The operator introduces the conference call for Micron Technology's fiscal third quarter 2024 financial results and introduces the host, Satya Kumar. The call is being recorded and webcasted, with the press release and prepared remarks available on the company's website. The discussion will be based on non-GAAP financial measures and may include forward-looking statements. These statements are subject to risks and uncertainties, and the audience is referred to the company's SEC filings for more information.

Micron delivered strong financial results in Q3, with revenue, gross margin, and EPS exceeding guidance ranges. The company saw increased profitability across all end markets, particularly in data centers due to growing demand for AI-related products. Micron expects continued price increases in 2024 and a substantial revenue record in 2025, driven by the demand for AI in PCs, smartphones, and data centers. The company is also ramping up production on its most advanced technology nodes in both DRAM and NAND.

Micron's production of 1-gamma DRAM using extreme ultraviolet lithography is progressing well and is expected to reach volume production in 2025. The company also plans to begin high-volume production of its next-generation NAND node in 2025. Despite operational disruptions caused by a recent earthquake in Taiwan, Micron expects to achieve significant cost reductions in its DRAM and NAND front-end processes in fiscal year 2024. The company has also signed a preliminary agreement with the U.S. government for $6.1 billion in grants to support its memory manufacturing expansions in Idaho and New York. These expansions will enable Micron to achieve cost-competitive, leading-edge memory manufacturing in the United States. Construction is already underway in Idaho, and the company is working to complete the necessary processes in New York. These investments are necessary to meet long-term demand and maintain Micron's current bit share in the industry.

Micron is well positioned to take advantage of the growing demand for DRAM and NAND in the AI market. They have seen strong demand from data center, PC, and smartphone customers, and are seeing increased interest in long-term agreements. The company is also well positioned with their portfolio of high-performance products for data centers, and their customers have announced long-term product roadmaps for AI servers with improved capabilities.

Micron's HBM technology is in high demand and the company expects to generate significant revenue from it in fiscal 2024 and 2025. They have a strong roadmap for future HBM products and are confident in maintaining their technology leadership. They have also achieved full validation on their high-capacity server DIMM products and have strong interest in their LPDRAM for data center applications. Demand for data center SSD is also recovering.

Micron's sales in the data center SSD market are growing due to increased demand for AI infrastructure. They are also making advancements in technology, such as supplying 200-plus-layer QLC for enterprise storage. In the PC market, unit volumes are expected to grow in the low single-digit range in 2024, and the planned Windows 10 end-of-life and launch of Windows 12 may accelerate the PC replacement cycle. Next-generation AI PCs are expected to have higher DRAM and SSD requirements, which aligns well with Micron's technology portfolio. In the mobile market, Micron is also seeing growth opportunities.

In 2024, smartphone unit volumes are expected to grow, driven by new AI capabilities and Micron's leading LP5X technology. Micron's mobile solutions are widely adopted in flagship smartphones and have received recognition for being the top quality provider. The automotive sector also experienced robust demand for memory and storage, with Micron achieving record revenues. The adoption of intelligent digital cockpits and advanced driver-assistance capabilities is driving content growth, and Micron's industry-first product introductions position them as a leader in the automotive market.

The company is experiencing some uncertainty in demand for their industrial and retail consumer segments, but remains confident in the long-term growth potential due to the increasing adoption of AI. They forecast mid-teens bit demand growth for both DRAM and NAND in 2024 and expect supply to be below demand. The ramp of HBM production will constrain industry supply growth and HBM demand is expected to contribute to tight supply conditions for DRAM. Micron will continue to exercise supply and CapEx discipline and focus on improving profitability while maintaining their bit market share. They anticipate ending fiscal 2024 with low double-digit percentage less wafer capacity in both DRAM and NAND compared to their peak levels in fiscal 2022.

Micron plans to use their existing inventory to drive bit growth and support revenue in fiscal 2025. They expect to increase capital spending in fiscal 2025, with a focus on HBM assembly and test equipment, fab and back-end facility construction, and technology transition investments. The construction of new fabs in Idaho and New York is expected to make up the majority of the increase in total capital spending, but these fabs will not contribute significantly to bit supply until fiscal 2027 and 2028. The timing of future WFE spending will be managed to align with expected demand growth. In fiscal Q3, Micron exceeded their guidance ranges for revenue, gross margin, and EPS due to improving market conditions and strong price and cost execution. DRAM revenue accounted for 69% of total revenue in fiscal Q3.

In fiscal Q3, Micron's DRAM revenue increased by 13% due to a 20% increase in prices, while NAND revenue increased by 32% due to a 20% increase in prices and high single-digit percentage growth in bit shipments. The Compute and Networking Business Unit saw an 18% increase in revenue, while the Mobile Business Unit saw a 1% decrease due to planned volume decline. The Embedded Business Unit had a 16% increase in revenue, driven by record automotive revenue, and the Storage Business Unit had a 50% increase in revenue across all markets. Gross margin improved by 8 percentage points, or 15 percentage points excluding previously written-down inventories. Operating expenses were at the low end of the guidance range, resulting in an operating income of $941 million and an operating margin of 14%.

In fiscal Q3, the company's adjusted EBITDA and EBITDA margin increased significantly compared to the previous quarter and year-ago quarter. Taxes were lower than expected due to one-time items. Non-GAAP EPS exceeded guidance by $0.10 due to strong revenue and profitability. Operating cash flow was $2.5 billion and free cash flow was $425 million. Inventory declined and supply for DRAM and NAND remains tight. The company has ample liquidity and repaid $650 million of debt. In the fiscal fourth quarter, they expect flat DRAM shipments and slightly higher NAND shipments, with stronger growth in the November quarter. Gross margin is expected to continue to expand, supported by positive pricing trends and a shift towards higher-value products in their portfolio.

The company expects to see cost reductions and increased profitability in their leading-edge nodes, with a higher mix of HBM offsetting non-HBM DRAM cost reductions. Operating expenses will increase in the fourth quarter due to R&D program expenses and a nonrecurring asset sale gain. The company forecasts a mid-teens percent non-GAAP tax rate for fiscal 2025 and a decline in days of inventory outstanding. Capital expenditures will increase in the fourth quarter and for the full fiscal year, with a significant portion going towards supporting the construction of a new U.S. fab. The company expects to receive incentives to offset some of the U.S. fab CapEx investments, but this may result in higher CapEx for a period of time.

The paragraph discusses Micron's plans for capital spending, revenue, gross margin, operating expenses, tax expenses, and EPS for the fiscal Q4. The company is leveraging its technology leadership to grow its high-value solutions, especially in products that support AI applications. The team in Taiwan responded well to the recent earthquake, showcasing Micron's agility and preparedness. The company is well-positioned for the future and is focused on maintaining its memory and storage leadership in the face of increasing opportunities in the AI market. The paragraph concludes by thanking the audience for joining and opening the floor for questions.

The speaker, Sanjay Mehrotra, is pleased with the traction gained in HBM3E and the $100 million revenue generated in fiscal Q3. They are focused on ramping up production and improving yields for HBM, as well as delivering several hundred million dollars in revenue for fiscal 2024 and multiple billion dollars in the future. They are confident in their ability to maintain market share and have a product that is recognized for its superior power compared to competitors.

Sanjay Mehrotra, in response to a question about qualifications and customer base, states that by 2025, the company expects to diversify its customer base. He also mentions a strong roadmap for HBM4 and HBM4E. In regards to NAND bit demand, Mehrotra clarifies that there is not much of a difference between the CAGR shared previously and the one shared now, but the base year has been revised. He notes that data center SSDs are a good growth driver and data center, automotive, and industrial segments are growing faster than the CAGR, while client, mobile, and consumer segments are growing slower but still have average capacity increases ahead of them.

Sanjay Mehrotra, the speaker, mentions that the trade ratio of HBM to D5 is currently 3x and will continue to be the operative assumption for 2025. This ratio takes into account the larger die size of HBM3E and the mature yield expectations. As yield improves, the cost of production will decrease. The trade ratio for HBM4 will be higher than 3x and the 12-die stack will have slightly lower mature yields.

The speaker explains that the company's guidance for device yields remains at 3x for HBM3E and greater for HBM4, assuming mature yields. They also mention that fiscal year '25 could potentially be a record in terms of sales, but they are not providing guidance yet. The company expects gross margin to continue to increase due to price and mix factors, with data center growth and replacement cycles for smartphones and PCs contributing to this. AI is also expected to have a positive impact on sales in the second half of the calendar year and early fiscal year '25.

The speaker discusses the supply side of the business, mentioning tight conditions and lower capacity in the industry. They also mention the downward trend of inventories and the positive impact of the HBM trade ratio. They highlight the strong momentum of the business and their technology leadership, as well as the successful operation of manufacturing. In terms of HBM, they address reports of yield issues and clarify that they were able to ship over $100 million of HBM revenue in the first quarter of production. The speaker also mentions their positive outlook for gross margins and profitability in the second half of the year and into calendar '25.

The company remains focused on their goals of delivering revenue in fiscal '24 and '25, and expects to improve yields and ramp up capacity. The gross margin is expected to continue expanding through '25. The company's CapEx for fiscal '25 is expected to be in the mid-teens billion dollar range, with a significant portion going towards greenfield investments in the U.S. They do not want to provide revenue guidance for '25 at this time.

The speaker expects a significant increase in revenue for the upcoming year and a meaningful step up for the next quarter. They are constrained on bit production but plan to reach target inventory levels by the end of 2025. They project low teens growth for the HBM market, which they see as a strong growth driver with a CAGR of over 50%. They believe there will be additional qualifications and potential changes in the number of suppliers in the market.

Micron is expecting their mix of HBM to be accretive to their financial performance and margins going forward. They are sold out for 2025 and have a strong position in terms of achieving their goal of having HBM market share in line with DRAM share by 2025. HBM is a complex product for customers to qualify, but Micron's strong product position and attributes make them well-positioned for customer engagement. On the NAND side, Micron's CapEx next year will mainly go towards greenfield and HBM, and they have not disclosed the split between DRAM and NAND. Western Digital has mentioned a potential decrease in capital intensity for the NAND industry.

Sanjay Mehrotra, CEO of a major technology company, discusses the future investment threshold for the industry and how it will affect their company's capital expenditures. He explains that their CapEx is mainly focused on DRAM-related investments, such as HBM, which is capital intensive. They will remain disciplined in their investments for NAND, which is a smaller portion of their CapEx. They will also manage their technology node transitions carefully to maintain a good supply discipline and meet demand growth. Overall, they do not need new clean room fabs for NAND like they do for DRAM.

The speaker, Christopher Danely from Citi, asks Sanjay Mehrotra and Mark Murphy about their company's long-term contracts and the impact of the Taiwan quake. Sanjay explains that these contracts help build a close relationship with customers and are beneficial for supply, pricing, and technology discussions. He also mentions the company's projected revenue and profitability for 2025. Mark clarifies that the Taiwan quake only had a limited impact on the May quarter. Harlan Sur from JPMorgan asks about the demand for enterprise SSDs, specifically from AI workloads.

The team at Micron has seen significant growth in enterprise SSD market share, reaching the number three spot globally in Q1. This has led to a 20-25% share of the overall NAND business. These SSDs are accretive to overall NAND margins, and the company is seeing strong momentum and customer interest in their data center SSDs. They have also demonstrated impressive performance on AI workloads with their next-gen PCIe Gen5 SSDs, but specific details on timing and shipments are not yet available. Overall, Micron expects to sustain their strong share position in the future.

The company's momentum in the SSD and data center SSD market will contribute to their goal of increasing their mix of data center revenue in fiscal year 2025. This growth will also be driven by HBM and high-density DIMMs. The storage business unit delivered operating profit in the quarter.

This summary was generated with AI and may contain some inaccuracies.