Good morning, and welcome to the second day of J.P. Morgan's 52nd Annual Technology, Media, and Communications Conference. My name is Harlan Sur, I'm the Semiconductor and Semiconductor Capital Equipment Analyst for the firm. Very pleased to have Mark Murphy, Chief Financial Officer, and Manish Bhatia, Chief Operating Officer at Micron Technology, here with us this morning. Gentlemen, thank you for joining us. I'm gonna go ahead and kick off the Q&A, and we'll have some time for audience questions as well. So again, thanks for joining. You know, as we closed out the March earnings season, heard from most of your peers, all of them echoed similar views relative to your earnings call back in March, right?
Tight industry supply, demand trends expected to continue into next year, customer inventories of memory at normalized levels, better second-half seasonal demand trends, strong new drivers of growth like AI, which is obviously pulling demand for things like HBM and data center SSDs, and finally, a posture of continued supply- side and CapEx discipline, right? So now that we're coming full circle here at the end of your team's quarter, any differences relative to your prior views, and more importantly, any changes on expectations for continued strong pricing improvements to this calendar year, record revenue outlook, and significant profitability outlook for 2025?
Okay, thank you, Harlan, and thank you everyone for joining us today. Start with Safe Harbor, actually. We'll be making forward-looking statements. Those statements have risks and uncertainties associated with them. I refer you to our risk factors disclosed in our public filings. Harlan, to your question, no new comments on the market environment or trajectory of the business from what we've said recently at earnings. Continue to see tight supply-demand balance on the leading edge. We expect prices to continue to increase through 2024, and we still see data center growth improving in the back half of the year. No update on guidance for the May quarter or on the indications we provided for the August quarter, including gross margin in the low 30s +% area.
We now see FY 2024 CapEx up some to about $8 billion. That's versus prior view was $7.5 billion-$8 billion.
Mm-hmm.
And that's as we intersect the HBM opportunities ahead of us. Consistent with prior view, we see positive free cash flow for the May and the August quarters. If we look farther out, we project record revenue in our FY 25, and significantly improved profitability year over year. Micron's in an excellent position across technology, products, and manufacturing to benefit from this upturn and the anticipated growth we have ahead of us.
I appreciate that. One of the things that did occur during the quarter was obviously the earthquake in Taiwan, obviously an unfortunate ramp. Micron team has fairly large footprint of DRAM manufacturing operations there, and I know that the team did put out a press release or an 8-K around the potential impact, what I think you said mid-single digits type of quarterly impact to your overall DRAM supply. So it doesn't sound like that's changed. Manish, since we have you here, you know, how did the team recover? Postmortem, how did the team recover from the earthquake, and are things sort of back on track and back to normal?
Sure. Thanks, Harlan, and thanks for having us here. Yeah, and as you referenced, you know, the earthquake that hit Taiwan in early April was the largest earthquake in the last 25 years, so it was a substantial event. And, you know, our teams did extremely well, rallying team members, actually, not just from within Taiwan, but from other sites, not just in Asia, in the US, to be able to come in and help restore operations. You know, we did have...
We put out the statement that, you know, up to about mid-single-digit % of one quarter's DRAM output loss through a combination of some wafers that had to be scrapped, some lost production as we were restarting equipment, and then some slightly lower yields on product that was already in process. But all in all, I think the Micron teams responded extremely well, and, as you know, we haven't had to make any further comments since then, and as Mark noted, no further comments relative to our guidance either, so.
Perfect. No, I appreciate that. From an end-market perspective, you know, back in March, the team highlighted data center customers were still working through normalization of some excess inventories, but you guys had anticipated data center inventory normalization would occur in the first half of this calendar year. Obviously, we're line of sight to that, to, to that. I mean, have inventories already normalized in the data center market, and how do you see, in general, inventories in the traditional PC, smartphone, and embedded markets?
Yeah, DC data center inventories are normalizing mid-year here as we expected, and as I mentioned in my opening comments, expect growth to pick up in the back half of the year. On PC, smartphones, we did see OEMs opportunistically build some inventories-
Mm-hmm.
In anticipation of return to unit growth and AI-driven content growth. But then more broadly, inventories are in good shape.
From a supply perspective, you know, our global team just updated our memory industry supply-demand model. From a bit demand perspective, you know, we're looking for DRAM bit demand in the sort of mid-teens growth range this year, NAND bit demand growing kinda low 20%. Overall bit supply below the bit demand levels for both DRAM and NAND. We're modeling industry DRAM wafer capacity up about 10%, right? Primarily for HBM. NAND wafer capacity flattish, just on the continued supply discipline of the industry. How does this compare to Micron's industry demand and supply outlook and Micron's supply dynamics within this?
Sure. So, you know, we continue to view the DRAM industry long-term growth rate at mid-teens bit growth rate. And that's inclusive of HBM, which I'll talk a little bit more about, and NAND in the low 20% range. With regard to production capacity, I think we've highlighted before that, through the downturn that we just experienced, Micron deployed a capital-efficient methodology to be able to transition to newer technology nodes while reducing wafer capacity. So basically, reusing more of the equipment towards newer technology, taking wafer starts down in both DRAM and NAND, by low double-digit percentages, and that's sort of where we are relative to our peak output capability back in 2022.
Mm-hmm.
So, from a wafer capacity standpoint, we're actually done. We believe this is actually a phenomenon that the entire industry-
Yeah
... went through to be able to manage CapEx-
Yes
During the downturn. So as we look ahead to the HBM opportunity, I mentioned that the mid-teens CAGR growth rate includes HBM, which, as we've discussed before, high-bandwidth memory has larger die sizes-
Mm-hmm
-and consumes more wafer capacity per bit of output, production. So, keep in mind that as HBM grows in mix, the effective bit growth rate for the industry will be higher. The need for both technology transitions to be able to generate more bit growth, as well as, greenfield wafer capacity start additions will be needed as we move forward and see HBM growing as part of the industry mix, and that'll be for everyone, not just for Micron.
On the topic of HBM, you know, the team started shipping production bits of your 8-high HBM3E solution this quarter. Can you just give us an update? How has the ramp proceeded? Is the team hitting yield, manufacturability milestones? And we know you are shipping into NVIDIA's H200 GPU platform, which is ramping now. Are you also supporting the Blackwell platform, and have you diversified your wins to non-NVIDIA XPU compute platforms?
Yes, that's right, Harlan. We mentioned on our call in March that we had begun production shipments, and that ramp is started. We also mentioned on that call that we expect several $ 100 million worth of revenue in the second half-
Mm-hmm
... of fiscal 2024, which would be the—sorry, the February quarter—sorry, the May quarter and the August quarter, and we're on track for that. And, so far, so good. Going well. In terms of the, you know, the breadth, we're not—we can't comment too much on other customers, but we are focused with that one partner right now, and off to a good start.
The team, in addition to targeting $100 million of HBM revenues this fiscal year, you also had anticipated HBM revenues this quarter to be accretive to both your DRAM and overall gross margins. Is the team hitting that milestone?
Yes, we're on track for HBM. You know, the cost of HBM is higher-
Yeah
... but the pricing enables us to actually have more than offset that, and the margins are immediately accretive to our DRAM gross margins, even starting in the first quarter of production.
Mm-hmm.
And we expect them to continue to do so as we grow the business. First, you know, we mentioned several $100 million expected in fiscal 2024, and-
Yes
... in fiscal 2025, we expect HBM to be a multi-billion-dollar business for us.
Yeah. So now that it's clear that industry bit supply will be tight for the foreseeable future, your customers want predictability, right? Well, especially when the demand profile is growing strongly, like HBM for accelerated compute and AI applications. I know last we spoke, the Micron team was sold out on HBM for this year, right? You've locked in volume and pricing agreements for this year. At the time of the earnings call, you were almost locked up on volume and pricing for next year at, You know, so is the 2025 output all locked up now? And what about the non-HBM part of your business? Are you locking in LTA agreements in these segments as well? As I assume, customers here also want some predictability in a tight supply environment.
Yeah. So, as you say, we are mostly allocated for next year on HBM. And in addition to the volumes being allocated, the pricing is mostly set as well. As Manish just mentioned, we expect to have $several hundred million in revenue in HBM this fiscal 2024, and then next year, fiscal 2025, we expect multi-billion dollars revenue in HBM. Now, non-HBM, no changes there.
Mm-hmm
On pricing dynamics, but you know, the HBM, you know, supply requirements are creating a tighter market more broadly in DRAM.
On, um-
I think it's important to note just on the LTAs-
Yeah
for next year.
Yes.
Calendar year 2025, I mean, this unique dynamic with, the, you know, high-bandwidth memory market and, and Micron's high-bandwidth memory product being so much so superior to others, not only are we locking in LTAs for supply for calendar year 2025 already, but those LTAs actually include pricing as well. So they are really, it just demonstrates the strength of the product that Micron has developed, as well as the, demand strength for, you know, these platforms for, for high-bandwidth memory, for the future.
You know, as we think, as we think about high-bandwidth memory, which obviously wasn't a big driver even, you know, 18, sort of 24 months ago for the industry, and you layer on top of that all the plethora of new introductions of all of these new AI compute platforms, NVIDIA H200, B200, you've got all of the hyperscalers announcing new ASIC programs, right? And all of these next-gen architectures are driving higher HBM, DRAM support. You put all of this together, I mean, I think since 2023, and extrapolating through the next couple of years, our team at least forecasts HBM bit shipment CAGR of about 160%. So 2023- 2025, 160% bit shipment CAGR. Exit run rate in 2025 is we're forecasting about 70% sort of bit demand growth type profile.
What's the Micron team's view on sort of the mid- to long-term view on bit demand CAGR for HBM?
Um, Xavier?
Yeah. So-
Go ahead.
Yeah, maybe I'll start, Manish, can build on it. So, you know, on HBM, as far as industry share, it was, you know, between 1% and 2% of bits last year.
Mm-hmm.
Probably around 4% this year, somewhat higher, as we look out the next few years, the share of bits in the industry will grow. We expect our HBM bits to grow over 50% CAGR, over the next several years or over the near term. And keep in mind, there's this trade ratio of 3-1, so the HBM capacity consumed for HBM is triple this rate, so.
So the 50% CAGR on HBM bits, is that from, let's say, from this year going forward? Is that the way we should think about it, maybe for the next few years?
In the near term.
In the near term.
Mm-hmm.
Okay, perfect. I'm gonna open it up. I'm gonna move over to a different topic. So before that, though, I do want to open it up for questions. If you do have questions, raise your hand, and we'll get. We'll run a mic over to you. No questions? Okay. As we think about your roadmap on HBM, team started sampling your 12-high HBM3E back in March. Has the team begun qualifications of 12-high solutions, and what's the timing of an adoption and shipment curve look like for 12-high?
Sure. So 12-high is a unique product. It's a 12-high stacked HBM product versus the current standard 8-high product that we're in production on today. So it represents 50% more DRAM content in the same number of sockets. So it's actually a significant demand growth driver for the industry and for Micron. And you're right, Harlan, we did start sampling that product earlier this quarter, and we are working with our customer to be able to bring that into production.
Expect it to really be a 2025 revenue driver and continue to increase in penetration throughout calendar year 2025 and become an increasing part of the mix of the overall HBM market as all of these AI applications are so hungry for memory, and this is the best way for them to get more memory per GPU into the system, is to go to this higher density stacked memory. So you'll see that the higher-end applications will end up having deeper penetration of the 12-high as we go through calendar year 2025.
As you've benchmarked your 12-high solution, obviously, your customers obviously have competitive solutions, as well. As you've continued to sort of benchmark 12-high, obviously, one of the big differentiators on 8-high was better performance, 30% power efficiency relative to competitive solutions. Do you see this performance and power advantage continuing?
Absolutely. Absolutely.
Yeah.
I mean, the power performance comes from the base HBM die, which is based on our 1-beta process technology, which we believe is the best in the industry and well ahead of our competitors, and that allows us to be able to deliver on those metrics, along with, you know, we're using similar packaging architecture, and we have some novel IP that we use in that packaging structure, which we're very confident is helping us give some of those performance benefits as well. And so we absolutely see our advantage continuing in HBM3E as we move from... Not, not move from, there'll be a mix of 8-high and 12-high both, but we expect to be very well positioned on both throughout the HBM3E lifetime.
As the tech, as the HBM technology matures, as you look at your roadmaps, do you guys anticipate a cost down pace that is similar to your mainstream DRAM products, i.e., which is sort of mid- to high-single-digit percentage, sort of annualized cost down reductions over a longer period of time for HBM?
Well, I think that, you know, as we look forward, the mix of the HBM in the market will determine a little bit what the cost down capabilities will be. Certainly, the underlying technology, we would expect to be able to have, you know, strong and competitive cost reductions as we transition more of our capacity to 1-beta, as we move to our 1-gamma node event and others. But the, you know, HBM, will have a few different factors. One will be product mix. How much is 8-high? How much is 12-high? As we transition to HBM4, the performance parameters around that may drive different die size considerations as well, and certainly eventually HBM4E also.
So I think the cost down part of HBM is still gonna be determined a lot by the performance requirements of each generation, as well as the mix of HBM. But I think what's really important about HBM is it's really a value-based product. I mean, the fact that it's higher cost today, but we're immediately able to be margin accretive-
Right
... projecting it to be margin accretive throughout its lifetime, means that it's really a high-value product, where it's around the performance and the power benefits and the density that we're able to provide to our customers is really what they're hungry for and what all these systems require in order to be able to deliver optimal accuracy improvements through generative AI algorithms. And so, you know, we're really focused on being able to deliver maximum value through power, performance, and density across all the HBM products we're developing.
Perfect. I'm gonna start talking about some of the different end markets. Do we have any questions from the audience? Okay, from an end market perspective, you know, there's been a lot of debate about general purpose server demand this year, right? Continued concerns on AI spending, crowding out general purpose compute spending. Within your view of mid- to high-single-digits growth in server shipments this year, are you forecasting general purpose traditional server shipments growing? And the team did mention seeing a pickup in demand late in the prior quarter on traditional servers. Did that demand continue into this quarter, and is it cloud hyperscaler driven? Is it enterprise driven, or is it just broad-based?
Towards the end of the quarter, we saw some signs of recovery on traditional server and CPU vendors have talked about a second half recovery. So we think, you know, as we've talked about several times, see a market returning to growth there and broad-based.
In PCs and smartphones, there is optimism on AI-driven semi-content gains per system, which will, of course, drive higher memory requirements. PC, smartphone CPU vendors are bringing to market, right, NPU-enabled CPU architectures. It will be a big part of the mix, looking into next year. I assume you are getting some visibility on AI CPU mix for next year for PCs, smartphones. What does that mix look like, AI CPU versus non-AI? But more importantly, what are you seeing on applications and software development that's actually gonna take advantage of these integrated AI capabilities?
I mean, we're seeing a lot of activity on the edge and the market trying to determine a lot of factors around, you know, the size of algorithms, what's on the cloud versus device, you know, dealing with battery life and all that. But we are seeing, and we've announced some products that, you know, offer, for example, in smartphones, more predictive features, more personalized experiences, more seamless interactions. So, there's certainly, you know, AI is gonna play a positive role in helping drive smartphone and PC growth, and especially in the refresh cycle. We've said that we see, you know, there's two dimensions here.
One is the, you know, the amount of AI content in an AI-rich device, and we've said that smartphones, we see 50%-100% more DRAM.
Mm-hmm.
In PCs, we see 40%-80% more DRAM in an AI-rich device. And then there's the penetration, how quickly will markets adopt AI-rich which feature? So we're seeing it in, you know, heading into flagship and, you know, the reports of one in three smartphones in 2025 being, you know, AI-enabled, so to speak, and then in PCs, you know, probably over half by 2027. So it, it's happening, and it's positive.
I think, Harlan, the—as Mark mentioned, I think what's really exciting about this AI-driven demand cycle versus some of the other cycles that the industry has had, I mean, when you think about, you know, internet and PC era in the late 1990s, early 2000s, the smartphone era in the late, you know, noughts and early 2010s, even cloud in the late part of the 2010s, each of those was basically a new segment or a new application-
Mm-hmm
... coming on to complement the existing segments that were already there, and that opened up new vectors of demand for memory and storage. But AI actually is not just about the data center, obviously, but every single one of the applications that we're talking about are impacted and have the positive content growth story for DRAM and actually NAND flash. Whether it's smartphones and PCs on the edge, autonomous automotive, as we have increasingly autonomous features being built into automobiles and even EVs with richer content, and more you know AI-driven capability that will be being presented. And of course, you know, in the data center as well. So AI has the ability to— It's not just a single new demand driver-
Right, right.
As other vectors have been over the last 20 years of the industry. This has the halo effect across all the different end markets that we serve in. That's why we're hopeful that, you know, this cycle could be more durable.
Yeah, and that's, we did get a question from one of the web listeners, which sort of tacks on to that, which is: How much of an opportunity is your specialized LPDDR5X for data center applications, and is it exclusive to Micron?
Well, we do have. I think we've talked about one engagement with a particular customer-
Right
... where we do have some unique features that we've developed for them. But broadly, I think we are starting to see more of these sort of supercomputer data center architectures that have combinations of high-bandwidth memory, high-capacity DDR5-
Right
-modules and LP module high-density packages all in, you know, combined into these systems to be able to have memory for various different workloads all together, so optimized for each of the different capabilities. Obviously, LP, low power, has the benefit of being able to provide low power and high-density memory to all of these architectures, and that's one of the reasons you're starting to see it to be adopted more, and we will see it adopted more in data center architectures going forward.
Switching over to NAND, you know, in addition to just the improving industry demand and supply trends, you know, I think one of the big Micron-specific inflections has been the strong increase in your enterprise and data center SSD share, right? In calendar 2023, Micron actually moved to being the third largest global enterprise SSD supplier globally, right? You've always had strong share in SATA-based data center SSDs. In fact, you exited last year with a record high of 25% share, number two player in the market. But on the newer and higher volume PCIe-based data center SSDs, your share has actually gone from, like, 3-4% in calendar 2021 to, like, 10%-12% exiting last year, with full year number 4 global market share in PCIe.
So, what has the team done to improve the competitiveness and performance of your Enterprise SSD portfolio?
Well, Harlan, thanks for noting that.
Yeah.
And it really is a tremendous execution story, you know, I think it starts with the strategy that we outlined, you know, many, many years ago and have updated on, you know, progress points, but focusing on high-value solutions. So we actually, you know, organized our SSD development teams around the goal of being able to have deeper enterprise and data center SSD penetration. We knew that was a high-value area, and as a relatively smaller player in terms of NAND bit supply, we knew we wanted to direct those bits to the highest value homes. Of course, for now, a couple of generations, both our first 176-layer-
Mm-hmm
... and now our 232-layer, you know, have developed, you know, have reached industry leadership in terms of NAND capability. So we're able to leverage that capability, combined with some specific actions we took on the SSD development side with regard to developing our own custom controllers for PCIe, improving or enhancing our firmware capability, and specifically, instead of waiting and having enterprise and data center applications be trailing, in terms of when we are productizing them relative to when the, the 232-layer node actually was, was introduced. We actually pulled that forward and targeted data center much earlier in life, faster than we had ever targeted before.
So that means that the technology and manufacturing teams on the NAND side, combined with the development teams on the SSD side, were working together hand-in-hand much earlier to be able to target some of these terrific applications. One of the ones that I think we talked about on our call that's getting great adoption is our 6500 high capacity, up to 30 TB in the data center for a data center SSD, which has been part of the story around our gaining share. So really around our strategy and then execution to that strategy from all levels, from the technology development, the ASIC controller, the firmware, and our collaboration with customers on specific applications where our NAND flash really shines.
Well, the good news is that the step-up in competitiveness, both technology as well as product, like you mentioned, the 30-terabyte high-capacity drive, it does feel like the team is bringing a very competitive set of products to the market right when it's been a little bit of a lag, right? The DRAM pull has always been strong from accelerated compute and AI, but it feels like SSD has been a little bit of a lag. But I think, I think as we've heard from you and some of your peers, as time progresses, and we see more deployments of XPU-based server clusters focused on AI, whether it's training or deployment and inferencing, the demand pull now for ESSD is really starting to show itself, right?
The team bringing a competitive set of products and intercepting that AI curve as it starts to ramp is very timely. Do you get a sense that a lot of the demand that you're seeing for enterprise SSD is being driven by accelerated compute and AI applications?
Yeah, I mean, we are. We're seeing new data centers that are very heavy mixed SSD, if not all.
Mm-hmm.
And I think it's, you know, this whole discussion I think highlights the unique advantage that Micron has. I mean, we are hitting our stride-
Yep
On technology leadership products and manufacturing, as Manish mentioned on 1-b eta and 232. But it's, you know, our products are hitting the market at the right time, where the workloads for this, for you know, AI activities, and then just the system requirements are such, and the power constraints in the market are driving folks to differentiate products. And as you heard here on some of the key products, HBM, low-power DRAM, SSDs in the case of NAND, Micron is doing exceptionally well because of these macro themes.
SSD is a great example of the team bringing new technologies and performance-driven products to the market at the right time. From a core technology perspective, the move to EUV on your 1-gamma DRAM process is another example of that, right? So you're on track to start to ramp 1-gamma EUV DRAM in calendar 2025. You were actually very smart in proving out and driving manufacturability using EUV on your 1-alpha and your 1-beta processes. How are the current manufacturability metrics looking for 1-gamma? Does the team expect it can continue to drive a mid- to high single-digit sort of cost-down curve over time, even with EUV as a part of the flow?
Yeah. So we're on track, as you mentioned, for 1 Gamma in calendar 2025, and that will be our introduction for EUV. You know, everything is on track for that. Our utilization of EUV, we've demonstrated it on both our 1-al pha and now our 1 Beta technology as well. It's not required for either of those, but in order to get the learning of how to work with the systems, as well as the other elements of the solution, the resists and other elements that come together, the new reticles, the new resists, and the tool together, we have had significant production with the EUV tools, frankly, for the last year.
So we feel pretty good about our ability to deploy it in production in 1-gamma. That's not gonna be a challenge. I think the other thing that we feel really good about is the tools that we have purchased. Because of our decision to delay introduction and extend our multi-patterning immersion capabilities further, we were able to get better performing tools from ASML. So the tools that we have versus earlier generations have better specs, better performance, better maintainability, and ability to have higher uptime and more serviceable. So for all those reasons, we're confident that our EUV insertion point is the right time, and that we'll be able to be successful with our 1-gamma ramp next year.
Shifting to the cross-cycle financial model you had laid out at your last Analyst Day, you know, revenue CAGR target of high single-digit % growth, operating margin 30%, EBITDA margin low 50%, CapEx intensity mid-30s, free cash flow margins greater than 10%. This was before the AI-driven sort of memory demand dynamic, right? Has the incremental demand drivers, the potential to drive higher value-added products, driven a change in how the team thinks about its through-cycle revenue growth and profitability metrics?
There's been no change to the model. But to your point, we're very excited about the position we're in between our advanced technology, our leadership, our product portfolio, and then just how we're operating in manufacturing, and our ability to, you know, take advantage of the market recovery here and then the growth opportunity in front of us.
Well, great. Mark, Manish, thank you for participating today, and look forward to monitoring the progress and execution of the team this year. Thank you.
Thanks, Harlan.
Thank you, Harlan.