Micron Expertise (MU) Q1 2025 Earnings Name Transcript

Micron Expertise (MU -4.33%)
Q1 2025 Earnings Name
Dec 18, 2024, 4:30 p.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Individuals

Ready Remarks:

Operator

Thanks for standing by, and welcome to Micron Expertise’s fiscal first quarter 2025 monetary convention name. At the moment all contributors are in listen-only mode. After the audio system’ presentation, there will likely be a question-and-answer session. [Operator instructions] As a reminder, at this time’s program is being recorded.

And now, I would wish to introduce your host for at this time’s program, Satya Kumar, company vice chairman, investor relations and treasury. Please go forward, sir.

Satya Kumar — Company Vice President, Investor Relations and Treasury

Thanks, and welcome to Micron Expertise’s fiscal first quarter 2025 monetary convention name. On the decision with me at this time are Sanjay Mehrotra, our president and CEO; and Mark Murphy, our CFO. Right now’s name is being webcast from our Investor Relations website at buyers.micron.com, together with audio and slides. As well as, the press launch detailing our quarterly outcomes has been posted on the web site, together with the ready remarks for this name.

Right now’s dialogue of economic outcomes is introduced on a non-GAAP monetary foundation until in any other case specified. A reconciliation of the GAAP to non-GAAP monetary measures could be discovered on our web site. We encourage you to go to our web site at micron.com all through the quarter for essentially the most present info on the corporate, together with info on monetary conferences that we could also be attending. You can too comply with us on X @MicronTech.

As a reminder, the issues we’re discussing at this time embrace forward-looking statements relating to market demand and provide; market, pricing, and value discount traits and drivers; our plans for manufacturing; the affect of growing applied sciences corresponding to AI; product ramp plans; applied sciences and market place; anticipated capabilities of our future merchandise; our anticipated outcomes and steerage; and different issues. These forward-looking statements are topic to dangers and uncertainties which will trigger precise outcomes to vary materially from the statements made at this time. We refer you to the paperwork we filed with the SEC, together with our Type 10-Okay, Kinds 10-Q, and different studies and filings, for a dialogue of dangers which will have an effect on our future outcomes. Though we imagine that the expectations mirrored within the forward-looking statements are affordable, we can’t assure future outcomes, ranges of exercise, efficiency, or achievements.

We’re underneath no responsibility to replace any of the forward-looking statements to evolve these statements to precise outcomes. I’ll now flip the decision over to Sanjay.

Sanjay Mehrotra — President and Chief Government Officer

Thanks, Satya. Good afternoon, everybody. I’m happy to report that Micron achieved file income in fiscal Q1 with income, gross margins, and EPS all at or above the midpoint of our steerage vary. Information middle income grew over 400% yr over yr and 40% sequentially, reaching a file stage with knowledge middle income combine surpassing 50% of Micron’s income for the primary time.

We delivered file income in knowledge middle SSDs and achieved new data in market share for knowledge middle SSDs and general SSDs. Our HBM shipments had been forward of plan, and we achieved greater than a sequential doubling of HBM income. Income from our largest knowledge middle buyer was roughly 13% of whole firm income. The HBM market will exhibit sturdy development over the following few years.

In 2028, we count on the HBM TAM to develop 4 instances from the $16 billion stage in 2024 and to exceed $100 billion by 2030. Our TAM forecast for HBM in 2030 can be larger than the dimensions of your entire DRAM {industry}, together with HBM, in calendar 2024. This HBM development will likely be transformational for Micron, and we’re enthusiastic about our {industry} management on this vital product class. Modern DRAM provide stays tight, pushed by sturdy demand in knowledge middle DRAM, together with HBM, which can underpin our enterprise outcomes all through fiscal and calendar 2025.

We had beforehand shared our expectation that buyer stock reductions within the consumer-oriented segments and seasonality would affect fiscal Q2 bit shipments. We are actually seeing a extra pronounced affect of buyer stock reductions. Consequently, our fiscal Q2 bit cargo outlook is weaker than we beforehand anticipated. We count on this adjustment interval to be comparatively temporary and anticipate buyer inventories reaching more healthy ranges by spring, enabling stronger bit shipments within the second half of fiscal and calendar 2025.

We’re on monitor to realize our HBM targets and likewise ship a considerable file in Micron income, considerably improved profitability, and constructive free money movement in fiscal 2025. Our know-how street map continues to progress very properly, and we’re in manufacturing with the {industry}’s most superior DRAM and NAND nodes. We proceed to ramp our 1-beta know-how node, which helps HBM3E, and we’re getting ready to ramp our 1-gamma know-how node utilizing EUV in calendar 2025. In NAND, we’re sustaining know-how management with our industry-leading G8 and G9 nodes and are managing the ramp of those notes per our demand.

We count on fiscal 2025 DRAM front-end value reductions, excluding HBM, to be within the mid- to excessive single-digit share vary. We count on fiscal 2025 NAND front-end value reductions to be within the low teenagers share vary. Earlier this month, we finalized an settlement with the U.S. Division of Commerce for an award of as much as $6.1 billion underneath the CHIPS and Science Act to assist superior DRAM manufacturing fabs in Idaho and New York.

Moreover, we have now entered right into a preliminary memorandum of phrases with the U.S. Division of Commerce for an award of as much as $275 million for our Virginia fab that helps manufacturing of long-lifecycle chips in areas corresponding to automotive, industrial, aerospace, and protection and allows efficiencies throughout our international fab community. With the assist of the Singapore authorities, we have now finalized plans to develop our manufacturing footprint in Singapore, beginning with an funding for a brand new HBM superior packaging facility. This funding permits us to meaningfully develop our whole superior packaging capability starting in calendar 2027 to assist AI-driven demand and will likely be synergistic with our present operations in Singapore.

These plans additionally embrace assist for our long-term manufacturing necessities for NAND. Now, turning to our finish markets. Quite a few advances are pushing the boundaries of AI capabilities as coaching mannequin sizes proceed to extend and inference fashions evolve to deal with completely different use circumstances. Multimodal fashions post-training and chain-of-thought inferencing represents new frontiers of innovation, all of that are reminiscence intensive and might profit from greater reminiscence bandwidth and capability.

AI brokers will change into ever extra succesful and handle vertical market shopper and enterprise use circumstances, driving accelerating monetization of AI. Micron is awfully well-positioned to leverage this long-term development alternative, which has the potential to rework the dynamics of our enterprise. We have now upgraded our view of server unit share development and now count on it to succeed in low teenagers in calendar 2024, fueled by robust AI demand in addition to a strong conventional server refresh cycle. And we anticipate server unit development to proceed in 2025.

Micron achieved new data in each whole knowledge middle income and the income combine for knowledge middle in fiscal Q1. Our portfolio of high-capacity DRAM merchandise, together with monolithic die-based 128-gigabyte DIMMs and LP5-based server DRAM merchandise, continues to see sturdy demand and stays on monitor to generate a number of billions of {dollars} in income in fiscal 2025. We made wonderful progress on HBM, greater than doubling our income sequentially through the quarter and exceeding our plans on account of stable execution on yield and capability ramps. In fiscal Q1, our HBM gross margins had been considerably accretive to each DRAM and general firm gross margins.

We’re proud to share that Micron’s HBM3E 8-high is designed into NVIDIA’s Blackwell B200 and GB200 platforms. Micron’s HBM3E operates at full velocity whereas sustaining management in energy effectivity. This month, we commenced high-volume shipments to our second giant HBM buyer and can begin high-volume shipments to our third giant buyer in CQ1, increasing our HBM buyer base. We proceed to see constructive suggestions from our main clients for Micron’s HBM3E 12-high best-in-class energy consumption, which is 20% decrease than the competitors’s HBM3E 8-high, even because the Micron product delivers 50% greater reminiscence capability and industry-leading efficiency.

We have now elevated our HBM market TAM estimate to now exceed $30 billion in 2025, and we proceed to count on to realize HBM market share commensurate with our general DRAM market share someday within the second half of calendar 2025. As we have now stated earlier than, our HBM is offered out for calendar 2025, with pricing already decided for this time-frame. In fiscal 2025, we count on to generate a number of billions of {dollars} of HBM income. We’re enthusiastic about Micron’s HBM management street map by way of the remainder of this decade.

Leveraging the robust basis and continued investments in confirmed 1-beta course of know-how, we count on Micron’s HBM4 will preserve time-to-market and energy effectivity management whereas boosting efficiency by over 50% over HBM3E. We count on HBM4 to ramp in excessive quantity for the {industry} in calendar 2026. Growth work is properly underway with a number of clients on HBM4E, which can comply with HBM4. HBM4E will introduce a paradigm shift within the reminiscence enterprise by incorporating an choice to customise the logic base die for sure clients utilizing a complicated logic foundry manufacturing course of from TSMC.

We count on this customization functionality to drive improved monetary efficiency for Micron. Primarily based on our buyer design wins and success in establishing deep partnerships with clients, {industry} enablers, and key know-how companions like TSMC, we count on to be a number one provider of HBM with essentially the most sturdy, trusted, and industry-leading know-how street map and execution file. Micron has additionally been main the adoption of LP DRAM in knowledge facilities with NVIDIA’s Grace CPU. Micron’s LP5X offers larger than 500 gigabyte of capability and reminiscence bandwidth of larger than 540 gigabyte per second, thus delivering enticing efficiency per watt for AI platforms.

NVIDIA’s Grace CPU makes use of Micron’s LP5X to offer methods with further cache coherent reminiscence to complement HBM for the ever-growing reminiscence wants of AI workloads. Our general SSD and knowledge middle SSD income reached new quarterly income data in fiscal Q1, and we’re on monitor to ship one other yr of share beneficial properties in calendar 2024. We proceed to strengthen our knowledge middle SSD product street map, leveraging our management G8 NAND know-how and vertical integration. We introduced the 6550 ION SSD, which delivers the {industry}’s quickest 60-terabyte SSD and the primary within the {industry} with Gen5 functionality at this capability level.

In comparison with the competitors, Micron’s 6550 ION SSD delivers 20% decrease energy whereas offering 60% higher efficiency and higher knowledge middle footprint effectivity with as much as 67% extra density per rack for exascale knowledge facilities. Our 9550 PCIe Gen5 knowledge middle SSDs had been certified for the advisable vendor checklist for NVIDIA’s GB200 NVL72 system and provide a 34% greater throughput and over 80% decrease vitality per terabyte of knowledge switch versus the competitors. We proceed to count on to generate a number of billions of {dollars} in knowledge middle SSD income in fiscal 2025 and to develop our market share as soon as once more in calendar 2025. Turning to PC.

The PC refresh cycle is unfolding extra regularly, and we count on PC unit quantity development to be flattish in calendar 2024, barely under prior expectations. We stay optimistic about AI PC adoption over time. AI PCs would require further DRAM content material with a minimal of 16 gigabyte of DRAM for entry-level PCs and 24 gigabyte and above for the higher-end segments versus 12-gigabyte common PC content material final yr. Home windows 10 finish of life in October 2025 and an getting older put in base will present a catalyst for PC market development in 2025.

We count on PC market items to develop within the mid-single-digit share vary in calendar 2025, with development weighted towards the second half of the calendar yr. Turning to cellular. Smartphone unit volumes in calendar 2024 stay on monitor to develop within the mid-single-digit share vary, and we count on low single-digit share development in 2025, each per our prior expectations. AI adoption continues to be a robust driver for cellular DRAM content material development, the place we see the know-how utilized in functions corresponding to native search and contextually conscious person interfaces rising over time.

DRAM content material development remained sturdy in CQ3, with the combination of smartphones with 8-gigabyte or larger rising to over 60%, considerably greater than a yr in the past. Smartphone buyer stock dynamics proceed to play out as anticipated, and we count on bit shipments to be weighted to the second half of our fiscal yr. Micron stays targeted on the excessive finish of the cellular market. We’re leveraging our industry-leading portfolio of DRAM and NAND merchandise to assist essentially the most demanding functions, which would require elevated content material, excessive efficiency, and energy effectivity.

Turning to the automotive market. Decrease-than-expected automotive unit manufacturing, mixed with a shift towards value-trim automobiles from premium fashions and EVs, has slowed reminiscence and storage content material development and resulted in stock changes at OEMs. Long run, we stay optimistic that ADAS, infotainment, and AI adoption throughout auto will drive long-term reminiscence and storage content material development. Industrial market demand continues to be impacted by stock changes, and we count on a restoration on this market later in calendar 2025.

Now, turning to our market outlook. We count on {industry} DRAM bit demand development to be within the excessive teenagers share vary in calendar 2024 and within the mid-teens share vary in calendar 2025. We see general calendar 2025 DRAM {industry} bit provide rising roughly in step with bit demand, with tightness in modern nodes pushed by HBM provide ramp within the {industry}. Our outlook for {industry} NAND bit demand development in each calendar 2024 and 2025 is now within the low double-digit share vary, which is decrease than our prior expectations.

Key drivers embrace slower development in NAND content material in shopper units, ongoing stock changes and demand dynamics in numerous finish markets, as outlined earlier, and a brief moderation in near-term knowledge middle SSD purchases by clients after a number of quarters of very speedy development. In knowledge middle, we stay obsessed with long-term demand development as NAND is a key enabler for AI workloads, offering sooner knowledge entry, decrease energy, and higher general whole value of possession important for AI infrastructure. Within the subsequent few years, we additionally count on high-capacity NAND SSDs to begin displacing capability HDDs within the knowledge middle, an inflection that may drive long-term NAND demand development. The decline in 2024 and 2025 {industry} NAND demand development outlook implies that provide actions will likely be essential to realize stability.

As talked about beforehand, since NAND know-how transitions present a big enhance in general bit output, the tempo of know-how transitions may also must gradual in an effort to align provide to {industry} demand. Micron is decisively taking actions to align our NAND provide with {industry} demand traits. We have now diminished NAND capex versus prior plan and have slowed the tempo of know-how node transitions. As well as, we’re decreasing NAND wafer begins by a mid-teens share versus prior ranges.

These actions will align our provide to present market demand. In step with analyst studies, we have now seen a rise in bit provide at legacy know-how nodes from a China-based DRAM and a China-based NAND provider. In calendar 2024, analyst studies point out that China-based provide will signify a mid-single-digit share of {industry} bit provide for DRAM and a excessive single-digit p.c of provide for NAND. Competitors from China provide is concentrated on China market demand: in DRAM with DDR4 and LP4 merchandise; and in NAND with shopper, shopper, and lower-performance cellular merchandise.

We count on Micron’s worldwide income associated to LP4 and D4 DRAM merchandise for the rest of fiscal 2025 to be roughly 10%. We count on Micron’s gross sales of merchandise to China-headquartered clients to be concentrated within the excessive finish of our clients’ portfolio, leveraging our know-how and product management and the efficiency and high quality necessities of our clients. I’ll now flip it over to Mark for our monetary outcomes and outlook.

Mark Murphy — Government Vice President, Chief Monetary Officer

Thanks, Sanjay, and good afternoon, everybody. Micron delivered fiscal Q1 income and gross margins on the midpoint and EPS above the midpoint of the steerage vary. Complete fiscal Q1 income was roughly $8.7 billion, up 12% sequentially and up 84% yr over yr, and reached a brand new file. Fiscal Q1 DRAM income was $6.4 billion, up 87% yr over yr, and represented 73% of whole income.

Sequentially, DRAM income elevated 20%, with bit shipments up within the low double-digit p.c vary and costs rising within the excessive single-digit share vary. Sturdy sequential bit cargo development in DRAM was pushed by demand in knowledge middle. Fiscal Q1 NAND income was $2.2 billion, up 82% yr over yr, and represented 26% of Micron’s whole income. Sequentially, NAND income decreased 5%, with bit shipments and costs each reducing within the low single-digit share vary.

Now, turning to income by enterprise unit. Compute and Networking Enterprise Unit income was up 46% sequentially to $4.4 billion and now represents over half of our whole income. CNBU income reached a brand new quarterly file, pushed by cloud server DRAM demand in addition to HBM revenues, which greater than doubled sequentially within the quarter. Cell Enterprise Unit income was $1.5 billion, down 19% sequentially.

As our cellular clients targeted on enhancing their stock well being, we shifted provide to fulfill knowledge middle demand. Embedded Enterprise Unit income was $1.1 billion, down 10% sequentially. Auto, industrial, and shopper clients proceed to handle their inventories decrease. Income for the Storage Enterprise Unit was $1.7 billion, up 3% sequentially.

SBU income reached a brand new quarterly file, pushed by file income within the knowledge middle SSD phase. In fiscal 2025, we count on Micron’s income combine with firms headquartered in Mainland China and Hong Kong, together with direct gross sales in addition to oblique gross sales by way of distributors, to be roughly mid-teens p.c of our worldwide income. This combine is impacted by market components described earlier in addition to by the China CAC actions introduced in Could 2023. The consolidated gross margin for fiscal Q1 was 39.5%, enhancing 300 foundation factors sequentially.

Gross margin enchancment was pushed by greater pricing in DRAM, improved product combine to knowledge middle in each DRAM and NAND, offset partly by decrease pricing in NAND. Working bills in fiscal Q1 had been $1.05 billion, down $34 million sequentially and benefiting from decrease labor-related prices and ongoing tight expense management. We generated working earnings of $2.4 billion in fiscal Q1, leading to an working margin of 27.5%, which was up roughly 500 foundation factors sequentially and up 48 share factors from the year-ago quarter. Fiscal Q1 adjusted EBITDA was $4.4 billion, leading to an EBITDA margin of fifty.6%, up 265 foundation factors sequentially and up 31 share factors or $3.5 billion from the year-ago quarter.

Fiscal Q1 taxes had been $333 million on an efficient tax fee of 14.1%, which was in step with our steerage. Non-GAAP diluted earnings per share in fiscal Q1 was $1.79, in comparison with $1.18 per share within the prior quarter and a loss per share of $0.95 within the year-ago quarter. We delivered fiscal Q1 EPS on the greater finish of our steerage vary. Turning to money flows and capital spending.

Our working money flows had been roughly $3.2 billion in fiscal Q1. Capital expenditures had been $3.1 billion, leading to free money movement of $112 million within the quarter. Our fiscal Q1 ending stock was $8.7 billion or 149 days, a decline of 9 days from the prior quarter and pushed by DRAM. On the stability sheet, we held $8.7 billion of money and investments at quarter-end and maintained $11.2 billion of liquidity when together with our untapped credit score facility.

We ended the quarter with $13.8 billion in whole debt, low internet leverage, and a weighted common maturity on our debt of 2031. Now, turning to our outlook for the second fiscal quarter. We count on DRAM bit shipments to say no sequentially and count on a significant sequential decline in NAND bit shipments for causes talked about beforehand which are impacting near-term demand. We undertaking our bit shipments to renew development after fiscal Q2 and count on second half fiscal yr bit shipments to be stronger than the primary half.

We count on fiscal Q2 gross margins to be impacted by NAND {industry} circumstances, partly offset by continued development in HBM and knowledge middle DRAM. Along with these components, we count on NAND underloading to have an effect on fiscal Q3 gross margins. We forecast working bills in fiscal Q2 to be roughly $1.1 billion, primarily reflecting deliberate will increase in R&D spending. We count on fiscal 2025 opex to extend by a low to mid-teens p.c, under our prior mid-teens plan.

We proceed to prioritize R&D applications, together with for HBM, to capitalize on robust development forward. We count on each stock {dollars} and days of stock to extend sequentially in fiscal Q2 on decrease volumes. With stronger bit shipments, we count on DIO to enhance within the second half of the fiscal yr. We count on to finish fiscal 2025 with tight DRAM inventories, under our goal ranges.

For fiscal Q2 and the rest of fiscal 2025, we estimate our non-GAAP tax fee to be within the mid-teens p.c vary. We count on our fiscal 2026 tax fee to be within the excessive teenagers share vary following Singapore’s adoption of world minimal tax. In fiscal Q2, we forecast internet capex to be roughly $3 billion. For fiscal 2025, we’re prioritizing our investments to ramp 1-beta and 1-gamma know-how nodes in addition to greenfield fab investments for DRAM, which can assist us assist HBM and long-term DRAM demand.

We have now minimize our NAND capex and are prudently managing the tempo of our NAND know-how node ramps to handle our provide. We count on general capex spending in fiscal 2025 to be roughly $14 billion, plus or minus $500 million. The overwhelming majority of the fiscal 2025 capex is to assist HBM in addition to facility, building, back-end manufacturing, and R&D investments. With all these components in thoughts, our non-GAAP steerage for fiscal Q2 is as follows: we count on income to be $7.9 billion, plus or minus $200 million; gross margin to be within the vary of 38.5%, plus or minus 100 foundation factors; and working bills to be roughly $1.1 billion, plus or minus $15 million.

As talked about, we count on the fiscal Q2 tax fee to be within the mid-teens p.c vary. Primarily based on a share depend of roughly 1.14 billion shares, we count on EPS to be $1.43 per share, plus or minus $0.10. In closing, Micron will stay circumspect and versatile with all our spending, together with working bills and capital investments. We’re making disciplined investments in DRAM and are driving the ramp of high-bandwidth reminiscence.

In NAND, we’re taking immediate and decisive actions to chop our capital spending and minimize our wafer output to keep up provide self-discipline. We count on to ship a considerable income file, considerably improved profitability, and constructive free money movement in fiscal 2025. I’ll now flip it again over to Sanjay.

Sanjay Mehrotra — President and Chief Government Officer

Thanks, Mark. At our 2022 Investor Day, we had laid out a daring plan to shift our portfolio combine and to extend our share of high-growth and fewer seasonal segments from roughly 45% in fiscal 2021 to 62% in fiscal 2025. In fiscal Q1 2025, we have now already considerably exceeded that aim, pushed by robust demand for AI-enabled options and reflecting Micron’s know-how, product, and manufacturing management. Micron is within the strongest aggressive place in its historical past, and we proceed to achieve share in all high-margin, strategically vital product classes in our {industry} whereas sustaining general secure bit share in each DRAM and NAND.

Thanks for becoming a member of us at this time. We are going to now open for questions.

Questions & Solutions:

Operator

Actually. And our first query for at this time comes from the road of C.J. Muse from Cantor Fitzgerald. Your query, please.

C.J. Muse — Analyst

Yeah. Good afternoon. Thanks for taking the query. I suppose first query, might you converse to what offers you the boldness that we will see a Could quarter type of seasonal pickup and/or cyclical pickup throughout each DRAM and NAND? And I suppose if there’s any kind of sense of magnitude we ought to be enthusiastic about for every can be very useful.

Sanjay Mehrotra — President and Chief Government Officer

C.J., I will take this one. As we stated, our FQ2 outlook is impacted by stock changes in consumer-oriented markets and naturally, the everyday seasonality that exists in CQ1 as properly. And we have now additionally seen some moderation in purchases of knowledge middle SSDs after a number of quarters of speedy development in that a part of the market. So, that is what is impacting our FQ2 outlook right here.

And sure, we imagine that buyer inventories within the consumer-oriented markets will enhance within the spring time-frame. Take into account that the sell-through that is taking place in these consumer-oriented markets like smartphone and PCs is OK. It is extra that they’ve constructed stock and subsequently, their purchases are lower than their sell-through. And we noticed that their inventories improved in CQ4, and we count on them to enhance additional in CQ1 time-frame.

So, by spring time-frame, we count on the inventories to — at clients within the consumer-oriented markets to enhance, and that is what’s going to drive cargo development within the fiscal second half for us. And naturally, knowledge middle SSD as properly, we count on, it tends to be that a part of the market, knowledge middle storage can typically be lumpy, and we count on the info middle storage demand, given the info middle build-out that’s taking place, continues to be taking place, pushed by AI demand development may also return towards development within the fiscal second half. That is why we stated fiscal second half stronger than the fiscal first half.

C.J. Muse — Analyst

Very useful. After which a fast query to Mark. Are you able to assist us with just a little extra granularity when it comes to the affect from NAND underloadings into the present information in addition to whether or not there’s an affect past that? After which for all of calendar ’25, is there a framework for enthusiastic about the tailwind from rising HBM combine within the revenues? Thanks.

Mark Murphy — Government Vice President, Chief Monetary Officer

Positive, C.J. So, let me begin with offering granularity on the second quarter information. So, we’re down 100 foundation factors first to second quarter within the information, and that is pushed by NAND. First, as Sanjay talked about, the NAND {industry} market circumstances are weak, weaker than we had anticipated.

And that shopper market, PC, smartphones, demand is weaker, and stock changes are occurring. Secondly, NAND knowledge middle SSD volumes moderated. And so, there’s this era of digestion. And that was, as we all know, higher-margin NAND enterprise.

So, these two issues are the principal driver. In fact, with income down within the information $800 million, we see some damaging leverage results on ongoing interval prices, however these prices don’t embrace underload prices within the second quarter. So, these prices will start to have an effect on us within the third quarter. And so, within the third quarter, as NAND continues to have a interval the place there are some difficult circumstances into the calendar first quarter after which improves by way of the calendar yr, our provide response in NAND will weigh on third-quarter margins, and it’ll considerably constrain our skill to develop gross margins within the third quarter.

Now, past the third quarter, the enterprise quantity development, AI-driven knowledge middle, and edge-driven development, favorable combine results, together with HBM, the place we talked about multi-billion after which only a extra constructive atmosphere, particularly in DRAM, the place we have now tight inventories on the vanguard and have indicated that we mainly had been under our goal in inventories by finish of yr. So, we see the circumstances for margin enlargement occurring after third quarter.

C.J. Muse — Analyst

Thanks.

Operator

Thanks. And our subsequent query comes from the road of Timothy Arcuri from UBS. Your query, please.

Timothy Arcuri — Analyst

Thanks rather a lot. I am attempting to get at what the magnitude of the income ramp goes to be within the fiscal again half. And I am kind of what you had been saying about capex. You had stated that it might be mid-30s of the full-year income.

So, if I take the $14 billion which was just a little higher than what folks thought, I feel most individuals had been considering $13.5 billion. So, you truly are doing a bit extra capex. And if I divide by the mid-30s, I get to a quantity like $40 billion for the fiscal yr. Is that — I am not asking you to information the fiscal yr, however I am simply asking you to offer some kind of magnitude for just like the fiscal again half versus the fiscal entrance half.

Sanjay Mehrotra — President and Chief Government Officer

So, let me simply reply the fiscal second half. And naturally, the drivers of development, there can be improved stock in consumer-oriented markets, knowledge middle SSD demand resuming, and naturally, HBM, continued momentum in HBM. We’re enthusiastic about our product place there. And we have now indicated to you that within the second half of the calendar yr, we goal reaching our HBM share to be in step with DRAM share.

And we’re executing very properly on the HBM momentum. So, HBM can also be, in fact, persevering with to drive our income development as you look forward to the second half of the yr. After which simply needless to say we have now mentioned smartphone and PC items. We have now supplied you shade within the script on these in calendar yr 2025 as properly.

And there will likely be rising penetration of AI smartphone and PC items, which are likely to have greater DRAM content material as properly. So, all of those components will contribute primarily AI from knowledge middle to edge, shopper stock changes, getting previous the seasonality of CQ1, all of those would be the components that may decide, that may actually give us optimism towards robust second-half shipments and naturally, a more healthy income outlook within the second half as properly. And Mark, you’ll be able to touch upon the capex.

Mark Murphy — Government Vice President, Chief Monetary Officer

Yeah. Tim, we made it clear we’re reducing NAND capex. We’re — sure, there’s nonetheless going to be elevated ranges of DRAM spend, and our earlier steerage of mid-30s will likely be greater 30s p.c of gross sales now.

Timothy Arcuri — Analyst

Bought it, Mark. OK. Thanks. After which I need to ask on the share repo.

So, within the 8-Okay final week that was associated to the CHIPS Act, it contained language you could solely purchase again to offset dilution through the first two years and actually, you are solely free to jack up the repo greater than that in Years 3 to five to convey down share depend. How do you concentrate on that in kind of within the broader capital return? Thanks, Mark.

Mark Murphy — Government Vice President, Chief Monetary Officer

Yeah. Tim, we’re — we do not see any significant constraints on our skill to return capital. Our atypical course dividends are unaffected. So, we’d nonetheless count on to pay a dividend and develop that over time.

We’re capable of repurchase shares. Throughout the first two years, we’re capable of repurchase shares to assist offset inventory comp shareholder dilution. After which in Years 3 by way of 5, we’re unrestricted as sure monetary and different circumstances are met. And we predict these circumstances are affordable.

They contain how a lot we’re spending on R&D, how a lot we’re spending on capex and our credit score, and so forth. And this stuff are how we’d usually run the enterprise in a shareholder and broader stakeholder manner. So, we predict that we have no significant constraints underneath the agreements.

Timothy Arcuri — Analyst

OK. Thanks.

Operator

Thanks. And our subsequent query comes from the road of Vivek Arya from Financial institution of America Securities. Your query, please.

Vivek Arya — Analyst

Thanks for taking my query. So, Sanjay, you upgraded the HBM TAM by, I feel, about 20% or so. What has modified to extend that estimate? And I feel you type of saved your goal share to be the identical as earlier than, though I feel you type of shifted it extra to the second half. However what’s the bottleneck? Why cannot your share get to the goal stage earlier? Is it only a matter of rolling out in numerous merchandise? So simply what modified the TAM estimate? After which what’s inflicting the change so that you can get to your goal extra within the second half moderately than I feel you stated someday in ’25 earlier than?

Sanjay Mehrotra — President and Chief Government Officer

So, we proceed to work intently with our clients to evaluate the market necessities, and we offer you updates. And we, occasionally, replace our outlook. And primarily based on our newest estimates with our clients and, in fact, all of the build-out associated to AI knowledge facilities and the super alternative, and it’s — we have now elevated our estimate from $25 billion to $30 billion for calendar yr 2025. And that is pushed by elevated demand, elevated quantity that will likely be required in 2025 for HBM.

And simply needless to say HBM simply continues to be nonetheless in tight provide in calendar yr 2025. And relating to our personal momentum, we have now a really robust momentum. We beforehand had stated that someday in calendar yr 2025, we’ll attain our share goal in HBM to be equal to our DRAM {industry} share. And now as 2025 is approaching, we’re offering you additional specificity across the timing, and we’re specifying that we’ll be reaching that in second half of 2025.

In fact, HBM ramp-up, simply consider, it was not way back. It was FQ3 of ’24 after we had indicated that we have now over $100 million of income in HBM. We’re — our crew is doing an incredible job in persevering with to ramp up the capability in addition to yield. We identified that in our FQ1, we delivered extra HBM than our plan, and our yields had been additionally forward of our plan.

So, we proceed to do properly, and we’re extraordinarily targeted on ramping up capability, proceed to ramp up yields towards mature yields, and we really feel very assured about our alternatives for HBM in 2024. We have now stated that we count on to succeed in a number of billions of {dollars} of income within the coming yr, in 2025. So, an incredible alternative. And we, in fact, proceed to look ahead to constructing the momentum of our street map from thereon.

completely seize the alternatives. We imagine that HBM4 in addition to 4E, which will likely be extra alternatives ’26 and past time-frame, we will likely be in a robust management place with our merchandise. And we’ll, in fact, seize the alternatives and stay disciplined with respect to our investments as properly.

Vivek Arya — Analyst

Bought it. And for my follow-up, Mark, only a few questions on gross margins. So, you’re guiding Q2 gross sales down, however gross margins are solely happening by one level. So, is that a few of the tailwinds you are seeing in HBM, proper, offsetting a few of the unit affect? So, if there’s a approach to quantify how a lot elevate is HBM offering? After which the opposite factor I simply wished to make clear.

Did you say Q3 gross margins greater than Q2 gross margin regardless of that NAND headwind? I simply wished to make clear that. So, simply how a lot elevate from HBM? After which is Q3 greater than Q2 from what you stated earlier than? Thanks.

Mark Murphy — Government Vice President, Chief Monetary Officer

Yeah. So, Vivek, good questions. So, we’re — in 2Q, we’re seeing positively favorable results from each greater DRAM income as a mixture of our whole enterprise after which the favorable DRAM product combine, so HBM and different knowledge middle merchandise. So, these are tailwinds within the second quarter, and we count on these to proceed however they’re greater than offset by the headwinds, significantly NAND.

After which what I discussed earlier to C.J.’s query was, whereas we proceed to have these DRAM constructive combine results, we’re — it’ll take a while and properly into this calendar first quarter for the NAND market circumstances to start to enhance. After which we, in fact, begin to see knowledge middle SSD development beginning once more, quantity development within the third quarter. After which the — however circumstances there’ll nonetheless be weak. After which the availability response prices will weigh on third-quarter margins and can constrain our skill to develop margins in third quarter.

Now, past third quarter, we see continued income development, favorable combine results, extra constructive markets and see the chance for margin enlargement from there.

Vivek Arya — Analyst

Thanks.

Operator

Thanks. And our subsequent query comes from the road of Joseph Moore from Morgan Stanley. Your query, please.

Joe Moore — Analyst

Nice. Thanks. My query was additionally on HBM. I suppose how do you concentrate on market share there over the long run? Ought to we consider your pure DRAM share as being a limiter provided that one in every of your rivals is struggling there? And at one level, you had talked about possibly having a premium pricing due to the standard of the efficiency per watt.

Is that one thing you are still capable of extract? Or does the main focus proceed to be extra on provide?

Sanjay Mehrotra — President and Chief Government Officer

So, with respect to HBM share, I imply, we’re extraordinarily targeted on reaching our share to be in step with the {industry} DRAM share within the second half of 2025. Excited, as I stated, about our product and all of the suggestions that we have now obtained on that product. We have now highlighted that we have now already begun shipments to a second-large HBM clients. And I additionally stated that in CQ1, we will likely be including a 3rd giant buyer for HBM as properly.

So, our momentum is continuous to construct up in HBM. And that is, in fact, all once more, constructed on robust product that has vital efficiency and efficiency per watt advantages right here. And that, in fact, helps us with respect to our momentum on the share, helps us get premium pricing versus others within the market. And we wish — we plan to completely leverage this past simply 8-high HBM3E as we transfer to 12-high in 2025.

And naturally, past 2025, leverage our momentum with product management with HBM4 and 4E as properly. I am not specifying our share at this level for future targets. However in fact, we’ll — we’re extraordinarily targeted on persevering with to shift the combination of our product portfolio — general product portfolio towards greater revenue swimming pools of the {industry}, whereas remaining completely disciplined in managing the demand and provide stability and managing our — responsibly managing our investments, capital investments which are associated to that as properly.

Joe Moore — Analyst

Nice. Thanks very a lot.

Operator

Thanks. And our subsequent query comes from the road of Krish Sankar from TD Cowen. Your query, please.

Krish Sankar — Analyst

Hello. Thanks for taking my query. I had two of them, and sorry to harp on this level once more, Sanjay. Simply to make clear, you raised your calendar ’25 TAM estimate from $25 billion to $30 billion, sustaining your market share however value and quantity is mounted, however the yields are enhancing.

So, simplistically, ought to we assume three months in the past, in the event you thought $5.5 billion to $6 billion in HBM income exiting second half of 2025, that is extra like $6.5 billion to $7 billion now. Is it the suitable math to consider for Micron’s HBM revenues in someday in second half of calendar ’25?

Sanjay Mehrotra — President and Chief Government Officer

We aren’t offering specifics on income for HBM, however aside from saying that HBM will likely be a number of billions of {dollars} of income for us in ’25. And that we’ll — we’re properly on our approach to reaching our goal of shares to line up with {industry} DRAM share as properly. I am not going by way of the specificity on our income numbers. However once more, I can let you know that that is, in fact, an enormous a part of our development.

And we’re excited concerning the long-term HBM potential as properly. We shared with you that we see HBM changing into a $100 billion — greater than $100 billion market in 2030 time-frame. And with 2028 — in 2028, HBM being 4 instances of what it’s in 2024. And with a robust roadmap of merchandise that’s forward of us, we, in fact, will seize the alternatives on this a part of the market.

And HBM will — provided that it’s a extra advanced product to make, it’s a higher-cost product, it brings greater worth, it brings greater ASPs. So, this positions us very properly towards our goal of continuous to shift towards greater revenue pool of the {industry}.

Krish Sankar — Analyst

Bought it. Very useful. After which a fast follow-up, Sanjay. You are at HBM3E 8-high, so while you go to 12-high, the commerce ratio will increase.

And also you go to HBM4, it is also larger die measurement, commerce ratio will increase. So, as you go make these transitions, would not it have a damaging affect in your gross margin purely as a result of yield will type of get reset? Or do you suppose the transition will likely be seamless that it should have no affect on gross margins?

Sanjay Mehrotra — President and Chief Government Officer

We have now shared earlier than that HBM3E has a commerce ratio of roughly three. And HBM4, we have now stated earlier than, could have a better commerce ratio. And naturally, these commerce ratio concerns apply to your entire HBM {industry}. And after we go from 8-high to 12-high, you’ll be able to definitely count on that given the elevated complexity of the product, that may have, 12-high could have its personal definitely yield ramp, however the learnings of 8-high will definitely be a profit, benefiting us going ahead as properly.

And our crew has executed an incredible job in ramping up merchandise. So, I am fairly positive that as we go from 8-high to 12-high, our crew will do a great job in ramping up the yields on 12-high as properly. And all of these components, in fact, play a task in general HBM goals that we have now forward of us. And simply needless to say the worth of HBM completely continues to develop.

As we go from 8-high to 12-high, in fact, that provides our clients a chance to connect extra content material to their GPUs, to their accelerators simply by the sheer enhance within the capability inside every dice, 50% enhance in capability inside every dice. And so, general, the worth of HBM continues to develop in addition to we go from 8-high to 12-high and in a while to HBM4 and sooner or later, with HBM4E having the optionality of customization as properly.

Krish Sankar — Analyst

Thanks, Sanjay. Very useful.

Operator

Thanks. And our subsequent query comes from the road of Chris Danely from Citi. Your query, please.

Christopher Danely — Analyst

Hey, thanks, guys. I suppose only a larger query on DRAM. So, if provide goes to equal demand subsequent yr and there is extra stock on the market, like how is the market going to do properly? After which as a portion of that, you stated that high-end DRAM and HBM or modern DRAM and HBM are doing properly. Are you able to simply outline what forefront or what share of the market that’s and what is going on to occur to the remainder of the market if it stays in oversupply?

Sanjay Mehrotra — President and Chief Government Officer

So, once more, sure, modern nodes are in tight provide, and never solely simply HBM that’s in tight provide however LP5, DDR5. These are additionally built-in modern nodes, and these are all in tight provide. And we see tight provide for the {industry} in 2025. Because the HBM necessities enhance, that places much more stress on non-HBM, places extra stress on the modern provide.

So, we see modern outlook remaining tight and favorable demand-supply atmosphere. And general DRAM {industry}, we count on to be wholesome. Take into account that we have now pointed to not solely a number of billions of {dollars} of income in ’25 with — in our fiscal ’25 with HBM but additionally to a number of billion — we have now pointed to a number of billions of {dollars} of income with high-density DIMMs and LP5 options. And simply needless to say these are additionally crucial merchandise for the AI functions.

HBM works intently with LP5 and plenty of accelerator platforms with respect to driving the complete potential of AI. And naturally, general, we see the demand atmosphere wholesome. And overwhelming majority of general manufacturing, as we have now already famous in our ready remarks, is on modern nodes that are our 1-alpha and 1-beta node at this time. And in 2025, we’ll start to ramp our 1-gamma node as properly.

Mark Murphy — Government Vice President, Chief Monetary Officer

Yeah. Chris, I might simply add that as you talked about, inventories on the finish of the yr in your query that we at present undertaking our DRAM inventories whole to be under our goal ranges.

Christopher Danely — Analyst

Bought it. OK. After which simply — OK. Thanks, Mark.

After which as a fast follow-up to that. So, what will get the non-leading-edge DRAM market wholesome once more as a result of it’s nonetheless part of your online business?

Sanjay Mehrotra — President and Chief Government Officer

Look, I imply, in fact, our provide combine is, in fact, shifting towards extra of the merchandise which are wanted within the market, and we’re always managing our provide shift. And our manufacturing is extra towards forefront whereas remaining disciplined with our capex and with our provide development.

Christopher Danely — Analyst

Bought it. Thanks, guys.

Operator

Thanks. And our ultimate query for at this time comes from the road of Toshiya Hari from Goldman Sachs. Your query, please.

Toshiya Hari — Analyst

Nice. Thanks a lot for taking the query. I had two as properly. The primary one is on China competitors.

Sanjay, you talked about LP4 and DDR4 for the remainder of the fiscal yr is 10% of your online business. What are your ideas on their skill to compete in DDR5 and LP5, not within the close to time period, however as you concentrate on the aggressive panorama over the following, name it, 18, 24 months, what are your ideas? And the way do you plan to answer that?

Sanjay Mehrotra — President and Chief Government Officer

So, our product mixture of LP4 and DDR4, which we have now stated is about 10% for the rest of fiscal yr ’25 will, in fact, proceed to go down within the years forward as properly. And that simply signifies that the legacy node combine continues to go down within the years forward as properly. And China competitors is extra within the lower-performance merchandise. It addresses extra the decrease finish of the patron market, primarily in China.

And simply needless to say the markets are shifting an increasing number of towards greater efficiency merchandise. And better efficiency merchandise, definitely, while you take a look at the market shifting extra to the info middle market functions versus simply the patron and the combination of knowledge middle continues to extend, that additionally requires extra high quality necessities. And the platforms proceed to maneuver sooner towards the necessities of superior nodes. So, these are all — while you take a look at that, I imply, those who have a protracted monitor file in modern nodes in addition to modern merchandise with robust efficiency, low energy in addition to prime quality, then the leaders are higher positioned on this regard.

So, the competitors that we see in China is extra on the patron facet of the enterprise and extra on the decrease finish, whereas the market is shifting an increasing number of towards the necessities of upper finish corresponding to in knowledge middle. And that is the place Micron is concentrated with our know-how and with our superior product street map to deal with these elements of the market. And once more, that is the place the upper pool of the revenue of the {industry} is, and that is the place we’re shifting our combine as properly.

Toshiya Hari — Analyst

Nice. After which as my follow-up, you talked about high-capacity enterprise SSDs displacing nearline HDDs over the following couple of years. I do know it is a view that you’ve got held for a really very long time. I am simply curious in the event you’ve seen something lately that will drive an acceleration in that development.

You talked about NAND front-end value downs for you guys in fiscal ’25 being within the low teenagers. That appears fairly much like what your friends within the drive enterprise are doing. So, I am simply curious if something has modified lately as you concentrate on that dynamic. Thanks.

Sanjay Mehrotra — President and Chief Government Officer

Yeah. In fact, we proceed to work intently with our clients, and it is actually concerning the whole value of possession that SSDs present, and SSDs proceed to make robust progress in that regard. It is concerning the efficiency. It is about, in fact, energy.

It is concerning the footprint, all of that. And naturally, value is a vital issue there. And all of that interprets into value of possession. And we see that sooner or later, SSDs will start to displace HDDs, once more, working intently with clients on this regard.

And clearly, AI will proceed to be a robust driver on this regard in addition to we noticed final yr, I imply, robust demand. I imply, once I say final yr, I imply, as we noticed earlier on this calendar yr, there was a robust demand for our knowledge middle SSDs pushed by AI. And all of these necessities of efficiency, energy, footprint will completely be required sooner or later knowledge facilities displacing — the place SSDs will likely be displacing HDDs. And we take a look at it as a phenomenon that’s 2027 and past.

Toshiya Hari — Analyst

Thanks.

Operator

Thanks. This does conclude the question-and-answer session in addition to at this time’s program. [Operator signoff]

Length: 0 minutes

Name contributors:

Satya Kumar — Company Vice President, Investor Relations and Treasury

Sanjay Mehrotra — President and Chief Government Officer

Mark Murphy — Government Vice President, Chief Monetary Officer

C.J. Muse — Analyst

Timothy Arcuri — Analyst

Tim Arcuri — Analyst

Vivek Arya — Analyst

Joe Moore — Analyst

Krish Sankar — Analyst

Christopher Danely — Analyst

Chris Danely — Analyst

Toshiya Hari — Analyst

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