$MU Micron Technology Q3 2026 Earnings Conference Call

Thank you, Satya. Micron delivered an exceptional fiscal Q3 with significant records in revenue, gross margin, and EPS, all exceeding the high end of our guidance, demonstrating Micron's position as a leader enabling the AI era. Our data center revenue exceeded $25 billion in fiscal Q3, an annualized run rate of over $100 billion. Our data center SSD revenue exceeded $5 billion, more than doubling sequentially. DRAM and NAND industry demand continues to significantly exceed industry supply. We expect tight conditions to persist beyond calendar 2027. As a result of AI-driven demand across all segments coupled with structural supply constraints, we are excited to announce that we have now signed 16 strategic customer agreements or SCAs which we expect will fundamentally transform our business model. The memory industry has been structurally transformed by the proliferation of AI. We are only in the early innings of the significant innovation and productivity that can be unleashed in every part of the global economy. Over time, data center-driven growth will be increasingly complemented by AI-enabled features in smartphones, high-end PCs, and new consumer devices as well as in automotive, industrial applications and robotics. Exciting possibilities enabled by robotics and humanoids as well as fully autonomous vehicles portend a robust long-term demand environment for memory and storage. With respect to supply, our customers are recognizing that supply shortages in memory and storage will take considerable time to improve. Even as we expect industry supply to improve gradually in 2028, we currently do not have line of sight as to when memory supply will be able to catch up with increasing demand. Memory industry supply growth is dependent on significant greenfield expansions. These greenfield projects are large, complex and time consuming. Further, the pace is constrained by several factors including long lead time for fab construction across the world, shortage of workers with critical trade skills, complex regulations including permitting, and the need for enhanced energy infrastructure. Meanwhile, memory process technology, which is among the most advanced to develop and manufacture in semiconductors, is getting more complex with every new node. Technology transitions are driving slower bit growth over time. Wafer growth needs are significantly increasing clean room space and greenfield requirements. And HBM's growth and increasing trade ratio with every new generation further pressures non-HBM supply, with NAND industry suppliers redirecting clean room space from NAND to DRAM and overall limited clean room space constraining NAND bit supply growth. These factors taken together mean supply is structurally constrained in its growth and ability to meet industry demand. Despite our comprehensive efforts to increase supply, AI systems are powered by GPU, ASIC and CPU designs from an increasingly broad set of suppliers. However, they all share one important characteristic: AI system performance is architecturally dependent on memory subsystem performance and capacity. This has given rise to a more complex memory hierarchy that is providing greater differentiation opportunities for Micron than at any time in our history. It has also elevated the role of memory in the AI world to a strategic asset. Strong long-term demand growth, structurally constrained supply growth, and memory's strategic importance have caused customers to recognize that their product roadmaps rely on access to advanced memory technology and dependable and committed long-term memory supply. Micron has been a pioneer in our industry in creating a new class of strategic customer agreements or SCAs with very robust terms. We are pleased to announce that we have completed 16 SCAs with customers across the data center, consumer and automotive market segments. These SCAs accelerate the transformation of our business model, enhance partnership in technology and innovation, and provide customers with contracted supply assurance. Typically, these agreements have a 5-year term from calendar 2026 through the end of calendar 2030. Automotive agreements generally have a three-year term. The 16 signed agreements represent roughly 20% of our DRAM volume and a third of our NAND volume over this period. These SCAs include four very large customers and three medium-sized customers. The remaining agreements relate to smaller customers from the automotive industry and represent our commitment to that important sector. When completed, we expect approximately half or more of our company revenue to be under these SCAs with customers across end markets. Our customer value our US supply plans and this is reflected in our SCAs. These SCAs are structured as take-or-pay agreements with binding commitments to purchase specific volumes over this multi-year term. The largest agreements generally have a ceiling price for existing products at the current CQ2 market price and a floor price through the term of this agreement. Several SCAs which account for a modest portion of the SCA-related revenue include either fixed prices or have no price bands associated with them where pricing will be subject to market conditions. When all planned SCAs are executed, agreements with either fixed prices or price ceilings at or close to current CQ2 market prices are expected to be approximately 40% of our revenue. For SCAs which do contain such price bands, pricing is designed to stay within this floor-to-ceiling level through the course of the term. This pricing visibility will help our SCA customers across market segments to better manage their business and grow their demand. For our SCAs with price bands, the floor price enables a very robust gross margin for Micron well above our peak quarterly margins in any past cycle. 14 of the 16 SCAs that we have signed have cumulative revenue at minimum price per hour contracts of approximately $100 billion over the remaining agreement term. We also strengthen our long-term financial performance margins and free cash flow expectations with higher visibility and improved stability in our business performance. Under the SCAs we have signed so far, we project to receive cash deposits and related financial commitments of $22 billion. This further demonstrates customer commitment to this new business model. Mark will provide additional details. Our SCAs with customers across data center to consumer devices to auto and industrial applications create a new paradigm for us to strengthen our customer relationships. They provide committed DRAM including HBM as appropriate and NAND supply to our customers over a multi-year time horizon. In a period of significant shortage, this supply visibility is extremely beneficial to our customers. The visibility enables our customers to leverage SCA supply to make progress on their strategic plans, drive growth, and enable their end consumers to benefit from their products and services. We are very appreciative of our customers who have worked with us through this period of tight supply with a strong collaborative spirit to create win-win outcomes for the long term for the entire ecosystem and end consumers. AI's insatiable appetite for memory bandwidth and capacity with low latency and low power is driving memory architectural choices, memory product mix shifts and manufacturing process technology decisions. All of which increase the complexity of memory and storage roadmap for the industry. Micron is building on its technology leadership. Our 1-gamma DRAM node and G9 NAND node are both ramping well and on track to become the highest volume nodes in Micron's history. Development of our next generation DRAM and NAND nodes are also progressing well and are on track to begin volume production in the second half of calendar 2027. We are leveraging our leadership DRAM and NAND nodes across our product portfolio. HBM4 12-high volume ramp is tracking twice as fast as HBM3E 12-high and we have already shipped over $1 billion in HBM4 revenue. We expect to reach mature yields on HBM4 12-high significantly faster than HBM3E 12-high. Please see our earnings press release for other highlights across our HBM, high-capacity DDR and LP server DRAM, data center SSD, PC, smartphone and automotive product portfolios. We expect future memory demand will continue to skew towards higher performance and higher value products whose complexity carries higher cost per bit. Transitions like LP5 to LP6, DDR5 to DDR6, and newer generations of HBM all come with rising bit cost. This trend along with the ramp of significant greenfield capacity in the years ahead is projected to cause the blended DRAM cost per bit to rise from current levels. Our customer SCAs provide for appropriate price premiums for such new products to be negotiated in the future. Turning to our end markets, AI is driving unprecedented growth in data centers with industry data center DRAM and NAND-based shipments in calendar 2026 expected to more than double from two years ago. Agentic AI is structurally reshaping data center infrastructure, extending beyond accelerator-only racks to include CPU racks for the agent control plane and program execution and storage racks for rapidly expanding context store. We now expect calendar 2026 industry server units to grow high teens percent above our prior expectations of low double digits, driven by mid-teens growth in traditional servers and even stronger growth in servers with AI accelerators. We estimate that this increase in our server unit growth expectation is enabled by a modest reduction in average server DRAM content growth as customers focus on maximizing unit shipment amid a very tight allocation of memory. In the AI context, memory storage and HDD displacement opportunities are expanding the addressable market for SSDs. PC and smartphone industry revenue is expected to grow despite unit volume declines, reflecting resilient demand for high-end devices at higher prices across end device categories. Agentic AI platforms such as OpenClaw and Neimoclaw elevate the value of edge devices, enabling improved tokconomics, greater privacy and latency, and more efficient orchestration of AI between the cloud and edge. Over time, we expect the value of on-device AI combined with pent-up unit replacement demand to drive memory demand growth in PCs and smartphones. In automotive, ADAS remains a powerful driver of content growth. L2 Plus and above vehicles, which feature progressively increasing levels of autonomy, have over five times the memory and storage content of an average vehicle. The mix of L2 Plus and above vehicles is more than doubling this year to over 20% and is expected to exceed 40% by 2030. Average automotive memory and storage content is expected to further increase as mix shifts towards higher levels of autonomy with progressively higher levels of content. In robotics, continued advances in simulation, foundation models and integrated hardware and software stacks are accelerating physical AI. This creates a growing content-rich opportunity for high bandwidth, low power memory and storage that powers real-time perception, inference and control. Humanoid robots carry 10 times the amount of memory as an average L2 Plus vehicle and we expect a sustained substantial multi-decade memory demand cycle to begin in the latter part of this decade. Now turning to our market outlook, we now expect supply demand conditions for both DRAM and NAND to remain tight beyond calendar 2027. In DRAM, we expect industry DRAM bit shipments in calendar 2026 to grow in the low to mid-20s percentage range, slightly above our prior outlook. In NAND, we expect industry NAND bit shipments in calendar 2026 to grow approximately 20%, unchanged from prior expectations. We expect Micron DRAM supply to grow approximately in line with industry supply growth while Micron NAND supply grows somewhat less than industry supply growth in calendar 2026. Our SCAs provide enhanced visibility on our long-term demand and provide us greater confidence on our capex and R&D investments. We are focused on maximizing output from our fabs, including collaboration with our suppliers to accelerate tool acquisition, fab tool installation and ramp, and tool replacements and upgrades to improve productivity. Recently, we concluded a multi-year EUV supply agreement with ASML, supporting our increased adoption of EUV at the 1-delta node and future generations. We are also making good progress on expanding our global manufacturing footprint to increase supply over time. This includes our significant investments in US leading edge DRAM manufacturing with our ID1 and ID2 fabs in Idaho whose construction is well underway, as well as the first of our New York fab clusters where we broke ground in January this year. ID1 is on track for first wafer output in mid-calendar 2027 and ID2 in late calendar 2028. We recently launched first production starts of our 1-alpha DDR4 technology in our Manassas, Virginia fab which will add to our capability to support the legacy product needs of our customers in auto, industrial, medical, aerospace and defense markets. In our newly acquired Tonglu site in Taiwan, we expect to support meaningful product shipments from the existing 300,000 square feet in mid-calendar 2027, about a quarter earlier than our prior expectations. Adding to the existing fab, we have begun construction of a similar size second clean room at this site. This clean room will support EUV equipment. Our construction activities and timelines are on track for our other facilities in Japan and Singapore. Complementing our advanced packaging capabilities in Taiwan, our Singapore site will become another center of excellence for advanced packaging. We expect this facility will contribute meaningfully to Micron's HBM packaging capacity beginning in the first half of calendar year 2027. As we make these investments, we will remain disciplined in our approach and will be responsive to the market environment to appropriately align our supply plans. I will now turn it over to Mark for our fiscal Q3 financial results and outlook.

Thank you, Mark. AI has elevated the value of memory. Micron is collaborating closely with our customers and suppliers across technology, product, manufacturing, and commercial teams in this tight industry environment. Strategic customer agreements are ushering in an exciting era for Micron. We expect these SCAs to significantly enhance the durability and predictability of Micron's strong financial performance, accelerating the transformation of our business model. I'm thankful to Micron's team members worldwide whose relentless focus on execution on all fronts have positioned Micron as a leader in this new AI era. As we continue to advance our mission to accelerate intelligence to enrich life for all, we will now open for questions.

As we indicated, under these SCAs that have been completed so far, at the floor price the revenue is projected to be $100 billion, but again as Mark noted in his remarks, we expect revenue to be much higher than that. Note that at the floor price, our profitability levels, the gross margins at the floor prices are higher than peak margins at any time in the past. Overall, about 20% of DRAM and about 30% of our NAND volume is covered in these SCAs so far, so that amounts to about 25% of our revenue that you can project over the term of these agreements. Again, RPO at the floor price is to be reported as an accounting measure, but we fully expect that the revenue will be much higher than that.

With respect to HBM, first of all, very pleased with our HBM4 product and Micron's shipments already of HBM4 of over $1 billion. HBM market share we strategically are choosing to be close to our DRAM share. This is important because of the trade ratio of HBM; it consumes a significant amount of wafers and puts pressure on non-HBM supply in the industry. Targeting our HBM share close to our DRAM share strategically enables us to supply our diversified end market customers across all end markets: data center, consumer, automotive, industrial, the markets that need non-HBM supply. Regarding your question on pricing for next year, we are not commenting on pricing, but certainly HBM is a product where Micron has a strong leadership position. We have demonstrated tremendous success with HBM3 8-high, HBM3 12-high, and now with HBM4, and a strong roadmap ahead. We have strong confidence in our ability to execute. It is a higher price product compared to non-HBM on a per bit basis, and it is a product that is critically important for the entire AI ecosystem from data center to edge. Strategically, it is a very important product for us and it does provide strong ROI as well.

Our large customers include data center, and the large and medium customers that you mentioned, including our smaller customers, they go across data center, consumer, and automotive markets. We have provided you color on the large agreements. They generally have a ceiling price, a price band which has a floor as well as a ceiling, and the ceiling is established at the CQ2 price levels. Those CQ2 price levels are reflected in our FQ3 results as well as FQ4 guidance, and they provide for unprecedented levels of profitability. Those price bands also provide for floor prices where the gross margins are well above the peaks at any past cycle in the company's history. The large agreements are multi-year agreements and they provide us tremendous visibility to demand, customer commitments, and they come with financial commitments including cash deposits that Mark elaborated on further earlier.

Kish, we are not going to get into specific pricing discussions, but I just want to note again that I said that the gross margins at the floor will be well beyond the peaks that we experienced in the past cycle. Well beyond those. But we are not going to get into the specifics related to the pricing. Bottom line is these SCAs really help provide visibility, strength, and durability of demand for us, and they absolutely fundamentally accelerate our financial performance and the business transformation here.

We see 2027 overall tight. We have said we see tightness continuing beyond 2027. Working hard to bring up supply, but we have shared with you that it takes a long time to bring up the additional capacity needed to support customer demands. The additional wafer capacity, technology transitions and the less bit gain that they give per node, as well as the HBM trade ratio, put tremendous pressure on overall supply growth. Even in 2028, when supply begins to improve gradually, we see that demand will continue to be on a robust trajectory as well because these AI trends are very long-term trends. AI is still in very early innings. The whole token economics needs more memory. AI system performance is really very much limited by memory capacity and memory performance, memory bandwidth. As compute demand grows and our customers look at a tremendous transformation opportunity ahead and continue to make investments like they have never made before to build this infrastructure, the demand trajectory is extremely strong. Memory is at the center of it and is a strategic asset, and access to memory supply is obviously a critical priority, as you can see in the multi-year agreements that our customers have concluded with us. Those agreements reflect the confidence in the growth of demand. We are working hard to bring up supply, but we see tightness persisting beyond 2027.