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DATE
Wednesday, June 25, 2025 at 4:30 p.m. ET
CALL PARTICIPANTS
Chairman, President, and Chief Executive Officer — Sanjay Mehrotra
Chief Financial Officer — Mark Murphy
Vice President, Investor Relations — Satya Kumar
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TAKEAWAYS
Total Revenue: $9.3 billion (non-GAAP) for Q3 FY2025, up 15% sequentially (non-GAAP) and 37% year over year (non-GAAP), setting a quarterly record.
DRAM Revenue: $7.1 billion (non-GAAP) for Q3 FY2025, increasing 51% year over year in fiscal Q3 and comprising 76% of total revenue; DRAM bit shipments increased over 20% sequentially (non-GAAP), while prices decreased in the low single-digit percentage range for DRAM (non-GAAP).
NAND Revenue: $2.2 billion (non-GAAP) for Q3 FY2025, up 4% year over year in fiscal Q3 and 16% sequentially (non-GAAP), with NAND bit shipments increased in the mid-20s percentage range, and prices declining in the high single-digit percentage range for NAND (non-GAAP).
Business Unit Revenue: Compute and Networking $5.1 billion (up 11% sequentially), Storage $1.5 billion (up 4% sequentially), Mobile $1.6 billion (up 45% sequentially), Embedded $1.2 billion (up 20% sequentially).
Gross Margin: 39%, increasing 110bps sequentially (non-GAAP) and exceeding guidance by 250bps in fiscal Q3, driven by better-than-expected pricing (non-GAAP).
Operating Income and Margin: Operating income reached $2.5 billion in fiscal Q3, with a operating margin of 26.8%, up approximately 190bps sequentially (non-GAAP) and 13 percentage points year over year in fiscal Q3.
EPS: Non-GAAP diluted earnings per share were $1.91 for Q3 FY2025, up 22% sequentially (non-GAAP) and over 200% year over year (non-GAAP).
Free Cash Flow: Exceeded $1.9 billion (non-GAAP) in free cash flow, the highest quarterly result in over six years.
Inventory: Ending inventory was $8.7 billion (139 days), down $280 million and 19 days sequentially due to strong bit shipment growth.
Liquidity: Ended Q3 FY2025 with $12.2 billion in cash and investments and $15.7 billion in total liquidity including credit facilities.
Q4 Outlook: Guidance midpoints are revenue of $10.7 billion (+15% sequential growth expected) for Q4 FY2025 (non-GAAP), gross margin of 42%, operating expenses around $1.2 billion, tax rate 13%, and non-GAAP EPS of $2.50 (±$0.15).
Strategic U.S. Investment: Announced a $200 billion U.S. investment plan, comprising $150 billion in manufacturing and $50 billion in R&D over the next twenty-plus years, including a second leading-edge Idaho fab (ID2) and significant Boise and Manassas expansions.
HBM Leadership: HBM revenue increased nearly 50% sequentially in fiscal Q3, Micron has a "more than $6 billion" HBM run rate as of Q3 FY2025 (non-GAAP), and expects HBM share to reach overall DRAM share in second half of calendar 2025.
Technology Update: First qualification sample shipments for one gamma-based LPDRAM were completed; the one gamma DRAM node provides 30% higher bit density compared to one beta DRAM, more than 20% lower power compared to one beta DRAM, and up to 15% higher performance than one beta DRAM.
HBM4 Progress: Delivered HBM4 samples to multiple customers in CY2025, expecting volume production ramp in CY2026, with bandwidth >2TB/s per stack (60% faster than prior generation) and 20% lower power than HBM 3e 12-high product.
Data Center SSD Share: Achieved record market share in data center SSDs for the third consecutive quarter in calendar Q1 2025 and is now the number two brand in data center SSDs.
Capital Expenditures: Fiscal 2025 capital spending remains at approximately $14 billion, with a focus on HBM, facility construction, backend manufacturing, and R&D investments.
SUMMARY
Micron Technology, Inc. (MU -0.52%) delivered Q3 FY2025 financial results with revenue, gross margin, and EPS all above guidance ranges (non-GAAP), underpinned by exceptional growth in AI-driven demand for memory and storage products. Management executed a strategic business unit reorganization to align more directly with accelerating AI opportunities across market segments. The company announced an incremental $30 billion in U.S. investments as part of an approximately $200 billion long-term plan over the next twenty-plus years, supporting advanced manufacturing and R&D expansion. Product roadmap execution advanced with key one gamma DRAM and HBM4 sampling milestones, while ongoing HBM ramp resulted in a record revenue run rate in Q3 FY2025 (non-GAAP) and earlier-than-anticipated share gains. Guidance for the next quarter (Q4 FY2025) anticipates continued record revenue and profitability on a non-GAAP basis, with DRAM supply expected to remain tight as customer demand remains robust.
Mehrotra stated, our HBM is sold out for calendar year 2025, and anticipates HBM bit demand growth will "significantly exceed" overall DRAM demand in CY2026.
The consolidated gross margin increase in Q3 FY2025 (non-GAAP) was attributed primarily to "better-than-expected pricing" and favorable DRAM product mix.
An end-of-life transition for D4 and LP4 products is underway, with Micron now allocating remaining D4 supplies; D4 revenues constitute a low single-digit percentage of total revenue in the second half of FY2025 (non-GAAP).
One gamma DRAM node yield ramp is ahead of the already improved one beta ramp, indicating further manufacturing gains.
NAND wafer capacity will be structurally reduced by 10% by the close of FY2025, as part of a disciplined transition to next-generation nodes.
Management emphasized that leading-edge NAND is fully utilized, while parts of legacy NAND remain underutilized following capacity reductions.
The first Idaho fab (ID1) targets DRAM wafer output in the second half of 2027, with the second Idaho fab (ID2) scheduled to begin production before New York's fab start.
Micron is focusing new R&D and manufacturing expenditure on supporting high-bandwidth memory (HBM) and advanced DRAM, with CapEx increments aligned with greenfield capacity builds and upcoming node transitions.
INDUSTRY GLOSSARY
DRAM: Dynamic Random Access Memory, volatile semiconductor memory delivering high-speed data access.
NAND: Non-volatile memory used primarily for storage applications like solid state drives.
HBM: High Bandwidth Memory, a fast, vertically stacked memory architecture used in advanced computing platforms.
QLC NAND: Quad-Level Cell NAND, a type of flash storage that stores four bits per cell to increase data density.
LPDRAM/LP5X: Low-Power DRAM/Low-Power DDR5X, memory technologies optimized for high-performance, energy-efficient applications, particularly in mobile and data center sectors.
D4/LP4/D5/LP5: DRAM generational designations (DDR4, LPDDR4, DDR5, LPDDR5), marking progressive improvements in speed, power efficiency, and density.
HBM3e/HBM4: Successive HBM technology generations offering increasing bandwidth and performance for AI and high-performance computing.
Node (One Beta, One Gamma, G9, G8): Refers to specific DRAM or NAND manufacturing process generations, each delivering advances in density and power efficiency.
Full Conference Call Transcript
Satya Kumar: Welcome to Micron Technology, Inc.'s fiscal third 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 the prepared remarks for this call. Before we begin, let me remind everyone that today's discussion contains forward-looking statements that are subject to risks and uncertainties. These forward-looking statements include statements regarding our future financial and operating performance, including our guidance, as well as trends and expectations in our business, market, industry, regulatory, and other matters.
These statements are based on our current assumptions, and we assume no obligation to update these statements. Please refer to our most recent financial report on Form 10-K and our other filings with the SEC for more information on these risks and uncertainties that could cause actual results to differ materially from expectations. 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 LinkedIn, X, and YouTube. I will now turn the call over to Sanjay Mehrotra.
Sanjay Mehrotra: Thank you, Satya. Good afternoon, everyone. Micron Technology, Inc.'s strong competitive position and solid execution delivered record revenue in fiscal Q3, with revenue, gross margin, and EPS all exceeding the high end of our guidance ranges. Data center revenue more than doubled year over year and reached a record level, and consumer-oriented markets had strong sequential growth. We generated substantial free cash flow in the quarter even as we continue to make strategic investments critical to sustain long-term growth. I am thankful to all our Micron team members for their focus and execution, which made these results possible. In fiscal Q3, DRAM revenue reached a new record driven by a nearly 50% sequential growth in HBM revenue.
We remain the sole supplier in volume production of LPDRAM in the data center. In NAND, we achieved a new quarterly record for market share across data center SSDs as well as client SSDs in calendar Q1. For the first time ever, during calendar Q1, Micron has become the number two brand by share in data center SSDs according to third-party data. Looking ahead to fiscal Q4, we see a robust demand environment and expect to grow revenue by 15% sequentially to a record $10.7 billion at guidance midpoint. In June, we completed a strategic reorganization of our business units around key market segments to capitalize on the tremendous AI growth opportunity ahead.
As high-performance memory and storage become increasingly critical to enabling AI-driven innovation, this new structure enhances Micron's ability to engage more deeply with customers by shifting more resources to AI-focused opportunities across our portfolio. We are making excellent progress on our one gamma DRAM technology node, with yield ramping ahead of the record pace we achieved on our one beta node. We completed several key product milestones during the quarter, including the first qualification sample shipments of one gamma-based LPDRAM. Micron's one gamma DRAM leverages EUV, and the node provides a 30% improvement in bit density, more than 20% lower power, and up to 15% higher performance compared to one beta DRAM.
We will leverage one gamma across our entire DRAM product portfolio to benefit from this leadership technology. In NAND, we reached a record high mix of QLC bits in the quarter. We started qualifications for new high-performance SSD products based on our G9 two-terabit QLC NAND, and we continue to ramp our G9 node at a pace consistent with demand. We are making disciplined investments in our global operations network to add to supply in line with demand over time. Two weeks ago, with support from the Trump administration, Micron announced plans to invest approximately $200 billion in the U.S., which includes $150 billion in manufacturing and $50 billion in R&D over the next twenty-plus years.
As part of this $200 billion investment plan, Micron plans to invest an additional $30 billion beyond previously announced plans, which includes building a second leading-edge memory fab in Boise, Idaho, expanding and modernizing our existing fab in Manassas, Virginia, serving the automotive, aerospace, defense, and industrial markets, and bringing advanced packaging capabilities to the U.S. to support our long-term HVM growth plans after we have established sufficient DRAM wafer scale in our U.S. operations. We are pleased with the strong endorsement we received for our technology, products, and investment plans from our customers and ecosystem partners as part of this announcement. Our first Idaho fab, ID1, achieved another key construction milestone in June.
We expect first DRAM wafer output at ID1 to begin in the second half of calendar 2027, with customer qualifications to follow. The second Idaho fab, ID2, will benefit from manufacturing economies of scale with ID1 and adds to R&D colocation benefits with greater efficiencies and faster time to market. To meet anticipated demand, ID2 will begin production before the first New York fab. We expect to begin ground preparation in New York later this year, following the completion of state and federal environmental reviews. Turning to our end markets, in data center, we expect the CY25 server market to grow mid-single digits percentage in units, largely driven by significant growth in AI servers.
In fiscal Q3, data center DRAM revenue reached a new record for the fourth consecutive quarter, driven by strong growth and share gains in HBM, and robust performance by our industry-leading portfolio of high-capacity DIMMs and low-power server DRAM products. We are executing well on our HVM brand and product development roadmap. Our yield and volume ramp on HBM 12i is progressing extremely well, and we expect shipment crossover in FQ4. We expect to reach HBM shares similar to our overall DRAM share in the second half of calendar 2025. At AMD's Advancing AI event earlier this month, we announced that Micron's HVM 3e 36 gigabyte MI355X 12 high has been designed into AMD's Instinct GPU platform.
We are now shipping HBM in high volume to four customers spanning both GPU and ASIC platforms. As generative AI workloads grow in size and complexity, the performance demands on HPM continue to rise. Micron's HBM4 leverages our well-established one beta DRAM technology, along with an internally developed and manufactured advanced CMOS logic-based die, delivering bandwidth exceeding two terabytes per second per memory stack, over 60% higher performance than the previous generation. Additionally, Micron's HPM4 offers a 20% lower power consumption compared to the already industry-leading power performance on our HVM 3e 12 high product, setting new benchmarks in power efficiency for this product category.
The expanded interface for HBM4 facilitates rapid communication and a high throughput design that accelerates the insulin and splat performance of large language models and chain of thought reasoning systems. Micron has delivered samples of HBM4 to multiple customers and plans to ramp volume production in calendar 2026 aligned with our customers' plans. We are exceptionally well positioned for the ramp of HBM4. Building on the success of our HBM 3e ramp, we have high-quality, field-proven technology and have executed a robust and significant ramp in our HPM manufacturing capacity. We have deep relationships with practically every major customer of HPM and have earned their trust with our execution, delivering the world's lowest power, highest performance HBM.
Our portfolio of high-capacity DIMMs and low-power server DRAM solutions delivered another record revenue quarter. Micron has pioneered the adoption of LPDRAM for servers, and we continue to maintain our sole source position for LP in server. Together, our high-capacity DIMM and LP server products have already generated multiple billions of dollars in revenue in fiscal 2025, reflecting a remarkable fivefold growth compared to the same period in the previous year. During calendar Q1, for the third consecutive quarter, Micron achieved a record for data center SSD market share driven by our portfolio of differentiated products, enabled through vertical integration.
In fiscal Q3, our data center 95.5 performance SSD, which is on the NVIDIA GB200, NVL 72 recommended vendor list, completed additional customer qualifications at multiple OEMs. Micron's 9,550 SSDs provide an industry-leading performance and energy-efficient Gen five data center storage solution for AI server systems. We continue to qualify additional customers and ramp revenue for our 65,550 ION 60 terabyte capacity SSDs. Turning to PC, we expect PC market units to grow in the low single-digit percentage range in calendar 2025. In the quarters ahead, key catalysts for growth include the increasing adoption of AI-enabled PCs and the Windows 11 upgrade cycle. Micron is focused on bringing differentiated high-performance products to the PC market.
Our strong SSD portfolio resulted in Micron achieving a high client SSD market share in calendar Q1. Tomorrow, we will be announcing our new G9 QLC two-terabit based SSD featuring our proprietary adaptive write technology, which enables 4x faster write performance. This technology expands the addressable market for QLC SSDs by delivering performance equivalent to TLC NAND for most consumer use cases. Turning to mobile, we expect smartphone units to grow low single digits in calendar 2025. AI adoption remains a key driver of DRAM content growth for smartphones, and we expect more smartphone launches featuring 12 gigabytes or more compared to eight gigabytes of capacity in the average smartphone today.
Micron is focused on providing solutions to the high-end smartphone segments, leveraging our leading one beta and one gamma technology nodes for LP5x DRAM and G8 and G9 technology nodes for our UFS four NAND products. During the quarter, we began shipping qualification samples of the industry's first LP5X memory built on the one gamma node, offering a wide range of capacities and industry-leading speed grades for 2026 flagship smartphones. Micron's one Gamma LP5X DRAM is engineered to accelerate AI applications in high-end devices, delivering over 25% faster recommendations across several use cases while reducing power consumption by 20%, all in an ultra-thin form factor ideal for mobile.
In NAND, we secured a key customer design win and ramped high-volume production of our G9-based UFS4 products. The strength of our mobile portfolio was further recognized through top quality awards from seven smartphone OEMs during the quarter. Turning to automotive, industrial, and consumer embedded markets, we expect increasing adoption of L2 and three ADAS features and AI-enabled in-vehicle infotainment systems to drive memory and storage content growth as well as higher bandwidth requirements. Micron is positioned for long-term success in the automotive market, with new product introductions, such as the industry's first one beta dual-channel LP5 DRAM, with high-speed 9.6 gigabits per second support, which achieved production readiness during the quarter.
In industrial, we are seeing a resumption in our growth as customers increase their investments for the adoption of AI, including in key areas like factory automation. Micron is driving price improvements with a market backdrop of constrained D4 and LP4 supply and low distributor channel inventory. Now turning to our market outlook. Customer inventory levels have been healthy overall across end markets, and there may have been some tariff-related pull-ins by certain customers. Our customers continue to signal a constructive demand environment for the remainder of this calendar year, and we remain agile to adjust to any unforeseen demand changes that may occur due to macro conditions or the evolving tariff-related situation.
We expect CY25 industry DRAM bit demand growth to be in the high teens percentage range and industry NAND bit demand growth to be in the low double-digit percentage range. We expect Micron's bit supply growth to be below industry bit demand growth for non-HBM DRAM and NAND. Over the medium term, we anticipate industry bit demand growth of mid-teens CAGR for both DRAM and NAND. As previously communicated, our efficient node conversions will result in 10% structurally lower NAND wafer capacity ending fiscal 2025 versus the end of fiscal 2024 levels. Additionally, given NAND technology transitions provide a significant increase in overall bit output, Micron plans to manage our node conversions at a measured pace consistent with our demand.
Recent press reports have discussed the end of life of D4 and LP4 products. Micron's leading-edge DRAM nodes, such as one beta and one gamma, are focused on the latest generation products such as D5, LP5, and HBM, and are not utilized to produce D4 and LP4. D4 and LP4 products are largely produced in our one alpha DNEM node. Micron has sent EOL notices for these products to customers in high-volume segments like mobile, client, data center, and consumer, several months ago with final shipments occurring in two to three quarters from now. This EOL process is similar to prior transitions from one generation of memory to another and consistent with history.
Micron intends to support its longevity customers with long-term and relatively lower volume requirements in segments like automotive, industrial, defense, and networking with the supply of these one alpha DRAM products. In the near term, customers in the high-volume segments are starting to see increasing shortages of D4 products. We are now on allocation for these products and are working with customers to try and support their high-priority near-term demand. D4 revenues are a low single-digit percentage of our revenues in the second half of fiscal 2025. We anticipate LP4 shortages may also increase as a result of EOL. In closing, Micron's record revenue performance and strong Q4 outlook are the results of our strategic focus and consistent execution.
As AI drives unprecedented demand for high-performance memory and storage, Micron is exceptionally well positioned to capitalize on this transformative era. Our leadership in technology, highlighted by progress in HBM, one gamma DRAM, and G9 NAND, alongside disciplined global manufacturing investments, supports our path to sustained growth. We are confident that our strategic direction, innovation capabilities, and the execution by our exceptional team will continue to create meaningful value for our shareholders, customers, and employees. We are on track to deliver record revenue with solid profitability and free cash flow in fiscal year 2025, while we invest to build on our leadership to address growing AI-driven memory demand.
I will now turn it over to Mark for our financial results and outlook.
Mark Murphy: Thank you, Sanjay, and good afternoon, everyone. Micron Technology, Inc. delivered strong results in fiscal Q3 with revenue, gross margin, and EPS all above the high end of the guidance ranges provided in our last earnings call. Total fiscal Q3 revenue was $9.3 billion, up 15% sequentially and up 37% year over year, and a quarterly revenue record for Micron. Higher sequential revenue was driven by growth across our end markets, including record data center revenues, and strong sequential growth in consumer-oriented markets. Fiscal Q3 DRAM revenue was $7.1 billion, up 51% year over year and represented 76% of total revenue.
Sequentially, DRAM revenue increased 15% with bit shipments increasing over 20% and prices decreasing in the low single-digit percentage range, primarily due to a higher consumer-oriented revenue mix. Fiscal Q3 NAND revenue was $2.2 billion, up 4% year over year and represented 23% of Micron's total revenue. Sequentially, NAND revenue increased 16%, with bit shipments increasing in the mid-20s percentage range and prices decreasing in the high single-digit percentage range. Now turning to revenue by business unit. Compute and networking business unit revenue was $5.1 billion, up 11% sequentially and a quarterly record. This performance was driven by a nearly 50% sequential increase in HBM, along with growth in our high-capacity DRAM and low-power server DRAM.
Revenue for the storage business unit was $1.5 billion, up 4% sequentially. This growth was primarily driven by an increase in consumer-oriented revenue. Mobile business unit revenue was $1.6 billion, up 45% sequentially. Sequential revenue growth was due to reduced customer inventories and strong demand from DRAM content growth. Embedded business unit revenue is $1.2 billion, up 20% sequentially, supported by growth in industrial and consumer embedded markets. Consolidated gross margin for fiscal Q3 was 39%, up 110 basis points sequentially and up 250 basis points versus the midpoint of our guidance. Gross margins were above the high end of our guidance range, primarily due to better prices for both DRAM and NAND, partially offset by a higher consumer-oriented mix.
Operating expenses in fiscal Q3 were $1.1 billion, up $87 million quarter over quarter and in line with our guidance range. The increase was primarily driven by higher R&D investments and labor-related costs. We generated operating income of $2.5 billion in fiscal Q3, resulting in an operating margin of 26.8%, up approximately 190 basis points sequentially and up 13 percentage points year over year. Fiscal Q3 taxes were $306 million on an effective tax rate of 12.3%, lower than our guidance due to the effects of one-time discrete items in the quarter.
Non-GAAP diluted earnings per share in fiscal Q3 was $1.91, above the high end of the guidance range, with 22% sequential growth and up over 200% versus the year-ago quarter. Turning to cash flows and capital spending. In fiscal Q3, our operating cash flows were over $4.6 billion, and our capital expenditures were $2.7 billion. Free cash flows in the quarter were over $1.9 billion, the highest quarterly amount in over six years. Ending inventory fiscal Q3 was $8.7 billion or 139 days. Inventory was down $280 million sequentially, and inventory days were down nineteen days sequentially, driven by strong sequential bit shipment growth in both DRAM and NAND.
On the balance sheet, we held a record $12.2 billion of cash and investments at quarter end and maintained $15.7 billion of liquidity when including our untapped credit facility. During fiscal Q3, we refinanced our 09/2027 notes with $1.7 billion in new notes maturing in fiscal years 2033 and 02/1936. We closed the quarter with $15.5 billion of debt, maintaining low net leverage and a weighted average debt maturity of 02/1932. Now turning to our outlook for the fourth fiscal quarter. We expect our revenue growth to be weighted towards DRAM, supported by robust pricing execution, favorable product mix, and continued cost improvements, all of which benefit gross margins.
Operating expenses for fiscal Q4 are projected to be approximately $1.2 billion, with the sequential increase primarily driven by planned R&D investments in future technology nodes and HBM product development. Our fiscal 2025 capital spending plans remain unchanged at approximately $14 billion. The overwhelming majority of the fiscal 2025 CapEx is to support HBM as well as facility construction, back-end manufacturing, and R&D investments. We expect the fiscal Q4 tax rate of around 13%. As previously disclosed, our fiscal 2026 tax rate is expected to be in the high teens percentage range following Singapore's adoption of the Global Minimum. Any impacts that occur due to potential new tariffs are not included in our guidance.
With all these factors in mind, our non-GAAP guidance for fiscal Q4 is as follows. We expect revenue to be $10.7 billion plus or minus $300 million, gross margin to be in the range of 42% plus or minus 100 basis points, and operating expenses to be approximately $1.2 billion plus or minus $20 million. We expect our fiscal Q4 tax rate to be around 13%. Based on a share count of approximately 1.15 billion shares, we expect EPS to be $2.5 per share plus or minus $0.15. With another quarter of shipment growth forecasted in fiscal Q4, we expect to exit fiscal 2025 with tight DRAM inventories, significantly reduced NAND inventories, and overall company DIO near our target levels.
With low inventories on hand and a constructive demand environment, we will continue to focus on improving pricing and further strengthening our product mix. In fiscal Q3, Micron Technology, Inc. delivered earnings above the guidance range, achieved record revenue, and continued ramping our industry-leading HBM. We also began transitioning to a new market segment business unit structure. Starting in fiscal Q4, we will report revenue, gross margin, and operating margin metrics across these new business units. With strong execution and a differentiated product portfolio, Micron is well positioned to maintain our leadership and to deliver record revenue and significantly improve profitability once again in fiscal Q4. Thank you for joining us today. We will now open up for questions.
Operator: Certainly. And as a reminder, ladies and gentlemen, if you do have a question, please press 11 on your telephone. And our first question comes from the line of Timothy Arcuri from UBS. Your question, please.
Timothy Arcuri: Thanks a lot. Sanjay, I wanted to ask sort of how you see the HCM TAM scaling with the accelerator TAM? One thing that's been clear over the past three months or so is that the accelerator TAM is definitely upsiding and growing a lot. And it seems if I take their projections and I take your HBM projections, it kind of seems like the HBM market is going to remain 15 to 20% of what the overall accelerator market is. I guess, how do you see the HPM TAM scaling with that market?
And then is there some sort of limit or, like, asymptote that we begin to reach in terms of HPM attached to these GPUs and these custom ASICs?
Sanjay Mehrotra: So with respect to HPM growth, we certainly see that HPM demand grows in the future. I will tell you that in this year, you look at calendar year '25, HBM is growing from last year about $18 billion in revenue to approximately $35 billion in calendar year '25. We see in calendar year '26, if you look at HVM bit demand growth, it will significantly exceed the overall DRAM industry demand growth. And, of course, you know, the transition from eight high to 12 high in HBM, in '26, transition to HBM four as well, which is even a higher value product.
All of that, essentially, bodes well in terms of the value of HBM and you know, the overall need for HBM in these accelerator platforms that are, of course, evolving fast. And of course, our customers are very much focused on working with us and looking at their platforms assessing the mix of 12 high and HBM4. And then when we look at 27, that goes into HBM-4E, 28 starts introducing customization in HBM as well. So the trajectory of HBM in terms of the value proposition in these accelerators continues to be strong and healthy. And of course, we are well positioned. As we shared with you, we have already begun to sample our HPM four products.
And, you know, these, again, we plan to maintain our leadership with respect to specifications here. And we have certainly a capacity ramp up as well. So we remain excited about HVM. We see this as clearly a strong growth driver, as well as a value driver for our business.
Timothy Arcuri: Thanks a lot, Sanjay.
Operator: Thank you. And our next question comes from the line of Vivek Arya from Bank of America Securities. Your question, please.
Vivek Arya: Thanks for taking my question. I wanted to talk about gross margins. So first, what is driving the upside sequentially? And then is this the new baseline for gross margins? And then what would be kind of the puts and takes as we look at the next few quarters beyond Q4?
Mark Murphy: Yeah. Vivek, it's Mark. So in the third quarter, I think maybe start with what happened in gross margin in the third quarter. We had a strong sequential volume growth in the quarter. But versus the guide, the defining factor was we had prices were down, I said in the opening comments, but we had better than expected pricing that drove the margin improvement versus expectations. I will add too that we had good cost performance and all. But certainly, the price was better than we had expected. Now that carries on into rebaselining on the fourth quarter. So we provided an indication of the fourth quarter before when the market was in transition.
And we said at that time that the inventory outlook that we would was improving when it had weakened a bit late last year. And, yeah, we had intended to work to inflect price. And as you know, a few weeks later, the situation with Liberation Day, tariffs, the environment got a bit more challenging. Yeah. The condition of the market is better than expected since then. And it strengthened through the quarter. You saw that outperformance. And then, you know, we have executed well. And so what you see here from this rebaseline of the business you see, yeah, us add to that through favorable mix Q3 to Q4. That's more DRAM growth than NAND.
So you have favorable mix there. And then more data center than consumer-oriented mix, was weighing down the margins in the third quarter. So, so it's, again, it's a continued good market backdrop. We're gonna continue to focus on pricing. But third quarter to fourth quarter, we have favorable mix effects. That is helping drive margins up to the current guide of 42%.
Vivek Arya: And anything beyond this, Mark? Any, you know, puts and takes as we look at the next several quarters? Is this kind of the new baseline, or is it going to be entirely dependent on the, you know, direction of pricing?
Mark Murphy: Yeah. I we're not going to provide Q1 guidance. We are positive on the trajectory of the business. The market environment does remain constructive, particularly in DRAM versus NAND. You know, again, we're focused on pricing and making sure to put our bets in the right places. As we said in the prepared remarks, our inventories are very tight. Particularly on leading edge and then now even pockets of you know, some of the legacy and DRAM. So, you know, we're going to have, you know, some bit constraints going into first quarter but we're going to mix to DRAM you know, higher value DRAM and higher value NAND products. And, and so we think gross margins can be up.
Vivek Arya: Thank you. Thank you.
Operator: And our next question comes from the line of C.J. Muse from Cantor Fitzgerald. Your question, please.
C.J. Muse: Yes. Good afternoon. Thank you for taking the question. I was hoping to revisit your comments on HBM. So you're talking 23%, 24% market share. And it sounds like you're now calling not exiting the year, but sometime in the second half. So that's coming in better. And so I guess, you know, first question is, should we be thinking that number is kind of a two three depending, I guess, on seasonality of the $35 billion number. And then perhaps more importantly, as you think about HBM growth in calendar twenty six, how should we be thinking about the contributions to that growth, both from bits as well as higher ASPs as you go to next-generation products?
Thanks so much.
Sanjay Mehrotra: C.J., I didn't quite understand the question around 02/02/2023. What exactly did you say there?
C.J. Muse: Just trying to understand how you talked about getting to your DRAM market share, which I think you said 23, 24%. For the HBM market, and your previous comments were exiting the year. Now you're saying sometime in the second half. So trying to get an idea of kind of what that revenue number looks like.
Sanjay Mehrotra: You know, we are already at you know, if you look at our performance, you know, based on f Q3, you know, we are already at more than $6 billion run rate here, you know, with our HVM. And certainly continuing to ramp up our HBM output shifting production to 12 high HPM as well. So yes, it could be that, you know, compared to what we said before in terms of toward the end of the calendar year, we expect to get to our HPM share in line with our DRAM share.
So versus that, it could be that we do end up getting to our industry share for in line with industry share for HPM share, earlier than that. So it could be. And that's really absolutely based on our very, very strong execution. And strong execution in terms of output, in terms of yield ramp. We noted that our 12 high yield ramp is actually going faster than our eight high yield ramp. Of course, built on all the learning that we have had. The team has done an excellent job with capacity ramp as well. All of that is contributing to our strong performance on HBM.
Extremely pleased with where we are and extremely pleased with not just execution and our ability to ramp up yield and capacity successfully and build in the process trust with the customers. We're very pleased with the roadmap that is ahead for us for the HPM as well. So, I mean, these are things that will obviously play an important role in calendar year '26 as we work closely with the customers to understand where overall mix requirements for 2026.
C.J. Muse: Thank you.
Operator: Thank you. And our next question comes from the line of Thomas O'Malley from Barclays. Your question, please.
Thomas O'Malley: Hey, guys. Thanks for taking the questions. Two here. So my first on the on the HVM you're obviously reaching your share target a little bit earlier. Going into next year, are you guys ready to talk about what you think that your normalized will be? Obviously, there's difficulties with some of your competitors. Getting qualified. If that continues into next year, do you guys have a view of if you're able to increase capacity? And if you are, what that share may look like? And then two, on the NAND side, where does utilization stand today? And, obviously, you're going through some bit transitions right now. Internally, which has allowed you to kinda you know, keep some things offline.
But as you move into next year, what is your plan for utilization? Is that gonna be market dependent? Or at some point, do you need to start bringing on utilization just from the fact that there's a gross margin headwind? Thank you.
Sanjay Mehrotra: So as I said, we are very pleased that we are executing well. And with what we told you several quarters ago, in terms of our shared objectives with HPM, that we are going to be able to achieve that goal for this year. In the second half of twenty-six. Now our HBM is really at scale. It has, you know, healthy share, and we are successfully delivering. So, you know, going forward, of course, this becomes like part of our overall product portfolio. And just like we managed the rest of the portfolio with respect to Total Eye on ROI and profitability. And, of course, HPM really positions us very well with respect to our profitability objectives.
We will of course continue to manage the mix of our products in the portfolio, including that of HBM, including you know, the share that sometimes can move around in different parts of the end market segments that we address. So I think that's how you have to look at it. Overall, really very pleased with our HBM products, 12 high, as well as HBM four, built with our well-proven one beta technology, which also gives us cost-effective benefits, and of course, the packaging technology, well established, and the company, of course, has been investing and expanding our HBM back-end capacity as well.
You know, we have talked about investments in Singapore, bringing assembly and packaging capacity there in line, starting production and targeting that for the 2027 timeframe. And I will tell you that HBM, given that it uses our well-proven one beta technology, is really fungible capacity with the rest of the portfolio as well. So this gives us plenty of flexibility in terms of managing our business, and extremely focused on really meeting customers' requirements and continuing to deliver. And enhance our product capabilities to meet their growing requirements.
And your second question around NAND in terms of utilizations, so we have said before that toward the end of fiscal twenty-five, our NAN overall capacity would be down versus the end of fiscal twenty-four by about 10%. And that's the structural reduction in capacity. And of course, as we have discussed before, that structural reduction was implemented to achieve capital-efficient next node transition for us, like G9, node transition. So as that capacity has come down, of course, our underutilization has come down as well, although part of NAND continues to remain underutilized. I must note here that of course leading edge of NAND is fully utilized.
Thomas O'Malley: Thank you, Sanjay.
Operator: Thank you. And our next question comes from the line of Harlan Sur from JPMorgan. Your question, please.
Harlan Sur: Hey, good afternoon. Thanks for taking my question. If I rewind back one year ago during your June earnings call, you guys did say back then that you were sold out in your H supply through calendar twenty-five and that the majority of that committed supply was locked in from a pricing perspective. One year later, you know, where are you on your negotiations for your calendar twenty-six HPM supply? And pricing discussions, the team's supply outlook for year fully committed to or maybe a better way to frame it. Right?
Because I know that the HPM three e and HPM four twelve high qualification cycles might be taking a bit longer, but maybe the other way to frame it is if you look at your customer's calendar '26 forecasted demand for HBM, is it exceeding your forecasted supply capability?
Sanjay Mehrotra: You know, with respect to HBM in 2025, yes, very pleased that what we told you back a year ago, we are continuing to deliver on that, as I said earlier. And, yes, our HVM is sold out for 2025. And as I mentioned earlier, we are working closely with our customers as their platforms, AI accelerated platforms you know, both with GPUs as well as with ASIC are continuing to evolve and move fast. And, you know, they themselves are on overall their supply chain requirements and product mix with respect to HBM, 3e, 12 high, as well as HPM four.
So we continue to work with the customers those, and, you know, we are still in the middle of '25 and for 2026, as I said earlier, we see with respect to bit demand growth, strong trend in 2026, bid demand growth for HBM significantly exceeding DRAM demand growth. And of course, we have a strong product roadmap and we are working on continuing as we said, we sampled HVM4, focused on getting these products qualified with the customers, and HBM three e 12 high is already in volume productions and doing very well with our yield ramp there as well.
So very much focused on addressing the '26 needs for the customers and executing well and remaining extremely focused on our execution for 2026.
Harlan Sur: Thanks, Sanjay.
Operator: Thank you. And our next question comes from the line of Joseph Moore from Morgan Stanley. Your question, please.
Joseph Moore: Hey, thank you. I wonder if you could talk in terms of your long-term CapEx plans and to sort of 35% of revenue levels, is that kind of a reasonable guideline to think about for fiscal twenty-six? Or are you thinking because of the opportunity here, need to invest ahead of that?
Mark Murphy: Thank you. Yeah. Joe, I mean, we have a generational tech transition opportunity in front of us. That Micron is exceptionally well positioned for. And we've talked about inventory levels for some time now. Getting leaner, especially being very tight on the leading edge. And with the silicon requirements of HBM and the trade ratio, you know, we need to build greenfield capacity. So that's underway. If you look at our CapEx forecast, yeah, we had a little bit lower CapEx than we expected in the quarter at 2.7, but you'll see by the guide that we're going to see that CapEx increase in the fourth quarter. So we stuck with our approximately $14 billion number.
I think as we go forward, we're continuing to build out the greenfield capacity and there'll be equipment installs on the new nodes. You know, there's grants involved in construction. So the timing of that spend can be a bit lumpy. But, you know, we anticipate generating free cash flow in the fourth quarter. And yes, you will see, you know, we'll just continue to build out our capacity. I do want to note that, you know, we continue to make steps to improve the balance sheet further in the quarter. We're down net debt now down to $3 billion.
We further reduced maturities in the short end of the maturity schedule taken out the $900 million 2027 notes and issuing 1.75 further out and we continue to be in a great position with a flexible balance sheet to, you know, invest in the business, make sure we maintain technology leadership, and then, you know, return capital to shareholders through dividend and opportunistic buyback.
Joseph Moore: Great. Thank you, Pekora.
Operator: Thank you. And our next question comes from the line of Chris Sanker from TD. Your question, please.
Chris Sanker: Yes, hi. Thanks for taking my question. I had two questions for Sanjay or two-part question. One is, when you look into HBM four, given the double IO count and two silicon via what kind of trade ratio should we expect for HPM four? And also, when you look at, broadly speaking, is there a difference in HBM bits and margin profile between selling to GPU versus ASIC customers? Thank you.
Sanjay Mehrotra: With respect to HVM four, its trade ratio is greater than three, for HVM-3E, previously we have shared that trade ratio is approximately three, and HVM four has a higher trade ratio than three. It has a larger die size. And of course, as you noted, has higher performance, we shared 60% higher performance, you know, given the high bandwidth interface that this has. And you know, HBM four e will have a ratio that would be even greater. So as we have shared with you in the past, that as we are going from HPN 3e to four to 4e, the trade ratio is going from about three. Towards four in that time frame.
So, of course, this puts HVM trade ratio and both of the HBM absolutely puts a pressure on the non-HBM supply in the industry as well. And with respect to your question on the margin difference, GPU versus VSAIC, of course, HPM commands high value whether it's in GPU accelerators or ASIC based accelerators, and that value proposition is only growing. You know, when you look ahead over the years, the content that the future generation GPUs or ASIC platforms that could be out there of HBM continues to is expected to continue to increase as well.
We have shared with you in the past that going from about 200 to 188 gigabytes in GPU accelerators today, as well as in the ASIC based accelerators in that range going to higher levels as we go from eight high to 12 high, capacity. So don't so value proposition is strong, both for GPU accelerators as well as ASIC accelerators, and of course, we don't get into the specifics. Or differentiating the two here.
Chris Sanker: Thanks, Sanjay.
Operator: Thank you. And our next question comes from the line of Chris Caso from Wolfe Research. Your question, please.
Chris Caso: Yes, thank you. So just to clarification on one of the things you said in the prepared remarks. You talked about there may have been some tariff-related pull-ins by certain customers. I think overall, your comments suggest that you at least my interpretation is that you think that the customer inventory levels are getting a bit cleaned up here. Could you clarify the remarks a little bit put it in context of what you expect, that means for customer levels and, you know, how that kinda affects your view of bit demand in the second half?
Sanjay Mehrotra: Yes. As we said, customer inventory levels have been healthy overall across our end markets. You know, some customers may have some level of tariff-related pull-ins. We think the impact of that is relatively modest here, and customers definitely continue to signal a constructive demand environment for the remainder of the calendar year. And of course, the demand trends are driven by strength in AI-driven data center demand. Know, coming back in the automotive industrial, resumption of growth there, as well as distribution channels. And as we have discussed, smartphone and PCs you know, really, as AI penetration increases, the content and key story is there intact, for AI smartphones as well as PC.
We provided some details in our script there. So we see a constructive demand environment as our customers discuss with us. And again, the effect of the pull-in is relatively modest here. Our growth in Q3 as well as our you know, exceptional record for FQ4 guidance, is really driven by Micron's strong in the growing market for AI.
Chris Caso: Got it. Thank you.
Operator: Thank you. And our final question for today comes from the line of Vijay Rakesh from Mizuho. Your question, please.
Vijay Rakesh: Yeah. Hi, Sanjay and Mark. Just a quick question on the, x v m four. Just wondering how the qualification is progressing. And you know, if you if you continue to see that similar power performance leadership that you guys have had on HPM three e, you see that continuing on the HPM four side as well? Thanks.
Sanjay Mehrotra: So we have, you know, provided early units to our customers. We have sampled the products. To our multiple customers with h v m four. Really, very pleased with the execution and all the specs that we see our HVM4 delivering. As I mentioned, not only performance, but we plan to continue to focus on that power a strong power position that we which is critically important in AI applications that we have established with our HBM portfolio as well. So, of course, the qualifications, the qualifications are ahead of us, and we will be ready to meet customers' demand in the 2026 time frame. So HBM in terms of volume ramp is a 2026 product.
Meeting the timeline requirements of customers with their next-generation platforms that will be implementing the HPM four products. I want to again remind you that h b m four uses are well-proven, cost-effective, one beta technology node. And of course, it has internal advanced CMOS logic die internally developed and in internally manufactured advanced CMOS logic die, which positions us well as well.
And all of our experience of HPM 3E ramp up, we are going from 3EE, 12 high, to h b m c e going from, sorry, going from h b HPM three e eight high to HPM three e high, we told you that ramp is going extremely well with our yields ahead of our plans, output ahead of our plans, as well as yields faster than the ramp that we had experienced in ATHI. All of that gives us confidence and positions us well for HBM four ramp as well. So we feel very, very good about our overall capabilities to address the h p m four markets in 2026.
Vijay Rakesh: Got it. And on the SSD side, just quickly, with your focus on AI servers, are you seeing an accelerated pull through on the AI server side for SSDs as well? Thanks.
Sanjay Mehrotra: So, you know, we had mentioned on the data center side in SSDs in late Q4, of calendar twenty-four, as well as early part of calendar twenty-five, you know, there had been some inventory digestion. For the data center SSDs given that prior to this period that I just mentioned, there was a very strong demand growth for SSDs. And as we look ahead, we think the second half of calendar twenty-five will be better than the first half of twenty-four. I mean, the first half of twenty-five, which was impacted by some of that inventory digestion as well. And our data center SSDs are well positioned with some of these recently announced accelerator platforms as well.
And that, of course, will be contributing toward the data center SSD. Future growth as well. We are very pleased with our record data SSD share as achieved in CQ1 for the third-party reports. And we are now the clear number two brand in terms of market share at the end of CQ1. So we plan to continue to leverage our SSD portfolio to continue to focus on shifting the mix of the products toward higher value parts of the NAND market.
Vijay Rakesh: Great. Thank you.
Operator: 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.