Micron Technology achieves fiscal Q4 revenue of $11.3 billion, gross margin of 45.7%, and strong guidance for fiscal 2026, boosted by AI and data center growth.

OPERATOR - (00:03:59)

Thank you for standing by and welcome to Micron Technology fiscal fourth quarter 2025 financial conference call. At this time all participants are in listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. To remove yourself from the queue, please press star 11 again. I would now like to hand the call over to Satya Kumar, Investor Relations. Please go ahead.

Satya Kumar - Investor Relations - (00:04:32)

Thank you and welcome to Micron Technology fiscal fourth quarter 2025 financial conference call. On the call with me today are Sanjay Mehrotra, our Chairman, President and CEO, and Mark Murphy, our CFO. Today's call is being webcast from our Investor relations site at investors.micron.com including audio and slides. In addition, the press release detailing our quarterly results has been posted on the website along with prepared remarks for this call. Today's discussion contains forward looking statements that are subject to risks and uncertainties. These forward looking statements include statements regarding our future financial and operating performance, including our guidance, as well as trends and expectations in our business, market, industry and regulatory and other matters. These statements are based on our current assumptions and we assume no obligation to update these statements. Please refer to our most recent financial report on Form 10-K and our other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations. Today's discussions of financial results is presented on a non-GAAP financial basis unless otherwise specified. A reconciliation of GAAP to non-GAAP financial measures can be found on our website. I'll now turn the call over to Sanjay.

Sanjay Mehrotra - Chairman, President and CEO - (00:05:44)

Thank you Satya. Good afternoon everyone. Micron had an outstanding Finish to fiscal 2025, delivering fiscal Q4 revenue, gross margin and EPS all above the high end of our updated guidance ranges. We achieved record revenue in Q4 driven by pricing, execution and strong performance across end markets. In our March 2024 earnings call, we said that we expect Micron to be one of the biggest beneficiaries of AI in the semiconductor industry and that we expect to deliver record revenue and significantly improved profitability in fiscal 2025. I'm pleased to report that in fiscal 2025 Micron Technology's revenue grew nearly 50% to a record 37.4 billion and gross margins expanded by 17 percentage points to 41%. This performance was supported by the ramp of our High value Data center products and our broad based DRAM pricing strength across end markets. The combined revenue from HBM, High Capacity DIMMs and LP server DRAM reached $10 billion more than a five fold increase compared to the prior fiscal year. Our data center SSD business reached record revenue and market share in fiscal 2025. I want to thank our global Micron team for their focus and execution which made these results possible. As we enter fiscal 2026, Micron is positioned better than ever. Our leadership in Advanced technologies including HBM, 1 Gamma DRAM and G9 NAND enables a differentiated product portfolio that drives strong ROI. AI driven demand is accelerating and industry DRAM supply is tight. Our HBM performance has been strong and robust. Demand tight DRAM supply and disciplined execution has significantly strengthened profitability of the rest of our DRAM portfolio in nand. Our higher mix to data center and improving industry conditions are contributing to profitability. Our fiscal Q1 guidance reflects new records for revenue and EPS. In addition to being a demand driver, AI is also a powerful productivity driver for Micron, contributing to our strong competitive position and financial performance. We are using AI throughout the company across product design, technology development, manufacturing and other functional groups. We have seen strong adoption and as much as a 30 to 40% productivity uplift in select gen AI use cases such as code generation in design simulation, AI is accelerating our silicon to systems design cycle through advanced modeling and reduced iterations. In manufacturing, we have driven a 5x increase in wafer images analyzed in the past year and double the amount of useful data and telemetry collected and analyzed from our fab tools, all of which improve our yield performance. These AI capabilities enable us to achieve superior product specifications, quality and time to market at scale. Turning to technology and operations, we are proud to announce that our 1 gamma DRAM node reached mature yields in record time, 50% faster than in the prior generation. We are the first in the industry to ship 1 gamma DRAM and will leverage 1 gamma across our entire DRAM portfolio to maximize the benefits of this leadership technology. We achieved first revenue from a major hyperscale customer on our One Gamma products for server DRAM. In the quarter, our G9 NAND production ramp has been progressing well while scaling at a pace aligned with market demand. We have ramped our G9 NAND node for both TLC and QLC NAND and have qualified our G9 QLC NAND for enterprise storage. In fiscal Q4 we received a Chips Grant disbursement following the completion of a key construction milestone for our new high volume manufacturing fab in Idaho. With the first wafer output expected to begin in the second half of calendar 2027, we began design work for our second Idaho manufacturing fabric which will provide additional capacity beyond 2028. In New York, we have completed initial phases of our environmental impact study and continue to work with state and federal authorities towards starting ground preparation. In fiscal Q4, we installed the first EUV (Extreme Ultraviolet) tool for our Japan fab to enable 1 gamma capability which will complement our existing 1 gamma supply from our fabS in Taiwan. The time from receiving this tool to completing installation was a record for all EUV (Extreme Ultraviolet) tools globally. Demonstrating Micron Technology's expertise with this equipment, we plan to continue to invest in our Japan production capability to meet requirements of the advanced memory technologies of the future. Our continued HBM assembly and test investments position us well to meet growing HBM capacity requirements in calendar 2026. We are making good progress on our Singapore HBM assembly and test facility construction which is on track to contribute to our HBM supply capability beginning in calendar 2020. Turning to our end markets in data center, we now expect calendar 2025 total server units to grow approximately 10% up from our prior expectations of mid single digits percentage growth. The calendar 2025 traditional server growth outlook has strengthened significantly from flat to growth in the mid single digit range. We believe this change in outlook is in part related to the growth of AI agents and the traditional server workloads agents initiate as they execute tasks on behalf of users. Continued growth in traditional server applications in enterprises is also contributing to additional demand growth. In addition to traditional servers, AI server growth continues to be very robust. This growth in both traditional and AI servers is driving strong demand for our DRAM products. Data centers require some of our industry's most complex and high value products and meeting this demand has presented several opportunities to enhance our product mix and profitability. In fiscal 2025, Micron Technology's data center business reached a record 56% of total company revenue with gross margins of 52%. Our HBM business has posted many quarters of strong growth. In fiscal Q4, our HBM revenue grew to nearly $2 billion implying an annualized run rate of nearly $8 billion driven by the ramp of our industry leading HBM3e products. We are pleased to note that our HBM share is on track to grow again and be in line with our overall DRAM share In this calendar Q3 delivering on our target that we have discussed for several quarters now. Micron Technology's HBM 4:12i remains on track to support customer platform ramps even as the performance requirements for HBM4 bandwidth and PIN speeds have increased. We have recently shipped customer samples of our HBM4 with industry leading bandwidth exceeding 2.8 terabyte per second and PIN speeds over 11 gigabits per second. We believe Micron Technology's HBM4 outperforms all competing HBM4 products delivering industry leading performance as well as best in class power efficiency. Our proven 1 beta DRAM innovative and power efficient HBM4 design in house, advanced CMOS based die and advanced packaging innovations are key differentiators enabling this best in class product. For HBM4E, Micron will offer standard products as well as the option for customization of the base logic die. We are partnering with TSMC for manufacturing the HBM4E base logic die for both standard and customized products. Customization requires close collaboration with customers and we expect HBM4E with customized base logic dies to deliver higher gross margins than standard HBM4E. Our HBM customer base has expanded and now includes six customers. We have pricing agreements with almost all customers for for a vast majority of our HBM3E supply in calendar 2026. We are in active discussions with customers on the specifications and volumes for HBM4 and we expect to conclude agreements to sell out the remainder of our total HBM Calendar 2026 supply in the coming months. Micron Technology's LPDDR 5 for server had over 50% sequential growth in the quarter and reached record revenue. In close collaboration with Nvidia, Micron has pioneered the adoption of LP DRAM for servers and since Nvidia's launch of LP DRAM in their GB product family, Micron has been the sole supplier of LP DRAM in the data center. In addition to our leadership in HPM and LP5, Micron is also well positioned with our GDDR7 products which are designed to deliver ultra fast performance with pin speeds exceeding 40 gigabits per second along with best in class power efficiency to address needs of certain future AI systems in data center nand AI inference use cases such as KV cache tiering and vector database search and indexing is driving demand for performance storage while AI server growth is driving demand for high capacity SSDs for capacity storage. Micron is gaining share in these markets with our customer focus, technology leadership, vertical integration and execution. We strengthened our portfolio with the industry's first G9 NAND data center products including first to market PCIe Gen 6 SSDs. Near term we see continued growth in the data center storage market with HDD supply shortages expected to improve NAND demand and drive a healthier supply demand environment. Turning to PCs end of life of Windows 10 and greater adoption of AI enabled PCs are driving an improved PC demand outlook, we now expect PC unit shipments to grow at a mid single digit percentage level in calendar 2025 versus our low single digit percentage growth expectations previously. During the quarter we achieved our first OEM customer qualification of our 16 gigabit 1 gamma based DDR5 and commenced volume shipments in NAND. We successfully qualified our first G9 NAND SSDs in both performance and mainstream categories with OEM customers. Our strong SSD portfolio enabled us to achieve record client SSD revenue in the quarter and in fiscal year 2025. Smartphone unit shipment expectations remain unchanged at low single digit percentage range in calendar 2025 an increasing mix of AI ready smartphones continue to be a key catalyst for DRAM content growth in mobile devices. Notably, 1/3 of the flagship smartphones shipped in Calendar Q2 contained 12 gigabyte or more and given recent product launches from Apple, Samsung and other smartphone OEMs, we expect this mix to increase over the coming quarters. In fiscal Q4, Micron ceased future mobile management product development in order to focus our resources and investments on higher ROI opportunities in our portfolio. We will continue to support existing mobile managed NAND products. Micron remains committed to serving the mobile DRAM market with our industry leading portfolio. In fiscal Q4 we achieved OEM qualification of our first 10.7 gigabit per second 1 beta second generation LP5X products at 16 gigabyte and 24 gigabyte capacities. Turning to auto, industrial and embedded in automotive, trends such as adas and AI enhanced in cabin experiences require significantly higher memory and storage content making it a higher growth part of the industry. In embedded, we expect physical AI such as drones, advanced robots and AR VR to become a more important driver of demand over time. Automotive and industrial demand strengthened throughout the quarter exceeding our initial forecast. We are seeing improved profitability in this business with stronger pricing and an increased mix of advanced technology nodes. With greater adoption of DDR5 and LP5 products, we continue to see supply constraints in D4 and LP4. In June, Micron announced investments in our Virginia facility in an effort to support our long life cycle customers demand for D4 and LP4. Now turning to our market outlook, customer inventory levels are healthy overall across end markets. We expect calendar 2025 industry dram bit demand growth to be in the high teens percentage range, somewhat higher than our previous outlook. We expect calendar 2025 industry nand bid demand growth to also be higher than our previous outlook. Now in the low to mid teens percentage range, we Expect Micron Technology's calendar 2025 bid supply growth to be below industry bit demand growth for non HBM DRAM and for nand. Robust data center demand including the uptick in server unit growth has contributed to a tight industry DRAM environment and strengthened NAND market conditions. Additionally, broadening of demand across end markets has also constrained DRAM supply. On the supply side, we expect low supplier inventories, constraint node migration as industry supports extended D4 and LP4 end of life, longer lead times and higher costs globally for new wafer capacity all to limit the pace of supply growth for DRAM in 2026. In calendar 2026 we anticipate further DRAM supply tightness and in the industry and continued strengthening in NAND market conditions. Over the medium term, we anticipate industry bit demand growth of mid teens CAGR for Both DRAM and NAND. Micron invested $13.8 billion in capex in fiscal 2025. As we continue to make one gamma, DRAM and HBM related investments, we expect fiscal 2026 capex to be higher than fiscal 2025 levels. DRAM front end equipment and fab construction will drive higher capital spending in fiscal 2026. Our continued technology node migration to 1 gamma will provide the majority of our supply growth for DRAM in calendar 2026. As we transition more products to One Gamma, our One Beta capacity will support HBM growth in 2026. I'll now hand over the call to Mark to provide more color on our fiscal fourth quarter and fiscal 2025 financials.

Mark Murphy - Chief Financial Officer - (00:23:24)

Thank you Sanjay and good afternoon everyone. Micron delivered strong results to close out the fiscal year with Q4 revenue, gross margin and EPS all exceeding our updated guidance. For the full year we achieved record revenue of $37.4 billion, up 49% year over year. Gross margins expanded to 41%, a 17 percentage point improvement from fiscal 2024. EPS reached $8.29 reflecting a 538% increase compared to the prior year. Total fiscal Q4 revenue was $11.3 billion, up 22% sequentially and up 46% year over year and a quarterly record for Micron. Higher sequential revenue was driven by growth across our end markets, including record data center revenues and strong sequential growth in consumer oriented markets. Fiscal Q4 DRAM revenue was a record $9 billion, up 69% year over year and represented 79% of total revenue sequentially. DRAM revenue increased 27%, bit shipments increased in the low teens percent driven by strong demand across all end markets. Prices increased in the low double digit percentage range driven by tight industry DRAM supply pricing, execution and favorable mix. Fiscal 2025 DRAM revenues were a record $28.6 billion, up 62% year over year. Fiscal 2025 DRAM all in costs inclusive of HBM were down by low single digits percentage points. Fiscal Q4 NAND revenue was $2.3 billion, down 5% year over year and represented 20% of Micron's total revenue sequentially. NAND revenue increased 5%. NAND bit shipments declined in the mid single digit percentage range and prices increased in the high single digit percentage range due to favorable mix. Fiscal 2025 NAND revenues were a record $8.5 billion, up 18% year over year. Fiscal 2025 NAND all in cost reductions were around low teens percentage. Now turning to quarterly financial performance by business unit, our new segment disclosures for our business units, which you see starting in today's press release and will see in future filings, highlight the improvements in our profitability and changing business mix. The Cloud Memory Business Unit and core Data Center Business unit combined represent the totality of our data center business. Cloud Memory Business Unit revenue was $4.5 billion and represented 40% of total company reven. Cloud Memory Business Unit (CMBU) revenues were up 34% sequentially driven by robust bit shipment growth. HBM revenues reached a new quarterly record. Cloud Memory Business Unit (CMBU) gross margins were 59% higher by 120 basis points sequentially supported by cost reductions. Core Data Center Business Unit revenue was $1.6 billion and represented 14% of total company reven revenue. Core Data Center Business Unit (CDBU) revenues were up 3% sequentially. Core Data Center Business Unit (CDBU) gross margins were 41%, up 400 basis points sequentially driven by higher pricing and favorable mix. Mobile client business Unit revenue was $3.8 billion and represented 33% of total company revenue. MCBU revenues were up 16% sequentially driven by higher DRAM shipments and improved pricing. MCBU gross margins were 36%, up 12 percentage points sequentially driven by higher pricing and favorable mix. Automotive and embedded business Unit revenue was $1.4 billion and represented 13% of total company revenue. Aebu revenues were up 27% sequentially driven by higher bit shipments. AEBU gross margins were 31%, up 540 basis points sequentially driven by higher pricing. The consolidated gross margin for fiscal Q4 was 45.7%, up 670 basis points sequentially. Sequential gross margin improvement was driven by favorable product mix, better DRAM pricing and strong execution on cost reductions. Operating expenses in fiscal Q4 were $1.2 billion, up $81 million quarter over quarter and in line with our guidance range. The sequential increase was driven primarily by higher R and D. We generated operating income of $4 billion in fiscal Q4, resulting in an operating margin of 35%, up 820 basis points sequentially and 12 percentage points year over year. Fiscal Q4 taxes were $471 million on an effective tax rate of 12% lower than our guidance due to favorability in certain discrete items. Non GAAP diluted earnings per share in fiscal Q4 was $3.03 with 59% sequential growth and 157% versus the year ago quarter. Turning to cash flows and capital expenditures in fiscal Q4, our operating cash flows were $5.7 billion and our capital expenditures were $4.9 billion, resulting in free cash flows of $803 million. The increase in capital expenditures was driven by planned investments for DRAM. For the full year fiscal 2025, we generated $3.7 billion in free cash flow representing 10% of revenue. Ending inventory for fiscal Q4 was $8.4 billion or 124 days. Inventory was down $372 million sequentially and inventory days down 15 days, driven by strong sequential bit shipment growth and DRAM. DRAM inventory days are below target levels and NAND inventory days improved sequentially on the balance sheet. We held $11.9 billion of cash and investments at quarter end and maintained $15.4 billion of liquidity when including our untapped credit facility. During fiscal Q4, we reduced debt $900 million through pay down of $700 million term loans and repurchased approximately $200 million of our senior notes. We closed the quarter with $14.6 billion of debt, maintaining low net leverage and a weighted average debt maturity of 2033. Now, turning to the outlook for the first fiscal quarter, we expect price, cost and mix to all contribute to strengthening gross margins in Q1. Operating expenses for fiscal Q1 are projected to be approximately $1.34 billion with a sequential increase driven by R and D related to data center product innovation and development. Micron's fiscal 2026 will be a 53 week fiscal year compared to fiscal 2025 which was a 52 week fiscal year. As a result, fiscal Q4 2026 opex will reflect the effect of an additional workweek in the quarter. We expect a fiscal Q1 and fiscal year 2026 tax rate of around 16.5%. We expect our fiscal Q1 capital spending to be approximately $4.5 billion while quarterly spend may fluctuate. This level serves as a reasonable quarterly baseline for the planned capital spend in fiscal 2026. We will continue to exercise supply discipline as we pursue our growth opportunities. We expect free cash flow to strengthen in fiscal Q1 and we project significantly higher annual free cash flow year over year in fiscal 2026. Any impacts that may occur due to potential new tariffs are not included in our guidance. With all these factors in mind, our non GAAP guidance for fiscal Q1 is as follows. We expect revenue to be a record $12.5 billion plus or minus $300 million gross margin to be in the range of 51.5% plus or minus 100 basis points and operating expenses to be approximately $1.34 billion plus or minus $20 million. Based on a share count of approximately 1.15 billion shares, we expect EPS to be a record $3.75 per share, plus or minus $0.15. I'll now turn it over to Sanjay to close.

Sanjay Mehrotra - Chairman, President and CEO - (00:34:09)

Thank you. Mark. Fiscal 2025 was a year of many records for Micron. As we have highlighted today, we have strong momentum entering fiscal 2026 with a robust fiscal Q1 demand outlook led by Data center and the most competitive position in our history. Over the coming years we expect trillions of dollars to be invested in AI and a significant portion will be spent on memory. As the only US based manufacturer of memory, Micron is uniquely positioned to benefit from the AI opportunity ahead. Thank you for joining us today. We will now open for questions.

OPERATOR - (00:34:51)

Thank you. As a reminder to ask a question, you will need to press Star 11 on your telephone to remove yourself from the queue. You may press star 11 again. Please limit yourself to one question and one follow up to allow everyone the opportunity to participate. Please stand by while we compile the Q and A roster. Our first question comes from the line of Timothy Akiri of ubs. Please go ahead Timothy.

Timothy Akiri - Equity Analyst - (00:35:26)

Thanks a lot. Mark, I was wondering if you can help on the guidance a little bit. I know you don't want to get into too much detail, but of the, let's say one point or sorry. Of the, you know, $2.2 billion sequential that you're sorry, you know, $1.2 billion sequential revenue. Can you help us how that splits out between DRAM and nand and I guess any gross margin puts and takes you might have. Well would be helpful.

Mark Murphy - Chief Financial Officer - (00:35:54)

Yeah. Tim, you were breaking up a bit at the end, but I believe I've got it. So in the first quarter will be heavier DRAM mix than NAND and that growth, as you mentioned, we're not going to break out bits and ASP, but we are guiding up 580 basis points sequentially. It is split across mix, pricing and strong execution on our cost reductions. We're in a very constructive pricing environment. Supply is tight for DRAM and improving substantially in nand. You know we've got, you know we've got essentially strong demand and supply factors at work as you heard in the script today. On the demand side, data center spend remains robust, projected to grow. Traditional server spend is improving and expected to grow. Refresh and inference, workload, demand drivers and then PC, smartphone, auto all have increased content growth and that's becoming clear. And then on the supply side we'll get into that more in the Q and A here, but that is tight as well due to a number of factors that are structural. So we're focused on our execution. And again sequentially here expect price mix and strong execution to drive that 580 basis point margin expansion.

Timothy Akiri - Equity Analyst - (00:37:51)

Thanks a lot Mark. And then Sanjay, I guess you had previously guided US to like $100 million HBN TAM by 2028, but since you gave us that number there's been some massive numbers given out, some TAM numbers by Nvidia and some of the investments that are going on. And so it's obvious that the compute tab is much bigger than what I think you probably would have assumed at that time. So do you have an update to that number? I would assume it's bigger than that number and maybe a component on sort of what you see next year. I know this year's I'm wondering if you can give us any mild post for next year and update that 100 billion in 2020.

Mark Murphy - Chief Financial Officer - (00:38:29)

Thanks Tim.

Sanjay Mehrotra - Chairman, President and CEO - (00:38:31)

Your connection is poor and you were breaking up a lot, but I think I got the gist of your question. What we have said before regarding longer term HBM TAM, we have said that by 2030 we expect HBM TAM to reach $100 billion. And we had also said that HBM BIT CAGR will grow faster than the DRAM CAGR and we see that in absolutely 2026 as well. You know in terms of bids in HBM will outgrow the overall DRAM bids. And of course you know as we look ahead the value proposition of HBM continues to increase and of course as we talked about HBM now in 2026 transitioning to HBM 4 micron of course well positioned market is starting to acquire even higher performances and we today pointed out that micron without HBM4 will have the highest performance product with over 11 gigabits per second and of course highest power efficiency as well. So the specs of HBM are becoming increasingly more demanding and which is exciting for us because we are very well positioned with these products and this just means the value proposition of HBM just continues to grow. So we definitely continue to see strong long term growth and very excited about all these various announcements of massive data center infrastructure spend. We have talked about trillions of dollars of spend over the next several years and of course memory is very much at the heart of this AI revolution. This means tremendous opportunity for memory and certainly tremendous opportunity for hbm. So we feel very good about HBM longer term opportunities, good about HBM opportunities in 2026 and very good about Micron's positioning with our very strong product portfolio and strong execution track record and the trust that we have built with our customers and in our ability to supply quality and meet our customers volume requirements. So exciting times ahead and we are of course continuing to work very closely with our customers.

Timothy Akiri - Equity Analyst - (00:41:03)

Thanks a lot.

OPERATOR - (00:41:07)

Thank you. Our next question comes from the line of Vivek Arya of Bank of America. Please go ahead.

Vivek Arya - Equity Analyst - (00:41:15)

Vivek, thank you for taking my question. I'm curious how do you see the transition from HBM3E to when do you expect the crossover next year? And I think as part of that you mentioned that the pricing for 3e is settled for 26 and I'm curious what is the direction of that pricing versus what you're getting now? Is it higher or lower? And do you expect your 3e share to stay the same or change next year?

Sanjay Mehrotra - Chairman, President and CEO - (00:41:44)

So with respect to HBM4 this is of course we will be at the forefront of this production ramp very much aligned with customers timing. And again as we have mentioned that we have the best product in the industry with Highest performance over 11 gigabit per second and we have sampled that product as well as low power so industry leading product performance. And so we will be ramping it up in line with customer demands. Of course you know first production shipments in CQ2 of 26 time frame and production will ramp during the course of 2026 second half of 2026 again in line with customer demand and overall in 2026 versus 2025 we see our share growing, product well positioned. We are not commenting on the pricing of HBM3E. We have told you that HBM3E we have pricing agreements completed with almost all customers for vast majority of our HBM C E supply in 2026 and we are in discussions regarding HBM 4 with our customers. What I will tell you is that supply is tight. We expect healthy demand supply environment in 2026 for overall DRAM and that bodes well for profitability of dram, profitability of HBM and of course profitability of non HBM as well which is experiencing tight supply.

Vivek Arya - Equity Analyst - (00:43:31)

And for my follow up maybe Mark on the gross margin side. So one is just conceptually how do you think about the puts and takes of gross margins as you go through the rest of the year? This 51.5 is this kind of the baseline and as long as sales grow, can you expand off of this level? And then related to that when I look at your cloud data center business gross margins 59% operating margin 48% how much more room is there to expand from those very strong levels right now? Thank you.

Mark Murphy - Chief Financial Officer - (00:44:05)

Vivek. So we're not providing out quarter guidance but what we will say is that we believe or we expect gross margin to improve sequentially first to second quarter. And it's on this tight DRAM supply and the associated pricing along with NAND business continuing to improve and then just mix effects as we continue to steer bits towards high value markets and then our cost performance continues to be good. As mentioned in the prepared remarks, these supply demand factors are, we believe they're durable. On the demand side, data center spend continues to increase. I talked earlier about traditional server spend and then the edge and auto having increased content. And then on the supply side customer inventory levels are healthy, our supply is lean, our DRAM inventories are below target, NAND continues to improve. You know we are, you know we're working to be as efficient as we can in providing a supply response. You know our, you know we're doing node transitions but as the industry extend support for D4 that's constrained those node transitions and then finally it just takes a long time and is expensive to add new clean room space. And we all know the silicon intensity of HBM creating the urgency for that capacity requirement. So it's a good setup as we go into 26 and we delivered this strong guide on the first quarter gross margin and we expect to see gross margins up in Q2. I also want to reiterate something Sanjay mentioned that we expect margins to be healthy in both HBM and non HBM in 26. So I'll leave it at that on the outcome of guidance.

Vivek Arya - Equity Analyst - (00:46:20)

Thank you.

OPERATOR - (00:46:22)

Thank you. Our next question coming from the line of C.J. muse of Cancer Fitzgerald. Your line is open C.J.

C.J. Muse - Equity Analyst - (00:46:32)

Yeah, good afternoon. Thank you for taking the question. I guess first question. You know it certainly feels like in the last month or two there's been an inflection in DRAM demand led by inference hyperscalers. So curious if you could kind of speak to what you have seen the breadth of demand and particularly the sustainability of that and would love your thoughts. You know you've talked about tightness expected into fiscal 26. Your thoughts into this? What is typically seasonally slower February quarter? Should we see kind of normal seasonality or are the supply trends so limited that things can hold up much better than kind of normal seasonality?

UNKNOWN - (00:47:13)

So of course we are not providing.

Sanjay Mehrotra - Chairman, President and CEO - (00:47:15)

You FQ2 guidance at this point. But you know certainly the AI trends are strong and as you noted not just in training but inference as well. And as the AI applications broaden, innovations increase greater different architectures. All of this is only continuing to broaden the demand vector for AI in the data center as well as on edge devices such as smartphones in the data center. Of course AI servers have driven strong demand as we have all known, particularly with just the increasing demand and increasing demand for all dram. Not just HBM but LP DRAM high density DRAM modules. But we are also seeing traditional server. Demand as we noted in our remarks increased as well. So this is really driving a strong growth trend overall for the industry. And then the demand vectors are broadening as I noted smartphones in particular. You have seen some recent launches and shipments already starting of AI enabled smartphones which have higher content of DRAM in them versus the prior generation phones. And of course PCs is another tailwind AI PCs and end of life for Windows 10. So the AI PCs are a tailwind for DRAM content as well. So overall AI trends are strong and this is across data center across AI enabled and smartphones and AI enabled PCs and this is what leads to strong demand in 2026. Across 2026 and we have talked about tight supply as well. Mark just laid out the factors for tight supply which we also discussed in our prepared remarks. So overall we look forward to healthy demand supply environment in calendar year 26 for us.

C.J. Muse - Equity Analyst - (00:49:39)

Very helpful.

Sanjay Mehrotra - Chairman, President and CEO - (00:49:41)

Customer inventories as well as supplier inventories are in good place. I mean supplier inventories are actually running lean micron DRAM supply is very tight.

C.J. Muse - Equity Analyst - (00:49:53)

Thank you for that. As a quick Follow up on Capex Mark, it appears net CAPEX implied 18 billion versus 13.8 last year. I think you talked about front end equipment versus clean room space and dram. Is there a way to kind of partition how much on equipment versus clean room. And then can you share with us what the implied gross capex is for fiscal 26? Thanks so much.

Mark Murphy - Chief Financial Officer - (00:50:19)

Yeah, we've not laid out in detail, it's just that our spend in 26 will be majority, vast majority will be for DRAM and we've got construction and facilities related to that, some tools for node transitions and beginning to install for new greenfield. As it relates to. You're right that we guided a framework to be at around 18 billion. We will generally talk about CapEx in the context of net, which is gross CapEx offset by proceeds from government incentives. You know, we're not going to talk about the gross and net for 26, but you can see the components, you can bit back into the components here on what you've seen in the filings for the GROSS Spend in 25 and then the government incentives. And so we ended up at 13.8 net and we were at 15.8 gross with 2 billion of government incentives in 25. You'll see that going forward. And the government incentives in 25 are largely the US, Singapore and Japan. And we can talk more about those in the future.

C.J. Muse - Equity Analyst - (00:51:59)

Thank you.

OPERATOR - (00:52:02)

Thank you. Our next question comes from the line of Harlan sir of JP Morgan. Please go ahead, Harlan.

Harlan Sur - (00:52:11)

Yeah, good afternoon. Thanks for taking my question. Days of inventory are now at your target levels as you had expected previously. And within that DRAM is actually below your targets. Right. So given the strong 3e12 hi Ram continued strong demand pull for non AI dram. How are you guys thinking about your total and DRAM inventories exiting this quarter? Will days of inventory continue to come down and then just given the overall supply tightness, are your lead times extending and customers placing orders further in advance and is this better visibility? What gives the team confidence on continued tightness into calendar 26?

Mark Murphy - Chief Financial Officer - (00:52:52)

Yeah, Harlan, I'll cover that. We do expect inventories to remain at or better on DIO than we've seen in the fourth quarter. DRAM will remain very tight as we talked about through the year. So we would expect to be below target. And then nand. We're being very disciplined around NAND and that market continues to improve. So we would expect NAND EIO to decrease as well.

Sanjay Mehrotra - Chairman, President and CEO - (00:53:23)

And of course we work closely with our customers and customers are fully understanding that the demand environment is strong and the supply is very tight in the DRAM and supply outlook is tight. So we work closely with the customers and just want to point out that as we look ahead at our supply, we Are looking at one Gamma ramp to support our demand in non HVM products. HVM products, we will support them with our one beta and of course continuing maintaining focus on maximum production efficiencies and leveraging the clean room space that is available to implement the technology transitions as well as drive maximum production efficiency.

Harlan Sur - (00:54:13)

No, I appreciate that. Thank you for the insights there. And Sanjay, you know as your customers continue to differentiate their GPU and XPU platforms, memory continues to be sort of that key focus area of differentiation. As you mentioned, some of your HBM4 customers are looking for as much as 25% more bandwidth versus the plain vanilla Jetix standard. Looks like the Micron team delivered a solution that's 40% more performant energetic spec. Right. And well exceeding your customers requirements. Did the team have to redesign the base logic die to achieve these impressive results? Just wondering if the higher performance HBM4SKU maybe pushed out customer calls or have the call schedules remained on track relative to your original plan. But more importantly, even with the higher speeds, is your power consumption still superior to your competitive solutions?

Sanjay Mehrotra - Chairman, President and CEO - (00:55:04)

Very good questions Harlan. And thank you for asking those questions. Very proud of our team's execution. Proud of our team's design of our DRAM die and the advanced CMOS technology that is used in that DRAM die as well as our base die which has advanced CMOS as well. Combination of all of this, our innovative design, our memory architecture, our advanced CMOS in the DRAM as well as advanced CMOS in the base die. And of course that advanced CMOS base die is manufactured here by Micron, giving us a competitive advantage. All of this actually has enabled us to achieve customers increasingly higher requirements. Bandwidth at 2.8 gigabytes per second and speeds at 11 more than 11 gigabits per second as well. And this has really positioned us well, you know, getting ready for production ramp of our HBM4 product with these kind of specs. And as I said, with these kind of specs we'll be at the forefront of HBM shipment ramp, keeping it in line with customer demand.

Harlan Sur - (00:56:32)

Thank you.

Sanjay Mehrotra - Chairman, President and CEO - (00:56:36)

And I just want to hear, I think I said for bandwidth 2.8 terabyte per second. I hope that came across clearly. 2.8 terabytes per second speed 11 gigabit per second.

OPERATOR - (00:56:53)

Thank you. Our next question comes from the line of Krish Sankar of TD Cohen. Please go ahead. Krish.

Krish Sankar - Equity Analyst - (00:57:00)

Yeah, hi. Thanks for taking my question. I told them Sanjay, you mentioned about getting sold out in HBM hopefully in the next few months. Is there a way to quantify the supply opportunity in calendar 26 assuming you're fully sold out and also if the HBM demand is better than expected, can you increase Supply in calendar 26 if you're sold out in the next few months and then add a quick follow up?

Sanjay Mehrotra - Chairman, President and CEO - (00:57:23)

Yes, we are not breaking down the supply volumes et cetera. But yes HBM3E as we mentioned pricing agreements are done with a vast majority of our HBM CE for our vast majority of our HBMCE supply and volume is also fixed for HBN3E with most customers and as our customers are looking at their finalizing their plans with HBM4 particularly plans with increased specifications and their own deployment of that in their next generation platforms, we expect to be concluding our agreements on HBM4 supply as well as all of 2026 HBM supplier here in 2026 I mean in the next few months and really very pleased with our industry leading HBM4 product specifications absolutely outperforming the rest. So we are well positioned with this and really you know with respect to your question we will of course manage the mix now that we have reached our HBM share in CQ3 to be in line with our industry DRAM share we will manage and non HBM being healthy margins as well we will now manage the mix of our portfolio keeping in mind of course ROI on our portfolio as well as staying disciplined with our total investments. As you can well understand we have of course flexibility to opportunistically manage share here for HBN because at the front end it uses the same one beta wafers as some of the rest of our products as well. So that gives us fungibility at the front end in terms of supply management and assembly and test. We have of course with the investments that we have made over the course of last several quarters we are well positioned with capacity in assembly and test as well. So our investments and our team's strong execution in ramping up capacity and giving us the total confidence gives us now the flexibility to manage the mix of the full portfolio between HPM and non hbm keeping ROI in mind and of course staying disciplined here with our investments as well.

Krish Sankar - Equity Analyst - (01:00:06)

Got it. Thanks Sanjay. Another quick question on HBM4. It was nice to see the 11 gigabits per second pin speed. You also said that you have the offering of both your in house base die also the customized TSM logic die. Is there a way to figure out what do you expect that mix to be? Do you expect more customers to go with the in house die or the TSM die and how easy is it for you from the Micron standpoint of switching between the two based on customer demand.

Sanjay Mehrotra - Chairman, President and CEO - (01:00:35)

So HBM4 is the product that is with our internal base die and HBM4e is where we said in our remarks that, you know, we will be offering standard products as well as customized products and HBM4E is where we are partnering with TSMC. HBM4E is not in the industry. It's not a 2026 product that will be, you know, 2027 kind of product. And we'll share more details with you and we will have both standard and customized products in HBM4E. HBM4 using our own base die in the industry. HBM4 is what will be the product that will be ramping in production. And as we mentioned that. The value. Proposition of HBM continues to increase and with HBM4E that value proposition increases even further. And we would certainly expect the customization to provide higher gross margins as I indicated in my prepared remarks. And once again I would like to. Point out that our HVM uses our own logic die. That means Micron's own cmos and that gives us unique advantages and of course has been a key contributor along with our DRAM design and DRAM architecture as well as the CMOS that is embedded inside the dram. All of that gives us a unique advantage in terms of industry leading performance.

OPERATOR - (01:02:31)

Thank you. And as that is all the time we have for Q and A today, that does conclude the Q and A portion of this call and today's conference call. Thank you for participating. You may now disconnect.