Micron Technology - Earnings Call - Q1 2026 Post Call
December 17, 2025
Transcript
Operator (participant)
I would now like to hand the call over to Satya Kumar, Investor Relations. Please go ahead.
Satya Kumar (VP of Investor Relations)
Thank you, and welcome to Micron Technology's fiscal first quarter 2026 post-earnings analyst call. On the call with me today are Sumit Sadana, Micron's Chief Business Officer, Manish Bhatia, EVP of Global Operations, and Mark Murphy, our CFO. As a reminder, the matters we're discussing today include forward-looking statements regarding market demand and supply, market trends and drivers, and our expected results and guidance in other matters. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made today. We refer you to documents we have filed with the SEC, including our most recent Form 10-Q and our upcoming Form 10-Qs for discussion of risks that may affect our results. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, and achievements.
We are under no duty to update any of the forward-looking statements to conform these statements to actual results. We can now open the call up for Q&A.
Operator (participant)
As a reminder to ask a question, you will need to press star one one your telephone. To remove yourself from the queue, you may press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Aaron Rakers of Wells Fargo. Your line is open, Aaron.
Aaron Rakers (Managing Director)
Yeah, thanks. Thanks for taking the question and doing the group call. I guess my first question is, you know, Mark, you talked a lot about being constrained and unable to meet some of the demand out there. I know in the quarter you talked about kind of a slight increase in bit shipments of DRAM this quarter. I guess as part of that, did the non-HBM DRAM bits grow sequentially in this quarter? And how, you know, how has your guide, you know, factored in bit shipments between NAND and Flash in this current quarter? Thank you.
Mark Murphy (CFO)
So I think, Aaron, one thing I wanted to mention was, you know, we are doing all we can to increase bit supply now. And we were able to provide additional bits to do 20% bit shipment growth in our fiscal 2026. And, you know, we're doing that through, you know, efforts within existing footprint and just efficiencies in the fabs. We're doing that with node transitions, as we've said, you know, 1-beta and, or I'm sorry, 1-gamma and G9 to get additional bits for DRAM and NAND. And, you know, we're pulling in what we can on construction that will help us largely in 2027, but we are able to provide growth, what we think will be in line with the market in fiscal 2026 or calendar 2026. You know, I think we did have very modest bit shipment growth sequentially in the first quarter.
We expect a little bit more in the second quarter, but it's again a quarter primarily driven by price as it relates to revenue growth.
Aaron Rakers (Managing Director)
Yeah, that's helpful, Mark. And then as a real quick follow-up, you know, as we look forward, I know you mentioned the 14-week period for fiscal 4Q, but how would you have us think about the OPEX trajectory from here over the next couple of quarters? Thank you.
Mark Murphy (CFO)
Yeah, I mean, we've guided the second quarter. It'll be sort of flattish in the third quarter relative to the second. Then it'll be up in the fourth quarter and up and plus the additional week.
Aaron Rakers (Managing Director)
Yep. Thanks, Mark.
Operator (participant)
Thank you. Our next question comes from the line of Vijay Rakesh of Mizuho. Please go ahead, Vijay.
Vijay Rakesh (Managing Director)
Yeah, hi, thanks. Great quarter. So just a quick question, Sumit, Mark, and Manish. When you look at the, you know, DRAM pricing, it was up pretty nicely, 20% sequentially, and NAND was up pretty nicely too. I was just wondering, when you look at the demand side, how do you decide to allocate capacity versus conventional DRAM versus HBM? Because it looks like conventional DRAM profitability is improving very significantly. So just wondering how that reasoning, how you look at that as you look through 2026, 2027. Thanks. I have a follow-up.
Sumit Sadana (Chief Business Officer)
Yeah, so good question. I mean, we are in a very interesting environment where the aggregate demand for both DRAM and NAND is substantially higher than the ability to supply to it, not just from a Micron perspective, but, you know, even at an aggregate industry level. So we are not really able to meet the demand for customers across any segment. So all segments are short in terms of what they need from us versus what we are able to supply. And we are also short on the HBM side, non-HBM side, you know, all parts of the market. There is a mismatch between supply and demand, and that continues for the foreseeable future because over the course of the last few months, there has been a very significant and pervasive step-up in demand across the data center customer base.
And so it has created a set of challenges in being able to meet the demand from our customers on a very broad level. So in terms of allocation, I can't get into too much specifics, but suffice to say that we are working very hard to find the threshold level of supply for all of our customers to minimize the impact to their businesses due to lack of adequate supply. And we are working hard to ensure, you know, adequate level of diversification in our business across segments, across customers, and focus on our strategic customers when it comes to, you know, doing some of these longer-term strategic deals that can improve foundationally our business model. So those are some of the things that we are attempting to do.
In the course of all of this, our mix over time will tilt more towards the data center, but we're also trying to remain focused on having diversification across all the other segments of the market as well.
Vijay Rakesh (Managing Director)
Got it. And then on the ESSD side, you know, you're seeing a very strong pickup with your QLC. It's in Gen9 ESSDs, as you mentioned, 122 TB, 245 TB. Is there a way to kind of look at what is the attach rate that you're seeing now with ESSDs on AI servers versus last year, especially as some of these inferencing vectors with reasoning and answer and all that stuff to pick up? How do you see that attach rate growing year on year? Thanks.
Sumit Sadana (Chief Business Officer)
The attach rate is certainly growing, and these AI servers do need more high-capacity SSDs. They also need a significant amount of high-performance SSDs. This is where our Gen6 SSDs have come into the picture, so we have been the first company to supply qualified Gen6 SSDs to the market, so that is gaining rapid market traction and contributing to our improved share position in the data center SSD space, and then these high-capacity SSDs that you mentioned, Micron has the leadership position in QLC workloads, and so overall, QLC bit mix is higher than the rest of the industry, so that's an additional capability that we have, and if you look at workloads like KV cache, they do require a lot of higher-capacity SSDs.
Now, one additional thing that has happened is that beyond the underlying growth trend of AI servers using more of these SSDs, we've also had our customers not have an adequate amount of HDDs as well. And because of that, there has been a lot of demand coming towards SSDs. And consequently, the ability to supply NAND to our customers has also been oversubscribed due to a combination of all of these trends.
Vijay Rakesh (Managing Director)
Great. Thank you.
Mark Murphy (CFO)
I do want to note that on SSDs, that if you remember, our business was over $1 billion in the first quarter of 2025. And in the first quarter of 2026, the business did clear that. And as Sumit mentioned, as sort of the industry is able to get on top of the supply chain-related issues, we expect, and given the demand in that business, we expect that growth to accelerate through the year.
Vijay Rakesh (Managing Director)
All right. Thanks, Mark.
Operator (participant)
Our next question comes from the line of Vivek Arya, Bank of America Securities. Your line is open, Vivek.
Vivek Arya (Managing Director)
Thank you. I actually had two questions. First, back on the gross margin, I think you are at 68%. Is there a reasonable way to think about, you know, what can be the, you know, path forward? Like, is it 70%? Is it 75%? I know you have not given a specific number, but Mark, is there a way to logically think about where your margins can go in this, you know, in this cycle? Because this is well above the prior peak. So is there a certain business model you have in mind? And the reason I ask the question is because, you know, you have, you know, close to 70% gross margins, right? Your customers, NVIDIA, AMD, are also talking about, you know, very high gross margins or expanding gross margins for their business.
I'm just curious to know how you think conceptually about the path forward for your gross margins?
Mark Murphy (CFO)
Yeah, we're at record-setting levels, and that's positive. We guided to that, and there are a lot of favorable factors in that that are driving that. You know, first is, you know, the demand driven by this, you know, generational change in tech with AI. And, you know, that's a multi-year build-out done by well-capitalized companies. So we think that's sustainable, and fortunately, you know, AI needs more and better memory to perform better. So, you know, the underlying, you know, secular driver for memory is positive. You know, we're just in a fantastic position with leadership technology, best products in memory and storage, and then we're operating really well, yielding quickly. Cost performance is good. Capital discipline is good, and then you've got these general structural supply constraints.
So when combined with the demand from AI, data center to the edge, actually, you know, we've got this supply shortfall, and you see the price movement associated with that. And this is a not-insignificant, you know, supply gap that's not easy to address in the near-term, given, you know, we can do a node transition, but you've got, you know, greenfield capacity needs to be put in place. You've got increasing HBM and the capital intensity associated with that, or silicon intensity associated with that. And these are, you know, putting on earth the most, you know, some of the largest and most complex factories, you know, on the planet. So we need partnership to do that, and we're going to do it carefully. So, you know, with all that, we do expect that margin can go up from second quarter.
It'll go up on the basis of, we believe, market conditions that should remain, you know, positive beyond 2026. We believe it's possible based on our ability to deploy bits to premium products in which we're best positioned, and we believe that our cost performance is such that it will help us sustain or expand these margins. Now, just the math of being at these levels for a, you know, equivalent increase in price, we're going to get less gross margin expansion. So, you know, there can be, you know, as we mentioned on the call, on the primary earnings call, there's, you know, the increase from here would be more gradual than you've seen in, you know, fourth to first or first to second quarter guide, but we do believe that margins can go up.
Vivek Arya (Managing Director)
Got it. And for my follow-up, you know, every time the customer, right, whether it's Nvidia or Broadcom or AMD, every time they report, they seem to be upsiding numbers for next year. So when you say you're sold out for HBM, does it mean that you don't have an ability to upside your production, or, you know, does it mean that you're sold out based on the current level of forecast and you have kind of unit and ASP certainty around that? I'm just trying to understand, you know, what scenarios let them continue to upside the numbers, unless it's just a sheer shift between you and your peers. Like, if they continue to upside the numbers, you know, can you help them, you know, do that? How much more flex is there in your production for HBM? Thank you.
Sumit Sadana (Chief Business Officer)
Yeah. So I think the way to read what we are saying is that, you know, we have visibility to our supply. And of course, we're always trying to improve that. But we have a good understanding of what our supply is. The current situation, you know, when we say sold out for HBM, for example, the HBM supply for 2026, we have reached agreements on volume and price with our customers. Of course, if there are upsides to supply, we are able to very quickly be able to place that upside supply at our customers at, you know, good terms. But when it comes to the overall aggregate business, the demand on us is so much higher than the supply that even, you know, small increases in supply are not going to be able to make a dent in that demand.
So we are, you know, more than sold out. I mean, we have a significant amount of unmet demand in our models. And this is just consistent with an environment where the demand is substantially higher than supply for the foreseeable future.
Manish Bhatia (EVP of Global Operations)
Vivek, I'll just add on, you know, HBM and DRAM, because the whole market is short, and, you know, HBM, you know, production in fab output is shared with DRAM production, right, all on our 1-beta node. So, you know, this constraint is kind of across the entire DRAM market, as Sumit mentioned, and as we said before, which is, you know, incredibly constrained. So we are working hard to try to increase supply for, you know, DRAM, HBM, and NAND. You know, yields have come up really well for both our 1-gamma and our Gen9. And those are going to be, as we gave color, the majority of the big growth for next year is coming from those transitions. And we're also, you know, going to have the majority of our DRAM bits on 1-gamma in the second half of next year.
Gen9, as we go through the year, will become the highest volume node for us in NAND. So, you know, technology transitions are moving aggressively. We're optimizing and looking to maximize production where we can. I just want to point out that we've also said that we expect HBM4 yield ramp to be faster than our HBM3E 12-high yield ramp was, which was already faster than our HBM 8-high yield ramp. So we're gaining confidence in our HBM capability at scale. So, you know, all those are things that we're continuing to work on, but just the demand environment is such that it's really, you know, way over supply, whatever we can or what the rest of the industry can supply.
Vivek Arya (Managing Director)
Thank you.
Operator (participant)
Comes from the line of Kevin Cassidy of Rosenblatt Securities. Your line is open, Kevin.
Kevin Cassidy (Senior Research Analyst)
Thank you very much. My question, you know, along those lines, if you're saying the HBM4 yield is better than HBM3, how does this work with the process node? With the qualification time taking so much longer with HBM, does this change your cadence for process technology? You know, do they stay in production longer?
Manish Bhatia (EVP of Global Operations)
I'm not quite sure. I think both our HBM3E and HBM4 are on our 1-beta process technology. They both use the similar assembly architecture and process that we've had now from HBM3E 8-high, 12-high, and now at HBM4. So the reason I said that we expect our HBM4 yields to ramp faster than HBM3E 12-high did once we go to production in the, you know, early part of calendar year 2026 and start shipments in calendar second quarter is because of being able to leverage the learnings that we have both on 1-beta for HBM as well as on the packaging and test side because we have common architectures between those products.
Kevin Cassidy (Senior Research Analyst)
Yeah. My question was more in a bigger picture. Will 1-gamma get qualified for HBM4, or will it always be 1-beta?
Manish Bhatia (EVP of Global Operations)
HBM4 is on 1-beta. I know we haven't given specific guidance on, you know, how future generations will be, but HBM4 will be on 1-gamma. You know, the cadence of platform.
Kevin Cassidy (Senior Research Analyst)
1-beta.
Manish Bhatia (EVP of Global Operations)
I'm sorry, 1-beta. And the cadence of our customers' platforms continues to be, you know, rapid every 12 months. So we are just going to be focused on delivering new memory, new high-bandwidth memory solutions for our customers on an approximately 12-month cadence. So, you know, that's not slowing down.
Kevin Cassidy (Senior Research Analyst)
Okay. Maybe another question. Just how quickly can you change your wafer allocation, you know, from HBM to low power to high performance? You know, I guess how far into the process technology can you change what the final product is?
Manish Bhatia (EVP of Global Operations)
So they are shared process between the two, between the various different designs that we have on a given DRAM technology node. But the design itself is unique. So when you start one design, whether it's a low power design, a DDR design, or an HBM design, obviously, that's going to be the time frame. So the real time, the answer to your question is that basically it's one process cycle time that we can change between any of these different products.
Mark Murphy (CFO)
I think, Kevin, I just want to make sure it's clear that we have extensive planning that we do around all the products and the product roadmaps and, you know, what products go on what node at what time. And, you know, there are a lot of factors that go into that. Cost is not the only factor. And in fact, in HBM, it's such a complex product that stability and, you know, turning quickly with the customer is an important factor. So there's some value in 1-beta and as stable and strong a node as that is. And then, you know, 1-gamma is available at the right time, you know, that we can use that node. Otherwise, you know, we have plenty of other bet requirements that 1-gamma we're ramping that as quickly as we can to get that supply.
Sumit Sadana (Chief Business Officer)
I mean, generally speaking, we tell our customers that it takes us five months if they want to make changes that use different data in the fab, three months, three and a half months to get to the front end, and six to eight weeks, depending on the complexity of the product on the back end. So roughly speaking, five plus months of lead time. And our customers understand that. They know that these things take a long time.
Kevin Cassidy (Senior Research Analyst)
Okay. Great. Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Steven Fox of Fox Advisors LLC. Your line is open. Steven.
Steven Fox (Research Analyst)
Hi. Good afternoon. I just had one question. On the CapEx spending that you talked about on the call, are you giving any sort of sense for the breakdown between facilities, equipment, construction, all of that, say, from now and how it might change between 2026 and 2027? That mix? Thanks.
Mark Murphy (CFO)
Yeah. We've not indicated, you know, anything about 2027 other than that 2027 total CapEx will be up versus 2026. I did on the call, I believe, indicate that, you know, 2025 to 2026, the plans to, you know, our fiscal plans to roughly double, you know, the construction CapEx. And so that gives you sort of an indication on direction of travel. Now, we've got, you know, 2027, we'll have, you know, Idaho 1 finishing. We've got Idaho 2. We've got Japan. We've got, you know, we've got a lot of construction sites. So, you know, those are going to contribute to that sequential, you know, 2026 to 2027 CapEx increase. And Manish.
Manish Bhatia (EVP of Global Operations)
Yeah. I mean, we'll be.
Mark Murphy (CFO)
HBM and Singapore.
Manish Bhatia (EVP of Global Operations)
We do have a considerable amount of construction, I was going to say, in Singapore as well, where we've got that. And we're going to be equipping our India assembly site, which is just now going from pilot production to production ramp in the beginning of calendar 2026. So, yeah, there's going to be a mix of growth in terms of construction CapEx to fund the midterm and long-term equipment CapEx into, you know, existing clean room that we have right now. And then, of course, assembly investments for both HBM as well as conventional packaging that we'll be making as well.
Mark Murphy (CFO)
Yeah. I'll just maybe add to this point. You know, Tim asked about capital intensity on the earlier call. You know, we had CapEx as a percentage of sales in the first quarter was, you know, below 35% that we talked about. And then on the second quarter, basically where our guide is to the both on the revenue and the CapEx guidance we gave you, you could tell it's in the mid-20s on CapEx as a percent of sales. And, you know, and we've talked about strengthening free cash flow. So we're, you know, we're not only increasing investment in order to get the bit supply, we are generating a lot more cash. We had, you know, near 30% free cash flow margin in the first quarter. And we talked about free cash flow increasing through the year.
We paid down debt, you know, $2.7 billion of debt in the first quarter, bought back $300 million of shares, and went to net cash all in the quarter, and it was a record-setting free cash flow in the first quarter.
Steven Fox (Research Analyst)
Got it. That's all very helpful. Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Jim Schneider of Goldman Sachs. Your line is open, Jim.
Jim Schneider (Senior Equity Research)
Good evening. Thanks for taking my questions. First one would be just in terms of the capacity allocation question that came up earlier, maybe to put it a different way, can we be? I know you're, you know, sort of a key supplier in many embedded and other kind of mission-critical applications, automotive and the like. You know, can you give us a sense about, like, a floor level, a minimum floor level that some of those sort of legacy or embedded applications would reach or not below in terms of production, kind of giving your importance in that market? Or conversely, can we maybe talk a little bit about sort of, you know, what is the maximum level of data center capacity or data center exposure you feel comfortable having?
Sumit Sadana (Chief Business Officer)
Yeah. I mean, I think there are a couple of things to keep in mind. First of all, the overall TAM is also shifting more towards data center. That's just how the dynamics of the industry are playing out. So certainly our portfolio and our mix is shifting towards data center. Our whole goal over time is to keep mixing our products within each segment and across segments towards, you know, higher ROI type of homes for our bits and for our output. And that just means that for some time now, the portfolio mix has been an important tailwind for Micron and continues to be a driver of our longer-term financial performance because we have over time shifted more and more of our revenue towards higher margin products and taken a bigger share of the industry profit pool based on that initiative. So that will continue.
With that said, you're right. I mean, we do have a large share in automotive and industrial and several mission-critical applications. So we are making investments in our Manassas, Virginia fab in the U.S. to modernize it, bring 1-alpha technology, DRAM technology into that fab. And so that is going to be an important initiative to continue the support of long lifecycle, legacy products. And we intend to continue to support them. Of course, we also support a lot of these products and customers and segments from our high-volume fabs. And certainly the demand environment and the structural challenges on supply for us as well as for the industry just make it very difficult to meet all of the demand for customers across different segments.
So a lot of work that we are doing is to try and assess the threshold level of supply that each of our customers need, encourage them to also, you know, figure out other sources of supply in this environment where we may not be able to meet all of the demand. Of course, we also continue to make sure that our commitments towards our customers are kept. We are certainly very big on that. So it's a delicate balancing act. It's a difficult environment to meet all of our customers' needs. We're working very, very hard to do the best we can on that front across the different segments of the market, including the ones that you mentioned.
Jim Schneider (Senior Equity Research)
Thank you. And then just a quick clarification. Relative to the Hiroshima clean room expansion you referenced on the call, can you talk about when that kind of would turn into volume production capability? Thank you.
Manish Bhatia (EVP of Global Operations)
Sure, Jim. You know, what we've said is that, you know, we are working to develop and deploy next-generation DRAM technologies there with the support of METI and, you know, our Boise R&D team working with our Hiroshima R&D team. So it will be future generations of technology we'll be deploying. And the clean room space will support those future technologies. So it will be timed to be able to support those, the space needed for those new nodes.
Jim Schneider (Senior Equity Research)
But not in 2026, to be fair.
Manish Bhatia (EVP of Global Operations)
No, not in 2026.
Jim Schneider (Senior Equity Research)
Okay. Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Joseph Moore of Morgan Stanley. Please go ahead, Joseph.
Joseph Moore (Managing Director)
Great. Thank you. Along the same lines, you had talked about the PC market could be limited by DRAM availability. How do you make those kinds of allocation decisions? You know, is it kind of just highest gross margin is the focus? And, you know, how do you make sure that the mid-tier PC companies kind of have enough that their customers, when you need them down the road, just how are you kind of thinking about balancing the allocation across these different markets?
Sumit Sadana (Chief Business Officer)
With a lot of difficulty. Certainly, there are competing requirements. We are not just focused on optimizing Gross Margin. Of course, when we think about pricing in different markets, we try to ensure that the pricing reflects the value of the product that we are selling, and so a lot of the margin performance of different segments starts to get very close to each other in situations like this. With that said, we have had customers of different sizes across different parts of the world for a number of years, decades sometimes, and so we are very mindful of our responsibility to them.
We try to do our best to manage the allocation in an appropriate way to ensure diversity across segments, ensure that we are supporting our strategic customers, and doing the best to maximize our supply towards these customers in times like this, as well as to minimize any impacts that could occur to our customers' business due to lack of adequate DRAM on that, as the case may be.
Joseph Moore (Managing Director)
That's helpful. Thank you. And then just my follow-up. You mentioned a few minutes ago, you know, paying down some debt. I mean, it seems like you're going to generate a really large amount of cash here in the next few quarters if your view that gross margins continue to improve comes true. Just what are the priorities for that cash over time, you know, just between dividend, buybacks, you know, or other uses of cash that you might think about?
Mark Murphy (CFO)
Yeah, Joe, the priority for our cash generation is always to reinvest in the business. So we're going to make sure that we're, you know, investing in this case the capacity we need to support the market and ensure that we're getting a clear line of sight to return on that. And, you know, and that includes in this case now looking to strike commercial arrangements with customers that reflect the value of our products and our assurance on supply. So that's priority. And also with that, you know, maintaining, you know, the technology leadership that we enjoy today and that we intend to maintain. You know, the balance sheet also will always be a priority. And, you know, that's moving the right direction. It was already strong and getting stronger every day. In fact, today on this call, we're record liquidity.
You know, we recently got put on positive watch by one of the agencies. You know, we effectively have no net leverage now. In fact, we're positive cash, net cash. Our gross leverage is very low. Now, we do have on an absolute basis more debt than we've had historically. So we would expect to bring that down some. You know, we would, as we've said before, intend to grow the dividend over time. You know, repurchase shares with excess liquidity that we believe we have. Now, we repurchased $300 million in the first quarter. If you recall, I mentioned a couple of quarters ago, I believe, that when we signed the definitive agreement for the CHIPS Program, our repurchases have some limitations. You know, for the first two years, we've ended that first year. We're in that limitation period the second year.
We are able to buy back some stocks this year a little bit more than what we bought back in the first quarter. But then we're this time next year, we're largely unconstrained. I mean, there are some requirements on CapEx and R&D, which we'll, you know, we believe we'll easily be able to surpass those. So I think that's the rough cut of the capital allocation.
Joseph Moore (Managing Director)
Thanks so much.
Operator (participant)
Our next question comes from the line of Tom O'Malley of Barclays. Please go ahead, Tom.
Thomas O'Malley (Director of Equity Research)
Hey, guys, I just have one. Could you remind us what's the mix of your CapEx this year? How much was construction CapEx? Or if you haven't given that, what are the trends on a normalized basis. Thanks.
Manish Bhatia (EVP of Global Operations)
Yeah, Tom. So we haven't, but we did say, I think Mark did say that from fiscal year 2025 to 2026, we're doubling our construction CapEx. That gives you some sense. We got, you know.
Thomas O'Malley (Director of Equity Research)
Yeah. Just looking for the base.
Manish Bhatia (EVP of Global Operations)
Yeah. Higher. Yeah. Yeah.
Operator (participant)
Thank you. And ladies and gentlemen, we have reached the end of our time. So that does conclude today's conference call. Thank you for participating. You may now disconnect.