot of talk of agentic activity so you know where the enterprise systems are being used by agents and that's going to increase the activity more so again this all points to a strong demand picture that is broad-based that plays to our strength on technology and product leadership and manufacturing excellence um so demand side is very good on the supply side um there is um we are we are doing everything we can uh to add supply to meet our customers needs that is very important to us that we serve our customers the best way we technology products and supply so we are doing that but there is no easy or fast way to get that done. We're working very hard toiling to get incremental bits out on our existing capacity. Node transitions which are less efficient than they used to be. Node transitions we are working this year will provide our supplies we talked about our one gamma. One gamma will be the majority of our bits in the second half of our calendar 26. HBM is soaking up more of that supply so it's challenging that so it's got to be greenfield that's added and we've given you the roadmap of of our greenfield plans. I did want to mention I forgot to mention earlier that And so we have ID1, which will produce bits in second half or mid-27 at volume. And in this Tong Lo acquisition that we just completed in Taiwan and expect to close in the calendar second quarter, and it was in the press release, that was $1.8 billion. So that $1.8 billion and the associated tool install and other things, that will be added CapEx for this year. So we will have, you know, we guided $20 billion on the last call for CapEx in fiscal 26. And this Tong Lo additional investment will add to that number. um but again that is capacity that's that's going to produce in you know later in 27 and then you know our other expansion plans are well beyond that and and you know and so um there are very positive demand factors there are very positive supply factors that um you know i think i think allow the look that the industry will be in good condition. Now, we always are investing very carefully. We're reassessing the market continuously. We're looking at what competitive additions there are in the market. And, you know, to the extent there's any change in our view on demand. Be it positive or negative, we will adjust. And with the increasingly greenfield capacity versus just node transitions, I think that allows some standoff to modulate builds to make sure you're meeting the long-term demand in the most responsible way. So in the near term, working very aggressively to get supply to our customers doing everything we can working with them on longer term agreements which helps us get a line of sight to longer term and then always investing in a very disciplined way uh in our business and having the best technology and
products in the space okay it looks like that's the time we have so uh we'll we'll wrap it there but Mark, Sacha, thanks for joining us today.
Thank you, Chris.
Thank you, Chris.