Micron conference call: Capital expenditures for fiscal year 2025 will increase significantly, continuing to focus on HBM, with tight supply of advanced processes

With strong demand for AI supporting it, storage chip giant Micron delivered an impressive performance report, with revenue soaring 46% last quarter, and guidance crushing expectations to set a new high, while anticipating further growth in capital expenditures. In the earnings call following the financial report, Micron expressed optimistic expectations, forecasting a significant increase in capital expenditures for fiscal year 2025, which will account for about 35% of revenue, and expects to achieve billions of dollars in HBM revenue for fiscal year 2025; the supply of advanced processes is very tight, with supply constraints existing not only in the HBM market but also in the non-HBM market. Here are the key points from the call: Micron's capital expenditures for fiscal year 2024 are $8.1 billion. Based on current capital expenditure and revenue expectations, capital expenditures for fiscal year 2025 are expected to increase significantly, accounting for about 35% of revenue, with the growth primarily driven by new wafer fab construction and HBM capital expenditure investments. The company will continue to focus capital expenditures on HBM investments, which are high-value solutions that often increase profit margins. In terms of HBM business, Micron achieved hundreds of millions of dollars in revenue for fiscal year 2024 and expects to achieve billions of dollars in HBM revenue for fiscal year 2025. The HBM total addressable market (TAM) is expected to grow from approximately $4 billion in 2023 to over $25 billion in 2025, with HBM expected to grow from 1.5% in 2023 to about 6% in 2025. In 2025 and 2026, Micron expects to have a more diversified HBM revenue structure, having won favor from numerous HBM customers with its industry-leading HBM3E solutions. Micron anticipates strong demand for high-capacity D5 and LP5 solutions. The forecast for industry DRAM demand growth in 2024 has been raised to about 15%. Looking ahead to 2025, two factors need to be considered. First, we are now comparing it to the higher base of 2024, where the compound annual growth rate has already reached around 15%. This will certainly affect the percentage for 2025. Secondly, smartphones and PCs continue to perform well in the end market. As PC sales continue to grow steadily and show seasonal growth in the second half of 2024, it is expected that by spring 2025, PC OEM inventories will be healthier. PC shipments in 2024 are expected to maintain low single-digit growth, and with the launch of the next generation of AI PCs, the end of support for Windows 10, and the release of Windows 12, the PC replacement cycle is expected to accelerate, with shipment growth continuing into fiscal year 2025 and accelerating in the second half of fiscal year 2025. The supply of advanced processes is very tight, due to a reduction in capital expenditures in 2022 and 2023, and the industry's transition to new technology nodes, wafer capacity has significantly declined from peak levels. Therefore, compared to the peak in 2022, wafer capacity has decreased, along with the HBM 3:1 trade ratio, these factors have collectively led to tight supply across the industry Supply shortages exist not only in the HBM market but also in the non-HBM market. Below is the full transcript of the conference call: Company Participants Satya Kumar - Investor Relations Sanjay Mehrotra - President and CEO Mark Murphy - Executive Vice President and CFO Conference Call Participants Timothy Arcuri - UBS CJ Muse - Cantor Fitzgerald Krish Sankar - TD Cowen Joseph Moore - Morgan Stanley Vivek Arya - Bank of America Securities Toshiya Hari - Goldman Sachs Operator Thank you for joining us, and welcome to Micron Technology's Q4 Fiscal 2024 Financial Conference Call. All participants are currently in "listen-only" mode. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Please note that today's program is being recorded. Now, I would like to introduce today's host, Satya Kumar from Investor Relations. Sir, please go ahead. Satya Kumar: Thank you, everyone, and welcome to Micron Technology's Q4 Fiscal 2024 Financial Conference Call. Joining me today on the call are our President and CEO Sanjay Mehrotra and CFO Mark Murphy. Today's conference call will be webcast live through our Investor Relations website investors.micron.com, including audio and slides. Additionally, we have posted our quarterly earnings press release and prepared remarks for this call on the website. Unless otherwise noted, the financial performance discussed today is based on non-GAAP financial data. A reconciliation of GAAP to non-GAAP financial metrics can be found on our website. We encourage you to visit our website micron.com this quarter for the latest information about the company, including information about financial conferences we may attend. You can also follow us on the X platform, with the username MicronTech. As a reminder, the matters we discuss today include forward-looking statements regarding market demand and supply, market and pricing trends and drivers, the impact of emerging technologies such as artificial intelligence, product rollout plans and market positioning, expected features of our future products, our expected results and guidance, and other matters. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in today's statements. Please refer to the documents we file with the U.S. Securities and Exchange Commission (SEC), including our 10-K, 10-Q, and other reports and filings, for a discussion of risks that may affect our future performance. While we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We have no obligation to update any forward-looking statements to reflect actual results Now I will hand over the meeting to Sanjay. Sanjay Mehrotra: Thank you, Satya. Good afternoon everyone, Micron Technology achieved strong performance in fiscal year 2024, with fourth-quarter revenue reaching the high end of our expected range, and gross margin and earnings per share also exceeding the high end of our expectations. In the fourth quarter, our NAND and storage business segments both achieved record revenues. Micron's revenue growth for fiscal year 2024 exceeded 60%, with the company's gross margin improving by over 30%, and record revenues in our data center and automotive businesses. I appreciate the focus and execution of all Micron team members, as their contributions have made these results possible. As we enter fiscal year 2025, Micron Technology will have the strongest competitive advantages in its history. We have leading 1-beta DRAM, eighth and ninth generation NAND process technologies, and leading products covering end markets. Strong demand from data centers has exceeded our supply of cutting-edge nodes and is driving an overall healthy supply-demand landscape. With the arrival of 2025, we expect the demand drivers to continue to broaden, complementing the strong demand from data centers. We are investing to support AI-driven demand, and our manufacturing network is ready to seize these opportunities. We look forward to achieving record revenues and significantly improved profitability in fiscal year 2025, thanks to our expectations of setting a quarterly revenue record in the first fiscal quarter. Micron Technology is accelerating the production of the industry's most advanced DRAM and NAND technology nodes. Our 1-beta DRAM and G8 and G9 NAND nodes are in mass production and will become an increasingly important part of our product portfolio in fiscal year 2025. It is important to note that our G8 NAND node refers to our 232-layer NAND technology node. The trial production of our 1-gamma DRAM using extreme ultraviolet lithography technology is progressing smoothly, with mass production expected in 2025. We expect the decline in DRAM front-end costs for fiscal year 2024 to reach the high end of our initial expectations, and the decline in NAND costs is also in line with our forecasts. We expect that the decline in DRAM front-end costs (excluding HBM) for fiscal year 2025 will reach a mid-single-digit percentage. We expect the decline in NAND costs for fiscal year 2025 to reach a low to mid-teens percentage. The construction of our new factory in Idaho is ongoing, and we are working with state and federal agencies to advance the approval process for our factory in New York. Our packaging and testing factory in India and the backend expansion project in Xi'an, China are under construction. We continue to evaluate opportunities to manage our manufacturing business in a capital-efficient manner. In line with this strategy, we announced the acquisition of an LCD factory in Taiwan, which will be repurposed for DRAM production testing. Micron's proprietary vertically integrated testing capabilities give us a competitive advantage, allowing us to provide high-quality products to our customers Now turning to our end markets, memory is critical for expanding artificial intelligence capabilities. In the coming years, various factors will drive the growth of AI memory demand. The increasing model sizes and input token requirements, multimodal and multi-agent solutions, continuous training, and the surge of inference workloads from the cloud to the edge. Micron is committed to transforming the opportunities brought by AI demand into value accessible to all stakeholders. The demand from data center customers remains strong, and customer inventory levels are healthy. It is expected that industry server shipments will achieve mid-to-high single-digit percentage growth by 2024, primarily driven by strong growth in AI servers and low single-digit percentage growth in traditional servers. We anticipate that demand for traditional servers will benefit from server upgrades, as a latest-generation traditional server can replace multiple older-generation servers, providing valuable space, power consumption, and performance improvements, thereby enhancing data center efficiency. We see continuous increases in the capacity of DRAM and NAND in both traditional and AI servers. Our data center revenue mix reached record levels in fiscal year 2024, and we expect significant growth in fiscal year 2025 based on this. Micron holds a leading position in the data center space with HBM, high-capacity D5 and LP5 solutions, and a data center SSD product portfolio. We expect these three product categories to generate billions of dollars in revenue in fiscal year 2025. In the HBM space, our yield and capacity improvements are significant. In the fourth fiscal quarter, we achieved our expected production targets and met our goal of reaching hundreds of millions in HBM revenue for fiscal year 2024. Although our DRAM gross margins have improved, the gross margins for HBM in the fourth fiscal quarter also enhanced the company's and DRAM's gross margins, indicating that our HBM yields are steadily improving. We expect that by around 2025, HBM's market share will align with the overall DRAM market share. We expect the HBM TAM to grow from approximately $4 billion in 2023 to over $25 billion in 2025. As a percentage of the overall industry DRAM capacity, we anticipate HBM will increase from 1.5% in 2023 to around 6% in 2025. We have established a robust roadmap for HBM and are confident in maintaining our leadership in time-to-market, technology, and energy efficiency with HBM4 and HBM4E. This quarter, Micron has begun shipping mass-produced HBM3E 12-high 36GB products to major industry partners, supporting the entire AI ecosystem's certification. Notably, Micron's HBM3E 12-high 36GB solution has a power consumption that is 20% lower than competitors' HBM3E 8-high 24GB solutions, while DRAM capacity has increased by 50%. We expect to ramp up HBM3E 12-high production at the beginning of fiscal year 2025 and increase shipments of the 12-high combination throughout 2025. As we mentioned earlier, our HBM is sold out for 2024 and 2025, and pricing for this timeframe has been established In 2025 and 2026, we will have a more diversified HBM revenue structure as we have won the favor of numerous HBM customers with our industry-leading HBM3E solutions. We expect strong demand for high-capacity D5 and LP5 solutions. We are seeing an increasing application of our single-chip high-capacity 128GB D5 DIMM products. We are leveraging our industry-leading innovative LP5 solutions to be the first to adopt low-power DRAM in data center servers. Micron's LP5 is designed specifically for data center and AI applications, offering unique features that enhance the reliability, availability, and serviceability (RAS) of server platforms. We focus on LPDDR design innovations to optimize the capacity, power consumption, and system reliability requirements of AI server infrastructure. The demand for data center SSDs continues to be driven by strong growth in AI as well as a recovery in traditional computing and storage. We are adopting a higher degree of vertical integration strategy, including the use of Micron-designed controllers and firmware, to create a data center SSD product portfolio that meets customer demands for robust functionality and performance, competitive total cost of ownership, and industry-leading performance and quality requirements. As a result, we have gained a significant market share in the data center SSD market. In Q4, our data center SSD revenue exceeded $1 billion, setting a new quarterly revenue record. Data center SSD revenue for fiscal year 2024 more than doubled compared to the same period last year. Speaking of the PC market, as we discussed in our last earnings call, PC customers are building inventory due to rising memory prices, anticipated growth in AI PCs, and supply tightness expected from an increasing amount of production output to meet the growing demand from data centers. As PC sales continue to show steady growth and seasonal increases in the second half of 2024, we expect PC OEM inventory to be healthier by spring 2025. In 2024, PC shipments will still maintain low single-digit growth. We anticipate that with the launch of the next generation of AI PCs, the termination of Windows 10 support, and the release of Windows 12, the PC replacement cycle will accelerate, and shipment growth will continue into 2025, with acceleration in the second half of 2025. The PC market is in the early stages of transformation, and we expect the market to significantly shift towards AI-driven capabilities, enhancing user experience and productivity. AI PCs require larger memory and storage capacity. For example, leading PC OEMs have recently released AI-enabled PCs, with the DRAM capacity of entry-level models being at least 16GB, and mid-to-high-end models ranging from 32GB to 64GB, while the average DRAM capacity for all PCs last year was about 12GB Micron Technology is well-prepared to support the development of AI PCs with its client LPDRAM, DRAM, and SSD product portfolio. Our Low Power Compression Additional Memory Module (LPCAMM2) has received design recognition from leading PC OEM manufacturers multiple times. These modules offer all the advantages of low-power DRAM in an upgradeable form factor. Compared to D5-based modular solutions, LPCAMM2 reduces power consumption by up to 60%, enhances performance by up to 70%, and saves 60% of space. Our 3500 client SSD has been certified by all major PC OEM manufacturers and provides the power performance enhancements required for AI workloads. Now, let's look at the mobile sector. The inventory dynamics of smartphone customers are similar to those of PC customers. In 2024, smartphone sales are expected to achieve low to mid-single-digit percentage growth, and we anticipate continued growth in sales in 2025. Smartphone manufacturers are striving to enhance the differentiation of their devices by integrating more artificial intelligence features, such as personalized recommendations, more powerful camera capabilities, and smarter voice assistants. Recently, leading Android smartphone manufacturers have launched smartphones equipped with artificial intelligence technology, with memory capacities ranging from 12GB to 16GB, while the average memory capacity of flagship phones last year was only 8GB. Micron is fully prepared to support the development of AI smartphones with its leading memory and storage products. This quarter, we received our first customer certification for the second-generation 1-beta version LP5X DRAM and second-generation G8 NAND UFS 4.0 products, further solidifying our product leadership. In the automotive market, infotainment and ADAS are driving the growth of long-term memory and storage content. Micron Technology has achieved a new high in automotive business revenue for the fourth consecutive year in fiscal year 2024. Micron has built an industry-leading portfolio of automotive-grade DRAM and NAND products, providing top-tier solutions for these high-growth applications, thanks to our technological and product leadership, top-quality rankings, and close collaboration with customers. This quarter, we successfully obtained qualification certification for the 16Gb LP5 memory based on 1-beta technology, with a speed of 9.6 Gbps, for the automotive market, which will support the growing performance demands driven by artificial intelligence in digital cockpits and ADAS. The automotive industry continues to adjust the mix of electric vehicles, hybrid vehicles, and traditional vehicles to meet changing customer demands. As automotive customer inventories adapt to this new mix, we expect the automotive business to resume growth in the second half of fiscal year 2025. Now, let's talk about our market outlook. Driven by strong growth in data center servers, the demand outlook for the DRAM industry has improved in 2024, and growth in other segments is consistent with our previous market commentary Therefore, we have raised our forecast for the industry's DRAM bit demand growth rate in 2024 to around 15%. We still maintain our forecast for the industry's NAND bit demand growth rate in 2024 at around 15%. We expect the bit demand growth rates for both DRAM and NAND industries to be around 15% in 2025. Speaking of supply. A favorable industry environment will significantly enhance profitability and return on investment, which are crucial for supporting the investments needed for future growth. Due to the capital expenditure and supply reduction measures taken by the entire industry in 2023, we expect that the wafer capacity for both DRAM and NAND in 2024 will be below the peak levels of 2022, with the decline in NAND capacity being significantly less than the peak levels of 2022. This factor, combined with the continuous increase in HBM wafers, is reducing the DRAM supply allocated to traditional products and contributing to the healthy industry supply-demand environment for DRAM that we anticipate in 2025. Given the significant reduction in NAND industry wafer capacity and the ongoing low capital expenditure environment for NAND, we expect a healthy supply-demand environment for the NAND industry in 2025. Compared to the expected compound annual growth rate of NAND bit demand (in the high teens), the technology transition in NAND typically provides higher annualized bit growth per wafer. Therefore, we expect the industry's technology transition cycle to be extended, and capital investments to gradually slow down to maintain supply-demand balance in the industry. This will reduce the growth of R&D expenses and capital intensity for NAND, thereby helping to improve the financial condition of the NAND industry. Micron Technology's capital expenditure for fiscal year 2024 is $8.1 billion. Based on our current capital expenditure and revenue expectations, we anticipate a significant increase in capital expenditure for fiscal year 2025, reaching about 35% of revenue. The growth in new wafer fabs and HBM capital expenditure investments is expected to account for the vast majority of the year-on-year increase in capital expenditure. As a reminder, our facilities and construction investments in Idaho and New York will support our long-term demand outlook for DRAM but will not contribute to supply in fiscal years 2025 and 2026. Micron will continue to execute supply and capital expenditure discipline and focus on improving profitability, including exiting lower-margin businesses while still maintaining overall bit market share for DRAM and NAND. Now I will hand over our financial performance and outlook to Mark. Mark Murphy: Thank you, Sanjay, and good afternoon, everyone. In the fourth fiscal quarter, Micron's revenue reached the high end of our expected range, with gross margin and earnings per share also exceeding the high end of our expected range. We ended this fiscal year with good momentum, expanding our industry-leading product portfolio, executing well on pricing, and seeing significant improvement in our financial performance since the beginning of the year In the fourth fiscal quarter, total revenue was approximately $7.8 billion, a quarter-over-quarter increase of 14% and a year-over-year increase of 93%. Total revenue for fiscal year 2024 was $25.1 billion, a year-over-year increase of 62%. Fourth quarter DRAM revenue was $5.3 billion, a year-over-year increase of 93%, accounting for 69% of total revenue. Looking at it sequentially, DRAM revenue increased by 14%, with shipment volume remaining flat and price increases around 15%. For this fiscal year, DRAM revenue grew by 60% year-over-year, reaching $17.6 billion, accounting for 70% of total revenue. Fourth quarter NAND revenue was $2.4 billion, a year-over-year increase of 96%, accounting for 31% of Micron's total revenue. NAND revenue increased by 15% quarter-over-quarter, with both storage unit shipment volume and prices achieving high single-digit percentage growth. Micron's fourth quarter NAND revenue set a new quarterly high, with NAND revenue for this fiscal year growing by 72% year-over-year, reaching $7.2 billion, accounting for 29% of total revenue. Now let's take a look at the revenue from each business segment. The Compute and Networking segment generated $3 billion in revenue, a quarter-over-quarter increase of 17%. Data center server DRAM achieved a new quarterly revenue high in the fourth quarter, driven by strong market demand for high-capacity solutions and continued growth in HBM. The Mobile segment generated $1.9 billion in revenue, a quarter-over-quarter increase of 18%, mainly due to seasonal product growth. The Storage segment generated $1.7 billion in revenue, a quarter-over-quarter increase of 24%, with the data center solid-state drive (SSD) business setting a quarterly revenue record, leading the overall business. Our NAND storage business achieved record revenue in fiscal year 2024. The Embedded segment generated $1.2 billion in revenue, a quarter-over-quarter decrease of 9%. In fiscal year 2024, the Automotive segment set a new fiscal year revenue record for the fourth consecutive year. The consolidated gross margin for the fourth quarter was 36.5%, an increase of over 8 percentage points quarter-over-quarter. Higher pricing and a better product mix were key drivers of improved profitability. The consolidated gross margin for this fiscal year was 23.7%, an increase of over 31 percentage points year-over-year. Operating expenses for the fourth quarter were $1.08 billion, an increase of $105 million quarter-over-quarter, mainly due to increased expenses for R&D projects. Operating expenses for this fiscal year were $4 billion, a year-over-year increase of 11%. The growth in operating expenses for fiscal year 2024 was primarily due to increased R&D investments and the restoration of short-term incentive compensation. In the fourth quarter, our operating income was $1.7 billion, with an operating margin of approximately 23%, a quarter-over-quarter increase of 9 percentage points and a year-over-year increase of 53 percentage points. Operating income for fiscal year 2024 was $1.9 billion, with an operating margin of approximately 8%, a year-over-year increase of 39 percentage points. Adjusted EBITDA for the fourth quarter was $3.7 billion, with an EBITDA margin of 48%, a quarter-over-quarter increase of 5 percentage points and a year-over-year increase of 30 percentage points. For fiscal year 2024, EBITDA was $9.7 billion, with an EBITDA margin exceeding 38%, a year-over-year increase of 20 percentage points In the fourth fiscal quarter, the after-tax income was $387 million, exceeding our expectations, primarily due to changes in the earnings jurisdiction structure. The after-tax income for fiscal year 2024 was $379 million, accounting for approximately 20% of pre-tax income. The non-GAAP diluted earnings per share for the fourth fiscal quarter was $1.18, compared to $0.62 per share in the previous quarter and a loss of $1.07 per share in the same period last year. Driven by improved pricing and profitability, the non-GAAP earnings per share for the fourth fiscal quarter surpassed the upper limit of our expected range. The non-GAAP earnings per share for fiscal year 2024 was $1.30. Regarding cash flow and capital expenditures, our operating cash flow for the fourth fiscal quarter was $3.4 billion, accounting for 44% of revenue. For the entire year, we generated $8.5 billion in operating cash flow, accounting for 34% of revenue. Capital expenditures for this quarter were $3.1 billion. The total capital expenditures for this fiscal year amounted to $8.1 billion, up from $7 billion in fiscal year 2023. This quarter, we generated $323 million in free cash flow, totaling $386 million for the fiscal year. As announced in early August, given the improving situation, we decided to resume stock buybacks. With the restoration of free cash flow, reduced leverage, and optimistic expectations for the long-term outlook, we saw opportunities to repurchase stock this quarter. In the fourth fiscal quarter, we repurchased $300 million worth of shares, totaling 3.2 million shares, at an average price of $93.07 per share. At the end of the fourth fiscal quarter, Micron's inventory stood at $8.9 billion, equivalent to 158 days, an increase of three days from the previous quarter. Micron will continue to strictly control pricing and expects the industry supply-demand environment to remain healthy in fiscal year 2025. We plan to reduce inventory to support revenue growth in fiscal year 2025. As of the end of the quarter, we held $9.2 billion in cash and investments on our balance sheet, including unused credit lines, maintaining liquidity at nearly $11.7 billion. At the end of this quarter, our total debt was $13.4 billion, with a low net leverage ratio and a debt-weighted average maturity of 2031. We are committed to further strengthening our balance sheet and maintaining an investment-grade credit rating. Now, let's talk about our outlook for the first fiscal quarter. We expect gross margins to improve quarter-over-quarter, primarily due to better pricing and product mix. Looking back, in the fourth fiscal quarter, HBM continued to add value to DRAM and the company's overall gross margin. We anticipate that changes in the product mix will continue to be an important and favorable contributor to gross margins. We forecast that operating expenses for the first fiscal quarter will be flat or slightly higher compared to the fourth fiscal quarter. For the entire fiscal year 2025, operating expenses are expected to grow by around ten percent compared to fiscal year 2024. The increase in operating expenses is expected to be concentrated in the second half of the year as we ramp up investments in necessary R&D projects, including HBM, to seize significant growth opportunities in the future. For the first fiscal quarter and fiscal year 2025, we expect the non-GAAP tax rate to be at a moderate level. We anticipate that inventory turnover days will decrease in fiscal year 2025, with DIO approaching our target by the end of fiscal year 2025 In the first fiscal quarter, we forecast capital expenditures to increase sequentially to approximately $3.5 billion. As Sanjay mentioned, based on our current capital expenditure and revenue expectations, we anticipate that capital expenditures for the fiscal year 2025 will account for about 35% of revenue. We remain cautious about all capital expenditures and maintain strict control over wafer fab equipment (WFE) investments to ensure that supply growth aligns with industry demand. Considering all the above factors, our expectations for non-GAAP performance in the first fiscal quarter are as follows: we expect revenue to be $8.7 billion, with a fluctuation of $200 million; gross margin to be around 39.5%, with a fluctuation of 100 basis points; and operating expenses to be approximately $1.085 billion, with a fluctuation of $15 million. As mentioned above, we expect the tax rate for the first fiscal quarter to be in the low teens percentage range. Based on approximately 1.14 billion shares outstanding, we expect earnings per share (EPS) to be $1.74, with a fluctuation of $0.08. Finally, we will continue to focus on investing in a disciplined manner to support our growth and maintain stable market shares in DRAM and NAND. Micron Technology is prepared to achieve record revenues in fiscal year 2025 and significantly enhance profitability and free cash flow. Now I will hand the floor back to Sanjay. Sanjay Mehrotra: Thank you, Mark. As we discussed earlier, fiscal year 2024 has been a year of many records, and I expect fiscal year 2025 to be even better. With the emergence of artificial intelligence, we are in the most exciting time of our careers in the memory and storage fields. Micron Technology's memory and storage innovations are making significant breakthroughs, changing the way the world uses information and enriching the lives of everyone. Micron Technology has maintained a multi-generational technology leadership position in DRAM and NAND. Our unique culture, industry-leading product portfolio, combined with world-class manufacturing execution and quality, enables us to provide differentiated, high-value solutions to end markets. This makes us the preferred partner for customers planning their long-term development roadmaps, and our strong momentum lays the foundation for an exciting fiscal year 2025. Thank you all for joining us today. We will now begin the Q&A session. Q&A Session Operator Certainly. Thank you. The first question comes from Timothy Arcuri of UBS. Please go ahead with your question. Timothy Arcuri: Thank you very much. Mark, my first question is about some of the assumptions in the performance guidance. I remember you mentioned in various meetings that DRAM and NAND shipments in the first fiscal quarter would be roughly flat. Is that still your assumption now? In other words, is most of the revenue growth essentially coming from pricing? Is that correct? Mark Murphy: Timothy, as of now, we provided some updates in August, but we are now seeing that the increase in DRAM bits is expected to be slightly higher than our previous forecast. We had previously predicted they would be flat, and then we revised it to flat or slightly up, and in the **latest forecast, we now expect the increase in DRAM to be slightly higher than before We expect the increase in NAND bit growth to remain flat quarter-over-quarter. Please remember that our forecast also considers a healthy supply-demand environment, as well as an increasingly favorable mix of businesses such as HBM, high-capacity DIMM, LP, and data center SSDs. Therefore, we see stronger demand from data centers, and we have previously indicated that this demand is robust and has been very favorable. Additionally, our product roadmap, product execution, and overall manufacturing execution are performing well. Timothy Arcuri Thank you, Mark. One last thing. You mentioned earlier that HBM revenue was slightly above $100 million last quarter (in May). Can you tell us the number for August? It looks like it's around $300 million to $350 million. Does this roughly represent your HBM revenue for the fourth fiscal quarter? Sanjay Mehrotra Therefore, we will not disclose specific revenue for the fourth quarter. We have previously stated that we will achieve hundreds of millions of dollars in revenue for fiscal year 2024, and we have achieved that goal. We are very proud of our team's outstanding performance in capacity deployment, achieving good yields on our targets, and continuously delivering strong products to customers. Therefore, we will not disclose specific data on a quarterly basis. But please remember, yes, we achieved hundreds of millions of dollars in revenue for fiscal year 2024, and we look forward to achieving billions of dollars in HBM revenue for fiscal year 2025. Timothy Arcuri Okay. Thank you, Sanjay. Operator Thank you. The next question comes from CJ Muse of Cantor Fitzgerald. Please go ahead with your question. C.J. Muse: Yes, good afternoon. Thank you for taking my question. I think my first question is about gross margin; you forecast a strong increase of 300 basis points. I hope you can take some time to talk to us about the factors driving the increase in gross margin. How much of this is coming from the increase in average selling prices of comparable DRAM, product mix, improvements in HBM yields, and cost reductions? After you cover these, could you briefly outline the trends of these drivers after the November quarter? Mark Murphy So, CJ, in the fourth quarter or first quarter, when we look at margin expansion, it is similar to the themes we discussed earlier. The supply-demand environment is healthy, so we see this growth reflected in pricing. We also see the execution of the product roadmap and an increase in high-value products contributing to this. On the cost side, we are doing well in reducing costs. However, in the first quarter, due to the mix of HBM, we will see a slight increase in DRAM costs. Therefore, looking ahead to the first quarter, everything is as we would like, maintaining a competitive edge, good supply-demand, favorable pricing environment, and of course, a favorable product mix, all of which are becoming more important parts of the business and good cost execution. C.J. Muse Very helpful. I was wondering, as a follow-up question, you reiterated your capital expenditure outlook, but clearly, the end market environment has changed somewhat over the past three months. So, I'm curious if you have changed the priorities of your capital expenditures? Obviously, you mentioned the focus on shelves and HBM. Are there any other changes in your spending? Sanjay Mehrotra Not really. We have no other changes. I mean, we will continue to focus our capital expenditures on HBM investments, as you know, HBM is a high-value solution, and the products tend to increase profit margins. Of course, there is also long-term construction capital expenditure, which is aimed at targeting long-term growth in the latter half of this decade. C.J. Muse Thank you. Operator Thank you. The next question comes from Krish Sankar of TD Cowen. Please go ahead with your question. Krish Sankar Yes, I have two questions. First, Sanjay, your AI GPU customers are shifting to your products' annual update cycle, and it seems that the HBM roadmap will also shorten from the previous 18 months to 12 months. Do you think this will put you and your peers at a disadvantage in terms of yield? In other words, as HBM3E yields and gross margins improve, you will have to migrate to HBM4, and the yields on the new node may be lower. So I'm a bit curious about how you view this pace of HBM development and how it will affect yields and gross margins? Then I have a quick follow-up. Sanjay Mehrotra As we mentioned, the yield targets for HBM3E's 8nm layers are progressing well. Of course, by 2025, the yield for HBM12 layers will improve—starting production in early 2025. Naturally, the yield for HBM12 layers will gradually increase, and the yield for HBM12 layers will continue to improve throughout 2025, while HBM4's yield will be launched in 2026. Like any other new product, the yield ramp-up is inevitable in the early stages. But we are very satisfied with our technical expertise and manufacturing expertise, and we are doing quite well in continuously improving yields and product quality. Ultimately, you know, the acceleration of customer pace will only benefit companies with the best products and technologies, as they can collaborate at the speed their customers need. With HBM3E, it has already demonstrated clear leadership in performance, power consumption, and overall product characteristics, and we absolutely plan to maintain this leadership through our roadmap, from 8 layers to 12 layers, including future HBM3E, HBM4, and 4E. With our expertise in manufacturing, this should play to our advantage in the coming time. We work very closely with our customers. Krish Sankar Understood, very helpful. Sanjay Mehrotra We work closely with our customers to understand their pace, their requirements, and ensure our roadmap aligns well with their needs, whether in terms of technology, product, or manufacturing capabilities. Krish Sankar Understood, thank you very much, Sanjay. The information is very useful. Also, I would like to quickly follow up with Mark regarding the inventory issue. I know you will be reducing inventory in fiscal year 2025. However, inventory levels increased last quarter; could you specify which products saw an increase in inventory levels? Is it PC products? Is it mobile DRAM products? Any relevant information would be helpful. Thank you very much. Mark Murphy: Of course, we made this clear in our August meeting. We see strong demand in data centers, but some customers also purchased in advance because they anticipate price increases, the launch of AI-related equipment, and supply assurance due to tight supply of cutting-edge technology. So we have indeed seen some inventory increases, and we have communicated that inventory will remain high as we enter fiscal year 2025. As you can see, our inventory has indeed increased. We continue to manage supply cautiously and exit lower-margin businesses. We expect the supply-demand environment in 2025 to be favorable for improving profitability. Given the tight supply of cutting-edge capacity and our expectations, we need this inventory to help us through the production growth during the technology node transition. That’s why we expect our inventory to be close to target levels by the end of the fiscal year. Currently, our output is skewed towards the latter half of the fiscal year. So we will see some smoother improvements in the first half of the fiscal year, and then as we enter the latter half, the improvement in DIO will intensify. But we are confident in our inventory outlook and indeed need this cutting-edge inventory to supply the market. Krish Sankar Thank you, Mark. Operator Thank you. The next question comes from Joseph Moore of Morgan Stanley. Please go ahead with your question. Joseph Moore Great, thank you. Speaking of your goal to align HBM market share more closely with your overall market share, could you describe how you are achieving this goal? Do you still expect it to be a supply-constrained environment for everyone right now? Or is Micron's product quality becoming more balanced, thereby helping us achieve this goal? What factors ultimately determine your market share and lead to this level? Sanjay Mehrotra Certainly, we are indeed responsible and disciplined in our market share management. We have the best HBM3E products in the industry, which reduce power consumption by 30% at 8-high, and despite a 50% increase in capacity compared to other 8-high products at 12 layers, power consumption still decreases by 20%. Therefore, our products are well-positioned due to their performance and power consumption advantages, which is why they are selling well during 2024 and 2025 Regarding HBM, we have discussed that the TAM is expected to reach $25 billion next year, accounting for over 6% of the market share. In fact, the TAM will exceed $25 billion by 2025. We are very confident that with our products, capacity improvements, and agreements with customers, we will achieve a market share that matches the industry share by 2025. Of course, our capacity improvements are currently a limiting factor, but we are indeed on a very good growth trajectory. Therefore, we are very confident in our products, capacity improvements, and market share opportunities. Frankly speaking, our HBM3E products are also becoming increasingly high-end in the industry compared to other products. This puts us on a good growth trajectory as well. Joseph Moore Great. Thank you. Congratulations. Operator Thank you. The next question comes from Vivek Arya of Bank of America Securities. Please go ahead with your question. Vivek Arya: Thank you for taking my question. I have two questions as well. Sanjay, regarding HBM, there are concerns that there may be an oversupply of HBM by 2025, assuming there are currently two suppliers and then three. Do you think there is a possibility of oversupply? Assuming another scenario where there are still only two suppliers for the next generation of HBM, do you think a third supplier might introduce more DRAM to the market, similar to the opposite of the trade ratio argument? So, I’m curious about your views on the supply and demand dynamics for traditional DRAM and HBM4 next year. Sanjay Mehrotra So, we certainly assume that a third supplier will eventually also successfully launch HBM3E products, and we will have a place in the market. As I pointed out earlier, with our reliable products, our products are sold out before 2025, and we are in a very favorable position with this product. What you need to remember is, as we mentioned earlier, the supply of advanced processes is very tight. The tight supply of advanced processes is due to the significant reduction in capital expenditures in 2022 and 2023, as well as the industry's transition to new technology nodes, which has led to a substantial decline in wafer capacity from peak levels. Therefore, compared to the peak levels in 2022, wafer capacity has decreased, along with the HBM 3:1 trade ratio, which overall has led to tight supply across the industry. The supply tightness exists not only in the HBM market but also in the non-HBM market. Therefore, we are certainly very confident in our HBM plans. Of course, we always focus on managing the mix of non-HBM and HBM businesses and maintain extremely strict control over capital expenditures and share targets. We have shared our HBM share targets here. Overall, we have stated that we want to maintain stable supply shares for DRAM and NAND. That is our view of the overall market. But when you observe market trends, you will find that it is not just the demand trend for HBM—HBM is certainly growing significantly, and by 2025, the market size will exceed $25 billion In addition, this spring, as AI-supported smartphones capture an increasing market share in the coming quarters and years, we are seeing a rise in demand for memory from smartphones and PCs. Of course, the inventory levels of memory customers for smartphones and personal computers will return to previous levels this spring, and we believe this will be a driver of demand, while also complementing the strong demand from data centers. We are looking for strong growth momentum, not just in HBM. We have already discussed the goal of generating billions of dollars in revenue through high-capacity DRAM modules and LP memory via data centers in fiscal year 2025, so all of this indicates a strong demand trend, driven by data centers, smartphones, and personal computers' AI, leading to an increasing demand for content in today's tight supply environment. Therefore, I believe the opportunities are immense, and we see a healthy supply-demand balance, as well as an environment favorable to our financial performance in fiscal year 2025. This is why we are confident in achieving substantial revenue records in fiscal year 2025, with profitability also significantly improving. Vivek Arya Got it. Very helpful. Perhaps we can quickly follow up on Mark's question. Mark, during the third-quarter conference call, I think you provided a clearer articulation of industry pricing and gross margin growth in fiscal year 2025. From your current perspective, is this still a useful judgment? Or do you think gross margins or pricing will start to stabilize or even trend in the opposite direction in fiscal year 2025? What are your current operational assumptions for fiscal year 2025? Thank you. Mark Murphy Maybe just to follow up on Sanjay's comments here. I mean, we see the outlook for fiscal year 2025 as very optimistic, as previously mentioned, with substantial revenue records significantly improving profitability. The supply-demand dynamics are quite good. The market front is very tight. As we mentioned earlier, industry wafer capacity has declined, so with the increasing share of high-bandwidth memory (HBM), HBM will certainly bring supply constraints to the market. Therefore, we still see a healthy supply-demand environment for the year. We also hold a positive outlook for this year's performance. We have also seen the previously mentioned trend that our output is increasingly shifting towards supporting higher-value advertising products, as well as our differentiated product portfolio. HBM, high-capacity DIMMs, more LP, and our NAND SSD product portfolio for data centers. Therefore, I believe that with these factors supporting the growth of profit margins for the year and the continued good cost-performance ratio, we are confident in this year's performance. Vivek Arya Thank you. Operator Thank you. The next question comes from Toshiya Hari of Goldman Sachs. Please go ahead with your question. Toshiya Hari Thank you. I have two questions regarding the HBM business. Sanjay, you mentioned that by 2025, your products will be fully sold out. I am curious if Micron has the opportunity to achieve higher profits than currently planned in 2025, or will the equipment delivery cycle limit your current expectations for HBM? My second question is about the gross margin of HBM. We all know that this business adds value both to the average level of the company and relative to DRAM. Looking ahead to 2025, with production and prices locked in, I believe your expectations for gross margin should be quite clear. Should we expect the gross margin of HBM to remain at current levels, or will it further increase as long as you execute well on yield? Thank you. Sanjay Mehrotra Regarding the upside potential of HBM in 2025 that you mentioned, I want to emphasize again that we are very focused on achieving our goal of aligning our HBM share with DRAM share at some point in 2025. We are very focused on continuing to enhance capacity and yield, and everything is currently proceeding smoothly according to our plans. I am very satisfied with this, so we will continue to focus on it. Of course, if there are opportunities and any benefits, we will certainly seize them. And these benefits are always present. As for yield, we expect HBM yield to reach mature levels in fiscal year 2025. Yield is always an opportunity for improvement, and equipment productivity can always be an opportunity as well. Therefore, we will responsibly manage our business, wholeheartedly achieve our goals, and always focus on successfully fulfilling our HBM commitments to customers. Regarding your question about gross margin growth, yes, we expect the HBM business to grow in fiscal year 2025. Beyond that, we cannot provide more details. You are correct that our HBM production and prices are locked in for both 2024 and 2025. Toshiya Hari Okay. Then, I want to quickly follow up on the growth situation in the DRAM industry. I remember you raised the expectation for 2024 to around 15%, and your preliminary expectation for 2025 is around mid-teens. I am curious about what causes the slowdown in growth from 2024 to 2025? Is the 2025 data supply-constrained? From a demand perspective, Sanjay, you are quite optimistic about PCs, smartphones, and content opportunities, and you remain optimistic about data centers. So I am curious about what causes the expected slowdown in growth for 2025. Thank you. Sanjay Mehrotra Yes. By the way, we have previously discussed a compound annual growth rate for DRAM of around 15%. Considering the strong growth in data centers in 2024, we have raised our expectation for the compound annual growth rate of DRAM to around 15%. Looking ahead to 2025, we need to consider two factors. First, we are now comparing it to the higher base of 2024, where the compound annual growth rate has already reached around 15%. This will certainly affect the percentage for 2025. Secondly, as we pointed out, smartphones and PCs continue to perform well in the end market. However, considering the three factors we mentioned in the earnings call, customers have built up some inventory The sales volume of memory is slightly lower than expected. We previously stated that by spring 2025, we expect the inventory levels of PC customers to be healthier than they are now and to continue improving. So this is also a factor. Of course, I want to remind everyone that we have pointed out that the overall shipment volume of smartphones and personal computers will grow in 2025, and with the increasing penetration of artificial intelligence smartphones, the growth rate in the second half of the year will be significantly stronger than in the first half. All these factors are included in our current forecast for the DRAM growth rate in 2025, which is a mid-term growth rate. I would also like to point out that we previously mentioned that HBM is expected to bring over $20 billion in market opportunities in 2025. Now we are saying that HBM will bring over $25 billion in market opportunities in 2025. As everyone knows, the transaction ratio for HBM is 3:1, meaning that the number of wafers required to produce the same number of bits is three times that of standard products at the same technology node. Therefore, the growth of HBM will obviously also affect the year-on-year growth of overall bits. Toshiya Hari Thank you Operator Thank you, everyone. This concludes today's Q&A session and program. Ladies and gentlemen, thank you for your participation. You may now disconnect. Goodbye