Chris Danely

Chris Danely asked for details on when the business environment softened, if any specific geos or product lines stood out in the softer trend, and whether tariff-related pull-ins earlier in the year contributed, and then inquired about the status of backend constraints, if they are worsening, when they might be controlled, and if they are causing missed sales.

Answer

President and CEO Steve Sanghi clarified that bookings remained strong, but customers decided to schedule strong orders for January rather than December to 'dress their balance sheet' for calendar year-end, leading to a softer December guidance. He noted that substrate capacity remains a key constraint, exacerbated by competition from cell phone builds, and while not disastrous, it is causing meaningful missed sales by delaying shipments by a quarter in certain cases.

Chris Danely asked when the business environment softened in the September quarter, which specific areas were affected, and potential reasons like tariff-related pull-ins. He also inquired about backend constraints, whether they were worsening, the timeline for control, and if they were causing any missed sales.

Answer

President and CEO Steve Sanghi clarified that bookings remained strong, but customers opted to schedule deliveries for January to manage their calendar year-end balance sheets, rather than a softening of demand. He addressed backend constraints, particularly substrate capacity, noting competition with cell phone builds, and acknowledged that these constraints were causing meaningful, though not disastrous, sales misses.

Chris Danely asked about any direct or indirect impact ON Semiconductor has observed or anticipates from the ongoing Nexperia situation. He also questioned whether the automotive market is expected to continue outgrowing the industrial end market in the coming quarters, given recent trends.

Answer

Hassane El-Khoury, President, CEO, and Director, ON Semiconductor, stated that it's too soon to fully assess the Nexperia situation but confirmed ON Semiconductor is supporting customers as requested. Regarding market growth, Mr. El-Khoury advised against comparing automotive and industrial growth quarter-on-quarter, attributing any deltas to market timing and macro factors. He noted that both markets have strong growth factors, with industrial seeing temporary slowdowns in areas like solar but also growth from AI data center power requirements.

Chris Danely inquired about any direct or indirect impact on ON's business from the ongoing Nexperia situation and whether automotive is expected to continue outgrowing industrial in the coming quarters.

Answer

Hassane El-Khoury, President and CEO, stated it was too soon to call any specific impact from the Nexperia situation, but ON is supporting customers. He advised against comparing automotive and industrial growth quarter-on-quarter, attributing deltas to market timing, build-out timing, and temporary macro softness like the solar deployment slowdown in China, emphasizing that both markets have strong growth factors.

Chris Danely sought clarification on Micron's DRAM revenue mix, specifically the contributions from DDR4, DDR5, and HBM, and the relative impact on incremental gross margins. He also asked Mark Murphy about the factors driving the company's return to 50%+ gross margins, what has changed, and the limiting factors for future margin expansion.

Answer

Sumit Sadana, EVP and Chief Business Officer, noted that DDR4 (excluding LP4) is a low single-digit percentage of the business, with its margins improving due to shortages. He explained that HBM pricing is set long-term, while other DRAM pricing is quarterly, and expects non-HBM DRAM margins to improve as the industry tightens. Mark Murphy, CFO, attributed the margin improvement to better market conditions (tight DRAM, improving NAND), higher DRAM margins than mid-2022, and the highest operating margin since November 2018. He cited NAND business improvement, constrained DRAM supply (low inventory, extended DDR4/LP4 life, HBM silicon intensity, long fab lead times), focus on high-value products, and cost improvements as drivers for continued margin expansion, expecting Q2 gross margin to increase.

Chris Danely asked for a breakdown of DRAM revenue contributions from DDR4, DDR5, and HBM, and how each contributes to incremental gross margin. He also followed up on Micron's gross margin trajectory, specifically what factors enabled the company to surpass 50% and what limiting factors remain.

Answer

Sumit Sadana, Chief Business Officer, noted that DDR4 (excluding LP4) was a low single-digit percentage of the business and that the relative margins between HBM and non-HBM DRAM are not directly comparable due to different business models and pricing dynamics. Mark Murphy, CFO, attributed the improved gross margins to better market conditions, particularly tight DRAM supply and improving NAND conditions, along with Micron's focus on higher-value SSD products and cost improvements. He also highlighted structural factors like low inventory, extended DDR4/LP4 life, HBM's silicon intensity, and long fab construction times as enabling margin expansion.

Questioned why current gross margins are significantly lower than in a previous cycle with similar revenue levels, and asked for clarification on the commentary about improving product mix while also having increased consumer exposure.

Answer

The company attributed the lower margins primarily to the challenging NAND industry environment, which has weighed on profitability, while DRAM margins remain healthy. The "consumer exposure" refers to a strong rebound in demand from consumer-facing customers after an inventory correction, which, combined with HBM, is tightening supply and enabling price increases. The long-term strategy remains focused on shifting the mix to high-value solutions.