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Micron Technology (NASDAQ: MU)
Q1 2025 Earnings Call
Dec 18, 2024, 4:30 p.m. ET

Micron Technology Reports Strong Q1 2025 Earnings Amid Rapid Data Center Growth

Table of Contents

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for standing by, and welcome to Micron Technology’s fiscal first quarter 2025 financial conference call. All participants are currently in listen-only mode. After the presentations, there will be an opportunity for questions. [Operator instructions] Today’s program is being recorded.

Now, I will introduce your host for the call, Satya Kumar, corporate vice president of investor relations and treasury. Please go ahead, sir.

Satya Kumar — Corporate Vice President, Investor Relations and Treasury

Thank you, and welcome to Micron Technology’s fiscal first quarter 2025 financial conference call. Joining me today are Sanjay Mehrotra, our president and CEO; and Mark Murphy, our CFO. Today’s call is being webcast from our Investor Relations site at investors.micron.com, where you can find audio and slides. The press release detailing our quarterly results is also available on our website, alongside the prepared remarks for this call.

Today’s discussion about financial results uses a non-GAAP financial basis unless stated otherwise. For reconciliations of GAAP to non-GAAP measures, please visit our website. We encourage you to keep an eye on micron.com throughout the quarter for the latest information, including updates on financial conferences we may attend. You can also follow us on X @MicronTech.

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Please note that today’s discussions include forward-looking statements regarding market demand and supply, pricing trends, our manufacturing plans, the impact of AI technologies, and expected results and guidance. These forward-looking statements come with risks and uncertainties that can lead to actual results differing from those anticipated. For a comprehensive discussion of these risks, please refer to our SEC filings, including Form 10-K and Forms 10-Q.

Micron is under no obligation to update any forward-looking statements following this meeting. I will now turn the call over to Sanjay.

Sanjay Mehrotra — President and Chief Executive Officer

Thank you, Satya. Good afternoon, everyone. I’m pleased to announce that Micron achieved record revenue in fiscal Q1, with revenue, gross margins, and earnings per share all at or above the midpoint of our guidance range. Our data center revenue grew over 400% year-over-year and 40% sequentially, hitting a record where data center revenue accounted for over 50% of our total revenue for the first time.

Notably, we set records in data center SSD revenue and market share and significantly increased our HBM shipments, more than doubling HBM revenue sequentially. Revenue from our largest data center customer was about 13% of overall company revenue. Looking ahead, the HBM market is projected to grow substantially, from $16 billion in 2024 to over $100 billion by 2030—which could reshape Micron’s future.

The tight supply of leading-edge DRAM is supported by strong demand in the data center segment, including HBM, contributing positively to our results throughout fiscal and calendar 2025.

However, we previously noted that customer inventory reductions within more consumer-focused areas and seasonal changes would affect fiscal Q2 bit shipments. Currently, we’re witnessing a more significant impact than anticipated, resulting in a less favorable outlook for fiscal Q2. We believe this adjustment will be brief, expecting customer inventories to normalize by spring, which should bolster shipments in the latter half of fiscal and calendar 2025.

Our HBM targets remain on track, and we are preparing for record levels of Micron revenue, enhanced profitability, and positive free cash flow in fiscal 2025. Our technology development is progressing well, with advanced DRAM and NAND nodes in production. We’re ramping our 1-beta technology node, supporting HBM3E, and making preparations for our 1-gamma technology node, which utilizes EUV, in 2025. In NAND, we’re solidifying our technology leadership with our G8 and G9 nodes, managing their ramp in line with demand.

For fiscal 2025, we expect mid- to high single-digit percentage cost reductions in front-end DRAM (excluding HBM) and low teens percentage reductions in NAND front-end costs. Earlier this month, we finalized a $6.1 billion agreement with the U.S. Department of Commerce under the CHIPS and Science Act to support advanced DRAM manufacturing facilities in Idaho and New York.

Additionally, a preliminary agreement with the U.S. Department of Commerce for a $275 million award for our Virginia facility, focusing on long-lifecycle chips for sectors like automotive, is also in progress.

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Micron Technology Expands Manufacturing and Revenue with AI-Driven Growth

Recent investments in Singapore signal Micron’s commitment to meeting the booming demand for AI-driven technologies.

Strategic Expansion Plans in Singapore

With backing from the Singapore government, Micron is set to broaden its manufacturing presence in Singapore. The company plans to kick off this expansion with a new HBM (High Bandwidth Memory) advanced packaging facility. This move is intended to significantly boost its advanced packaging capacities by 2027, aligning with the rising need for AI solutions. The plans will also support Micron’s long-term NAND manufacturing requirements.

Advancements in AI and Market Dynamics

Recent developments in artificial intelligence are reshaping the industry. As AI training model sizes grow and new inference models emerge, there is an increasing requirement for memory. Innovations like multimodal models and chain-of-thought inferencing are memory-intensive and require higher bandwidth and capacity, setting the stage for Micron’s involvement in this space.

Micron views this as a prime opportunity for future growth. The company has revised its forecast for server unit growth to the low teens for 2024, driven by strong AI demand and a traditional server refresh cycle. Expectations for continuous server unit growth into 2025 add to this optimistic outlook.

Record Revenue Performance in Data Centers

In fiscal Q1, Micron hit new records for total data center revenue. The demand for high-capacity DRAM products, particularly their 128-gigabyte DIMMs and LP5-based server DRAM, is strong. The company is on track to generate billions in revenue from these products through fiscal 2025. HBM revenue more than doubled compared to the previous quarter, showcasing Micron’s effective capacity management and yield improvements. HBM gross margins contributed significantly to overall company profitability.

Partnerships and Continued Innovation

Micron’s HBM3E 8-high memory is now integrated into NVIDIA’s Blackwell B200 and GB200 platforms. This memory is noted for its efficiency and high-speed capability. The company has started high-volume shipments to its second major HBM customer and plans to begin shipments to a third customer soon. Positive feedback highlights Micron’s HBM3E 12-high, which is noted for having 20% better power consumption than competitor products while providing 50% more memory capacity and leading performance.

Future Outlook for HBM Market

Micron has increased its total addressable market (TAM) estimate for HBM to over $30 billion by 2025, expecting to achieve HBM market share that mirrors its overall DRAM share in the latter half of that year. The company anticipates billions in HBM revenue in fiscal 2025 and has secured pricing for that period. Micron’s HBM roadmap includes plans for HBM4, set to launch at high volumes in 2026, boasting a 50% performance increase compared to HBM3E, alongside partnerships with industry leaders like TSMC for further advancements.

Strengthening the SSD Market Presence

Micron’s SSD and data center SSD revenue reached new heights in fiscal Q1, and the company expects to continue gaining market share throughout 2024. The 6550 ION SSD is noteworthy for being the first SSD with a 60-terabyte capacity and Gen5 capabilities. Compared to competitors, the 6550 ION SSD offers lower power usage and superior performance benefits per rack in data centers.

Projections for PC and Mobile Markets

The PC market is expected to grow modestly in 2024, even though AI adoption may drive demand for higher DRAM content in future PCs. Current data suggests PCs will need at least 16 to 24 gigabytes of RAM, up from last year’s average of 12 gigabytes. The transition from Windows 10 will likely stimulate market growth in 2025, with expectations for mid-single-digit percentage growth.

In the mobile sector, smartphone unit volumes are projected to increase steadily in 2024 and 2025. Growth in DRAM content is also fueled by AI applications in smartphones. The increase in smartphones with 8-gigabyte memory or higher is notable. Micron is focusing on high-end mobile markets, leveraging its top-tier DRAM and NAND technologies to adapt to demanding application needs.

Prospects in the Automotive Sector

The automotive sector is facing challenges with lower production rates and shifts toward more economical vehicles. Despite these trends causing inventory adjustments, Micron remains optimistic about the future, particularly as advancements in ADAS and infotainment systems create new opportunities for growth.

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Micron Technology Reports Strong Q1 Performance Amid Industry Adjustments

Key Financial Highlights for Fiscal Q1

Micron’s fiscal Q1 results show promising growth in revenue and gross margins, even as the semiconductor industry faces challenges.

AI adoption in the automotive sector is expected to fuel long-term increases in memory and storage content. However, industrial market demand has been influenced by inventory adjustments, which we anticipate will recover by calendar 2025.

Market Outlook for DRAM and NAND

We project high teens percentage growth in DRAM bit demand for calendar 2024, followed by mid-teens percentage growth for 2025. Meanwhile, the DRAM industry bit supply is likely to keep pace with demand, despite tight competition in leading-edge nodes due to the ramp-up of High Bandwidth Memory (HBM). For NAND, we foresee growth in bit demand to be low double-digit percentages for both calendar years, which is a decrease from our past forecasts.

Several factors contribute to this outlook, including slower NAND content growth in consumer devices, ongoing inventory adjustments, and changes in demand across various end markets. Additionally, data center customers are temporarily moderating SSD purchases after a recent surge. However, we remain optimistic about long-term demand for NAND as it is vital for AI applications, enhancing data access speed, reducing power consumption, and improving cost-efficiency necessary for AI infrastructure. As the need for high-capacity NAND SSDs increases, we expect them to begin replacing traditional hard disk drives (HDDs) in data centers.

Micron’s Strategic Adjustments

In response to the shifting market, Micron is implementing measures to align NAND supply with current demand. This includes reducing capital expenditures and slowing the pace of technology transitions. Furthermore, we are decreasing NAND wafer starts by a mid-teens percentage compared to previous plans.

Recent reports indicate that competition from China-based suppliers is rising, with their bit supply representing a mid-single-digit percentage for DRAM and a high single-digit percentage for NAND in 2024. This competition centers on the Chinese market, particularly in DDR4 and LP4 DRAM products and consumer-grade NAND.

Financial Performance Overview

Micron expects its revenue from LP4 and D4 DRAM products to comprise approximately 10% of worldwide revenue for the rest of fiscal 2025. Sales to China-based customers will likely be focused on our high-end product offerings. Now, I will turn the discussion over to Mark for further financial insights.

Mark Murphy — Executive Vice President, Chief Financial Officer

Thank you, Sanjay, and good afternoon, everyone. Micron’s fiscal Q1 results showed strong performance with revenue and gross margins at or above guidance expectations. Total revenue reached around $8.7 billion, marking a 12% increase sequentially and an 84% jump compared to last year—setting a new record. DRAM revenue stood at $6.4 billion, up 87% year over year, accounting for 73% of overall revenue.

Sequentially, DRAM revenue grew 20%, with bit shipments increasing in the low double digits and prices rising by the high single digits. This growth was driven primarily by strong demand in the data center sector. NAND revenue was $2.2 billion, reflecting an 82% year-over-year increase but a sequential decline of 5% due to lower shipments and prices.

Looking at revenue by business unit, the Compute and Networking Business Unit (CNBU) generated $4.4 billion, a 46% sequential increase and now represents over half of our total revenue. This surge is attributed to demand for cloud server DRAM and a more than doubling of HBM revenues. The Mobile Business Unit saw revenues drop to $1.5 billion, down 19% sequentially, as mobile customers concentrated on inventory management.

Meanwhile, the Embedded Business Unit reported $1.1 billion in revenue, down 10% sequentially as auto, industrial, and consumer customers adjusted their inventories. The Storage Business Unit achieved $1.7 billion, which is a 3% increase sequentially, driven by outstanding performance in the data center SSD segment.

For fiscal 2025, we project Micron’s revenue from customers based in Mainland China and Hong Kong to settle around the mid-teens percentage of our total revenue, influenced by changing market dynamics and recent regulatory changes. The consolidated gross margin for fiscal Q1 was 39.5%, improving by 300 basis points sequentially due to better pricing and shifts in product mix towards data center needs.

Operating expenses for fiscal Q1 were $1.05 billion, a decrease of $34 million due to lower labor costs and strict expense management. Operating income rose to $2.4 billion, resulting in an operating margin of 27.5%. Adjusted EBITDA for the quarter was $4.4 billion, yielding an EBITDA margin of 50.6%, which reflects a significant year-over-year improvement.

Fiscal Q1 taxes totaled $333 million, with an effective tax rate at 14.1%, aligned with our guidance. Non-GAAP diluted EPS reached $1.79, an increase from $1.18 in the prior quarter and a recovery from a loss of $0.95 in the same quarter last year. This EPS figure was at the higher end of our guidance range.

Cash Flows and Fiscal Q2 Outlook

Our operating cash flow in fiscal Q1 was approximately $3.2 billion, with capital expenditures around $3.1 billion, leading to free cash flow of $112 million for the quarter. Ending inventory stood at $8.7 billion, or 149 days, reflecting a decrease of nine days compared to the previous quarter. On our balance sheet, we had $8.7 billion in cash and investments, ensuring we maintain $11.2 billion in liquidity, including access to our credit facility. Our total debt was $13.8 billion, with low net leverage and a debt maturity extending to 2031.

Looking ahead to the second fiscal quarter, we expect a sequential decline in DRAM and NAND bit shipments. However, we anticipate that bit shipments will begin to grow again after fiscal Q2, with a stronger second half of the fiscal year compared to the first half. Fiscal Q2 gross margins may be affected by NAND industry conditions, yet these impacts could be partially alleviated by growth in both high-bandwidth memory and data center DRAM. We also plan for operational expenses in fiscal Q2 to be approximately $1.1 billion, mainly due to increased R&D investments.

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Micron Prepares for Growth Amid Increased Spending and Market Adjustments

Fiscal Outlook and Investment Priorities

Micron Technology expects fiscal 2025 operating expenses (opex) to rise by a low to mid-teens percent, which is lower than the previous mid-teens estimate. The company is focusing on research and development (R&D), particularly for high-bandwidth memory (HBM), to leverage upcoming growth opportunities. In fiscal Q2, Micron anticipates a sequential increase in both inventory dollars and days of inventory due to reduced volumes. However, with stronger bit shipments projected for the latter half of the fiscal year, days of inventory (DIO) should see improvement. The company aims to conclude fiscal 2025 with tight DRAM inventories, which will fall below target levels.

Tax Rates and Capital Expenditures

For the second quarter and the rest of fiscal 2025, Micron estimates a non-GAAP tax rate in the mid-teens percent range. Following Singapore’s implementation of a global minimum tax, the expected fiscal 2026 tax rate will likely be in the high teens percentage range. The company forecasts net capital expenditures (capex) of around $3 billion for fiscal Q2, emphasizing investments in ramping 1-beta and 1-gamma technology nodes, alongside greenfield fab investments for DRAM to support HBM and future DRAM demand.

Micron has strategically reduced NAND capex and is carefully managing the pace of NAND technology node ramps to sustain supply. Overall, capex spending for fiscal 2025 is projected to be about $14 billion, with a variance of plus or minus $500 million. The majority of this capital investment will bolster HBM initiatives, along with facility construction, back-end manufacturing, and R&D.

Q2 Revenue Expectations and Financial Guidance

With these considerations, Micron’s non-GAAP guidance for fiscal Q2 includes expected revenue of $7.9 billion, with a margin of plus or minus $200 million. The gross margin is estimated to be around 38.5%, with a variance of plus or minus 100 basis points. Operating expenses are projected to be approximately $1.1 billion, allowing for a fluctuation of plus or minus $15 million.

Micron’s fiscal Q2 tax rate is estimated in the mid-teens percent area. Based on an approximate share count of 1.14 billion, the company anticipates earnings per share (EPS) of $1.43, plus or minus $0.10. In conclusion, Micron intends to remain prudent and flexible with its spending, maintaining a disciplined approach toward DRAM investments while emphasizing the ramp of high-bandwidth memory.

NAND Market Actions and Future Outlook

In the NAND sector, Micron is taking immediate measures to reduce capital expenditures and wafer production to ensure supply discipline. The company is optimistic about achieving record revenue, improved profitability, and positive free cash flow in fiscal 2025. Micron’s CEO, Sanjay Mehrotra, discussed the company’s strategic shift during their 2022 Investor Day, where they set a goal to increase their share of high-growth, less seasonal segments from about 45% in fiscal 2021 to 62% in fiscal 2025. As of fiscal Q1 2025, Micron has already surpassed this target due to heightened demand for AI-enabled solutions.

Micron’s competitive position is currently the strongest it has ever been, resulting in increased market share across high-margin product categories while maintaining a steady overall bit share in DRAM and NAND.

Questions & Answers:

Operator

Certainly. Our first question today comes from C.J. Muse from Cantor Fitzgerald. Your question, please.

C.J. Muse — Analyst

Good afternoon, and thank you. Could you explain what reassures you that we will see a seasonal uptick in May for both DRAM and NAND markets? Any insight on potential magnitude would also be helpful.

Sanjay Mehrotra — President and Chief Executive Officer

C.J., I’ll address this. Our fiscal Q2 outlook is influenced by inventory adjustments in consumer markets and the usual seasonal changes experienced in the first calendar quarter. We have also noted a slowdown in data center SSD purchases following several quarters of robust growth, impacting our Q2 expectations.

We are optimistic that inventory levels in consumer markets will rebound in spring. It’s important to highlight that while sell-through in sectors like smartphones and PCs remains stable, companies have stockpiled inventory, which has slowed new purchases. Improvements in inventory levels were observed in calendar Q4, and we anticipate further enhancements in calendar Q1.

Therefore, by spring, we expect consumer inventories to rise, leading to shipment growth in the second half of the fiscal year. In terms of data center SSD demand, we foresee a return to growth during that same period, especially influenced by ongoing demand from AI advancements.

C.J. Muse — Analyst

Thank you; that’s quite informative. I’d like to ask Mark for more detail regarding NAND underloadings and whether those implications extend further. Additionally, for all of calendar 2025, is there a framework for assessing the positive impact from an increasing HBM mix in revenues? Thank you.

Mark Murphy — Executive Vice President, Chief Financial Officer

Sure, C.J. Starting with our second quarter guidance, we’ve seen a 100 basis point decline from Q1, primarily due to NAND. As Sanjay mentioned, the current NAND market conditions are weaker than expected, particularly in consumer areas like PCs and smartphones, where demand lagged and necessitated inventory adjustments.

Additionally, we observed moderated volumes in NAND data center SSDs, leading to a period of consolidation. As a result, our revenue has dropped by about $800 million, which has negatively affected operational costs. However, these costs do not yet include the underload charges that will impact us starting in the third quarter.

In the third quarter, as NAND conditions remain challenging through the first calendar quarter but improve throughout the year, we anticipate that our supply response might pressure third-quarter margins and limit our ability to enhance gross margins during that period. However, we foresee favorable growth driven by AI demand, edge-driven initiatives, and an improved market environment, particularly in DRAM, which should lead to margin expansion after the third quarter.

C.J. Muse — Analyst

Thank you.

Operator

Thank you. Our next question comes from Timothy Arcuri from UBS. Your question, please.

Timothy Arcuri — Analyst

Thanks a lot. I’m trying to understand the projected revenue increase…

Insights into Future Growth and Capital Returns from Micron Technology Leadership

Understanding Micron’s Financial Direction for the Upcoming Fiscal Year

During a recent discussion, Micron’s leadership addressed several financial topics, including capital expenditures (capex) and revenue expectations for the fiscal second half. They indicated that capex would be in the mid-30s percentage of total revenue. Analysts estimate that if capex is projected at around $14 billion—slightly surpassing prior expectations of $13.5 billion—Micron may aim for an annual revenue of approximately $40 billion.

Strategic Factors Anticipated for Fiscal Growth

Sanjay Mehrotra, President and CEO, explained that the second half of the fiscal year is expected to see growth driven by several factors. Key contributors will include improved inventory levels in consumer markets, a rebound in data center SSD demand, and sustained momentum in High Bandwidth Memory (HBM) products. Mehrotra emphasized that Micron aims for its HBM market share to align with its standing in the DRAM sector by the second half of this calendar year.

He noted additional growth factors, such as the increasing integration of artificial intelligence (AI) in smartphones and PCs—technologies that generally require higher DRAM capacity. These elements are set to influence shipments positively and to yield a healthier revenue forecast in the latter part of the fiscal year.

Capex Adjustments: A Focus on DRAM

Mark Murphy, Executive Vice President and CFO, confirmed an adjustment in capital expenditures. While Micron is reducing its investments in NAND technology, they plan to maintain or even increase spending on DRAM, which is now anticipated to be in the higher 30% range of sales.

Considerations for Share Repurchases

In reference to the CHIPS Act, analyst Timothy Arcuri inquired about share buyback limitations. Murphy responded that despite certain constraints in the early years regarding repurchases, Micron expects to effectively return capital to shareholders. He elaborated that dividends would continue and could be increased over time, while share repurchases could offset stock compensation dilution in the initial two years. In subsequent years, provided specific financial conditions are met, Micron will have more flexibility to reduce share counts.

Expanding Market for HBM: A Growing Opportunity

Another noteworthy topic discussed was the adjustment in the Total Addressable Market (TAM) for HBM. Analyst Vivek Arya noted that Micron has upgraded its HBM TAM estimate from $25 billion to $30 billion for 2025 due to rising demand, particularly fueled by advancements in AI data centers. Mehrotra elaborated on this point, acknowledging that while they are facing tight supply in the HBM market, the company is ramping up production effectively. He expressed confidence that Micron would achieve substantial revenue from HBM in the coming years.

Anticipating Growth in Gross Margins

Regarding gross margins, Arya questioned how they would be impacted amid declining sales. Murphy addressed this, suggesting that the favorable mix of higher DRAM revenue and products like HBM will support the gross margins in Q2—though NAND issues pose a challenge. He also confirmed expectations of gross margins for Q3 being higher than those in Q2, despite hurdles from the NAND sector.

Overall, Micron is strategically positioned for growth, particularly in high-demand memory sectors, as they cautiously navigate their capital returns and investment plans. The insights from the company’s leadership reflect prudent optimism regarding their financial outlook and market opportunities.

Micron’s Growth Outlook: A Delicate Balance of Supply and Demand

In a recent discussion on the state of the NAND market, Micron Technology Inc. acknowledged that significant improvements may not materialize until well into the first quarter of the calendar year. The anticipated upswing in data center SSD growth is expected to re-emerge in the third quarter, although industry conditions will remain soft.

Moving into the third quarter, supply response costs are poised to pressure margins, limiting the company’s capacity to enhance profitability during that period.

Positive Revenue Growth on the Horizon

Looking beyond the third quarter, Micron forecasts sustained revenue growth, driven by favorable product mix and improving market conditions. This sets the stage for potential margin expansion as the company navigates the challenges of the current environment.

Future Market Positioning and HBM Strategy

Vivek Arya — Analyst

Thank you.

Operator

Our next question comes from Joseph Moore from Morgan Stanley. Please proceed.

Joe Moore — Analyst

Thanks. I want to focus on HBM. How do you view your long-term market share in that area? Given that one of your rivals is facing difficulties, does your natural DRAM market share limit your potential? Previously, you mentioned pursuing premium pricing due to superior performance per watt. Is that still viable, or is the focus now primarily on supply?

Sanjay Mehrotra — President and Chief Executive Officer

Regarding HBM share, we aim to align our share with the industry DRAM share by the second half of 2025. We are enthusiastic about our product offerings, as evidenced by the positive feedback received from customers. We have started shipments to a major HBM customer and expect to onboard a third prominent customer soon.

The momentum in HBM is strong, backed by products that deliver impressive performance benefits. This competitive edge allows us to command premium pricing in the marketplace. Our strategy goes beyond the current 8-high HBM3E to include 12-high configurations in 2025, and eventually HBM4 and 4E in subsequent years.

Addressing Market Potential and Revenue Expectations

Joe Moore — Analyst

Thank you.

Operator

Next, we have Krish Sankar from TD Cowen. Please go ahead.

Krish Sankar — Analyst

Hi, thank you for taking my question. I want to clarify something about your total addressable market (TAM) for 2025. You’ve increased your estimate from $25 billion to $30 billion while maintaining market share. The assumption is that despite fixed pricing, improved yields will benefit results. Should we now project that your HBM revenue for the latter half of 2025 could reach $6.5 billion to $7 billion?

Sanjay Mehrotra — President and Chief Executive Officer

While we’re not specifying HBM revenue targets, we do expect significant HBM revenue in 2025. We see this as an essential aspect of our growth strategy. The HBM market is projected to exceed $100 billion by 2030, with significant growth anticipated in the coming years.

By 2028, we expect HBM demand to quadruple compared to 2024. The complexity and higher costs associated with HBM products translate to greater value and higher average selling prices, aligning with our objective of tapping into more profitable market segments.

Managing Transitions in Product Complexity

Krish Sankar — Analyst

Thank you for that explanation. A quick follow-up: transitioning from HBM3E 8-high to 12-high could increase your trade ratio. Given this shift, do you foresee any negative impacts on gross margins due to potential yield resets in these upgrades?

Sanjay Mehrotra — President and Chief Executive Officer

Indeed, transitioning to HBM4 and 12-high configurations could impact gross margins initially due to complex manufacturing processes. HBM3E has a trade ratio of about three. As we progress, we anticipate leveraging our previous experience, which should help us improve yield rates more smoothly. As capacity increases with 12-high setups, customers will have the opportunity to enhance their products significantly. Each cube’s capacity will increase by 50%, thereby enhancing the overall value of our offerings.

Moving forward to HBM4 and HBM4E, we’ll likely offer more options for customization, further adding to the value proposition we present in the market.

Krish Sankar — Analyst

Thanks for clarifying that.

Operator

Thank you. Our next question comes from Christopher Danely from Citi. Please proceed.

Christopher Danely — Analyst

Thanks, everyone. A broader question on DRAM: if supply and demand align next year while excess inventory persists, how will the market succeed? Specifically, you mentioned the strong performance of high-end DRAM and HBM. Could you define what “leading edge” means and what proportion of the market it represents? What might happen to the remaining areas if oversupply persists?

Sanjay Mehrotra — President and Chief Executive Officer

Leading-edge nodes, including HBM, LP5, and DDR5, are currently constrained in supply. We expect demand for these products to remain tight over the next few years. The HBM segment is critical to our growth as more advanced technologies come into play.

# Micron Technology Projects Continued Strength in DRAM and SSD Markets

## DRAM Market Outlook Remains Positive Amid Competition

Micron Technology has outlined a confident outlook for the DRAM industry, emphasizing a tight supply situation that benefits leading-edge technology. The company anticipates it will generate multiple billions in revenue in fiscal year 2025 from High Bandwidth Memory (HBM) and other advanced solutions critical for artificial intelligence (AI) applications.

Micron’s executives pointed out that the production focus remains on advanced nodes, specifically the 1-alpha and 1-beta nodes. The ramp-up of the 1-gamma node will take place in 2025, adding further capability.

**Mark Murphy, Executive Vice President and Chief Financial Officer,** mentioned the significant impact of inventory levels, stating that current DRAM inventories are projected to fall below target levels.

## Addressing Non-Leading-Edge DRAM Market Challenges

**Christopher Danely, Analyst**, raised a question regarding the health of the non-leading-edge DRAM market, and Micron’s response addresses ongoing supply shifts. **Sanjay Mehrotra, President and Chief Executive Officer,** acknowledged that the supply mix is transitioning towards products that are more in demand. He stressed the company’s disciplined approach to capital expenditure and supply growth while focusing on high-performance products.

## Competitive Landscape and the Rise of High-Performance Products

As China’s competition mainly targets lower-performance products within the consumer market, Mehrotra believes that Micron’s advanced technology will maintain its edge. The market is shifting away from lower-end products toward data centers and high-performance applications, which lie at the core of Micron’s strategy.

**Toshiya Hari, Analyst**, inquired about the displacement of HDDs by high-capacity enterprise SSDs, a trend Micron has long anticipated. Mehrotra reiterated that total cost of ownership will drive this shift, as SSDs offer superior performance, power efficiency, and smaller footprint. Strong demand from AI applications is likely to fuel this transition, with a projected impact expected beyond 2027.

## Conclusion

This conference call reflects Micron’s strategic positioning in the evolving semiconductor market. While challenges in the non-leading-edge DRAM segment persist, the focus remains on high-performance solutions that cater to growing data center demands and advancing AI technologies. As Micron maintains its competitive edge, the company remains optimistic about future revenues and market dynamics.

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*This transcript has been prepared for The Motley Fool. While efforts were made to ensure accuracy, please verify via the company’s official communications.*