Thank you for standing by, and welcome to Micron's Second Quarter 2025 Financial 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, Corporate Vice President, Investor Relations and Treasury. Please go ahead, sir.

Thank you, and welcome to Micron Technology's Fiscal Second 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 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, including demand for our products, our market share, market pricing and cost trends and drivers, our plans for manufacturing, the impact of developing technologies such as AI, product ramp plans, technologies and market position, expected capabilities of our future products, our planned investments and expenditures, our expected results and guidance, regulatory matters 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 documents we file 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 achievements. We are under no duty to update any of the forward-looking statements to confirm these statements to actual results. I will now turn the call over to Sanjay.

Thank you, Satya. Good afternoon, everyone. Micron is in the best competitive position in our history, and we are achieving share gains across high-margin product categories in our industry. Our strong product momentum has enabled us to build deeper customer relationships, and Micron's industry-leading products are now more firmly entrenched in our customers' high-value product roadmaps. In fiscal Q2, data center DRAM revenue reached a new record. HBM revenue grew more than 50% sequentially to a new milestone of over $1 billion of quarterly revenue. Our HBM shipments were ahead of our plans, demonstrating strong execution of our ongoing ramp. The combination of our revenue from high-capacity DRAM modules and our industry-leading LPDRAM for the data center also exceeded the $1 billion milestone for the quarter. Micron remains the only company in the world to ship low-power DRAM into the data center in high volume, showcasing our pioneering innovation and deep partnership with our customers for differentiated solutions. As we build on this momentum, we expect fiscal Q3 revenue to be another record for Micron, driven by shipment growth across both DRAM and NAND. We see the combination of AI data center demand and the ramp of HBM and its associated trade ratio contributing to tightness at the leading edge and constraining non-HBM DRAM supply. We expect supply actions announced by NAND companies to improve the dynamics in the NAND market. Micron's 1-beta DRAM technology leads the industry, and we are extending our leadership with the launch of our 1-gamma node and the industry's first shipments of 1-gamma-based D5 products last month. Micron's 1-gamma is our first DRAM node incorporating EUV, and we have achieved 20% lower power, 15% better performance and over 30% improvement in bit density compared to our 1-beta DRAM. Micron's leading-edge Gen9 NAND technology node delivers…

Thank you, Sanjay, and good afternoon, everyone. Micron delivered fiscal Q2 EPS above the guidance range and revenue and gross margin within the range. Total fiscal Q2 revenue was approximately $8.1 billion, down 8% sequentially and up 38% year-over-year. Fiscal Q2 DRAM revenue was $6.1 billion, up 47% year-over-year, and represented 76% of total revenue. Sequentially, DRAM revenue decreased 4%, with bit shipments decreasing in the high single-digit percentage range and prices increasing in the mid-single-digit percentage range as a result of improving portfolio mix. Fiscal Q2 NAND revenue was $1.9 billion, up 18% year-over-year and represented 23% of Micron's total revenue. Sequentially, NAND revenue decreased 17%, with bit shipments modestly higher and prices decreasing in the high-teens percentage range. Fiscal Q2 bit NAND bit shipments were above our expectations, driven by higher consumer-oriented shipments. Now turning to revenue by business unit. Compute and Networking business unit revenue was up 4% sequentially to $4.6 billion and reached 57% of our total revenue. For the third consecutive quarter, CNBU revenue reached a new quarterly record, driven by a more than 50% sequential increase in HBM revenue. Revenue for the Storage business unit was $1.4 billion, down 20% sequentially. Decline in SBU revenue was driven primarily by lower storage investments from data center customers after several quarters of very strong growth and overall NAND industry pricing. Mobile business unit revenue was $1.1 billion, down 30% sequentially, as mobile customers continue to improve their inventory positions. Embedded business unit revenue was $1 billion, down 3% sequentially. Lower sequential revenue was primarily due to inventory improvement initiatives at automotive customers. The consolidated gross margin for fiscal Q2 was 37.9%, down 160 basis points sequentially due primarily to pricing and consumer-oriented segments of the market, especially in NAND and NAND mix shift to consumer-oriented products,…

Thank you, Mark. Micron is uniquely positioned to capitalize on the transformative growth driven by AI from data center to edge devices. And we are on track for the record revenue and significantly improved profitability in fiscal 2025. We are confident in our ability to navigate the current market dynamics with disciplined investments and a focus on our high-value portfolio mix shift. This is the most exciting time I have seen for memory and storage, and Micron's innovations are at the forefront of this revolution. We are excited about the opportunities ahead and remain committed to delivering value for all our stakeholders. Thank you for joining us today. We will now open for questions.

And our first question for today comes from the line of Harlan Sur from JPMorgan.

Back in mid-February at an investor conference, I know the team had walked us through the dynamics on a weaker gross margin profile during the May quarter. That's playing out, but you did anticipate an improved gross margin profile beyond this quarter, fiscal Q3. So is that still the case that we should see gross margin improvements maybe starting in fiscal Q4 and potentially beyond? And is that a possible data center and your consumer-related products? Is that across total DRAM and your NAND segments? Any color here would be great.

Sure, Harlan, this is Mark. I'll take that. So let me just make some comments about the third quarter. It is down sequentially, as we had indicated in the conference. And again, as we said in the conference down primarily due to higher mix of consumer-oriented volumes, lower CQ1 pricing on consumer-oriented markets and industry and can just generally, all that partially offset by higher HBM. We do see -- while down, conditions have improved since those public comments. And the updated view is reflected in the guide today. Now we're not providing guidance on the fourth quarter. However, we do expect gross margin to be up somewhat. There's always tailwinds and headwinds. As you know, on tailwinds, we do expect market conditions to improve. We do expect HBM and other high-value products to grow and contribute to mix improvement. Some headwinds, we do see NAND underutilization as we talked about. And actually, since our capacity has come down structurally, we're going to see less of those costs in the third quarter on period and see more of those costs hit us as inventory clears in the fourth quarter. It's still -- we've taken actions to manage the NAND supply, and that's important, and that part of the business is still getting its legs back under it, but we intend to take price action in the second quarter calendar and just -- to maintain supply discipline. And then we are going to see in fourth quarter, the beginning of some start-up costs related to construction activities and new node in DRAM that we're working. So in short, we would expect fourth quarter margins to be up somewhat from third quarter.

I appreciate that. And then, Sanjay, you increased your industry bit demand outlook from mid-teens last earnings to mid- to high teens this quarter for calendar '25 for DRAM. I assume part of it is the HBM related dynamics as you increased your TAM outlook for HBM this year. But is the team seeing any other segments within DRAM that are driving the better industry, this demand profile as the year unfolds?

We had projected that customer inventories will get in a better place by spring time frame in the consumer side of the business. And it's turning out to be the way we had projected. And of course, the smartphone and PC markets are also seeing more and more devices that have AI implemented. That drives content growth. So as customer inventories got closer to healthier levels, we are seeing resumption of purchases by customers, and all that plays into our guide for 2025 bit demand. And as you noted, of course, data center continues to be strong. And in data center, of course, HBM is a strong contributor towards revenue growth in terms of bit demand growth for data center, of course, high-density DIMMs, as well as LP where Micron leads the industry, all of these actually contributing towards the demand increase in 2025 as well.

And our next question comes from the line Timothy Arcuri from UBS.

Mark, can you give us a little detail on the fiscal Q3 guidance? You're guiding revenue up about $750 million. How much of that is coming from DRAM versus NAND? And I know you said that bits are up in both. But can you give us a sense of how much bits are up in each of those 2 markets? And then I had another question as well.

Yes. Tim, we've provided you the consolidated revenue number. You have the year-to-date figures on both revenue and DRAM, our revenue and bit growth and price for both DRAM and NAND. And then we've provided you a demand growth for the year in bits. So I think we've provided you the contours of the business, and you should be able to make some volume and price assumptions on the revenue outlook. We do expect bit growth in both DRAM and NAND in third quarter.

Okay. But I guess, Mark, can you say that you expect revenue growth in both DRAM and NAND as well?

DRAM with the HBM and data center exposure will be -- the bias of growth will be there.

Okay. Cool. And then -- so Mark, I mean, obviously, everything you're doing here is great. I think the -- bugaboo obviously is -- margins are still a bit low, certainly into the fiscal Q4. So I guess I had like a 2-part question. One, I know you don't want to guide fiscal Q4 margins, but do you think you can get back to what you just did in fiscal Q2 in fiscal Q4? And I guess, broadly, when does this stuff clear and sort of we begin to see the true goodness flowing through from HBM and from all the cost downs you're doing on the non-HBM DRAM side? So sort of when do we start to get kind of a clean gross margin number, if you will?

Tim, we're not going to provide a fourth quarter number. We have indicated that fourth quarter gross margins would be up somewhat from third quarter. I think as Sanjay mentioned in the prepared remarks, we're in the best position we've ever been in on technology and market exposure products. Manufacturing is operating very well. On the cost side, maybe to help you with the modeling, our all in DRAM costs for fiscal year '25, we expect to be flattish. Our all-in NAND cost for FY '25, in line with front-end cost reductions in the low double-digits. So we are taking supply actions on the NAND side, consists of underloading, reducing CapEx, delaying node transitions, as we talked about. And we're beginning to see some signs of improvement on that part of the business. On the DRAM side of the business, we know the continued HBM growth and broader data center. And then the lead edge on DRAM is tight, and we're, again, projecting our DIO levels to be below our target by the end of the fiscal year.

And Tim, I'll just add that, of course, we continue to be focused on increasing the mix of our revenue towards higher profit pools of the industry, both in DRAM and NAND. So in terms of our product portfolio, as we have said, it is best positioned. So continue to drive the product portfolio and mix, focusing on, really strengthened profitability. And demand trends we have talked about, I mean we feel good about DRAM demand trend. And of course, in NAND, the supply discipline will be important. We, of course, are extremely focused on that. And AI is benefiting our DRAM demand across data center and edge as well. And of course, our technology position, our product position and our cost position continues to be healthy.

And our next question comes from the line of Krish Sankar from TD Cowen.

I have 2 of them, first, Sanjay or Mark. You've seen some of the memory prices improve of late. I'm just wondering how much of that is true end demand versus actually tariff-related pull-ins? And how sustainable do you think the industry pricing dynamics today are?

So of course, as we have indicated, the DRAM demand drivers as well as NAND on the consumer side of the business in smartphones, particularly in smartphones as well as in PCs are improving as the customers are getting closer to their normal inventory levels in the consumer market again, along the lines of what we had projected. PC, probably more second half of this year that we start seeing greater demand trend with respect to AI PCs and increasing penetration of AI PCs. AI PCs require greater DRAM content than what was in the past, we have talked about that last year, average 12 gigabyte in PCs and AI PCs with the NPU running at 40 tops or higher requires 16 gigabytes or higher. So these are good demand trends on the PC side and same thing happening on the smartphone side. You have seen several introductions and more of these are smartphones and more of them to be rolling out with AI smartphones that too have higher DRAM content greater than 12 gigabyte versus last year at 8 gigabyte. And of course, data center demand trend in DRAM continues to be strong as well. So all of this, I mean, first of all, demand trends are in a good place. And of course, on the supply side, leading-edge supply, as we mentioned in the prepared remarks, as well as Mark just mentioned, leading-edge DRAM supply is tight. And certainly, that is happening because of increasing demand for the HBM and HBM trade ratio. And on NAND, the supply actions by various players and underutilization in the fabs certainly is improving the supply picture as well. So all of this is improving the demand/supply environment in the industry. And of course, we are well focused on driving an inflection towards higher pricing in CQ2 and we are well positioned with our products across the end market segments. And we really look forward to continue to maximize the opportunities for our business and continue to increase the mix of our business toward higher profit pools of the industry.

Got it. Got it. Thanks, Sanjay. And then a quick question on the gross margin side. Clearly, HBM3E 8-high is obviously a mature technology as you move to 12-high in HBM4. Would the yields might be lower than 8-high? Just kind of curious, does it have any negative impact on gross margins? Or is it de minimis at this point?

First of all, in HBM3E 8-high, I'm very pleased with how our team has executed. And we mentioned in the prepared remarks that we actually delivered greater volume of HBM3E versus our plans in our FQ2 and exceeded revenue for the first time, a major milestone of more than $1 billion. And HBM3E continues to do well with 8-high, our yields, our capacity ramp is going well. Our execution is going well. And all that experience of 8-high in terms of capacity ramp as well as yield ramp will, of course, help us as we ramp our 12-high. You know, we have announced before that we are now in volume production with our 12-high. Just like any other new product, and these are highly complex products, HBM is the most complex product ever made in the industry. These kind of complex products, of course, in the early stages, there is a yield ramp. We expect 12-high to, of course, have a premium over 8-high and of course, will continue to be accretive to our DRAM margins nicely as well. And we remain very focused in second half shifting the vast majority of the second half of the calendar year, shifting the vast majority of our volume to 12-high. And as we ramp that volume, of course, yields will continue to go up as well. And with that, by the end of this calendar year, as we shared with you, we expect to reach our share to be in line with our overall industry DRAM share.

And our next question comes from the line of Joseph Moore from Morgan Stanley.

Great. I wanted to make sure I got the inventory targets right. So you're at 153 days and you'll be below the target model, which I think is 120 days in 2 quarters. And I guess if that's right that seems like a lot of reduction. Can you talk about how much volume do you need to do that? How much is the inventory kind of impacted by some of the HBM supply trends, things like that? Could you just characterize a little bit, how you reduce that much inventory?

Yes, Joe, it's Mark. So 158 days. I think it was the DIO in the second quarter. As we've talked about, conditions are tighter in DRAM than NAND. You've heard about the supply actions that we've taken on NAND. We have seen good volume growth there, and that is expected to continue. But the industry conditions are such that you've heard us talk about underutilization, reducing CapEx and delaying the node transition. On the DRAM side, as Sanjay mentioned, AI-driven growth and related to HBM and other product sets, but particularly HBM with the trade ratio is creating tightness in that market. And the target we have for inventories that we've stated before is 120 days, and we would expect to be below that on DRAM by -- in our fiscal fourth quarter.

Okay. Great. And did you guide inventory for this coming quarter with -- I assume that starts to come down now?

We just said that on days, that will go down through the year.

Our next question comes from the line of C.J. Muse from Cantor Fitzgerald.

I guess first question, I to follow up on gross margins, Mark, is there a point where we're thinking about the underutilization charges and the period cost into kind of May and August on the NAND side? And then is there also a way to think about the incremental construction cost as we go into August and November?

Yes. So CJ, the -- we had less period costs in our third quarter here than we had originally projected in part due to the fact that we've structurally brought down our capacity. And so more of the underutilization charge will go into inventories, and then that will flush through that way versus a period cost. Those period costs, I'd say the under-absorption costs do weigh on gross margins in fourth quarter and into '26. Now even with that, the combination of growth in the business, the improved market conditions and the mix improvements, those will, we believe, result in somewhat higher gross margins in the fourth quarter. As it relates to start-up costs, the effect is relatively small on a sequential basis, third to fourth quarter. But as we approach wafer outs in Idaho, that number will increase through '26. And so we'll provide more color on that as our plans and timing is finalized.

Very helpful. And a quick follow-up. You revised your HBM industry revenue outlook higher. Curious if there's a framework on how you're thinking about kind of first half versus second half for the industry?

Of course, the revenue in the second half as you go from 8-high to 12-high continues to go up because 12-high will be carrying a certain premium over 8-high. So if we have projected more than $35 billion for calendar year 2025 and a bigger portion of that in second half of calendar '25 versus first half. And more than $35 billion, of course, is the industry TAM for HBM that we have referred to here. And I'll just point out that, of course, with respect to HBM, there is expansion of HBM customer base taking place. Micron itself, now we are shipping to a third large customer that we have begun shipping our products to. So that also is contributing to the growth in HBM revenue in the second half as the customer base expands.

And our next question comes from the line of Chris Caso from Wolfe Research.

Yes. First question is with regard to the lower end of the market. And -- if you could tell us about what the exposure is, particularly on DRAM side, LP4 and DDR4. And I guess as you start to see growth in HBM, get some normalization in some of the consumer markets as you go to the second half of the year, I guess, is that going to be kind of -- have a de minimis effect on revenue and margins as you go into the second half?

So regarding D4 and LP4, last quarter in our earnings call, we had shared that our revenue from those products, LP4 and D4, for the remainder of the fiscal year, we have said at the time, corresponds to about 10% of our total company revenue. So we continue to see that for the remainder of the fiscal year. And your second question is that -- can you repeat the second question?

Yes. It's just -- does that have a de minimis effect on margins? I guess the point is, does that cease being a drag on margins as you go into the second half as other parts of the business grow?

I mean it is a smaller part of the overall company revenue. And it is -- I mean, we are, of course, leading in D5 and HBM. And D5 based and LP5-based product in data center as well as other parts of the consumer markets. So of course, LP4 and D4 will continue to become smaller over time. And just keep in mind that, overall, industry conditions in DRAM are improving from the point of view of DRAM demand drivers and the supply tightness. And that can also play some role in the overall dynamics of all parts of the DRAM market.

As a follow-up on HBM, what you said in the past is you sold out for the year. But yet, your TAM assumptions have moved higher for the past several quarters. As we look into next year, presumably, the higher TAM this year translates to higher TAM assumptions as you go to next year. Are -- do you still have the capability to increase your capacity to maintain that market share in HBM, which is equal to our overall share of DRAM as you go into next year?

So of course, we have said that as we exit calendar '25, our share in HBM will correspond to our industry DRAM shares. So if you look at that run rate, I mean, clearly, in calendar year 2026, our share would be higher for the full year basis versus 2025. And we remain very focused on continuing to increase our capacity of HBM. I mentioned earlier that we are doing executing quite well in terms of continuing to increase the capacity, continuing to shift from 8-high to 12-high, very much focused on bringing HBM4 into the market next year and, of course, addressing all the capacity needs related to that as well. So while we are not projecting 2026 market share at this time, we feel very good about our HBM position, our close relationships with our customers, our execution on our technology and products and our manufacturing overall.

And our next question comes from the line of Chris Danely from Citi.

Thanks. So if we look at the May guidance and then just going back the last 3 quarters, your revenue is between $7.8 billion and $8.8 billion per year. And the last time that happened was about 3 years ago, that was the last upturn but your gross margins were 10 points higher. So why are gross margins -- because depreciation hasn't changed that much? Why are gross margins like 10 points lower at essentially the same revenue base? And does this mean that we can forget about your gross margins ever going to the 50s again? Or maybe give us a path to getting them back there, if you think that that's conceivable?

Overall, our gross margins in DRAM have been healthy and again, supported by our strong technology and product positions based on our D5 products, LP5 products, HBM products. NAND is what has weighed down on our margins. And of course, we have continued to focus. And NAND, it is because of the overall industry environment and overall industry demand/supply imbalances. And so of course, both in DRAM and NAND, it's always a function of demand/supply environment but also very much a focus of ours on increasing the mix of the business towards high-value solutions. And that's what we continue to do in NAND as well. And as we see a greater supply discipline, we would certainly fully expect that NAND fundamentals would improve in the industry as well. Of course, it's important to maintain the focus on sustained supply discipline there as well. So as we look ahead, we -- as we have pointed out, that we remain very focused on continuing to strengthen the mix of our revenue, mix of our products in the business towards higher-margin products, both in NAND and DRAM, continue to focus on product portfolio strength, managing demand supply very closely and managing our technology development and ramp into production closely to make sure that our supply and demand is well aligned and of course, very much focused on overall costs as well. And with that, we are certainly optimistic here that the structural overall with the industry that the improvements will occur in the business fundamentals.

Thanks, Sanjay. Just 1 brief follow-up on that. So you talked about increasing the mix to higher-value solutions. And then in the commentary and also in the press release, you said that part of the reason that the gross margin was lower was this increasing consumer exposure. And your NAND actually was down a lot more than DRAM. So are you seeing increased consumer exposure in DRAM? And why is that happening? And how do we -- or how do you guys change that?

Well, first of all, we are doing well in data center and our mix of business in data center for DRAM, as we have pointed out, continues to increase. And we have leadership products in DRAM with data centers, including, not just HBM, but we have also talked about when we just announced -- SOCAMM products, these are important products. So doing well with respect to DRAM. On the consumer side, of course, over the last few quarters, there was overhang of customer inventory on the consumer side, and that was there in DRAM as well. And as that customer inventories get closer to normalization along the lines of what we have said before, of course, along with the AI drivers in consumer devices, we see a strong bounce back particularly in smartphones with respect to demand. And that's causing actually overall HBM trade ratio as well as a strong bounce back in the consumer demand is causing tightness in leading edge as well. And of course, these fundamentals of demand and supply enable us to drive inflection in pricing higher in CQ2 timeframe. And same thing on the NAND side that supply actions that have been taken in the industry as well as consumer inventories -- on the -- customer consumer inventory is getting normalized, is bringing back demand on the NAND side as well. And of course, we'll be driving inflection in pricing higher on the NAND side as well in CQ2.

And 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.