Good morning, everyone. I'm Sebastiano Petti, and I cover the telecom, cable, and satellite space for JPMorgan. I want to welcome Hans Vestberg, Chairman and CEO of Verizon. Hans, thanks for joining us today.
Thank you so much for having me. Why don't I start with a safe harbor? I'm definitely going to say something future-looking, so just take a look at a safe harbor and you know what to do.
All right.
That was the public statement.
That was a good one.
That was a good one, yeah. Thank you.
Now we've got the important stuff out of the way there. Hans, there's a lot going on at Verizon these days in terms of the pending Frontier acquisition, evolving product solutions in the wireless, broadband, consumer, and business, and the brand refresh. Where are you spending most of your time these days? What are your biggest near-term priorities as you position Verizon for the next decade plus?
Right now, I guess I spend the majority of my time on product and solutions that we're launching and seeing that they are rightly designed and have the right pull-through. Secondly, work a lot with the capital allocation priorities as we're preparing for our next step when it comes to capital allocation. We will probably come back to that. Thirdly, of course, we are preparing for the pending acquisition of Frontier. I think that's where I spend the majority of my time because all of them are important for our future, important for our continued growth on revenue and B10 cash flow expansion. That's where I spend the majority of my time, together with my team, of course.
Great. In early April, you announced the third phase of the Verizon Consumer Group transformation, which is the three-year price lock. A couple of things to touch on there. First, how does the Verizon guarantee value proposition stand out in the marketplace?
Yeah. For some of you that remember, now we talk about consumer wireless postpaid first. We came out there in 2023 and started to do a lot of research with our consumers. Basically, came out with a lot around flexibility, but also control over the bill and getting more value. That was sort of the three themes we saw. We came out with MyPlan, which some of you know is a very modular way of selling consumer wireless. Basically, you pick whatever wireless plan you want for connectivity. We have all our perks that you can add, all streaming services on wireless exclusive to us. You have all the adjacent services from insurance to credit card, the latest high-yield savings account with Open Bank. All that is sort of what they call the consumer offering framework.
We saw a really good tick up, and I think it's the fastest-growing consumer postpaid product we ever had, MyPlan. Over 50% of our customers in a very short time have MyPlan. The next step was sort of what we announced in April was two things. One was the three-year price lock on MyPlan and MyHome. MyHome is for broadband, very similar to MyPlan. We also had any phone trade-in guarantee for new and existing customers. That was sort of a next evolution of where we are in our consumer wireless. We have to say, when we came out on the first quarter, we said that we had basically double-digit gross ads, and that was the 22nd of April. I can continue to say that we have a very good gross ads growth, double-digit continues.
At the same time, you might remember what I said after the first quarter, our churn on postpaid was elevated, mainly because our last price ups was a little bit higher than expected. As I said after the first quarter as well, we believe that churn will normalize in the second half of 2025. Good traction on the program and the new offerings, which I'm pleased to see. That is postpaid wireless performance. All in all, in a market where the majority of the U.S. population has a mobile phone, it becomes very important with the right offering and the right service and the right brand together with the best network. I think that's how we compete, and I think we're competing better than ever.
Got it. I guess maybe thinking about why the price lock, why is this the right strategy as you think about the competitive backdrop in the.
I think the backdrop was a coincidence that we also, of course, had a little bit of consumer sentiment declining because we had been planning for that for quite a while. No, it was a good time because we have for a while on consumer postpaid been doing some price increases. As we went into 5G Ultra Wideband, we saw the performance in our investments. We had done some price increases in several places to get there also with trying to get some customers off some old plans because that's efficiency for both the customer and us. It was a good moment to get there. As I said, I mean, now we're 50% on MyPlan that has a price lock. We still have 50% that doesn't have it. We also have all our perks that we can continue to grow. We have all the adjacent services.
We feel that we still have a good way to continue to grow our business, our service revenue on postpaid wireless. When we come to prepaid, we come to the business side and come to broadband, more areas where we have great opportunities to continue to grow and been proving the last couple of quarters that we're really performing well in those as well.
Great. All right. Sticking with the wireless for a moment here, while there's been a lot of focus on gross ads and switching, you did talk about the double-digit growth in consumer in April continuing. Tony touched upon the performance continued to be strong at the time of the earnings call. Churn has been more elevated than we expected coming into the year. Part of that's market-driven, but you also said somewhat idiosyncratic as it pertains to the price increase. I guess help us think about even before the three-year price lock launched, gross ad momentum had been improving within the business. I guess you had talked about stores, promos, some of that momentum, and then now the price lock, perhaps somewhat more additive. How do we think about the BAU go-to-market strategy and, I guess, blocking and tackling in addition?
No, I think that on the wireless side, we work very much with segmented growth. We have some eight, nine different brands in order to address the full market on wireless. As you saw, our prepaid brands are doing really well. First quarter was just very, very good. First time we were really in the green on growth on prepaid. I mean, we have a portfolio and a strategy right now that appeals to any segment of the market when it comes to wireless offering, all the way from Lifeline, which is the government-subsidized plans, to, of course, the ultra-premium Verizon plans. That is the go-to-market. I mean, our new brands like Total Wireless, where we open almost three new doors a day, is, of course, performing well, addressing a segment where just in between postpaid and high prepaid. I think we have segmented up all the brands.
We have defined the brand and the segments in a good way, and that we now see it performing well. We have also changed our incentive structures for our distribution. We have done a lot of changes, and that's why we see the performance improving a lot. We add now also the opportunity of convergence happening across the distribution with Fixed Wireless Access and Fios. Nowadays, after 25 years, basically, we have also Fios in the stores because for 24 years, 24 and a half years, Fios was sort of separated. Nowadays, in our ILEC, we can offer both Fios and wireless in the store, which helps a lot with the convergence.
As we said when we reported the first quarter, we continue to take market share on broadband. The vast majority of all the new broadband customers, we had almost 340,000 in the quarter, new broadband customers, the vast majority was converged customers. They had wireless or they bought wireless at the same time. We see this is working. The great news for us is that we have owners' economics on wireless and broadband. We have owners' economics on the wireless, on our fixed wireless access, and our Fios. We own the whole network. We own all the fiber. That is going to be a competitive advantage in a market where the majority of the customers, business, or consumer, have mobility and broadband services.
If you can offer the convergence and a good experience on that, that's going to be the key because ultimately our focus is to continue to grow our service revenue. I mean, this is one of the best subscription-based service businesses in the world, I would say. That's what our focus is. If we can grow the service revenue, it's going to fall down to the bottom line. You see the leverage in the fourth quarter, first quarter with the 4% EBITDA growth and a very strong cash flow. I think it was up 37%. I'm in the numbers now, but I think that was correct. You see the leverage coming when the growth is coming. We had 2.7% growth on service revenue in the first quarter. I think everything comes together in the strategy that we have and the sentiment in the market.
We need to execute. There is a lot of competition out there. Everyone wants to beat us. I think we are standing stronger and taller than we have done in a long, long time. The team is doing tremendous work.
Great. I think just closing.
I went over a couple of things there for you. I said, yeah, helped you.
Yeah, thank you. Yeah, checking a lot of boxes here on my sheet. As we think about, I think that we can't, we discussed this yesterday, but I think expectations for churn to get back to BAU levels.
Second half, yeah.
Yeah. I think just over time as well, I think Sampath has said trying to return to be a leader in the industry in terms of churn. I guess how do you balance that against the focus you just touched upon in terms of service revenue? Because the three-year price lock, while you do have MyPlan selling and some of these good guys from a benefit, you do also, this industry has relied on price. How do you balance those two? I guess what gives you the confidence in churn improving in the back half and into next year against your maybe pricing strategy, taking a rate on legacy plans or what have you?
There are so many levers there included, and we are in very different momentum in different businesses. I mean, in consumer, we have the last couple of years basically grown our service revenue with prices, the majority, and volumes has been a smaller portion. Now we're trying to rebalance that. On the business side, that's been basically the opposite. We are constantly adding new customers in our business segment over, I don't know, six, seven quarters, even longer. First quarter was a little bit weaker, but that was a very clear reason for that. We can come back to that. They have done less of price increases. On prepaid, we basically have not done any price increases. There we have only volume. You need to balance out what's happening.
Something I think we need to be important for investors to understand, when you have a segmented growth that we have all the way on the wireless side for consumer, all the way from Lifeline to the ultra-premium Verizon, they are segmented also what you give to the customer. The profitability can be very similar on all these. I mean, a prepaid customer is fantastic. They pay in advance, and they have some limitation on how much they can use. I think when I think about it, I think about every customer, every connection should be profitable for us, and they should be accretive. If they are that, it doesn't matter to me if they're prepaid or if they're postpaid or if it's an SMB, et cetera. The market is very focused on postpaid, enormously focused on that.
For me, my measurement and my team's measurement is service revenue growth, EBITDA and cash flow expansion. Net ads on consumer wireless is just one indicator along hundreds of indicators that need to manage. It's only three that we're 100% focused and the whole team and the thousands of people on Verizon are incentivized on. That's the service revenue growth and then EBITDA and cash flow expansion.
Adding it all up, we touched on gross ad activity in the second quarter, your outlook on churn, but you do have guidance or expectations out there for.
Yes, I have a guidance.
Yes, 2025 consumer postpaid phones ahead of 2024 level. I guess.
The guidance is that we're going to do better, yeah.
Yes, yes. I guess.
I'm not sure that is a strong one, but we're going to do better, I promise you.
Okay. There you go. Let me check the box there. I guess just so, but higher gross ads, higher churn, but you still confidence in getting there. Got it. Okay. Now skipping to broadband, you have accelerated the fiber build pace and Fios to 650,000. Expectation is that level in 2025. And you're running ahead of plan. I think you touched on it on the 1Q call. Why not go even faster? Is it a function of just lower returns in the Fios footprint versus what you think you can unlock in Frontier?
I think on the Fios we have been running for quite a while on 400,000-450,000 open for sale every year. Now we have increased that to 650,000 this year. I think we are disciplined with our capital. We want to see the return on investment on fiber because the fiber return on investment is quite a long time, given the cost of deploying fiber. What has happened in the last couple of years is that, first of all, we are more efficient to deploy fiber. That means we have reduced the cost. Secondly, we can do more with less. The equipment is coming down and the technology is improving. That is why we have good return even increasing to 650,000 OFS. If we would see more opportunities in our ILEC to grow our Fios and with good returns, we will continue or increase for sure.
It's a little bit of the machine ramping up, but clearly the product is great. Our churn is very low on Fios. I usually say when I have churn on Fios, somebody's moving to another neighborhood and they need to disconnect. That's how great the product is. That's where we are on that. We will continue to see the opportunity on Fios. Clearly, the cost economics of deploying Fios is improving, even though if you go from tier one market to tier two market, of course, it's more expensive to go to a house in tier two or tier three because of the distance, et cetera. It's going to be more costly. As the improvements are coming on cost at the same time, then we can start penetrating further out in our ILEC.
As you think about those cost improvements and if the returns do make sense, pro forma for Frontier, would you be willing to accelerate the build even if it means taking leverage higher or using your balance sheet to get there?
That's a good question. I've been a little bit stubborn on this one, not commenting much. I go back to what I said when we announced the Frontier acquisition, which we, by the way, I think is fantastic. We are in the regulatory process for approval. We're going to do plus, plus, remember, plus $1 million OFS a year for sure. I want to combine everything before I come out to the market, knowing how much I'm going to do, what is the capital allocation, what are the revenues we are planning for it, and how we're going to report it. I want to have that in how we're going to operate. I want that in one package.
That package I will come out with when I'm closer or have better visibility of when this is going to be closed and we're going to have Frontier with us. Stay tuned, but plus one, not one. It's plus one. It's very important with the plus before. We will come back with that. Clearly, where we're going to see opportunities, we capture them. I always remind people or investors when we acquired the C-band spectrum, of course, when you get an asset, you want to monetize it as soon as possible. It also comes with some responsibilities for guys like me that is just not deploying capital without seeing opportunities increasing for us. That's why I want to see all that coming together in one.
Yep. Okay. So $1 million.
Plus.
Plus. All right. Yes, you did also kind of touch on, we also did kind of touch on again last night with the MDU launch, your live MDU FWA launch. You're live in 15 markets today and expected to roll that out over the year in both the consumer and business segments. I mean, how meaningful of a contributor could this be, Hans? Coupled with the expanded C-band coverage, greater emphasis on converged bundles, could we see a re-acceleration in total FWA ads as we maybe enter, as we go into next year?
Yeah. So the answer is yes. So our FWA performance has been extraordinary. I mean, we have been together with Fios, we have been between 350,000 and 400,000 net ads every quarter now for a long, long time. Meaning we're taking market share like a lot in the market right now on broadband. I said already in the third quarter last year that we're going to have a little bit lower net ads on fixed wireless access because the C-band that we're deploying right now, the mid-band spectrum, the priority is mobility. Now that goes to tier two markets and tier three markets. That means, of course, there is a lower volume of open for sale on fixed wireless access when you get there. It is more technical than anything else. We're going to see a little bit lower.
That's we had 339,000 net ads in the quarter. The things that is now going to be different. First of all, we're going to continue with the C-band deployment. We have the MDU solution where we can address multi-dwelling units with fixed wireless access with a unique solution that actually we have invented that's going to add. We're ramping up Fios. All that together, of course, is going to give us an even greater opportunity on broadband and convergence going forward. Of course, adding to that Frontier when it comes, that's a very important thing. Fixed wireless access still fantastic. MPS customer just loves it, how easy it is. We're improving the device. We're improving the qualification. We're doing a lot still. Churn is higher than Fios because, I mean, it's a new product, but we constantly are improving it.
It's an important product in the portfolio and, as I said, in the first quarter, very high convergence on fixed wireless access and wireless.
The main obviously area of debate, I guess, within the ecosystem is just usage on FWA and taxing the network. Can you remind us what's your more recent stats? I think you guys have put out how you're thinking about that.
Yeah. So we give out the connection report, consumer connection report, something like that. Yeah, I don't remember the name. Every six months, the last one we came out, we talked about broadband growth. The broadband growth in the network is some 6% right now. A user of Fios or fiber versus a user on fixed wireless access, they use equally much. There's no difference. They're the same type of customers. They just have a different view on what type of solution they want to have, which historically people, or I'm not sure people, but some believe that fixed wireless access was for people not using broadband. That's not right. They use equally much as anybody else. And they have equally many screens. They have equally much computers and gaming at the same time as a Fios user.
That's a, so when you see the growth, and of course, the growth, what we see in front of us in broadband, we don't see any super spike again as when you saw some of the gamings, etc . The only thing that can really rock it, if you're going to see some new emerging virtual realities that's going to take a lot of broadband capacity, we haven't seen it yet. That's how we see on the performance and the growth on the capacity in the network. Remember, we built the One Fiber in 2017 to 2022, where basically we have our metro rings across the country taking care of all the capacity needs with our own fiber, which was an important investment we did because that means we have onus economics on all the data traffic going over our network.
It's a great segue there to one of my favorite topics, private networks. On the Q1 call, you noted that the private network business continued to scale. I think you talked about a dozen deals were signed in the first quarter. I guess how would you describe the demand from private networks today, maybe versus last year when we were on this stage?
Way better. I mean, we have had for two, three years an increasing funnel of private networks, also seeing more and more use cases, more industries using private 5G networks all the way from for capacity reasons, security and privacy reasons, and low latency reasons. They are different in the retail industry than the financial sector compared to manufacturing. All of them have different reasons for it. As soon as you get in a private 5G network, then usually the CIO or the head of IT of the company starts seeing a lot of new opportunities, how to use it. They are fairly small, the first private 5G networks that you sell. It's like a Wi-Fi network. Over time, they're growing. Usually you start with one big warehouse. If it works there, they take it to all warehouses. We are in that scaling right now.
Historically, we have had, now we get some technicality here, but we have had a broken out core network in order to manage it with the 5G standalone, which is the next generation core network, which we basically have for 60-70% of our network today. You can actually do a slice of the network as a private 5G network. Way quicker, more efficient for our customers. It takes instead of weeks to set it up, it can be down to days. That is a big difference. Of course, you need the radio elements inside the private network wherever it is going to be.
I see that combined with the next generation of GenAI, where GenAI sort of today are large language modules being developed in large data centers with an enormous capacity, which of course requires a lot of fiber, et cetera, which we can supply. We talked about that in our AI Connect. In the next step, I think that many together with me believe that a lot of the GenAI applications that are going to be enterprise driven are going to sit at the edge of the network because of transport cost, security, and privacy. Many companies like Verizon, you want to have it on prem. Whatever you have, you want it on prem. That could be a third party, but still it is going to be our data centers. I think this hangs together the whole way from private 5G network and edge computing.
Some of you know that we were very early on mobile edge compute, maybe too early. I take that responsibility. I would rather be too early on something than being too late. Now we are sitting in a really good position on monetizing that investment and our assets we have there. All that hangs together for me. As we launch AI Connect in the first quarter, we have a much higher activity with our customers and deals at the moment. They are still small and it takes time to do a configurable network for GenAI or even doing lit up fiber and things like that. The activity is very high and revenue, this is going to be good for our business group because they get more revenues on the fixed cost base that they have.
You're seeing lit and dark fiber, healthy demand in both?
Yeah.
Good. Great set, I mean, the network is the founding of everything you guys offer, right? I think it's very core, very important to you. You are deploying C-band to 80-90% of the planned site this year. You're also rolling out 5G advanced features. I guess just maybe update us on the network roadmap and how you're thinking about the capabilities that additional C-band capacity, 5G advanced, what opportunities could this potentially unlock for you in the coming years?
The C-band, what we've seen so far when we deploy C-band, we have lower churn in those markets and we have also higher premium mix from our customers. Historically, we started with the tier one cities because that's where we get the C-band from the beginning. Now we're in tier two and going to tier three markets. We are aiming for 80%-90% coverage of C-band this year. That means that whoever can calculate that somewhere in 2026, we're going to be 100% done with the C-band, which has been an effort and we are ahead of plan with that. That is very important. From a principal point of view, when we do capital allocation of our radio budget, mobility is the number one priority. Meaning that number one for us right now is to see that we get 100% coverage with our C-band.
The secondary priorities, then we get fixed wireless access opportunities. We are not at this moment doing certain radio capabilities only for fixed wireless access. That is a secondary priority for us. I always get the question, can it be a first priority? Yes, it can be, but not before we have concluded the C-band mobility deployment. After that, we're going to see what's best, success-based radio capacity investments where they are. I mean, is it to fill up gaps we have or will it be to have more mobility capacity or will it be actually to bring in more fixed wireless access customers? As you might know, we have a target now of 8-9 million fixed wireless broadband customers 2028. That includes only us prioritizing mobility and having fixed wireless access as a secondary business case.
As we're thinking about, after you get past the 8 to 9 million, if and once you get there, not if you get there, once you get there, there could be some success base, but do you think that from an FWA long-term roadmap, do you think that the FWA, that core base is still sustainable long-term or do you see usage or anything like that, they might find a fixed broadband solution?
All is built to be sustainable customers. I mean, that's how we designed our network that these customers that we have, we expect that they're going to stay on fixed wireless access and our capacity is built for that going forward as well. Yes, and clearly it's working. The strategy is working. I said the fixed wireless access customers using equally much capacity as any fiber users. It's no difference. We know what they're using and we can do forward planning on capacity, which we're doing five to ten years constantly. Of course, involving also efficiency in technology. I mean, thinking about 5G advanced features, all of them are improving how we can bring more bits to our network more efficiently and bring the totality to a better place.
Great. As we're wrapping up here, Verizon reported its highest ever EBITDA in the first quarter of 2025, up 4% year over year. Also reiterated all your 2025 financial guidance despite declines in consumer confidence. We talked about some pressures in the federal government as well as a fluid business environment. Obviously, a lot changes week to week. At the same time, you are leaning in on volume growth, which we spent the majority of the conversation discussing here this morning. I guess help us think about what underpins your confidence in achieving the full year EBITDA and free cash flow guidance. What are the top and bottom line levers to get there? Business EBITDA margins quite strong as well. You have some other programs, the voluntary separation program, HCL Tech.
Yeah. So we confirmed our guidance when we came out for the first quarter. I think it's important to reiterate, we had our best EBITDA quarter ever in the history of 25 years of Verizon. We made $12.6 billion in the first quarter in EBITDA. The guys are doing a great job getting leverage of the growth we have. We have been taking out costs throughout the years. Of course, last year we had yet another year when our voluntary separation program was quite big. Also, partly our changes in the wireline business where we took out a lot of costs. That is now proof of it. We're growing 2.7% in the first quarter. All in all, that is helping us.
If I look to the rest of the year, we see a good opportunity to continue the growth within the guidance. We have more cost out. I would say when it comes to cost out, we do a lot of generative AI. We have brought very little to the bottom line. We have actually used it to sell more or being more efficient in front of our customers or maybe to some extent more efficient allocating capital. There is going to be time also when we start bringing that to bottom line, especially in customer care and other areas. I feel confident on what we are doing with the cost base and the revenues. That gives us a free cash flow from operation that is very strong. Last year it was almost $40 billion, $39 point something.
Of course, we have our capital allocation on that. We will continue to invest in our business. The midpoint of our capital expenditures this year is $18 billion. We also continue to be very clear with our board that we want to put them in the position to grow our dividend. We have been growing our dividend for 18 consecutive years. Last year, that was $11.2 billion in dividend. We are paying down debt. We paid down more than $10 billion, I think $11 billion debt last year and $1.5 billion this quarter. That is how we do capital allocation in the best interest of our investors and shareholders. When we come to our leverage target, 2.25, we are 2.33 times right now of net secured debt to EBITDA. We will have the optionality of buybacks.
We just need to remember when we buy Frontier, we take over $11 billion of debt, which means that we're going to go up a quarter of a quarter notch of leverage. We need to work that through. Given the great cash flow generation we have in this subscription-based business, I feel very confident that we'll get there and we will have a good conversation with the board when we get there.
Great. I think that's a great place to leave it. Hans, thank you so much for joining us today. It's great to see you.
Thank you.
When I first started, I was there a lot. Are we going to start here?
Okay. Why don't we go ahead and get started? Welcome to the second day of JPMorgan's 53rd Annual Technology and 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 the team from Micron Technology here with us. We've got Manish Bhatia, Executive Vice President of Global Operations, and Samir Potodia, Senior Director of Investor Relations here with us as well. Samir, we'll kick it off with Safe Harbor, and then we'll go ahead and kick off the Q&A. Gentlemen, thank you for joining us this morning.
Yeah, thanks, Harlan. We'll start with the Safe Harbor. We'll be making some forward-looking statements today. Those statements have risks and uncertainties associated with them. We refer you to the risk factors disclosed in our public filings.
Great. Again, thank you for joining us this morning. I'll kick it off. You know, you're nearing the end. The team is nearing the end of your May quarter. Coming into the quarter, you had anticipated quarter on quarter bit shipping growth in both DRAM and NAND as excess inventories in the more consumer-oriented smartphone PC markets had been cleared, calling for record revenues on the gross margin front. The team guided gross margins to decline slightly in 140 basis points to about 36.5% on a higher mix of consumer-oriented volumes, obviously NAND underutilizations, and lower calendar Q1 pricing trends, which I think have recently turned, obviously offset by strong execution on the HBM front. Since then, DRAM pricing has been strong. Both DDR4, DDR5, contract pricing, and spot pricing have both been strong. NAND pricing declines have started to stabilize.
You know, good trends overall over your May quarter. So much so that at the end of March, you know, the Micron team did issue a letter to customers indicating your intentions to increase pricing as the team was seeing an increase in unforecasted demand right across various of your business segments. Relative to your guidance in March, I mean, it certainly seems like pricing, you know, has come in better. Wanted to get your views on how the May quarter has played out so far.
All right. Do I need to do anything? All right, great. Thanks, Harlan. And thank you for hosting us here at the conference and for all those kind of, you know, market trend highlights since our last call. I'd say that you're right on the trends. I think we've seen healthy demand for both DRAM and NAND. You know, and a lot of it, the dynamics have played out much as we had discussed them, not just in the last quarter, but even going back further to some of the trends in terms of strength in data center, as well as what we had said before would be a springtime, you know, resumption in strength in the consumer markets due to inventories having come down over the sort of calendar Q1. We're not updating guidance at this time.
I will say that the quarter is progressing well. We are driving price inflection as we had said we would. That is playing out, that is evolving well. As we see the trends in the quarter continuing, we are going to be continuing to make our plans for the second half of the year.
On the pricing inflection trends, is that more a statement around DRAM? Because we have seen the strong upward trajectory of DRAM. Does that include NAND as well?
Yeah. We had talked about actions that we had taken back during the December call and actions we were taking from that point on. We have continued with some of those supply actions. Others in the industry have done similar.
That's right.
That has helped with the trajectory of NAND pricing.
Perfect. You know, I think on the earnings call, you had given us a little bit of a sneak peek into fiscal Q4, right? I think the view there was that in fiscal Q4, your August quarter, you would see slight improvements in your gross margins with the better pricing trends here in the May quarter. Pricing inflection certainly seems like both DRAM and NAND pricing remain on this positive sort of trajectory, at least as we look kind of near the midterm on a forward basis. Again, you had previously anticipated fiscal Q4 gross margins up slightly, but it would seem that the gross margin trajectory in Q4 could improve at maybe a slightly better trajectory than what you had laid out in March. I'm not sure if that's a fair assessment or not.
You know, we're not providing forward-looking guidance in terms of, you know, margin outlook. But we'll say that, you know, part of our comments around FQ3 as well as FQ4 were on the mix of the business and that pickup in consumer-oriented business that we expected for FQ3. That increase in mix does tend to be, you know, lower on the margin side versus, say, some of our higher-end data center products. That increase in mix in consumer was kind of the key driver for FQ3. We'll kind of, you know, provide more commentary relative to forward-looking margin structure overall, as well as the mix that we expect as we go through the, you know, go through the next fiscal quarter and into the second half.
Perfect. We'll have a lot more discussions around some of your end market segments. Obviously, a lot of us here in the room are extremely focused on the dynamic of accelerated compute and AI. The Micron team we know has been designed into NVIDIA's next generation GB300, which will be starting to ramp in the second half of the year. Concomitantly with that, right, the Micron team did start production of your HBM3E 12-high just recently. Maybe you could just give us an update on the ramp, the yield. Is it tracking towards expectations?
Yeah. Yeah. No, we're very pleased with where we are with HBM. You know, we know our 8 High has been in production for over a year now. It's formed a really solid foundation for us. You know, we started production on 12-h igh earlier this year. You know, the progress there has been good. In fact, we are seeing the, we had said before that we expect that the 12-h igh to be the majority of the demand in the second half. I think we can now say that we see the crossover between 12-h igh and 8-h igh in terms of volume shipments happening in our fiscal Q4. That's, you know, that trajectory is ramping well. In terms of yield progress, you know, the learning rate on yield for 12-h igh is really faster than we had on 8-h igh.
Yes.
Along with that ramp that, you know, that ramp up in 12-h igh as it crosses over in fiscal Q4, I'd say that, you know, we're expecting that we'll see the 12-h igh yields to be able to kind of reach that knee in the maturity by the end of Q3. Kind of going hand in hand with the ramp. We're very pleased with where we are in terms of the progress on the 12-h igh production ramp in terms of the process stability as well as the yield improvement.
You know, I'm going to go back to kind of the near to midterm environment because in addition to the strong pricing inflection that we've seen so far here up through your May quarter, much has changed, especially on the tariff and trade and geopolitical front, right? You know, as you mentioned, AI and accelerated compute demand trends remain strong, strong cloud, hyperscaler, CapEx spending trends. Even in the non-AI markets, right, smartphone, PC, general purpose server, memory demand trends have been relatively good. As you guys had predicted two quarters ago, right, demand combined with the discipline of the industry has driven excess inventories down. That's part of the strength that you guys are seeing.
I think with respect to tariffs and trade, you know, the big question is how much of the strength in near-term demand and therefore strong DRAM pricing increases and stabilization in NAND, ASPs are due to tariff-related pull-ins, right? I know one of your large memory competitors recently called out preemptive tariff-related demand pull-in into the June quarter. How is the Micron team interpreting the current positive demand and pricing environment, cyclical improvements that you called out back at earnings versus tariff-related pull-ins?
Yeah. I think the, you know, key point there with regard to the demand trends, I mentioned before that, you know, we're seeing healthy demand.
Right.
It is playing out much as we talked about with the data center continuing to be strong and with consumer end markets having worked through inventory. We are seeing that pick up in this May quarter. You know, there could be for certain customers some pull-ins. You know, I would say that the bigger trend is that the ones that we had laid out and forecasted back in our December call are playing out largely as we expected.
You know, the other side of the potential tariff-related dynamics, again, a view by a few of your competitors during their earnings call was that these pull-ins are potentially pulling from demand in the second half of this calendar year and therefore could potentially drive a weaker bit shipment profile. Additionally, end market trends in the second half, you know, PC, smartphone, general purpose server forecasts have been, are being trimmed, right, by the big Wall Street firms, including our firm. We recently cut our smartphone forecast, our PC forecast, and our server forecast a little bit less seasonal, right, in the second half of this year because of tariff and trade-related uncertainty.
If I recall, in the last tariff and trade war back in 2018, 2019, the semi industry and the memory industry did enter into a downturn, coincidentally or not, right after the final large round of tariffs that were put in place in August of that year. Are you seeing any indications by your customers that they're starting to plan for a subseasonal, maybe slightly weaker environment in the second half of this year?
You know, I think we've, you know, you've talked about some of the macro and tariff uncertainty and trends. Obviously, everyone's having to react to that. I think the, you know, the commentary from many of our customers, even public commentary, certainly the cloud service providers' commentary over the recent horizon is, you know, for them to continue with their capital spending plans to be able to build out in the data center and continue to invest in their AI solutions businesses, right? I think that's one area that's, you know, reassuring for us with regard to the future data center because so much of our portfolio and so much of our focus is on that area and driving more strength there. You know, on the consumer side, there are just, there are a number of different product launches that are still happening.
I think that we're seeing customers who really have a new, you know, wave of offerings to be able to have, I think, smartphones and PCs that have native AI capabilities designed in versus maybe over the last year, there were, you know, platforms that weren't designed with AI agents in mind. They were trying to be able to add some capabilities. Frankly, the reset in terms of the hardware platforms, the amount of memory, the capabilities and the processors, all of that is still, you know, I think ahead. You know, I think that there are still, you know, strong demand trends ahead. I think in terms of tariffs, obviously, there's been a lot of different signals. It's been difficult for everyone, all of you, unless everyone's trying to parse waking up every day reading news.
I think encouraged by the direction of travel over the last, you know, couple of weeks in terms of de-escalation on the tariff front, as far as it impacts the macroeconomy broadly. Of course, as you, well, I shouldn't say of course, the semiconductor-specific products, including DRAM products and NAND products, were exempted from the reciprocal and baseline tariffs before. Those are part of a Section 232 review. We will have to see how that plays out.
You know, post-tariff announcements, there was some news around the Micron team reaching out to their U.S. customers on the potential for passing through tariff-related price increases. On April 12th, the president did exempt SSDs, memory modules, chips from tariffs. I assume that the team has not had to increase prices to your U.S.-based customers. Number one, is that an accurate statement? The second question is, what percentage of your overall revenues is for shipments of SSDs and module form factors across the U.S. border?
Yeah. So, you know, we have commented a little bit on the overall pricing trends. You're right that, and I mentioned just a minute ago that the products have been exempted. There have not been tariffs levied at least on our DRAM or our NAND products that are coming into the U.S. We are just keenly watching this 232 review to understand what the implications will be. In terms of, you know, % of products, that really varies quarter to quarter depending on where our customers', you know, supply chains are located and how much we provide to them in their, you know, in which region where they're going to be either building out their data centers or where they're going to be assembling, you know, their final products.
We're, you know, focused on understanding the, you know, the Section 232 review and also trying, you know, we actually provided some comments to the Commerce Department for that review. Those will eventually be public. You know, we're trying to make sure that the policy is constructive relative to the administration's priority to be able to build the U.S. semiconductor manufacturing. We've been, you know, our comments will provide kind of a roadmap of what we think are key ways that this, you know, this can be enabled or accelerated and not somehow slowing down, not that the semiconductor-specific tariffs don't somehow slow down that initiative.
Yeah. Maybe as a follow-up to that, you know, the U.S. administration's goal has been to fast-track a return of manufacturing back into the U.S., right? The good news is that the Micron team is well into the $15 billion expansion of your Boise, Idaho fab, right? Can you give us, can you give us an update here? The original plan was to bring Boise online in 2027. Where are you in this build-out? Are you potentially accelerating maybe your plans here? Have you seen a step up in potential customer commitments, right, to Micron longer term because of your U.S. bid supply capability?
Yeah. So, you know, we are in construction in Idaho. We have three projects really that we've announced in the U.S. One is in Idaho, co-located with our research and development facility there. We'll get the benefits of time to market of our newest technologies as well as, you know, some synergies between R&D equipment and manufacturing equipment and R&D engineers and manufacturing engineers. In terms of, and then we have a project, a large-scale project in New York that's currently in permitting. We have another project that we are still discussing with the Commerce Department around modernizing our facility in Virginia, which has been for supporting automotive and aerospace and kind of long life cycle opportunities there. We have had, frankly, really good response from multiple different customers who are interested in understanding how they can leverage our or be part of our U.S. manufacturing supply.
There are multiple reasons for that. I think one of them is the fact that the energy in the U.S. has the potential to be able to have more green energy here. That has been one of the reasons that people are interested. There are others, I think, just because of the overall push to be able to have more U.S.-based supply chain even for themselves. Many of our customers, as you know, have announced larger U.S. supply chain footprints in the future. I think they want to kind of see how they can, how we can play into those plans.
Before I'm going to start talking about products and markets and overall market dynamics. Before that, I wanted to open it up to the audience to see if there are any questions out there. If you do have a question, please raise your hand and we'll try to get a mic over to you as quickly as possible. Any questions from the audience? Okay. Let's talk about AI and accelerated compute. Obviously, a big driver of the business, the mix on the accelerated compute and data center side for Micron has risen significantly over the past few years. In addition to tariff and trade-related dynamics, there's been recent concerns around the potential for AI compute demand normalization, maybe some compute digestion. Although, you know, we haven't seen any pullbacks from cloud and hyperscalers on their cloud CapEx spending intentions.
Have you seen any signs, indications of a pullback in accelerated compute demand? In other words, has your HBM TAM outlook, right, greater than $35 billion for this year, changed at all?
Yeah. So, you know, we provided that, you know, HBM TAM update during our last earnings call. We typically provide those on those calls. I'd say there's a lot of moving parts there with regard to, you know, changes even as late as yesterday on the AI diffusion and how that AI diffusion pullback is going to impact demand. There's a lot of different moving parts. You know, we are not going to provide an update at this time, but I will just, you know, come back to the comment you made, I made earlier that, you know, we are seeing robust demand for our HBM product and we're seeing robust demand for our high-end or high-capacity DRAM modules as well as expanding demand for our low-power solutions for data center.
We're encouraged by the capital spending plans of, you know, virtually every cloud service provider as well as new entrants into cloud service providers that are trying to build out. I think that's also goodness for creating multiple vectors of demand and even multiple different architectures, right? I think, you know, the fact that there are going to be different workloads and different applications focus areas for different cloud service providers as they're coming up, you know, that just gives us an opportunity to go in and leverage the strong capabilities we have across our portfolio. We believe we have the best, you know, customers consistently tell us we have the best HBM product, you know, 30% lower power than our competitors for actually even better performance than them. And we have, we're the only ones really shipping low-power DRAM into data center applications right now as well.
You know, across the board, I think, you know, that, you know, heterogeneous set of workloads for data center across expanding number of cloud customers, you know, that just plays to our strengths.
If I rewind back one year ago, you gave us the update on your HBM3E 12-high ramp. If I rewind back a year ago during your June earnings call, you did say at that time that you were sold out on your HBM supply through calendar 2025 and that the majority of that committed supply was locked in from a pricing perspective. One year later, where are you on negotiations for calendar 2026 HBM supply and pricing discussions? I mean, is the team's supply outlook for next year maybe almost fully committed?
Yeah. We're in discussions right now on 2026, which again is, you know, earlier than we are for other products and traditionally. I mean, HBM certainly commands longer lead time in terms of discussion given the criticality it plays into our customers' roadmaps. You know, I think the discussions with our customers center around the mix of HBM3E 12-high, when their platforms are going to be ready for HBM 4, how our HBM 4 will ramp. I mean, we think we're going to have, again, a leadership product in HBM 4. We expect to, and be able to ramp, you know, at the very, you know, leading edge of our customers' platform ramps. Those discussions are ongoing, but we feel very good about where they are.
As well as really the feedback from our customers has been terrific in terms of how we've been able to ramp our HBM3E. Really, you know, this time last year was essentially the very beginning. We started production last March, having not had a product in HBM3, had very little, you know, coming from, you know, very little learning-based, little scale. Where we are today, our customers have been very, very pleased. That, you know, gives them the confidence to be able to count on us for their future ramps. You know, we feel very good about our future roadmap.
Yeah. It's been a great trajectory, right? You guys did over $1 billion in HBM revenues last quarter and on track to exit this year based on our estimates at double that rate, right? At roughly about a $2 billion per quarter annualized run, right? So very, very strong ramp and execution by the team. Let's switch.
Yeah. We've actually said that both HBM as well as those other categories of high-capacity DIMMs and LP. When you think about each of these, they'll each be multi-billion dollar businesses for us in fiscal 2026.
Yeah. Let's switch over to data center SSD. You know, we're seeing, as you mentioned, numerous AI, GPU, but also a lot of XPU programs coming into place, right? All these ASIC programs that are going to start to ramp into what we think is a strong second half of the year, right? Which would be good for your DRAM memory products, but should be good for your storage solutions as well. I always tend to remind people that your data center SSD share has gone from 5-7% in 2022, 10-12% in 2023. You exited last year at 15%, right? I think either number two or number three global market share in enterprise SSD. Strong share gain performance over the past three years. You've got your next generation 9950X PCIe Gen 5 SSDs out there.
What are we going to see your next-gen G9-based data center SSDs come to the market? And more importantly, does the team still expect continued share gains in enterprise SSD going forward?
Yeah. You're right. Thank you for that, Harlan. You always call out our data center SSD execution. I remember even here last year, and we've been very focused on that. We think that over the last couple of years, our vertically integrated platforms, having our own self-designed ASICs to go along with the leadership we have in memory and the capabilities that we've developed in terms of integrating that together in manufacturing, has really played well. I think our customers also really appreciate the single point to be able to build out their data centers, right? For example, being one of the first to be qualified SSDs on the Grace Blackwell platform, right?
I think, you know, as we see the overall data centers getting built out, the story has been about DRAM, but you're right to point out that NAND definitely has a role to play and will be expanding. You know, we are, you know, looking to continue to increase from that record level of demand and share that we saw at the end of calendar year 2024.
You know, on the last earnings call, you had the team had anticipated data center SSD bits starting to reaccelerate over the coming months, you know, with a bit more visibility versus the March earnings call. Would you expect maybe that data center SSD reacceleration to start maybe in the August quarter, your fiscal Q4?
You know, I think we'll probably give some more color on that later. I think certainly the actions that we and the rest of the industry took, you know, in NAND late last year and into the first half of this year, you know, that should help with overall balance and that should help with, you know, inventory clearing across the channel. That will help with, you know, provide a healthier environment for all NAND products, including data center SSDs.
Maybe you can just give us an update. You know, the team is doing a lot of technology upgrades. You gave us the update on the HBM3E 12-high ramp. Your team is starting to ramp your next-gen 1-gamma DRAM, you know, EUV-based technology. As I just mentioned, you're starting to ramp your Gen 9 NAND technology. Can you just give us an update on these new technology ramps, yield, cost downs, and just more importantly, just overall ramp execution?
Yeah. I think both are going very, very well. I think our, you know, our Gen 9, we announced earlier and have progressed well on that one. We're managing the ramp of that Gen 9 in line with demand, right? We're trying to make sure that we're, you know, bringing capacity online responsibly, but at the same time, feeling really good about where it positions us relative to competition and the capabilities in terms of the NAND device performance we think are best in the industry for that Gen 9. That'll help us obviously in high-performance applications like data center SSDs. 1-gamma we're very proud of. We just announced that qualification and the, you know, initiation of production ramp on our last call, and that's going very well. It is our first, you know, EUV node and that's gone, you know, exceptionally well.
We actually had, I think, a very good strategy, you know, between our technology development team and our manufacturing teams. We did a lot of pre-work to be able to, you know, first of all, get a more mature EUV tool than maybe some of our competitors started with. That tool has performed well. We used that tool on some of our older nodes, including 1- alpha and 1- beta, to be able to ensure that all the different elements of the exposure process and, you know, improving the manufacturability of that process would be well rung out before we got to 1- gamma. Now, as we're ramping 1- gamma, we're focused on normal, you know, yield learning, and we feel pretty good about where we are with that.
We think it's going to be, I think, you know, we've talked about that being, you know, 30% bit density gain, which, you know, we think gives us multiple generations, 1- alpha, you know, actually 1- Z, 1- alpha, 1- beta, 1- gamma. We think we've been first to market now for different generations and feeling really good about where that positions us for the future.
You know, you talk about the 30% power reduction relative to your competitors, 30% better power performance on HBM. I think it has been a big differentiator for the Micron team. As you move to 1- gamma, can you give us a sense? Are you anticipating similar, not only power consumption savings, but better performance dynamics on 1- gamma? Maybe where does that intersection point come? 1- gamma, you've got your HBM roadmap here, you've got 1- gamma. Where do you think 1- gamma lines up on your HBM roadmap?
Yeah. No, we haven't provided details on the, you know, which nodes are going to be for our future HBM. Yeah, we'll do that a little bit later. But, you know, definitely feel very good about, you know, I think, you know, a year ago, I mentioned to you that we felt really good about our one beta as the foundation for HBM, right? And, you know, our implementation of high-k metal gate, our implementation of various other things in process, combined with some of the decisions we made in design and in packaging together to be able to deliver, you know, really the best HBM product on the market. A year later, if anything, I think we're even more pleased as we see, you know, competitive offerings now, you know, trying to work out at different platforms and trying to get qualified at different customers.
We feel great about where that is. I think that just bodes well for our, you know, all that learning and all that of integrating a high-performance product, you know, went into the 1- gamma node and the fine-tuning that we'll have there across our portfolio.
You know, China domestic, let's talk a little bit about the competition. China domestic memory suppliers, we estimate account for about 6%-7% of total industry DRAM bit supply, mid-high single digits % of total industry NAND bit supply. In DRAM, I mean, your China competitors have been more focused on legacy DDR4 applications, primarily to serve the domestic markets. You know, they are reportedly making some inroads on DDR5. I mean, do you see them at all in the market?
You know, D5 is really a significantly more complex product. You know, we're on our fourth generation there, and we've seen the performance requirements continue to step up. We're also using, you know, LP5 as well now into those high-performance applications. We're very focused on that, on being able to tune our roadmap for that. You know, we do see that the domestic Chinese competitors are, you know, becoming players in the market, and we do take, you know, their presence into account as we make our plans. We do have that, you know, their supply model as part of our long-term, you know, supply-demand balance in the industry as we think about it.
We are, you know, really believe that we, as we focus on the very highest-end applications, the ones that are most demanding in terms of performance, in terms of reliability, in terms of quality and interoperability, the ones that are frankly most difficult for qualifications that provide the maximum value to our customers, those are the ones that we're focused on.
Lots of questions that we get from investors as it relates to the largest memory supplier out there, Samsung. What happens to HBM supply and demand dynamics when they finally do get qualified on HBM3E 12-high, right? What's your sense on how the pricing power dynamics may or may not change when they become the third-largest and qualified supplier of mainstream HBM?
I think what's important to note about HBM is that the qualification process is longer with just about everyone than it is for standard DRAM products. That's really not just a function of how complex the product is, but it's also a function of the cycle time, right? Because you're not just talking about in a standard DRAM product, putting it on a board and then running a qual. You're talking about having to go through a long, you know, chip-on-wafer-on-substrate or CoWoS process, and then often integrated into a system, and then you are able to do the reliability testing, right?
Maybe even in some cases, a full-blown rack scale solution.
Full-blown, absolutely. Full-blown rack system. That cycle time to do a qualification is substantially longer than standard products. Now, couple that with the fact that virtually every one of our customers has announced wanting to accelerate the cadence between ramps of new platforms. Instead of, say, 18-24 months on new server platforms or PC or smartphone platforms, we're talking about every 12 months, they want to come out with a new, they're challenging us, right? Last year was HBM3E 8-high, this year 12-high, next year HBM 4, right? When you have a shortened cadence and a longer time, it's going to be just difficult for many providers to be qualified on the same platform. There could be different platforms that, you know, different competitors are qualified on.
We think that that shortening of the cadence, you know, sort of benefits those who are leading.
Got it. I want to talk about something. Back in mid-April, the team announced that it was reorganizing its business units to a more market segment-focused base structure, right? Four business units, more transparency on your data center focus. Walk us through the rationale and what you will be disclosing on a quarterly basis, starting with your fiscal Q4 results.
Sure. Thanks. I think this is really an evolution of the way that our, you know, end markets are organizing. We wanted to organize the same way. The high-end computing markets were becoming, you know, our huge opportunity. You know, we've talked about the, you know, long-term HBM by itself by 2030 being a $100 billion, you know, market opportunity, right? That is as big as all of DRAM last year. We felt like it was good timing to be able to organize around, you know, the fact that that high-end computing market, HBM, high-end, high-capacity DRAM modules, as well as low power into some of these high-end applications or supercomputing, AI supercomputing applications. We wanted to have really good focus on that. We then have another segment that's focused on called core data center, which is more enterprise server class.
We combine the client applications into one, smartphones and PCs, and then we have our automotive and embedded business. We think that we're organizing to be able to have better market focus, provide maybe more transparency into each of these areas. We will be providing by each of those segments, revenue, gross margin, and operating margin across for those four segments going forward. I think that should give us, give everyone better insight into how we're managing the business, what the opportunities are, and how we're, you know, allocating capital between them to be able to really maximize our opportunities.
Yeah. Manish, Samir, thanks for the great participation today. Always appreciate the support. Yeah. Thank you.
Thanks, Darlen.
Appreciate it.