Q1 2025 Micron Technology Inc Earnings Call
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Speaker Change: Thank you for standing by and welcome to Micron technologies fiscal first quarter 2025 financial conference call. At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you'll need to press star one on your telephone.
Speaker Change: Phone. If your question has been answered and you'd like to remove yourself from the queue simply press star one again.
Speaker Change: Today's program is being recorded and now I'd like to introduce your host for today's program Satya Kumar Corporate Vice President of Investor Relations and Treasury. Please go ahead Sir.
Satya Kumar: Thank you and welcome to Micron technologies fiscal first quarter 2025 financial conference call.
Satya Kumar: On the call with me today are Sanjay Mehrotra, President and CEO and Mark Murphy our CFO.
Satya Kumar: Today's call is being webcast from our Investor Relations site at investors got micron dot com, including audio and slides.
Satya Kumar: Addition to the press release detailing our quarterly results has been posted on the website along with the prepared remarks for this call.
Satya Kumar: Today's discussion of financial results presented on a non-GAAP financial basis, unless otherwise specified.
Satya Kumar: A reconciliation of the GAAP to non-GAAP financial measures can be found on our website.
Satya Kumar: I encourage you to visit our website at micron dot com throughout the quarter for the most current information on the company, including information on financial conferences that we may be attending you can also follow us on X at my contact.
Satya Kumar: As a reminder, the matters. We're discussing today include forward looking statements regarding market demand and supply market pricing and cost reduction trends and drivers our plans for manufacturing the impact of developing technologies, such as AI product transplant technologies and market position expected capabilities of our future.
Satya Kumar: That's our expected results and guidance and other matters.
Satya Kumar: These forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today.
Satya Kumar: We refer you to the documents, we filed with the SEC, including our Form 10-K forms 10-Q, and other reports and filings for a discussion of risks that may affect our future 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.
Satya Kumar: <unk>.
Satya Kumar: We are under no duty to update any of the forward looking statements to conform these statements to actual results.
Sanjay Mehrotra: I will now turn the call over to Sanjay.
Sanjay Mehrotra: Thank you Cynthia good afternoon, everyone I'm pleased to report that Micron achieved record revenue in fiscal Q1 with revenue gross margins and EPS, all at or above the midpoint of our guidance range.
Data center revenue grew over 400% year over year, and 14% sequentially, reaching a record level with data center revenue mix, surpassing 50% of micron's revenue for the first time.
Sanjay Mehrotra: We delivered record revenue in data center, Ssds and achieved new records in market shares for data Center Ssds and overall ssds.
Sanjay Mehrotra: Our HBM shipments were ahead of plan and we achieved more than a sequential doubling of HCM revenue.
Sanjay Mehrotra: Revenue from our largest data center customer was approximately 13% of total company revenue.
The European market will exhibit robust growth over the next few years in 2028, we expect the HBM Tam to grow four times from the $16 billion level in 2024 and to exceed $100 billion by 2030.
Sanjay Mehrotra: Our <unk> forecast for <unk> in 2030 would be bigger than the size of the entire DRAM industry, including HBM in calendar 2024.
Sanjay Mehrotra: This HBM growth will be transformational for micron and we are excited about our industry leadership in this important product category.
Sanjay Mehrotra: Leading edge DRAM supply remains tight driven by robust demand in data center, DRAM, including HBM, which will underpin our business results throughout fiscal and calendar 2025.
Sanjay Mehrotra: We have previously shared our expectation that customer inventory reductions in the consumer oriented segments and seasonality will impact fiscal Q2 bit shipments.
Sanjay Mehrotra: We are now seeing a more pronounced impact of customer inventory reductions.
Sanjay Mehrotra: As a result, our fiscal Q2 bit shipment outlook is weaker than we previously expected.
Sanjay Mehrotra: We expect this adjustment period to be relatively brief and anticipate customer inventories leaching healthier levels by strength, enabling stronger beer shipments in the second half of fiscal and calendar 2025.
Sanjay Mehrotra: We are on track to achieve our <unk> targets and also deliver a substantial record and micron revenue significantly improved profitability and positive free cash flow in fiscal 2025.
Sanjay Mehrotra: Our technology roadmap continues to progress very well and we are in production with the industry's most advanced DRAM and NAND nodes.
Sanjay Mehrotra: We continue to ramp our one beta technology node, which supports HBM CE and we are preparing to ramp our <unk> gamma technology node using <unk> in calendar 2025.
Sanjay Mehrotra: In NAND, we are maintaining technology leadership with our industry, leading <unk> and <unk> nine nodes and are managing the ramp of these nodes consistent with our demand.
Sanjay Mehrotra: We expect fiscal 2025, DRAM front end cost reductions, excluding <unk> to be in the mid to high single digit percentage range.
Sanjay Mehrotra: We expect fiscal 2025, NAND front end cost reductions to be in the low teens percentage range.
Sanjay Mehrotra: Earlier this month, we finalized an agreement with the U S Department of Commerce for an award of up to $6 $1 billion under the chips and Science Act to support advanced DRAM manufacturing Fabs in Idaho, and New York.
Additionally, we have entered into a preliminary memorandum of terms with the U S Department of Commerce for an award of up to $275 million for our Virginia Fab that supports production of long lifecycle chips in areas such as automotive industrial aerospace.
Sanjay Mehrotra: In defence and enables efficiencies across our global Fab network.
Sanjay Mehrotra: With the support of the Singapore government, we have finalized plans to expand our manufacturing footprint in Singapore, starting with an investment for our new <unk> advanced packaging facility.
This investment allows us to meaningfully expand our total advanced packaging capacity beginning in calendar 2027 to support AI, driven demand and will be synergistic with our existing operations in Singapore.
Sanjay Mehrotra: These plans also include support for our long term manufacturing requirements for NAND.
Now turning to our end markets.
Sanjay Mehrotra: Numerous advances are pushing the boundaries of AI capabilities as training module sizes continue to increase and influence models evolve to address different use cases.
Sanjay Mehrotra: Multimodal models, both training and chain of thought influencing represent new frontiers of innovation all of which are memory intense sales and can benefit from higher memory bandwidth and capacity.
Sanjay Mehrotra: AI agents will become ever more capable and address vertical market consumer and enterprise use cases, driving accelerating monetization of AI.
Speaker Change: Micron is extraordinarily well positioned to leverage this long term growth opportunity, which has the potential to transform the dynamics of our business.
Speaker Change: We have upgraded our view of server unit percentage growth and now expect it to reach low teens in calendar 2024, fueled by strong demand as well as a robust traditional server refresh cycle and we anticipate several unit growth to continue.
Speaker Change: In 2025.
Micron and achieved new records in both total data center revenue and the revenue mix for data centers in fiscal Q1.
Speaker Change: Our portfolio of high capacity DRAM products, including analytic diabetes, 128, gigabyte <unk> and LP five based server DRAM products.
Speaker Change: Continues to see robust demand and remains on track to generate multiple billions of dollars in revenue in fiscal 2025.
Speaker Change: We made excellent progress on the HBM more than doubling our revenue sequentially during the quarter and exceeding our plans as a result of solid execution on yield and capacity ramps.
Speaker Change: In fiscal Q1, our <unk> gross margins were significantly accretive to both DRAM and overall company gross margins.
We are proud to share that micron's <unk> CE Ty is designed it to Nvidia is black will be 200, and GBP 200 platforms.
Speaker Change: <unk> operates at full speed, while maintaining leadership in power efficiency.
This month, we commenced high volume shipments to our second large <unk> customer and will start high volume shipments to our third largest customer and CQ, one expanding our <unk> customer base.
Speaker Change: We continue to receive positive feedback from our leading customers for Micron's <unk> 12 high best in class power consumption, which is 20% lower than the competitions HBM CE <unk> high even as the micron product delivers 50% higher memory capacity.
Speaker Change: And the industry leading performance.
Speaker Change: We have increased our HBM market Tam estimates do now exceed $30 billion in 2025, and we continue to expect to achieve HBM market share commensurate with our overall DRAM market share sometime in the second half of calendar 2025.
Speaker Change: As we have said before our HBM is sold out for calendar 2025.
Speaker Change: With pricing already determined for this timeframe and.
Speaker Change: In fiscal 2025, we expect to generate multiple billions of dollars of <unk> revenue.
Speaker Change: We are excited about micron's HBM leadership roadmap through the rest of this decade.
Speaker Change: Leveraging the strong foundation and continued investments in proven one beta process technology, we expect micron's <unk> four will maintain time to market and power efficiency leadership, while boosting performance by over 50% OLED <unk> we.
Speaker Change: We expect <unk> to ramp in high volume for the industry in calendar 2026.
Speaker Change: Development work is well underway with multiple customers on HBM Ford E Mitchell follow HBM for.
Speaker Change: <unk> will introduce a paradigm shift in the memory business by incorporating an option to customize the logic based die for certain customers using an advanced logic foundry manufacturing process from TSMC.
Speaker Change: We expect this customization capability to drive improved financial performance for Micron.
Speaker Change: Based on our customer design wins and success in establishing deep partnerships with customers industry Enablers and key technology partners like TSMC, we expect to be a leading supplier of HBM with the most robust trusted and industry, leading technology roadmap and execution record.
Speaker Change: Micron has also been leading the adoption of LTE DRAM and data centers with Nvidia is Greece CPU.
Speaker Change: Micron <unk> provides greater than 500 gigabyte of capacity and memory bandwidth of greater than 540 gigabyte per second thus delivering attractive performance per watt for the AI platforms.
Speaker Change: Nvidia is Greece, CPU utilizes microns LP feedbacks to provide systems with additional cash coherent memory to supplement HBM for the ever growing memory needs of AI workloads.
Speaker Change: Our overall SSD in data center SSD revenue these new quarterly revenue record in fiscal Q1, and we are on track to deliver another year of share gains in calendar 2024.
Speaker Change: We continue to strengthen our datacenter SSD product roadmap, leveraging our leadership <unk> NAND technology and vertical integration.
Speaker Change: We announced a $65 50, ion SSD, which delivers the industry's fastest 16 terabyte SSD and the first in the industry with Gen five capability at this capacity point.
Speaker Change: Compared to the competition Micron's $65 50, ion SSD delivers 20% lower power, while providing 60% better performance and better data center footprint efficiency with up to 67% more density per rack for the excess scale data centers.
Speaker Change: Our $95 15 Pcie Gen. Five data center Ssds, we're qualified for the recommended vendor list for Nvidia is GBP 200, and we have 72 system and also had a 34% higher throughput and over 80% lower energy per terabyte of.
Speaker Change: Data transfer versus the competition.
We continue to expect to generate multiple billions of dollars in data center SSD revenue in fiscal 2025 and to grow our market share once again in calendar 2025.
Speaker Change: Turning to PC.
Speaker Change: The PC refresh cycle is unfolding more gradually and we expect PC unit volume growth to be flattish in calendar 2024 slightly below our prior expectations.
Speaker Change: We remain optimistic about <unk> adoption over time.
Speaker Change: <unk> will require additional DRAM content with a minimum of 16 gigabyte of DRAM for entry level Pcs.
Speaker Change: 24, gigabytes and above for the higher end segments versus 12, gigabyte average VC content last year.
Speaker Change: Windows 10 end of life in October 2025, and then the aging installed base will provide a catalyst for PC market growth in 2025.
Speaker Change: We expect PC market units to grow in the mid single digit percentage range in calendar 2025 with growth weighted towards the second half of the calendar year.
Speaker Change: Turning to mobile smartphone unit volumes in calendar 'twenty 'twenty four remain on track to grow in the mid single digit percentage range and we expect low single digit percentage growth in 2025, both consistent with our prior expectations.
Speaker Change: AI adoption continues to be a strong driver for mobile DRAM content growth, where we see the technology used in applications, such as local search and contextually aware user interfaces increasing overtime.
Speaker Change: DRAM content growth remains robust in CQ, three with a mix of smartphones with eight gigabyte or greater growing to over 60% Cigna.
Significantly higher than a year ago.
Smartphone customer inventory dynamics continue to play out as expected and we expect <unk> shipments to be weighted to the second half of our fiscal year.
Speaker Change: Micron remains focused on the high end of the mobile market we.
Speaker Change: We are leveraging our industry, leading portfolio of DRAM and NAND products to support the most demanding applications, which will required increased content high performance and power efficiency.
Speaker Change: Turning to the automotive market lower than expected automotive unit production combined with a shift toward value chain vehicles from premium models, and Evs has slowed memory and storage content growth and resulted in an inventory adjustments at Oems.
Speaker Change: Longer term, we remain optimistic that Adas infotainment and AI adoption across auto will drive long term memory and storage content growth.
Speaker Change: Industrial market demand continues to be impacted by inventory adjustments and we expect a recovery in this market later in calendar 2025.
Speaker Change: Now turning to our market outlook.
Speaker Change: We expect industry DRAM bit demand growth to be in the high teens percentage range in calendar 2024, and in the mid teens percentage range in calendar 2025.
Speaker Change: We see overall calendar 2025, DRAM industry bit supply growing roughly in line with better demand with tightness in leading edge nodes, driven by HBM supply ramp and the industry.
Speaker Change: Our outlook for industry NAND bit demand growth in both calendar 2024, and 2025 is now in the low double digits percentage range, which is lower than our prior expectations.
Speaker Change: Key drivers include slower growth in NAND content, and consumer devices ongoing inventory adjustment and demand dynamics in different end markets as outlined earlier and a temporary moderation in near term data center SSD purchases by customers after several quarters of very rapid growth.
Speaker Change: And data centers, we remain enthusiastic about long term demand growth as NAND is a key enabler for AI workloads and widening faster data access lower power and better overall total cost of ownership essential for AI infrastructure.
Speaker Change: And the next few years, we also expect high capacity <unk> NAND ssds to start displacing capacity hdds in the data center and the inflection that will drive long term NAND demand growth.
Speaker Change: The decline in 2024, and 2025 industry NAND demand growth outlook implies that supply actions will be necessary to achieve balance.
Speaker Change: As mentioned previously since NAND technology transitions provided a significant increase in overall bit output.
Speaker Change: Base of technology transitions will also needs to slow in order to align supply to industry demand.
Speaker Change: Micron is decisively taking actions to align our NAND supply to the industry demand trends.
Speaker Change: We have reduced NAND capex versus prior plan and have slowed the pace of technology node transitions.
Speaker Change: In addition, we are reducing NAND wafer starts by a mid teens percentage versus prior levels.
Speaker Change: These actions will align our supply to current market demand.
Speaker Change: Consistent with analyst reports, we are seeing an increase in bit supply at legacy technology nodes, how much China based DRAM and a China based suppliers.
Speaker Change: In calendar 2024 analyst reports indicate that China based supplier and represent a mid single digit percentage of industry bit supply for DRAM and a high single digit percent of supply for NAND comps.
Speaker Change: Competition from China supply is focused on China market demand in DRAM with DDR, four and LP for products and the NAND with consumer client and lower performance mobile products.
We expect micron's worldwide revenue related to LP fall and before DRAM products for the remainder of fiscal 2025 to be approximately 10%.
Speaker Change: We expect micron's sales of products to China headquartered customers to be concentrated in the high end of our customers' portfolio, leveraging our technology and product leadership and the performance and quality requirements of our customers.
Speaker Change: I will now turn it over to Mark for our financial results and outlook.
Mark Murphy: Thank you Sanjay and good afternoon, everyone.
Mark Murphy: Micron delivered fiscal Q1 revenue and gross margins at the midpoint and EPS above the midpoint of the guidance range.
Mark Murphy: Total fiscal Q1 revenue was approximately $8 7 billion.
Mark Murphy: Up 12% sequentially and up 84% year over year and reached a new record.
Mark Murphy: Fiscal Q1, DRAM revenue was $6 4 billion.
Mark Murphy: Up 87% year over year and represented 73% of total revenue.
Mark Murphy: Sequentially DRAM revenue increased 20%.
Mark Murphy: With pet shipments up in the low double digit percent range and prices increasing in the high single digit percentage range.
Mark Murphy: Strong sequential bit shipment growth in DRAM was driven by demand in data center.
Mark Murphy: Fiscal Q1, NAND revenue was $2 2 billion.
Mark Murphy: Up 82% year over year and represented 26% of Micron's total revenue.
Mark Murphy: Sequentially NAND revenue decreased 5% with.
Mark Murphy: With pet shipments and prices both decreasing in the low single digit percentage range.
Mark Murphy: Now turning to revenue by business unit.
Mark Murphy: Compute and networking business unit revenue was up 46% sequentially to $4 4 billion.
Mark Murphy: And now represents over half of our total revenue.
Mark Murphy: <unk> revenue reached a new quarterly record driven by cloud server DRAM demand.
Mark Murphy: As well as HBM revenues.
Mark Murphy: Which more than doubled sequentially in the quarter.
Mobile business unit revenue was $1 $5 billion down 19% sequentially.
Mark Murphy: As our mobile customers focused on improving their inventory health, we shifted supply to meet data center demand.
Mark Murphy: Embedded business unit revenue was $1 1 billion down 10% sequentially.
Auto industrial and consumer customers continue.
Mark Murphy: <unk> continued to manage their inventories lower.
Mark Murphy: Revenue for the storage business unit was $1 7 billion up 3% sequentially.
Mark Murphy: <unk> revenue reached a new quarterly record driven by record revenue in the data Center SSD segment.
Mark Murphy: In fiscal 2025, we expect micron's revenue mix with companies headquartered in mainland, China, and Hong Kong, including direct sales as well as indirect sales through distributors to be approximately mid teens percent of our worldwide revenue.
Mark Murphy: This mix is impacted by market factors described earlier as well as by the China CIC actions announced in May 2023.
Mark Murphy: The consolidated gross margin for fiscal Q1 was 39, 5%.
Mark Murphy: Improving 300 basis points sequentially.
Mark Murphy: Gross margin improvement was driven by higher pricing and DRAM and.
Mark Murphy: Improved product mix the data center in both DRAM and NAND.
Mark Murphy: Offset partly by lower pricing in NAND.
Mark Murphy: Operating expenses in fiscal Q1 were $1.05 billion.
Mark Murphy: Down $34 million sequentially.
Mark Murphy: And benefiting from lower labor related costs and ongoing tight expense control.
Mark Murphy: We generated operating income of $2 4 billion in fiscal Q1 <unk>.
Resulting in an operating margin of 27, 5%.
Mark Murphy: Which was up approximately 500 basis points sequentially.
Mark Murphy: Up 48 percentage points from the year ago quarter.
Mark Murphy: Fiscal Q1, adjusted EBITDA was $4 4 billion.
Mark Murphy: Resulting in an EBITDA margin of 56%.
Up 265 basis points sequentially, and up 31 percentage points or $3 $5 billion from the year ago quarter.
Mark Murphy: Fiscal Q1 taxes were $333 million on an effective tax rate of 14, 1%, which was in line with our guidance.
Mark Murphy: non-GAAP diluted earnings per share in fiscal Q1 was $1 79.
Mark Murphy: Compared to a $1 18 per share in the prior quarter and.
Mark Murphy: And a loss per share of <unk> 95.
Mark Murphy: In the year ago quarter.
Mark Murphy: We delivered fiscal Q1 EPS at the higher end of our guidance range.
Mark Murphy: Turning to cash flows and capital spending our operating cash flows were approximately $3 2 billion in fiscal Q1.
Mark Murphy: Capital expenditures were $3 $1 billion, resulting in free cash flow of $112 million in the quarter.
Mark Murphy: Our fiscal Q1, ending inventory was $8 7 billion or 149 days.
Mark Murphy: A decline of nine days from the prior quarter and driven by DRAM.
Mark Murphy: On the balance sheet, we held $8 7 billion of cash and investments at quarter end and maintained $11 $2 billion of liquidity, when including our untapped credit facility.
Mark Murphy: We ended the quarter with $13 8 billion and total debt low net leverage and a weighted average maturity on our debt of $2 31.
Mark Murphy: Now turning to our outlook for the second fiscal quarter.
Mark Murphy: We expect DRAM bit shipments to decline sequentially in.
Mark Murphy: And expect a meaningful sequential decline in NAND bit shipments for reasons mentioned previously that are impacting near term demand.
Mark Murphy: We project our bit shipments to resume growth after fiscal Q2.
Mark Murphy: We expect second half fiscal year bit shipments to be stronger than the first half.
Mark Murphy: We expect fiscal Q2 gross margins to be impacted by NAND industry conditions.
Mark Murphy: Partly offset by continued growth in HBM and data Center DRAM.
Mark Murphy: In addition to these factors, we expect NAND under loading to affect fiscal Q3 gross margins.
Mark Murphy: We forecast operating expenses in fiscal Q2 to be approximately $1 $1 billion, primarily reflecting planned increases in R&D spending.
Mark Murphy: We expect fiscal 2025, opex to increase by a low to mid teens percent.
Mark Murphy: Below are prior mid teens plan.
We continue to prioritize R&D programs.
Mark Murphy: <unk> for HBM to capitalize on strong growth ahead.
We expect both inventory dollars and days of inventory to increase sequentially in fiscal Q2 on lower volumes.
Mark Murphy: With stronger bit shipments, we expect <unk> to improve in the second half of the fiscal year.
Mark Murphy: We expect to end fiscal 2025 with tight DRAM inventories below our target levels.
Mark Murphy: Our fiscal Q2, and the remainder of fiscal 2025, we estimate our non-GAAP tax rate to be in the mid teens percent range.
Mark Murphy: We expect our fiscal 2026 tax rate to be in the high teens percentage range following Singapore as adoption of global minimum tax.
Mark Murphy: In fiscal Q2, we forecast net capex to be approximately $3 billion.
Mark Murphy: Our fiscal 2025, we are prioritizing our investments to ramp one beta and one gamma technology nodes as well as Greenfield fab investments for DRAM, which will help us support HBM and long term DRAM demand.
Mark Murphy: We have cut our NAND capex and are prudently managing the pace of our NAND technology node ramps to manage our supply.
Mark Murphy: We expect overall capex spending in fiscal 2025 to be approximately $14 billion, plus or minus $500 million.
Mark Murphy: The overwhelming majority of the fiscal 2025 Capex is to support <unk> as well as facility construction backend manufacturing and R&D investments.
Mark Murphy: With all these factors in mind, our non-GAAP guidance for fiscal Q2 is as follows.
Mark Murphy: We expect revenue to be $7 9 billion.
Mark Murphy: Plus or minus $200 million.
Mark Murphy: Gross margin to be in the range of 38, 5% plus or minus 100 basis points.
Mark Murphy: And operating expenses to be approximately $1 1 billion.
Mark Murphy: Plus or minus $15 million.
Mark Murphy: As mentioned, we expect a fiscal Q2 tax rate to be in the mid teens percent range.
Mark Murphy: Based on a share count of approximately 114 billion shares we expect EPS to be $1 43 per share plus or minus 10.
Speaker Change: In closing.
Speaker Change: Micron will remain circumspect and flexible with all our spending including operating expenses and capital investments.
Speaker Change: We are making disciplined investments in DRAM and are driving the ramp of high bandwidth memory.
Speaker Change: And NAND, we're taking prompt and decisive actions to cut our capital spending and cut our wafer output to maintain supply discipline.
We expect to deliver a substantial revenue record significantly improved profitability and positive free cash flow in fiscal 2025.
Sanjay Mehrotra: I will now turn it back over to Sanjay.
Sanjay Mehrotra: Thank you Mark at our 2022 Investor Day, we had laid out a bold plan to shift our portfolio mix and to increase our share of high growth and less seasonal segments from approximately 45% in fiscal 2021% to 62% in fiscal 2025.
Sanjay Mehrotra: In fiscal Q1, 2025, we have already significantly exceeded that goal driven by strong demand for AI enabled solutions, and reflecting micron's technology product and manufacturing leadership.
Sanjay Mehrotra: Micron is in the strongest competitive position in its history and we continue to gain share in all high margin strategically important product categories in our industry, while maintaining overall stable bit share in both DRAM and NAND.
Speaker Change: Thank you for joining us today, we will now open for questions.
Speaker Change: Certainly.
Speaker Change: And our first question for today.
Speaker Change: Comes from the line of C J Muse from.
Speaker Change: Cantor Fitzgerald your question please.
Speaker Change: Yes, good afternoon, and thank you for taking the question I guess first question could you speak to what gives you the confidence that we're going to see a may quarter kind of a seasonal pick up in <unk> cyclical pick up across both DRAM and NAND and I guess, if there's any sort of sense of magnitude we should be thinking about for each would be very helpful.
Speaker Change: C J I'll take this one.
Speaker Change: As we said.
Our Q2 outlook is impacted by inventory adjustments and consumer oriented markets and of course, the typical seasonality that exist in CQ, one as well and we are also seeing some moderation in purchases of data center ssds after several quarters.
Speaker Change: Rapid growth in that part of the market. So that's what is impacting our.
Speaker Change: Our Q2 outlook here and we believe that customer inventories.
Speaker Change: In the consumer oriented markets will improve in the spring timeframe.
Speaker Change: Keep in mind that the sell through that's happening in these consumer oriented markets like smartphone and Pcs is okay. It's more that they have built inventory and therefore their purchases are less than their sell through and we saw that the inventory has improved in CQ4.
Speaker Change: Sure.
Speaker Change: We expect them to improve further in CQ, one timeframe. So by stream timeframe, we expect the inventories to it.
Speaker Change: Customers in the consumer oriented markets to improve.
Speaker Change: And Thats what will drive.
Speaker Change: Shipment growth in the fiscal second half for us.
Speaker Change: And of course datacenter SSD as well, we expect it tends to be that part of the market data center storage can sometimes be lumpy and we expect the data center storage demand given the datacenter build out that is happening continuous to be happening driven by AI demand growth will also.
Speaker Change: So let's turn toward growth in the fiscal second half that's why we say fiscal second half stronger than fiscal first half.
Speaker Change: Very helpful. And then a quick question to Mark.
Mark Murphy: Can you help us with a little more granularity in terms of the impact from NAND under loadings.
Mark Murphy: Into the current guide as well as whether there is an impact beyond that and then for all of calendar 'twenty five is there a framework for thinking about the tailwind from increasing.
Mark Murphy: Mix in the revenues. Thank you.
C. J: Sure C. J, so let me start with providing granularity on the second quarter guide, So we're down 100 basis points.
First the second quarter, and the guide and that's driven by by NAND.
First is as Sanjay mentioned, the NAND industry market conditions are weak weaker than we had expected and.
C. J: That consumer market PC smartphones.
C. J: Demand is weaker and inventory adjustments are occurring.
Speaker Change: Secondly, Dan.
Speaker Change: NAND data center SSD volumes moderated.
And.
Speaker Change: So there is this period of digestion and that was as we know.
Speaker Change: Higher margin NAND business. So those two things are the principal driver.
Of course with revenue down in the guide 800 million we.
Speaker Change: We see some some negative leverage effects on an ongoing period costs, but.
Speaker Change: But those costs do not include.
Speaker Change: Under load charges in the second quarter so.
Speaker Change: Those charges will begin to affect us in the third quarter.
Speaker Change: And so in the third quarter as as NAND continues to.
Speaker Change: They have a period, where yes, there are some challenging conditions into the calendar first quarter.
Speaker Change: And then improves through the calendar year.
Our supply response in NAND will weigh on.
Third quarter margins and it will somewhat constrained our ability to expand gross margins in the third quarter now beyond the third quarter.
Speaker Change: Yes, the business volume growth.
Speaker Change: Yes.
Speaker Change: AI, driven data center and edge driven growth.
Speaker Change: <unk> mix effects.
Speaker Change: Including HBM.
Speaker Change: When we talked about multibillion.
Speaker Change: And then just a more constructive environment.
Speaker Change: Especially in DRAM, where we have tie.
Tight inventories on the leading edge and have indicated that we basically were below our target.
Speaker Change: Inventories by end of year, So we see.
Speaker Change: The conditions for margin expansion occurring after third quarter.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Thank you and our next question comes from the line of Timothy Arcuri from UBS. Your question. Please.
Thanks, a lot I am trying to get at what the magnitude of the revenue ramp is going to be in the fiscal back half and I'm sort of looking at what you were saying about Capex you had said that it would be mid <unk> of the full year revenue. So if I take the 2014, and which was a little better than what people thought I think most people were thinking <unk>. Five. So you actually are doing a bit more capex and if I divide by the mid <unk>.
Speaker Change: I get to a number like 40 billion for those for the fiscal year is that I'm not asking you to guide the fiscal year, but I'm just asking you to provide some sort of magnitude for like the fiscal back half versus the fiscal front.
Speaker Change: <unk> happens.
Speaker Change: So let me just answer the fiscal second half and of course, they are drivers of growth there would be improved inventory and consumer oriented markets.
Speaker Change: Data center SSD demand resuming.
Speaker Change: And of course, HBM continued momentum in <unk> and we're excited about our product position there and we have indicated to you that in the second half of the calendar year.
Speaker Change: We target, reaching our <unk> share to be in line with DRAM share and yet executing very well on the HBM momentum. So HBM is also of course continuing to drive.
Our revenue growth.
Speaker Change: As you look ahead to the second half of the year and then just keep in mind that we have discussed smartphone and.
Speaker Change: Our PC units via provide you color in the script on those in calendar year 2025, as well and there will be increasing penetration of smartphone and PC units, which tend to have higher DRAM content as well. So all of these factors will contribute primarily from data center.
Speaker Change: Two edge consumer inventory adjustments getting past the seasonality of CQ. One all of these will be the factor that was determined.
Speaker Change: Give us optimism towards strong second half shipments and of course.
Speaker Change: <unk> revenue outlook in the second half as well and Mark you can comment on the Capex.
Mark Murphy: Yeah, Tim we had.
Mark Murphy: We've made it clear where cutting NAND capex, we are yes.
Mark Murphy: Yes, there is still going to be elevated levels of DRAM spend and our.
Mark Murphy: Our previous guidance of mid <unk> will be higher 30% of sales now.
Speaker Change: Got it okay. Thank you.
Speaker Change: And then I wanted to ask on the share repo. So in the 8-K last week that was related to the chipset that contain language that you can only buyback to offset dilution. During the first two years and really only free to Jack up the repo more than that during years three to five to bring down share count.
Mark Murphy: How do you think about that in sort of in the broader capital return. Thanks Mark.
Speaker Change: Yes, Tim.
We don't see any meaningful constraints on our on our ability to return capital.
Speaker Change: Our ordinary course dividends are unaffected so we would still.
Expect to pay a dividend and grow that over time.
Speaker Change: We are able to repurchase shares during the first two years were able to repurchase shares to help offset.
Speaker Change: Stock comp shareholder dilution and then in years three three through five.
Speaker Change: We're unrestricted at certain financial and other conditions are met and we think those conditions are reasonable they involve.
Speaker Change: How much we're spending on R&D how much for.
Speaker Change: Spending on Capex, and our credit and so forth and these things are how we would normally run the business.
Speaker Change: And a shareholder and broader stakeholder way, so we think that yes.
Speaker Change: Yes, we don't have any meaningful constraints under the agreements.
Speaker Change: Okay. Thank you.
Thank you and our next question comes from the line of Zakaria from Banc of America Securities. Your question. Please.
Speaker Change: Thanks for taking my question.
Speaker Change: Hunter you upgraded.
HCM.
Speaker Change: Tam by I think about 20%.
Speaker Change: So what does it change to increase that estimate and.
Speaker Change: And I think you've kind of kept your.
Speaker Change: Target share can be the same as before even though I think you've kind of shifted more to the second half.
Speaker Change: But what is the bottleneck why contour share get to the target level earlier is it just a matter of rolling out in different products.
Speaker Change: The Tam estimate and then what is causing the change for you to get to your target more in the second half rather than I think you said sometime in 'twenty five before.
Speaker Change: So we continue to work closely with our customers to assess.
Speaker Change: The market requirements and we provide you updates and we from time to time.
Speaker Change: Update our outlook and based on our <unk>.
Speaker Change: Latest estimates with our customers and of course all the.
Speaker Change: Build out related to AI data centers and the tremendous support community and it is.
Speaker Change: <unk>, our estimate from $25 billion to $30 billion for calendar year 2025, and.
Speaker Change: This is driven by increased demand increased volume that will be required in 2025 for the HBM and just keep in mind that <unk> just continues to be still in tight supply.
Speaker Change: Calendar year, 2025, and regarding our own.
Speaker Change: The momentum we have a very strong momentum we previously had said that.
Speaker Change: On time in calendar year 2025, we will reach our share target in HBM to be equivalent to our DRAM industry share and now as 2025 is approaching we are providing you further specificity around the timing and we are specifying that we'll be reaching that in second half of <unk>.
Speaker Change: 25 of course, HBM ramp up just keep in mind. It was not long ago. It was at Q3 of 'twenty four.
Speaker Change: Mike We had indicated that we have a $100 million of revenue in HBM.
Speaker Change: Our team is doing a great job in continuing to ramp up the capacity as well as yield we pointed out that in our <unk>.
Speaker Change: Q1, we delivered more.
Speaker Change: HBM than our plan and our yields were also ahead of our plan. So we continue to do well and we are extremely focused on ramping up capacity continued to ramp up you used the word mature yields.
Speaker Change: And we feel very confident about our opportunities for <unk>. In 2024, we have said that we expect to reach multiple billions of dollars of revenue in.
Speaker Change: In the coming year in 2025, so a tremendous opportunity and we of course continue to look forward to building the momentum of our roadmap from dead wrong, absolutely captured opportunities, we believe that the HBM forward as well as for <unk>. This will be more opportunities 26 and beyond timeframe.
Speaker Change: We will be in strong leadership position with our products and we will of course capture the opportunities.
Speaker Change: And remain disciplined with respect to our investments as well.
Got it and for my follow up Mark just a few questions on gross margins.
Speaker Change: So you are guiding.
Speaker Change: Q2 sales down, but gross margins are only going down by a point is that some of the tailwind we are seeing in HBM.
Right offsetting some of the unit impact. So if there is a way to quantify how much lift.
Speaker Change: We are providing and then the other thing I just wanted to clarify did you see Q3 gross margin higher than Q2 gross margin despite that headwind.
It had been I just wanted to.
Speaker Change: On the buybacks. So just how much lift from HCM and then if Q3 higher than Q2 from what you said before thank you.
Speaker Change: Yeah, So vivek good questions.
Speaker Change: So we are in <unk>, we are seeing definitely favorable effects from.
Speaker Change: Both higher DRAM.
Speaker Change: Revenue as a mix of our total business.
Speaker Change: Then the favorable DRAM product mix, so HBM and other data center products. So those are those are tailwind in the second quarter and we expect those to continue with that.
Speaker Change: But they're more than offset by the headwinds, particularly NAND.
Speaker Change: And then.
Speaker Change: What I mentioned earlier to <unk> question was.
Speaker Change: While.
Speaker Change: While we continue to have these DRAM positive mix effects.
Speaker Change: It will take some time.
Well into this calendar first quarter for the NAND market conditions to begin to improve and then we of course start to see data center SSD growth.
Speaker Change: Starting again volume growth in the third quarter.
Speaker Change: And then the.
Speaker Change: But conditions are still be weak and then the.
Speaker Change: The supply response costs will weigh on third quarter margins.
Speaker Change: Well it constrained our ability to expand margins in the third quarter now beyond third quarter, we see continued revenue growth.
Speaker Change: A favorable mix effects.
More constructive markets and see the opportunity for margin expansion from there.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: Thank you and our next question comes from the line of Joseph Moore.
Speaker Change: From Morgan Stanley Your question. Please.
Speaker Change: Great. Thank you. My question was also on HBM I guess, how do you think about market share there over the long term should we think of your natural DRAM share is being eliminated given that one of your competitors is struggling there.
Speaker Change: And at one point, you had talked about maybe having a premium pricing because of the quality of the performance per watt is that something youre still able to extract or is the focus continue to be more on supply.
So with respect to HBM shares I mean, we are extremely focused on achieving.
Speaker Change: Our share to be in line with the industry DRAM share in the second half of 2025 excited as I said about our product and all the feedback that we received on that product. We have highlighted that we have already begun shipments.
Speaker Change: Second large HCM customers.
Speaker Change: And also said that in CQ, one we will be adding a third large customer for <unk> as well. So our momentum is continuing to build up in HBM and this is of course, all again built on strong product that has.
Speaker Change: No significant performance and.
Speaker Change: <unk> per board benefits here and that of course helps us in with respect to our momentum on the sure helps us get premium pricing versus.
Speaker Change: Others in the marketplace and we want that we plan to absolutely leverage this beyond just a tiny HBM.
Speaker Change: <unk> as we move through 12 high in 2025 and of course beyond 2025.
Leverage our momentum with product leadership with HBM forward 40, as well I am not specifying our share at this point for future targets, but of course, we will we are extremely focused on continuing to shift the mix of our product portfolio overall product portfolio toward.
Higher profit pools of the industry, while remaining totally disciplined in managing our.
Speaker Change: A demand and supply balance in managing our responsibly managing our.
Speaker Change: Investments.
Capital investments that are related to that as well.
Speaker Change: Great. Thank you very much.
Speaker Change: Thank you and our next question comes from the line of Krish Shankar from TD Cowen Your question. Please.
Yes, hi, Thanks for taking my question I have two of them and sorry to harp on this point again Sanjay just to clarify you raised your calendar 'twenty five time estimate from $25 billion to $30 billion mean.
Speaker Change: Maintaining our market shares, but placement volume was fixed but the returns are improving so simplistically should we assume three months ago, you thought planning to up to $6 billion in <unk> revenue exiting <unk>.
2020, that's more like six 5% to 7 billion now is the debate March to think about for micron's, because VM revenue sometime in second half of calendar 'twenty five.
Speaker Change: We are not providing specifics on revenue for HCM.
Speaker Change: Other than saying that <unk> will be multiple billions of dollars.
Speaker Change: Revenue for us in 'twenty, five and that we will we are well on our way to achieving our target of.
Shares to line up with industry DRAM shared as well.
Speaker Change: Got it.
Speaker Change: Through the specificity on our revenue numbers, but again I can tell you that this is of course, a big part of our growth and we are excited about the long term HBM potential as well be shared with you that we see HBM, becoming $100 billion more than $100 billion market in 2030.
Speaker Change: <unk> timeframe.
Speaker Change: And <unk>.
Speaker Change: 2020 in 2028, <unk> being four times of what it is in 2024 and with a strong roadmap of products that is ahead of US we of course will capture the opportunities in this part of the market and <unk> given that it is a more complex product to make it.
Speaker Change: It is a higher cost product it brings higher value. It brings higher asp's. So this position positions us very well to word.
Our objective of <unk>.
Continuing to shift toward higher profit pool of the industry.
Speaker Change: Got it very helpful. And then a quick follow up Sanjay <unk>.
Speaker Change: <unk> tie so when they go to <unk> that ratio increases in <unk>. It's also bigger die size trade ratio as increases. So after you make these transitions a little bit of a negative impact on your gross margin purely because el will kind of get lease it or do you think that the transition will be seamless, but it should not have any impact on gross margins.
Speaker Change: So we have shared before that HBM.
Speaker Change: He has a <unk> ratio of approximately three.
Speaker Change: And <unk> four we have said before we will have.
Speaker Change: A higher trade issue and of course, the exchange ratio considerations apply to the entire <unk> industry and when we go from a tie to 12 high you can certainly expect that given the increased complexity of the product that will have 12 high will have its own.
Certainly yield ramp, but the learnings of a tie will certainly be benefit benefiting us.
Speaker Change: Going forward as well.
And our team has done a great job in ramping up projects, So I'm pretty sure that as we go from a tied to 12 high.
Speaker Change: Our team will do a good job in ramping of the yields on 12 high as well and all of those factors of course play a role in.
Speaker Change: Overall HBM.
Speaker Change: Objectives that we have ahead of us and just keep in mind that the value of HBM absolutely continues to grow as we go from <unk> to <unk> 12 high of course that gives our customers an opportunity to attach more content to their gpus to their accelerators just by the sheer increase in the capacity.
Speaker Change: And then each SKU, 50% increase in capacity within each cube and.
Speaker Change: So overall the value of HBM continues to grow as well as we grow go from.
Speaker Change: A tie to 12 high and later on to HBM fall and in the future.
Speaker Change: <unk> E, having the optionality of customization as well.
Speaker Change: Thank you very helpful.
Speaker Change: Thank you and our next question comes from the line of Christine Lee from Citi. Your question. Please.
Speaker Change: Hey, Thanks, guys I guess, just a bigger question on on.
Speaker Change: On DRAM.
Speaker Change: Supply is going to equal demand next year.
Speaker Change: There is excess.
Speaker Change: Inventory out there.
Speaker Change: How is the market.
Speaker Change: We're going to do well and then as a portion of that you said that high end DRAM and HBM are leading edge DRAM and <unk> are doing well can you just define what leading edge or what percentage of the market that is and what's going to happen to the rest of the market. If it remains an oversupply.
Speaker Change: So again, yes, leading edge nodes.
Speaker Change: <unk> and <unk>.
Speaker Change: Tight supply and not only just HBM that is in tight supply, but LTE five DDR. Five. These are also built in leading edge nodes and these are all in tight supply and we see tight supply for the industry in 2025 as the HBM requirements increase that puts even.
More pressure on non HBM puts more pressure on the leading edge supply. So we see leading edge outlook remaining tight.
Speaker Change: Diet and favorable demand supply environment, and overall DRAM industry, we expect to be healthy keep in mind that we had pointed to not only multiple billions of dollars of <unk>.
Speaker Change: Revenue in 'twenty five.
Speaker Change: In our fiscal 'twenty five with HBM, but also.
Speaker Change: Multiple billion via pointed to multiple billions of dollars of revenue with high density <unk> and LP five solutions and just keep in mind that those are also very important.
Our products for the AI applications.
Speaker Change: HBM works closely with LP Fi and many accelerator platforms with respect to driving.
Speaker Change: The full potential of AI and of course overall.
Speaker Change: Overall, we see the demand environment.
Speaker Change: And vast majority of.
Speaker Change: Overall production as we have already noted in our prepared remarks is on leading edge nodes.
Speaker Change: Which are the odd one alpha and one beta an order today and then 2025.
Speaker Change: And to ramp our one gamma node as well yeah, Chris I would just add that.
Chris: As you mentioned inventories at the end of the year in your question that we currently project, our DRAM inventories total to be below our target levels.
Speaker Change: Got it Okay and then just.
Mark Murphy: Okay. Thanks, Mark and then as a quick follow up to that so what what gets the.
Speaker Change: Non leading edge DRAM market.
Speaker Change: Healthy again.
Speaker Change: Because it is still part of your business.
Speaker Change: Look I mean of course in all of our supply is mix is of course shifting toward more of the products that are needed in the marketplace and we are constantly managing our supply shift and of.
Speaker Change: Our production is more towards leading edge, while remaining disciplined with our capex and with our supply growth.
Got it thanks guys.
Speaker Change: Yes.
Speaker Change: Thank you and our final question for today comes from the line of tissue from Goldman Sachs. Your question. Please.
Speaker Change: Great. Thank you so much for taking the question I had two as well the first one is on China competition Sanjay you mentioned.
Speaker Change: LP for DVR for for the rest of the fiscal year is 10% of your business.
Speaker Change: What are your thoughts on their ability to compete and DDR five MLP five no.
In the near term, but as you think about the competitive landscape over the next call. It 18 to 24 months.
Speaker Change: Your thoughts in.
Speaker Change: How do you intend to respond to that.
Speaker Change: So our product mix of LTE for in DDS for which we have said is about 10% for the remainder of fiscal year 2005, We will of course continue to go down in the years ahead as well.
Speaker Change: And that just means that the <unk>.
Speaker Change: Our legacy.
Speaker Change: Mix continues to go down.
Speaker Change: The years ahead as well and.
Speaker Change: China competition is more in the lower performance.
Speaker Change: Products.
Speaker Change: This is more the lower end of the consumer market.
Speaker Change: Similarly in China, and just keep in mind that the markets are shifting more and more towards higher performance products and higher performance products certainly when you look at the market moving more to the data center market applications versus just the.
Speaker Change: Consumer and the mix of data center continues to increase that also requires more quality requirements.
Speaker Change: And.
Speaker Change: The platforms continued to move faster toward the requirements of advanced nodes. So these are all.
Speaker Change: And when you look at that I mean, those that have a long track record in leading edge nodes as well as leading edge products with strong performance low power.
Speaker Change: As well as higher quality than the leaders are better positioned in this regard so the competition that we see in China is more than the consumer side of the business and more on the lower end, whereas the market is shifting more and more toward the requirements of higher end such as in data center and that's where.
Speaker Change: Micron this focus with our technology and with our advanced product roadmap to address those parts of the market and again, that's where the highest pool of the profit of the industries and Thats, where we are shifting our mix as well.
Speaker Change: Great and then as my follow up.
Speaker Change: You talked about high capacity enterprise Ssds displacing.
Speaker Change: Your line Hdds over the next couple of years I know this is a view that you've held for a very long time I'm just curious if you've seen anything recently.
That would drive an acceleration in that trend.
Speaker Change: You mentioned in front end cost downs for you guys in fiscal 'twenty five being in the low teens.
Speaker Change: It seems pretty similar to what your peers in the drive business are doing so I'm just curious if anything has changed recently.
Speaker Change: Do you think about that dynamic. Thank you of course, we continue to work closely with our customers and it's really about the total cost of ownership.
Speaker Change: Ssds provide and ssds continue to make strong progress in that regard. It's about performance. It's about of course, followed its about the footprint all of that and of course cost is an important factor there and all of that translates.
Speaker Change: Into cost of ownership and we see that in the future.
Ssds will begin to displace hdds again working closely with customers in this regard and clearly we will continue to be a strong driver in this regard as well as we saw last year strong demand.
Speaker Change: I mean, the benefit last year I mean, as we saw earlier.
Speaker Change: In this calendar year, there was strong demand for data center SSD is driven by AI and all of those requirements.
Speaker Change: Our performance Bovver footprint will absolutely be required in the future Datacenters displacing ssds.
Speaker Change: Ssds will be displacing hdds, and we look at it as a phenomenon that is 2027 and beyond.
Speaker Change: Thank you.
Speaker Change: Thank you. This does conclude the question and answer session as well as today's program. Thank you ladies and gentlemen for your participation you may now disconnect. Good day.
Speaker Change: Okay.
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