Thank you for standing by, and welcome to Micron Technology's Fiscal Third Quarter 2024 Financial Results Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now, I'd like to introduce your host for today's program, Satya Kumar, Investor Relations. Please go ahead, sir.

Thank you, and welcome to Micron Technology's fiscal third quarter 2024 financial conference call. On the call with me today are Sanjay Mehrotra, our 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 the prepared remarks for this call. Today's discussion 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. We encourage you to visit our website at micron.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 MicronTech. As a reminder, the matters we are discussing today include forward-looking statements regarding market demand and supply, market and pricing trends and drivers, the impact of new technologies such as AI, product ramp plans and market position, our expected results and guidance, and other matters. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made today. We refer you to the documents we filed with the SEC, including our most recent Form 10-Q and the upcoming 10-Q, 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 achievements. We are under no duty to update any of the forward-looking statements to conform these statements to actual results. With that, let me turn the call over to Sanjay.

Thank you, Satya. Good afternoon, everyone. I am pleased to report that Micron delivered fiscal Q3 revenue, gross margin, and EPS, all above the high end of guidance ranges. Micron drove robust price increases as industry supply-demand conditions continued to improve. This improved pricing, combined with our strengthening product mix, resulted in increased profitability across all our end markets. In data center, rapidly growing AI demand enabled us to grow our revenue by over 50% on a sequential basis, and we grew share in high-margin AI-related product categories such as HBM, high-capacity DIMMs, and data center SSDs. Our mix of data center revenue is on track to reach record levels in fiscal 2024 and to grow significantly from there in fiscal 2025. Robust AI-driven demand for data center products is causing tightness on our leading-edge nodes. Consequently, we expect continued price increases throughout calendar 2024 despite only steady near-term demand in PCs and smartphones. As we look ahead to 2025, demand for AI PCs and AI smartphones and continued growth of AI in the data center creates a favorable setup that gives us confidence that we can deliver a substantial revenue record in fiscal 2025, with significantly improved profitability underpinned by our ongoing portfolio shift to higher-margin products. Micron is ramping the industry's most advanced technology nodes in both DRAM and NAND. Over 80% of our DRAM bit production is now on leading-edge 1-alpha and 1-beta nodes. Over 90% of our NAND bit production is on our two leading-edge NAND nodes. 1-gamma DRAM pilot production using extreme ultraviolet lithography is progressing well, and we are on track for volume production in calendar 2025. Our next-generation NAND node is on track, with high-volume production planned for calendar 2025. We experienced some operational disruptions after the recent Taiwan earthquake but were able…

Thanks, Sanjay, and good afternoon, everyone. Micron delivered strong results in fiscal Q3 with revenue, gross margin, and EPS above the high end of the guidance ranges provided in our last earnings call. Improving market conditions and strong price and cost execution drove the financial outperformance. Total fiscal Q3 revenue was $6.8 billion, up 17% sequentially and up 82% year-over-year. Fiscal Q3 DRAM revenue was approximately $4.7 billion, representing 69% of total revenue. DRAM revenue increased 13% sequentially, with bit shipments declining in the mid-single-digit percentage range and prices increasing by approximately 20%. Fiscal Q3 NAND revenue was approximately $2.1 billion, representing 30% of Micron's total revenue. NAND revenue increased 32% sequentially, with bit shipments increasing in the high single-digit percentage range and prices increasing by approximately 20%. Now turning to revenue by business unit. Compute and Networking Business Unit revenue was $2.6 billion, up 18% sequentially. DRAM data center revenue more than doubled year-over-year. Revenue for the Mobile Business Unit was $1.6 billion, down 1% sequentially as a planned decline in volume was partially offset by improved pricing. Embedded Business Unit revenue was $1.3 billion, up 16% sequentially driven by record revenue in automotive. Revenue for the Storage Business Unit was $1.4 billion, up 50% sequentially with growth across all end markets. We achieved record data center SSD revenue, which nearly doubled sequentially. The consolidated gross margin for fiscal Q3 was approximately 28%, up over 8 percentage points sequentially driven primarily by higher pricing and helped by product mix and cost reductions. Excluding the effects of previously written-down inventories on fiscal Q2 gross margin, the sequential improvement in fiscal Q3 would have been 15 percentage points. As a reminder, previously written-down inventories had no impact on fiscal Q3 gross margin and will not affect our gross margin moving forward.…

Thank you, Mark. I want to close by commending our team in Taiwan for their response to the significant earthquake in fiscal Q3. In many ways, that response exemplifies Micron, an agile, prepared team that assesses and reacts quickly, supported by a brilliant network of colleagues around the globe. That collaboration, planning, discipline, and experience are precisely what ensures Micron is so well positioned today. I look forward to our teams accelerating Micron's memory and storage leadership as AI solutions present increasing opportunities to provide greater value, from data centers to the edge. Thank you for joining us today. We will now open for questions.

Certainly. And one moment for our first question. Our first question comes from the line of Krish Sankar from TD Cowen. Your question, please.

Yes. Hi. Thanks for taking my question. I have two questions. Sanjay, the first one. It's on HBM. Clearly, you're gaining traction in HBM3E. I'm just curious how the HBM3E is, and how is the qualification going beyond one customer? Last time, you publicly said that you're qualified at NVIDIA's H200. I'm kind of curious, how is it going with the B100 for NVIDIA? And also, along the same path, your competitors spoke about pulling in the timeframe for HBM4 versus the regular 18-month cadence for HBM technology transit system. So, basically, I'm curious, Sanjay, any comment on HBM3E? Call a different customer, timing of HBM4 would help. Then I have a quick follow-up.

So, let me start off by again pointing out that we delivered over $100 million in revenue in fiscal Q3 with our HBM3E. And I'm very pleased with our team's focus on this and delivering this number. And note that this was margin accretive to our overall margins, but also to our DRAM margins. And of course, we remain very much focused on delivering several hundred million dollars in fiscal 2024 for HBM revenue. And as I noted, multiple billion dollars in revenue. And in HBM, we are very much focused on continuing to ramp our production and also to improve our yields. And that is, of course, an important priority. And any new product that is as complex as HBM or any new technology node always has a yield ramp, and the team is extremely focused on that. So, as we look ahead to 2025, we remain confident in our ability to deliver our market share consistent with DRAM share some time in 2025. And again, very pleased with Micron's strong product of HBM3E that, as I noted, has been well recognized by our customers to have 30% better power than any competitor's product that is out there. Now, regarding your question on qualifications, of course, we are in qualifications with other customers as well. And as I noted in my remarks, that in 2025 timeframe, we expect to be broadening, diversifying our customer base as well. And HBM4, I mentioned in my remarks that we have a strong roadmap ahead for HBM4 and HBM4E. And we feel very good about our capabilities there, the roadmap that we have in front of us, and our ability to deliver leadership with HBM4 and HBM4E as well.

Got it. Thanks, Sanjay, for that. Another quick follow-up, on NAND, in this -- on the NAND bit demand, you kind of mentioned that the bit growth -- demand bit growth is going to be in the high teens. If I remember right, last quarter, you said it's going to be in the low 20%s. So, I'm kind of curious, what was the delta since last few months ago? Because there's a general view that AI should be helping NAND. So, why is the NAND bit demand growth not going higher? Looks like it's going lower. Thank you.

So, what I would tell you, Krish, is that there is really not much of a difference between the CAGR that we shared last time versus the CAGR we shared here. And I'll also tell you that we basically revised the base year for the CAGR that we used. So, this time, the CAGR that we used, we used the base year of 2023. And in 2023, as you know, we had a bit demand growth in NAND that was higher, meaningfully higher than the CAGR. So, that, of course, the larger base of 2023 just somewhat changed our outlook on the overall CAGR. But you're absolutely right to note, as we have also highlighted, that data center SSDs are a good growth demand driver. And I'll just provide you some color. The data center, automotive, and industrial, these are all growing faster in terms of NAND demand versus the CAGR that we have shared. Client, mobile, and consumer somewhat slower. But these slow-growing segments actually have also average capacity increases ahead of them. As I gave you examples of AI PCs and AI smartphones driving content growth. And we have just conservatively planned for this, perhaps. And we will continue to assess the average capacity growth in smartphones and PCs in the times ahead. And it's important that the CAGR that we highlight here, this is what we use for our capacity planning. And we want to, of course, always remain disciplined with respect to our capacity planning and very much focusing on demand-supply balance and ROI.

Got it. Thanks a lot, Sanjay. Very helpful. Thank you.

Thank you. And our next question comes from the line of Vivek Arya from Bank of America Securities. Your question, please.

Thanks for taking my question. Sanjay, you mentioned a 3x trade ratio of HBM to D5. What happens to this ratio as you go to higher stacks, 12-high or more? And on the other hand, what happens as you make yield improvements? Just overall, is 3x still the operative assumption for calendar '25? And just what are the puts and takes around this ratio?

Yes, I mean, I think for HBM3E, 3x here is the operative guidance here with respect to the trade ratio. And again, just keep in mind that this already accounts for the larger die that exists with HBM3E given its performance and packaging and overall product expectations, as well as, of course, with the 8-die stack, as well as the logic die in there, the mature yield expectations there as well. And as the yield will be ramping up for us, of course, we will be able to get the benefit on the lower cost as we go forward. But with mature yields, the trade ratio with HBM3E is about 3 times over the mature yields of D5 in the same technology node. And as you go up to HBM4, of course, the trade ratio, as we have said before, increases and goes higher than 3x. And as you go up from 8-die stack to 12-die stack in HBM3E, of course, 12-die stack will have somewhat lower mature yields as well. That's just the nature of how device yields work. And -- but the operative guidance, I think, remains still 3x for HBM3E and greater than that for HBM4, inclusive of the assumption of mature yields. And, of course, our assumption of mature yields here is world-class mature yields.

Got it. And a quick follow-up, maybe for Mark. So, you're suggesting fiscal '25 could be a record in terms of sales. Why can't it be a record in terms of gross margins? What are the puts and takes of gross margins as we go into next year? So, maybe give us some sense of what incremental margins can be. Let's say sales are up $5 billion or $10 billion year-on-year, just so we can level-set our model from a gross margin perspective. Thank you.

Yes, Vivek, we're happy to take that. We're not providing fiscal year '25 guidance yet. I can talk about some sequential improvements from here. Of course, we guided a 600 basis point increase gross margin guidance between third quarter and the guide and fourth. And, yes, that's driven by price, but also mix is beginning to become a more substantive factor in the sequential gross margin expansions. We see November quarter, we see gross margin expansion continuing up a few hundred basis points. Again, price is a factor, but also, as a fourth quarter mix, participating in the -- or contributing to the increase. And that's the effect of HBM and high-capacity DIMMs and other higher-value products. We do expect through fiscal '25 for price to continue to increase, and we expect this favorable mix effect to continue to increase. You've seen very clearly in the third quarter and our fourth quarter guide, the strength in data center, and we see that growth continuing. And then later in the year, we see replacement cycle for smartphone and PC. And then the associated content with AI picking up. So, we expect that to, again, second half of the calendar year in the early '25 for that to kick in. Then on the supply side, you've got just tight conditions. You've got structurally lower capacity in the industry. Inventories are trending down, which we believe ours will trend down through fiscal '25 to close to our target by the end of '25. And then just the HBM trade ratio, which Sanjay just commented on. And then, of course, I talked about in the sequential gross margin, talked about the mix that we see in the business with our higher-value products, which are HBM, high-capacity DIMMs, SSDs, which we've talked about. So, the momentum is very strong. We've got technology leadership. We've got the best product position the Company's ever had. And the manufacturing is operating very well. So, well-positioned for fiscal '25.

Thank you.

Thank you. And our next question comes from the line of Toshiya Hari from Goldman Sachs. Your question please.

Hi. Thank you so much for taking the question. I had two as well. The first one on HBM, I guess recently there have been a couple of reports about you all having some yield issues. Just based on your commentary, it didn't sound like you were having these issues, but just wanted to clarify that. If you could address that, that would be really helpful. And then on HBM, the second part is, so gross margins are intuitive to overall corporate margins today. What are your thoughts on sort of relative profitability going into the second half of the year and into calendar '25, particularly given the fact that you have pretty good visibility as it pertains to HBM pricing?

So, regarding the yield, I think I already commented that we are pleased that in the very first quarter of production, we were able to ship over $100 million of HBM revenue. And we remain focused on our goals and remain confident about our goals of delivering several hundred million dollars of revenue in fiscal '24 and a multiple hundred billions of dollars of revenue in fiscal '25 and getting to our share to be in line with -- our share for HBM to be in line with our DRAM share sometime in 2025. So, of course, our yield assumptions are baked in in all of that. And we look to continue to work on all aspects of ramping up our capacity. And, of course, we expect to improve yields as we go forward. Again, that is typical of any new technology, any new product that you ramp up. So, that's what we remain focused on. And regarding the gross margin comment, maybe Mark can add some color. But as I mentioned earlier, the gross margin is accretive not only for -- to our corporate margins, but it is also accretive to our DRAM margins. And our DRAM margins, as you know, tend to be higher than our corporate margins, which are lower because of the lower margins in NAND, generally in the industry.

It is helping to drive continued gross margin expansion through '25.

Okay. Got it. That's helpful. And then as my follow-up, maybe one for Mark on CapEx. So, you're guiding fiscal year '25 up materially, given some of the hints that you've provided, maybe you're looking at a mid-teens billion dollar number for fiscal '25. I know more than half of that or half of that is coming from the greenfield investments in the U.S., but how should we be thinking about your bit supply growth in fiscal '25 or calendar '25? Should we expect you guys to grow more or less in line with the demand CAGR you have for DRAM and NAND, mid-teens and high-teens respectively, or do you expect to undershift relative to those ranges in fiscal '25? Thank you.

Yes, we -- good questions, Toshiya. And your view on CapEx, we've given enough that we don't want to guide revenue for '25 because we -- we'll do that at a future date by quarter. But we do expect a material increase year-over-year. For the quarter, sequentially, we'll see a meaningful step up, and we were at $3 billion, we increased from $2.1 billion to $3 billion third quarter to fourth quarter guide. I would characterize that both on a dollar and percent basis as more than meaningful, so it would be less than that sequentially. But we are spending more. Yes, to your question on, we are very constrained on bits, bit production, and so we will -- as I mentioned in my earlier comments, we will certainly see inventory levels come down. In fact, we expect to be approaching target inventory levels by the end of 2025.

Thank you.

Thank you. And now our next question comes from the line of Thomas O'Malley from Barclays. Your question, please.

Hi, guys. Thanks for taking my question. This is for Sanjay or Mark. So, you've given us the fiscal year '25 kind of Company guidance of several billion in HBM. And then you've kind of talked about the share that you're getting to is equivalent to that of DRAM. So, you kind of saw for that market low teens, total HBM market. I just kind of want to understand, what's your view of the suppliers to that market? As it stands today, it seems like there's really two major suppliers. When you look at the out year, do you think that number changes if there is additional qualifications? Would that number change if you were to have a third qualification, aka, the market be bigger? And how did you kind of come up with that total market number? Is that kind of a bottoms-up accelerator forecast? But just kind of how you're thinking about the market. And did that change or is it contingent upon qualifications of some of your competitors?

Well, as we have said before, that we see the CAGR for HBM growth, in terms of bit growth CAGR to be well above 50% over the next few years. So, certainly, HBM is a strong growth driver. And again, as we increase our mix of HBM going forward, it will of course be continuing to be accretive to our financial performance, including margins. And we are pleased that with the strong performance that we have, we are sold out for '25 as well, with a overwhelming part of our output already committed in terms of pricing. So, that points to a strong position that we have in terms of continuing to work toward achieving our goal of getting to our HBM market share to be in line with DRAM share sometime in 2025. And of course, we are working with a broad range of customers, in qualifications, and next year we plan to be shipping to broader set of customers. Having said all of that, no question that HBM is a complex product for our customers to qualify as well. It's highly resource intensive, not just for us, but for our customers as well. And this is where we think that our strong product position, highlighting again those attributes of 30% better power than nearest competitor, and a better performance, and really high quality here positions us well when customers work with those resource-intensive qualifications for Micron. And that's what we are already seeing in terms of our engagement. So, we feel pretty good about our plans here for HBM.

Super helpful. And then just switching gears over to the NAND side of things. Obviously, you had a competitor out in the market talking about kind of run rate industry CapEx and kind of talking about the change in industry architecture, maybe not scaling as quickly or as capital intensively as you had in the past. You obviously are talking about CapEx. A lot of your CapEx next year is going towards greenfield and HBM. Could you talk to the remainder of that CapEx? Could you give us any color on DRAM or NAND split between that? And then do you agree with, in this instance, it was Western Digital talking about capital intensity longer term on the NAND side? Do you agree that maybe structurally you'll see a lower investment threshold in the future to kind of continue to maintain what the industry needs?

So, for us, certainly, our CapEx is dominated by our DRAM-related CapEx. That's certainly HBM because it's growing as mixed in the industry and HBM is capital intensive when it comes to unique clean room requirements for HBM and in packaging and assembly as well as test equipment. So, our CapEx is dominated by that, as well as to meet the future requirements in the second half of this decade. And that involves the construction of the fab. So, NAND CapEx is certainly a much smaller portion of our total CapEx. And we have a very strong technology position with our NAND and strong portfolio that you see. And we are continuing to shift that portfolio toward higher-value solutions as well. So, we certainly will remain extremely disciplined when it comes to NAND as well in terms of driving the CapEx. And we will be disciplined in terms of driving our technology node transitions in the timing of node transitions across the industry. I think it is certainly helpful given the bit growth that you get from those transitions to slow down the timing of those -- the cadence of those node transitions so that your bit growth CAGR versus the gain of bits that you get from the wafers can be managed well. These are the kind of things we are very much focused on in order to maintain a good supply discipline, maintain supply growth that is very much in line with the demand growth, and managing our CapEx here prudently. But yes, I mean overall our CapEx is -- in NAND is significantly smaller, but we remain extremely disciplined, focused on managing our supply growth in line with demand there. And again, I want to point out that with NAND, technology transitions are sufficient to meet the demand growth. We do not need the new clean room, the new greenfield fabs, the kind that are needed in DRAM. And HBM and the trade ratio of HBM with standard DRAM is a factor in the greenfield requirements only, also.

Thank you. One moment for our next question. And our next question comes from the line of Christopher Danely from Citi. Your question, please.

Hi, thanks, guys. So, I think you mentioned you are signing up some customers to long-term contracts. Given your belief that the pricing is going to keep going up, why sign people up to long-term contracts and potentially miss out on some of the increased pricing? Or is there some potential for wiggle room on pricing with the contracts and it is more of a unit basis? Just curious there.

Well, the long-term contracts really help us and customers get closer, not only with respect to, let's say, supply or pricing discussions as may be relevant to our various customer contracts, but also with respect to the technology roadmap, the product roadmap, the timing of the supply. And they are very helpful factors in building a close relationship with the customers. And you can see that we are pointing to a substantial revenue record in 2025, of course leveraging some of these contracts that we have put in place. And we have also pointed to a significant improvement in profitability. So, I think we are well positioned in these contracts with respect to not only the supply and demand fundamentals, but also with respect to the financial aspects.

Great. Thanks, Sanjay. And then just a quick one for Mark. Mark, was the Taiwan quake impact limited to the May quarter, or is it impacting the current quarter as well?

Not a material impact, Chris.

It was just May. All right. Thanks.

Thank you. And our next question comes from the line of Harlan Sur from JPMorgan. Your question, please.

Good afternoon. Thanks for taking my question. Enterprise SSDs are seeing really strong demand pull from AI workloads, right? The team has driven significant share gains in enterprise SSD just over the past few quarters. I think in calendar Q1, I think Micron was the number three global share leader in enterprise SSD. I think it's now about 20%, 25% of the overall NAND business. I mean, this is a position that we've never seen Micron in before. So, I think first question is, are enterprise SSD gross margins accretive to your overall NAND gross margins? And then secondly, I saw your next-gen PCIe Gen5 SSD demo at NVIDIA's GTC conference. Pretty significant performance uplift on AI workloads versus your Gen4 SSDs. So, are you qualifying these next-gen Gen5 SSDs for AI applications? When do you expect to shift? Just wanted to understand the sustainability of your strong share position here.

Well, thank you, Harlan, for recognizing the strong momentum that Micron's data center SSD have. And certainly, our data center SSDs are accretive to our overall NAND margins. And we have really great products. I already highlighted in my prepared remarks that we saw tripling of bits that we shipped with our 32-layer NAND AI SSDs going absolutely toward AI data center applications. And we have a broad set of customers that we are working with in terms of growing our share. So, we see -- when we talk about sequentially, we had 50% increase in revenue for our data center products, of course, that includes the benefit of our strong data center SSD roadmap. And yes, I mean, we will, of course, continue to work with our Gen5 SSDs in terms of working with customers for qualifying and not prepared to discuss, at this point, specifics regarding timing of some of the roadmap that is in front of us for shipments. So, yes, in terms of sustainability of the strong improvement to share, we are definitely with our strong product portfolio counting on it. And this will -- our SSD momentum, data center SSD momentum, will absolutely contribute also toward my remarks that I said that we will increase our mix of data center revenue in fiscal year '25 as well. Of course, HBM, high-density DIMMs, these will, of course, be a big part of it. But also, data center SSDs is going to be another big part of our growth in fiscal 2025 related to data center revenue.

So, I would just add, Harlan, that the storage business unit delivered operating profit in the quarter.

Perfect. Thank you very much. Insightful.

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.