Okay, we're back. So thanks for joining us, everyone, at Wolfe's Auto, Auto Tech, and Semiconductor Conference. I'm Chris Caso, Wolfe's semiconductor analyst. So thanks for joining us. We're pleased to have with us this morning Micron. From Micron, we've got Mark Murphy, the CFO, and Satya Kumar, head of investor relations for Micron. Gentlemen, thanks for joining us today. Good to have you, as usual.
Just thank you for having us.
Absolutely. So, I guess before we start with Q&A. There's a lot to talk about because we're really in an extraordinary time in the memory market right now. W hy don't I pass it to you, Mark, if there's any sort of opening remarks you'd like to make, kind of set the table for us here.
Sure. So I'll start with Safe Harbor. I'll be making forward-looking statements. Those statements have risks and uncertainties associated with them. I refer you to the risk factors disclosed in our public filings, including our recent 10-Q and the 10-K at the end of last year. So our business is on an extraordinary trajectory. since our last earnings call, our business has strengthened, our financial outlook has strengthened further. Demand is significantly higher than our ability to supply and the industry's ability to supply. We continue to expect supply-demand to be tight beyond 2026. We are doing everything we can to plan and invest appropriately for our customers' needs over time. We're making good progress on multi-year agreements with specific commitments.
We are preparing clean room space that will come online over time, and that will give us the ability to grow our bit supply in line with market demand. Now, during the quarter, we announced two new groundbreakings. One in New York for DRAM. One in Singapore for NAND. The new NAND fab will have first wafer out in second half 2028. We also announced the Tongluo site acquisition in Taiwan, which we expect to close in the calendar second quarter. And that Tongluo fab will be used to support DRAM production. Micron is executing extremely well across technology, products, and manufacturing. And let me, at this time, address some recent inaccurate reporting by some on our HBM4 position. We have been in high-volume production on HBM4. We've commenced customer shipments of HBM4, and we see shipment volumes ramping successfully this calendar Q1.
This is a quarter earlier than we mentioned during our December earnings call. Our HBM capacity is ramping well, and we have sold out our calendar year 2026 HBM supply, as we highlighted a few months ago. Our HBM yield is on track. Our HBM4 yield is on track. Our HBM4 product delivers over 11 Gbps speeds, and we're highly confident in our HBM4 product performance and quality and reliability.
Well, you've given us lots to talk about, so that makes my job a lot easier, so I appreciate that. So maybe we could start with the comment about, the business has strengthened further since the start of the quarter. And really, the guidance kind of coming into this quarter was quite extraordinary. I think it's up 37% sequentially, with about 11% in gross margins. So I guess maybe the first question, that while demand has strengthened, we know you're supply-constrained, and so, how should we think about that with respect to fundamentals for both the quarter and for the out-quarter given the supply constraints?
So we have a very positive setup for the business. And, Micron is in the best competitive position it's ever been in at a perfect time. And it's positive in both the demand setting, and it's positive on the supply backdrop. Of course, on the demand side, we have this AI-driven demand. And as AI works to, as companies work to improve the intelligence of AI systems, these are requiring more and better memory. As the models get larger, as the context windows get longer, as the reasoning becomes, more intense, these are all driving higher performance memory and storage. And so we're seeing this, proliferation in the amount of tokens generated, the demands on the processor, the re-architecture of memory systems in order to support that.
And we're seeing high-performance memory being added throughout the architecture. That demand has been very strong. You see we saw that happen through 2025 where server demand increased through the year from what was going to be in the single digits to, mid-teens. And we also saw related to traditional server growth increase through last year as workloads begin to affect even traditional server. So we see that strong growth continuing. And then I think just the latest CapEx investments that you've seen from the hyperscalers, I think for 2026 now expecting close to $800 billion when just a few years ago it was under $200 billion. So we have a lot of very positive things, and we can talk through the fireside here on the different memory products and the performance attributes of those. But the demand picture is very strong.
That is, it's been data center-driven, but we are seeing it, proliferate to the edge. We've seen the content increase there, but eventually with, more autonomous-related activities, more capabilities in smartphone and PC, we're going to see, we believe, that will further strengthen demand. The supply side is, very important as well in contributing to this, this positive financial performance. we worked down inventories through 2025. We have, we just simply do not have enough supply to meet demand and, by a substantial margin. Sanjay said on the earnings call that some key customers were only able to meet 50% to two-thirds of their demand. So that gives you a sense that it's large customers, it's smaller customers, it's broad-based across markets that we are unable to provide supply.
So we are actively working that around the clock, whatever we can do to bring on supply. We're certainly sweating the assets best we can, doing incremental bits. Our inventories are lean, especially in DRAM. So incremental bits are coming through the ramp of our 1-gamma node, and that will provide us the supply in calendar 2026. We have, incremental greenfield capacity coming online in mid-2027 with Idaho One. This Tongluo acquisition will be able to provide some supply, near the end of 2027 going into 2028. And so the point is that supply is coming on, but it takes a long time to bring it on because it's greenfield.
The traditional node transition is still the most efficient way for us to bring on supply, but those nodes are less efficient than it used to be. There's simply not enough ability to produce enough supply out of node transition. Adding to the supply challenge, as we know, is the increase in high-bandwidth memory, which is more silicon-intensive. And that trade ratio, which we talked about, 3-to-1 historically for HBM3, that is increasing over time as we go to 4 and 4 E and 5. That trade ratio simply expands. So that further pressures supply. With that, backdrop, we see continued strong demand. We see supply-demand tightness beyond 2026. We're committed to our investment plans to invest in a disciplined way to supply customers what they need over the long term, and we are working feverishly to get that in place.
But it's resulting, in a favorable price environment, which, as I mentioned, since our earnings, our financial outlook has strengthened further, and that's been, driven by price.
Right. We're not quantifying that at this time, however.
We are not.
The other thing you mentioned in your remarks also was progress on supply agreements with the customers. So maybe you could expand on that a little bit. And again, it's extraordinary times in an industry that historically has negotiated a quarter in advance. So maybe the question is, what is that progress and what are your customers asking you, and how is that different from before?
Yeah. So, we've mentioned for a few quarters now that customers have approached us for these multi-year agreements with specific commitments. And I think it reflects a natural progression of the business that, memory and storage have become more important to AI systems and more important, broadly to, PC devices and smartphones, and we expect this trend to only continue. And, the value we bring is real. I mean, if you look at, HBM3E, for example, we, our product was 30% lower power than the competition. And HBM itself is a very power-efficient way to deliver data to the processor. Just on generations of HBM3E to HBM4, we've, more than doubled the terabits per second bandwidth in just that generation.
So that provides a lot of value. furthermore, on another example of value, and we'll talk more about LPDRAM, but we introduced LPDRAM to server configurations to be able to, move some memory functionality to LPDRAM. And LPDRAM offers 60% lower power than traditional DDR. So again, we provide innovation and great value to the customers. And on the NAND side, there's, on a read-to-watt basis, we have 15 times better performance than HDD. So there's, an opportunity that, we are bringing value to customer systems. And I think, our technology position, our leadership in technology, our leadership in products enables us to, customers appreciate that, and we have a deep engineering relationship.
So you combine that added or increased value of memory and storage with this pressing concern of supply assurance, then customers wanna make sure that they have supply and that they have supply over the next, 3-5 and longer periods of time. So, we're working with customers. It's a positive for them because they work with a technology leader. They gain supply assurance. They know that they can work with us and get reliable supply and high-quality supply. We're best in market there. And, maybe lastly, I'll mention that we now have U.S. supply that will be coming online. And that has become of interest to customers. So when you add all that up, it's a, we think it's a win-win.
Customers get the best technology, the best products. What we believe we're the best operator in the business, and they get supply assurance. And then we also get, a firmer commitment and a clarity as we invest, the large amounts of capital and R&D required to support their needs and advance the industry.
And how far out are customers willing to give you visibility now? I mean, is it a year or is it more than a year? And how firm are the commitments? 'Cause these LTAs have been in place for a while, but there were fewer commitments, fewer hard commitments in those LTAs, right?
Yeah. I mean, they're longer than the LTAs we've done, but we've not provided specifics, and negotiations are underway.
We'll provide those specifics at a later date. I would say that the time horizon of the customers as it relates to memory and storage has extended. It's extended because the product roadmaps are hugely important for them and us, and these are multi-year efforts requiring very deep, customer engagement, engineering collaboration, co-design, efforts. That time horizon on just the memory product side has extended versus what you would maybe think it was, what it was, 10 to 20 years ago.
Right.
And so that's a positive and provides visibility. Furthermore, I would say even our customers, certainly as it relates to capital investment, their time horizon has extended, right? They're investing more CapEx in their own businesses than they ever have. And that, you have a certain time dimension, you think, when you're putting, assets on the ground, and that time dimension is longer than many of them typically have operated as far as physical assets. And so that has, they have to marry those capacity plans up with our ability to supply product over time as they fill those, fill those facilities and deploy their technology.
So, I think there is positive things that both support longer-term agreements and we bring value in a way that, customers are wanting tighter arrangements.
Okay. Maybe moving on, I think your opening comments were pretty clear about what you felt with regard to your technology on HBM4. So really no changes versus your past comments. And I guess I infer from that that your view in the past was that your share of HBM this year would be about equal to where your commodity DRAM share is. And I presume that's still your view.
Yeah. We've not given an update. We said, as you mentioned, that when we launched initially in HBM for our high-volume products, we would ramp, our HBM3E 8- high to the, and then 12 high into getting, HBM share in line with our conventional DRAM share.
And we achieved that. And now it's, it's a product like others that we are always making decisions on, portfolio-based decisions on, what our customers need, what our footprint will support, where the value is in the space. I mean, fortunately, with our technology and product portfolio, we have the flexibility. We can be agile in directing our bits to places we find value. But we're thrilled with our HBM performance. we believe best-performing product in the business, very deep customer engagement, a very rapid cycle of time each, for each generation that we think, makes being a technology leader all the more important.
I would encourage you. We first started, we mentioned HBM4 sampling back in the September call, and then we had Scott DeBoer at a November conference that, he provided more detail on HBM4, including the, technology aspects, the, the metallization characteristics, the, the design attributes, the CMOS that we do in-house. And he talked about all these things, working to be first to market in this, over 11 Gbps, and or first to, to achieve. And, and, we talked further about our confidence in the December call. So again, as we mentioned today, we're in high-volume we're in high-volume manufacturing of HBM4. we're commenced shipments to customers. We're ramping calendar Q1. Again, that's, that's an improvement versus what we said in the December call, which was calendar Q2.
I think we're thrilled with where we are, and the future roadmap for that product is very strong.
Understood. Maybe I'll pivot to some of the financials as well. And, obviously, gross margins have been very strong both as a result of HBM, AI, and the pricing that's going on in the broader market. How do we think about margin progression from here, from these levels? And I think one of the things you mentioned in the call was that pricing improvement at these margin levels doesn't have the same incremental benefit. So maybe perhaps level set us with where margin expectations should be given this environment?
Yeah. we guided 68%. So we, and we've indicated today that our financial outlook has improved since our earnings. And we did talk about how just the math and that as you increase price at this level, you get less of a margin effect than at lower margin levels. we do believe that margins will expand, from our second quarter here into third quarter. And we believe that, the market environment, as we mentioned, we expect the market to remain tight beyond 2026. And, so, that clearly supports the pricing environment. And then, of course, we're ramping our 1-gamma node for bit supply, and so our cost performance has been good. And we're operating really well.
I mean, we didn't really talk about it much on the call, but our spend control is very good. And so our cost performance between that and just the volumes has absorption has been good. And then on mix, that's also been a positive story for us. We have the flexibility with our premium technology and our portfolio to, have mix be a contributor, over time. And so we're working our best to optimize business.
Okay. Maybe I'll pivot over to NAND. And, it's a smaller part of your business, but maybe you could talk about how your outlook for NAND may have changed, since this time last year. Obviously, pricing is up a lot, but where does that fit in, into Micron's strategy? And, is this a situation where, you're leaning into NAND a little bit more? Is it what tell us where you are.
NAND's an important business for us. Always has been. And, but as last year, sort of from late 2022 on, the industry had ample supply of NAND. And, we, we had brought utilization down in the in the fabs or in the fab. We had slowed node migrations. And, and, and, and, in an effort to get, supply-demand balance. We concurrently had, over the years, including through the downturn, really worked to improve and sharpen our portfolio. we brought controller capability in-house. We, we, extended our leadership on, on, technology 232-layer at the time, process technology. And, we just worked to build the best business we could, in that environment.
And today, we enjoy really, really a preeminent position in the NAND market, where, we have the best portfolio product serving the most attractive part of the market, which is the, data center SSD market. And, and we have, ranging from, our performance SSDs where we do TLC, to our capacity drives where we, have world-class QLC. We've, gained share in those markets. And then, the last quarter, we mentioned that we had achieved over a billion-dollar run rate again in that business. Again, it's maybe a similar story as broader Micron. Micron's in the best position it's ever been in its history, at a perfect time.
This AI revolution has afforded us the opportunity to serve very important customers, driving very important technology forward, and the financial result for us has been positive. Now, likewise, on the NAND business, while it was not performing financially as we would would have wanted, due to due to supply-demand balance in the in the market, that has tightened up pretty quickly. And, and, as you as became particularly clear during CES where the processor loads are so high in AI systems that, there are very active efforts to reconfigure the the memory and storage to allow that processor to be most efficient.
And so you're seeing a tiering of memory and storage that storage has emerged as an important part of the architecture. And you have, the hottest data, as an HBM serving the GPU or ASIC very aggressively. You can offload some of that through LPDRAM, which we innovated in bringing that into servers. And there's an efficiency there. And that's, warm data. And then you've got cooler data, which now, if it doesn't need to be used immediately or with a latency that is acceptable, it can reside in a drive.
So, that, that's occurring, and it's a function of this as the context windows get longer, as the reasoning becomes more intensive. This offload to KV cache has become more important, is bigger, and that is helping drive storage. So as a result, we do see the need for additional greenfield space on NAND and hence we announced the fab in Singapore. And that'll be, 2028. we said first wafer starts and that, second half 2028. So it plays out, but until then, we will supply the market as, as needed through node transitions. And in this case, it's a G9 node transition. But we're in a great position on NAND. And maybe Satya, if you wanna talk about LPDRAM specifically, since we're talking about the data available.
Chris, I know the question was on NAND, but Mark touched on an important point, the hot, warm, cold KV cache tiering. And, we actually published a paper, white paper last week on LPDDR, which sits in the warm tiers. If you search LPDDR Micron, you'll find that white paper. And what it talks about is the importance of content increase in that tier. So it talks about how you're going to see systems that'll be coming out this year which will have tripled the amount of LPDDR compared to what we had last year and how adding that additional DDR content, LPDDR content, cuts the time to first token by 98% and improves inference significantly. So do take a look at that. Good, good information there. Yeah.
We can include a link to that in the note that we write up after this discussion, so. We've got about 6 minutes left. We could take a question from the audience if there are any, not to put anybody under pressure. I'm happy to keep going. But nobody's raising their hand as that's the usual response. maybe I could follow on with one of the most frequent investor questions here is the sustainability of what we're seeing right now. And we've all been through a number of cycles. Boy, this one sure feels different than the other cycles. But what's giving you confidence in the sustainability of what we're seeing and for how long?
Yeah. So, we talked about it, quite a bit at the beginning of the chat here.
What gives us confidence is that both the demand and the supply factors are very positive, and they are improving, actually.
So, on the demand side, I don't wanna repeat everything earlier, but it's clear that as this AI technology advances, and, the token generation is increasing, memory to produce better results, become more intelligent. That is demanding. An efficient way to do that, an important way to do that, is through more memory and storage, more as in more of it and higher performance memory and storage. That is becoming clear, and that's from the data center to the edge, and the edge will become increasingly important here, as you think about, robotics and autonomous activities. it's been, largely training and then, focused on training and, reasoning and, referencing. And, what'll be the next I think this year, there'll be a lot of talk of agentic activity.
So, where, the enterprise systems are being used by agents, and that's going to increase the activity more. So again, this all points to a strong demand picture that is broad-based, that plays to our strength on technology and product leadership and manufacturing excellence. So demand side's very good. On the supply side, there is, we are doing everything we can to add supply to meet our customers' needs. That is very important to us that we serve our customers the best way we can, technology, products, and supply. So we are doing that, but there is no, easy or fast way to get that done. We're working very hard, toiling to get incremental bits out on our existing capacity.
The node transitions, which are less efficient than they used to be, the node transitions we are working this year will provide our supply, as we talked about, on the, our 1 gamma. 1 gamma will be the majority of our bits in the second half of our calendar 2026. HBM is soaking up more of that supply, so it's challenging that. So it's gotta be greenfield that's added, and we've given you the roadmap of our greenfield plans. Now, I did wanna mention I forgot to mention earlier the, so we have ID1, which will produce bits in, second half or mid-2027, at volume. And then this Tongluo acquisition that we just completed in Taiwan, and expect to close in the calendar second quarter, and it was in the press release, that was $1.8 billion.
So that $1.8 billion and the associated tool install and other things, that will be added CapEx for this year. So we will have, we guided $20 billion on the last call for CapEx in fiscal 2026, and this Tongluo additional investment will add to that number. But again, that is capacity that's gonna produce in, later in 2027, and then, our other expansion plans are well beyond that. And so, there are very positive demand factors. There are very positive supply factors that, I think allow the, look that the industry will be in good condition. Now, we always are investing very carefully. We're reassessing the market continuously. We're looking at what competitive additions there are in the market.
to the extent there's any change in our view on demand, be it positive or negative, we will adjust. With this, with the increasingly greenfield capacity versus just node transitions, I think that allows some standoff to, modulate builds to make sure you're meeting the long-term demand in the most responsible way. In the near term, working very aggressively to get supply to our customers, doing everything we can, working with them on longer-term agreements, which helps us get line of sight to longer term, and then always investing in a very disciplined way, in our business and having the best technology and products in the space.
Okay. It looks like that's the time we have, so we'll wrap it there. But Mark, Satya, thanks for joining us today.
Thank you, Chris.
Thank you, Chris.
Thank you.