Micron (Minutes): HBM will continue to climb for 25 years, and revenue will be higher in 2026

The following are the Minutes of Micron's FY25 Q2 earnings call organized by Dolphin Research. For the financial report interpretation, please refer to "Micron: The 'Wind' is Not Far, But Waiting for the Wind is Risky"

I. Review of Core Financial Report Information

II. Detailed Content of the Earnings Call

2.1 Key Information from Executive Statements

2.2 Q&A

Q: Can we still expect gross margins to improve starting from Q4, or even continue for a longer period? Does this improvement involve data center and consumer-related products, as well as the entire DRAM and NAND business segments?

A: The gross margin in Q3 decreased quarter-over-quarter, mainly due to the increased sales proportion of consumer products and lower pricing in the consumer market during the first natural season. HBM can hedge some of this, but the situation has improved since the last guidance, and the latest views are reflected in today's guidance.

Currently, no guidance has been provided for Q4, but an increase in gross margin is expected. Favorable factors include an anticipated improvement in market conditions, with expected growth in HBM and other high-value products improving the product mix; unfavorable factors include insufficient NAND capacity utilization, which will incur more costs in Q4 as inventory is cleared, and Q4 will also have DRAM construction activities and new node startup costs. Overall, it is expected that the gross margin in Q4 will increase compared to Q3.

Q: The outlook for the DRAM industry bit demand in 2025 has been raised from double-digit growth in the last earnings report to mid-to-high double-digit growth. Besides HBM-related factors, have other segments of DRAM also driven industry demand improvement?

A: It is expected that in the consumer business, customer inventory will be in a better state by spring, and this is indeed the case. The increasing number of AI-enabled devices in the smartphone and PC markets is driving capacity growth.

As customer inventory approaches a healthy level and customers resume procurement, these are reflected in the 2025 bit demand guidance. In addition, data center demand remains strong, with HBM contributing significantly to the growth in data center demand and revenue, and high-density DIMM and Micron's leading LP products also driving demand growth in 2025.

Q: In the Q3 guidance, revenue is expected to increase by approximately $750 million. How much will DRAM and NAND contribute respectively? What are the bit growth rates for these two markets? Is revenue growth expected for both DRAM and NAND?

A: Consolidated revenue data, year-to-date revenue for DRAM and NAND, bit growth and pricing data, as well as full-year bit demand growth data, have been provided, which can be used to make volume and price assumptions for revenue prospects. It is expected that shipments of both DRAM and NAND will grow in Q3. DRAM is more likely to see greater growth due to HBM and data center business Q: Can the profit margin in the fourth quarter of the fiscal year return to the level of the second quarter? When can we see the real benefits from the cost reductions of HBM and non-HBM DRAM, and get a clear gross margin figure?

A: The company does not provide profit margin figures for the fourth quarter but has indicated that the gross margin in the fourth quarter will be higher than in the third quarter. The company is in the best position ever in terms of technology and market products, and manufacturing operations are performing well.

In terms of costs, the total cost of DRAM for fiscal year 2025 is expected to remain flat, while the total cost of NAND will decrease in line with front-end cost reductions, by low double digits. The company is shrinking supply in NAND, including reducing capacity utilization, cutting capital expenditures, and delaying node transitions, and this part of the business has begun to show signs of improvement.

In the DRAM business, HBM continues to grow, with broad demand from data centers, and DRAM supply is tight. It is expected that by the end of the fiscal year, the day's inventory outstanding (DIO) level will be below target. The company will continue to focus on increasing the revenue share of high-margin businesses in its product portfolio to enhance profitability.

Q: How much of the recent increase in memory prices is due to real end-user demand, and how much is due to tariff-related advance purchases? What is the sustainability of the current industry pricing dynamics?

A: The demand drivers for DRAM and NAND on the consumer side (smartphones and PCs) are improving, and customer inventory levels in the consumer market are approaching normal levels. In terms of PCs, demand for DRAM is expected to rise in the second half of this year as AI PC demand increases and penetration rates improve, with AI PCs requiring more DRAM capacity than regular PCs.

On the smartphone side, several AI smartphones have been launched, with their DRAM capacity also higher than last year. The demand trend for DRAM from data centers remains strong.

On the supply side, DRAM supply is tight due to increased HBM demand; in NAND, the supply actions of various manufacturers and the improvement in wafer fab production have improved supply conditions. Overall, the industry's supply-demand environment is improving, and the company is focused on driving price increases in the second natural season, with products positioned favorably in various end-market segments, expected to continue seizing business opportunities and increasing its share in high-profit areas of the industry.

Q: When transitioning from HBM3E 8H to HBM4 12H, will the yield of 12H be lower than that of 8H, and will this hurt the gross margin?

A: The execution of HBM3E 8H has been satisfactory, with HBM3E deliveries exceeding plans in the second fiscal quarter, achieving revenue of over $1 billion for the first time. The yield and capacity ramp-up of HBM3E 8H is performing well. The experience gained from the capacity and yield ramp-up of 8H will assist in the ramp-up of 12H.

Currently, 12H has achieved mass production, and like other new products, this type of complex product has a yield ramp-up process in the early stages. It is expected that 12H will have a premium over 8H, which will continue to enhance DRAM's profit margins. The company will shift most of its product output to 12H in the second half of the year, and as production increases, yields will also improve. By the end of this year, the company expects its market share to align with the overall industry DRAM share Q: The current inventory days are 153 days. How much sales is needed to reduce it to the target of 120 days within two quarters? How are inventory levels affected by factors such as HBM supply trends? How can we achieve a significant inventory reduction? Has inventory started to decline this quarter?

A: The inventory days in the second quarter are 158 days. The DRAM market situation is tighter than NAND, and the company has taken supply actions in NAND, seeing good sales growth that is expected to continue. The industry is experiencing underutilization of capacity, cuts in capital expenditure, and delays in node transitions. In terms of DRAM, AI-driven growth, especially in HBM-related products, has led to tight market supply. The inventory target previously set by the company is 120 days, and it is expected that DRAM inventory days will be below this target in the fourth fiscal quarter. Inventory days will gradually decline throughout the year.

Q: Regarding NAND, can we consider the underutilization costs and period costs for May and August? How do you view the incremental construction costs in August and November?

A: The period costs in the third quarter are lower than originally planned, partly due to structural reductions in capacity, with more underutilization expenses being accounted for in inventory rather than as period costs. Low capacity will indeed put pressure on gross margins in the fourth quarter and in 2026.

However, even so, business growth, improved market conditions, and optimized product mix are expected to lead to an increase in gross margins in the fourth quarter. In terms of startup costs, the quarter-on-quarter impact from the third to the fourth quarter is relatively small, but as the Idaho wafer production approaches, these costs will increase by 2026, and the company will provide more information once plans and timelines are confirmed.

Q: How do you view the situation in the HBM industry for the first half and second half of the year?

A: From 8H to 12H, HBM revenue will continue to grow in the second half, as 12H products will have a certain premium over 8H products. It is expected that the total scale of the HBM industry will exceed $35 billion by 2025, with a larger share in the second half. Additionally, the HBM customer base is expanding, and Micron has begun supplying a third major customer, which will also drive HBM revenue growth in the second half.

Q: In the low-end market, especially in DRAM, what is the business proportion of LP4 and DDR4? With the growth of HBM in the second half and the normalization of some consumer markets, will this have a significant impact on revenue and margins in the second half?

A: For the remainder of this fiscal year, revenue from LP4 and D4 products will account for about 10% of the company's total revenue. The proportion of LP4 and D4 in the company's overall revenue is relatively small, and Micron is leading in D5 and HBM as well as data center and other consumer market products based on D5 and LP5, with the share of LP4 and D4 gradually decreasing over time. From the perspective of DRAM demand drivers and supply tightness, the overall situation in the DRAM industry is improving, which will also affect the overall dynamics of various segments of the DRAM market.

Q: It was previously stated that HBM products were sold out for the year, but the total market demand assumption for HBM has increased over the past few quarters. Looking ahead to next year, does a higher total market demand assumption mean there will also be higher demand next year? Does Micron have the capacity to increase production to maintain HBM market share (comparable to overall DRAM share)? **

A: By the end of 2025, Micron's market share in HBM will be comparable to the industry's DRAM share. Based on operational performance, the market share for the entire year of 2026 is expected to be higher than that of 2025. Micron has been focused on increasing HBM capacity, executing well in capacity enhancement and transitioning from 8H to 12H, and plans to launch HBM4 in the market next year to meet related capacity demands. Although the market share for 2026 has not been forecasted yet, there is confidence in Micron's position in the HBM field, its close relationships with customers, its technology and product execution capabilities, and overall manufacturing capabilities.

Q: Revenue over the past three quarters has been between $7.8 billion and $8.8 billion annually. The last time this revenue level was reached was about three years ago during the last upcycle, but at that time the gross margin was 10 percentage points higher. Given that depreciation has not changed significantly, why is the current gross margin 10 percentage points lower? Does this mean that the gross margin can no longer exceed 50%? If it is possible, could you provide a path to achieve this?

A: Overall, the gross margin performance of the DRAM business is good, thanks to the strong technology and product position of D5, LP5, and HBM products. The decline in gross margin is attributed to the NAND business, which is due to the overall industry environment and the imbalance of supply and demand in the industry.

Q: The company mentioned increasing the proportion of high-value solution businesses, but comments and press releases indicate that part of the reason for the decline in gross margin is the increased exposure to the consumer market and that the decline in NAND business is much greater than that of DRAM. Has the DRAM business also seen an increase in exposure to the consumer market, and what is the reason? How will the company change this situation?

A: The data center business is performing well, and the proportion of DRAM business in data centers continues to increase. The company has leading products in the data center DRAM field, such as HBM and SOCAMM products.

In the consumer market, there has been an issue of customer inventory backlog in the past few quarters, which has also affected the DRAM business. As customer inventory gradually returns to normal, coupled with the AI-driven factors in consumer devices, demand in the consumer market, especially for smartphones, has rebounded strongly, leading to an increase in silicon consumption for HBM and a tight supply of advanced processes.

Changes in the supply-demand fundamentals have enabled the company to push for price increases in the second fiscal quarter. In the NAND business, the supply measures taken by the industry and the normalization of customer inventory on the consumer end have also driven a rebound in NAND business demand, and the company will similarly push for price increases in the NAND business in the second natural quarter.

The following is the content of a small meeting held after the conference call:

Q: The HBM market size has been adjusted to $35 billion. Is this driven by the number of products or the content of the products? Does it mean that the number of GPUs has increased compared to before, or is it more due to product content upgrades, such as a faster transition to 12 HI? Is there further room for this number to increase?

A: This is the second adjustment of the HBM TAM scale. The growth is driven by stronger shipment volumes and a faster transition to 12H. It is expected that in the second half of 2025, most of the shipments will be 12H products, which, due to increased capacity, also have a higher average selling price (ASP). Overall, HBM demand remains strong, and the company's own HBM shipments have exceeded expectations and internal plans, all of which contribute to the growth of TAM Q: Regarding gross margin, there are some adverse factors related to startup costs in Q4. Can you quantify these costs? Will these costs persist beyond Q4, such as in Q1? Additionally, are you selling high-cost inventory products, and when will this adverse factor be eliminated?

A: The startup costs are relatively small, impacting 30-40 basis points at the end of the fiscal year based on revenue conditions. As business activity levels increase, especially in Idaho and the latest DRAM node-related businesses, these costs will rise in 2026.

Regarding inventory, we have previously written down inventory, and this inventory has been cleared. Current inventory cost control is good. In terms of NAND, there is underutilization of capacity, and related costs are reflected in the inventory, leading to some high-cost inventory. These costs will gradually be absorbed starting in Q4 and will continue into 2026.

Q: From 8H to 12H, is the price premium a premium over similar products? Additionally, regarding the transition from HBM3E to HBM4, how does the difficulty from a manufacturing perspective compare to the previous transitions from 3 to 3E and from 8H to 12H? What are the differences and similarities?

A: The 12H product is more complex and affects all suppliers transitioning to higher layers, thus the price is higher, not only because the capacity has increased by 50%, but also due to these factors increasing the price per bit. From HBM3E to HBM4, many new technologies will be integrated to achieve significant performance improvements in HBM4, which customers desire.

In the front-end manufacturing stage, relevant elements will be integrated to achieve higher performance, and new technologies will also be adopted in the assembly and testing processes, enabling mass production of integrated HBM cubes to begin in 2026. Currently, the 8H HBM is performing better than expected, and its manufacturing experience lays a good foundation for the mass production of 3E 12H products for the remainder of 2025 and 2026, providing important foundational learning experiences for the development of HBM4.

Q: Both this quarter and last quarter have increased TAM, while also expecting to maintain market share by the end of this year, despite previously mentioning that products would sell out for the entire year. How can these three be reconciled? Is it because of better yield rates that the year-end market share target can be maintained? Additionally, next year, competitors are still facing difficulties in product certification with NVIDIA. If there is more market share available, how quickly can Micron increase supply to seize the opportunity?

A: From a production standpoint, the company is very satisfied with being able to provide more supply than previously planned, which helps achieve the goal of reaching natural market share by the end of the calendar year. The growth in TAM is a combination of various factors, including a stronger and faster transition to 12H earlier this year, with most of the second half of this year adopting 12-layer technology, which has brought higher ASP. Micron's shipments exceeding plans have also contributed to the growth in TAM, allowing the company to maintain market share targets despite TAM growth.

In the long term, Micron is making significant investments in high bandwidth memory (HBM) capacity, believing that the HBM market will continue to expand in the coming years, with a development guidance of $100 billion by 2030, representing a multi-year growth opportunity. The company will maintain discipline in investments, focus on the scale of supply online, and seek opportunities to concentrate on the more profitable parts of the industry profit pool.

Q: Previously mentioned that the total cost of DRAM is expected to remain roughly flat this year, and the previous description indicated a mid-to-high single-digit change in the front-end cost structure. Does this new flat forecast include HBM?

A: Yes, this forecast includes HBM.

Q: Micron has performed well in LPDDR5X for AI servers. As it transitions to the GB300 SOCAMM architecture, can Micron maintain a strong market share position? Will the shift from soldered solutions in the G200 cycle to modules lead to an ASP increase?

A: I cannot comment on the ASP of soldered versions versus modules. Micron's data center LTE solutions have been very successful, and it remains the only company globally to ship LPDRAM in volume and will be the first to achieve mass production of SOCAMM. Micron has been collaborating closely with NVIDIA for some time and is optimistic about the opportunities with SOCAMM.

Micron has a significant lead in the time to market, shipment volume, and experience in data center LP products, which is expected to yield good results. Additionally, this quarter (Q2), the quarterly revenue from high-capacity DMS plus LPDRAM has also surpassed the $1 billion milestone.

Q: By Q4 2024, your company's market share in high-bandwidth memory (HBM) dynamic random-access memory (DRAM) has nearly doubled compared to the beginning of the year. Looking ahead to 2026, with the mass production of HBM4, considering the current market share, is it possible for the company's HBM revenue to double in 2026? Will the production capacity for HBM also see similar growth?

A: The company will increase HBM production capacity throughout 2025, to keep HBM's market share close to that of DRAM. As the overall market size (TAM) for HBM grows, the company will ensure continuous growth in HBM capacity.

It is expected that the company's quarterly revenue from HBM will see strong growth throughout 2025, reaching the target share by the end of the year. This means that HBM revenue in 2026 will be significantly higher than in 2025, and each quarter in 2025 will see revenue higher than the previous quarter, indicating a positive overall business outlook.

Q: On the server side, is there a faster increase in market acceptance of the company's QLC SSDs?

A: There is a noticeable growing trend in demand for high-capacity SSDs in AI servers. Over time, as higher capacity is needed, QLC technology will be adopted more. Overall in the data center, large hyperscale data center operators are looking to reduce the use of hard disk drives (HDDs) due to various limitations, such as not being able to fully utilize total capacity, reliability issues, and power consumption problems.

From the trend of NAND development, in the coming years, its storage density, power consumption advantages, server integration advantages, and total cost of ownership (TCO) advantages will encourage more customers to reduce HDD deployments. Currently, some leading customers have begun to significantly reduce their use of HDDs, and the company, as a relevant supplier, is directly collaborating with end customers who wish to deploy high-capacity SSDs and remove some HDDs This is an exciting opportunity. Although development takes time, once launched, it will create a snowball effect in deployment.

Q: What is the current situation of the enterprise SSD market? Has the NAND shipment volume in data centers started to rebound? Is it helped by the increase in Blackwell shipments?

A: At the end of Q4 2024, some large deals are being tendered, leading some customers to purchase solid-state drives. Multiple customers have made purchases, but ultimately some deals have not been finalized in terms of deployment by cloud companies, resulting in certain inventory levels among several data center SSD suppliers' customers.

In Q1 2025, as the demand for AI servers continues to consume some inventory, we are in a period of inventory digestion. By Q2, most of the inventory will be depleted, and the operational rate of the order pattern will rise again.

With the continued growth of AI servers, the Total Addressable Market (TAM) for data center SSDs should improve quarter by quarter starting in the coming months, and be stronger in the second half of 2025 compared to the first half, where there were some issues related to inventory digestion. In Q3, overall revenue from data centers is expected to set another record, but the situation of each segment of the data center will not be detailed.

Q: Last year, memory supply from China negatively impacted the pricing of traditional DDR5 DRAM and NAND. As more consumer demand shifts to DDR5, considering the greater technological and quality barriers posed by more advanced products, is the direct supply and pricing risk from China beginning to diminish?

A: Over the past year, products supplied to the market by China-headquartered companies have mainly focused on DDR4 and LP4 DRAM. Due to Chinese customers staying longer on these older technologies, some Chinese consumer products have reduced their potential consumption of DDR5 and LP5, instead using more DDR4 and LP4 to digest local supply in China.

In recent months, the inventory environment for personal computers and smartphones has affected the pricing environment for DDR4 and DDR5. It is expected that by spring 2025, the inventory consumption situation will be healthier, and we are indeed seeing inventory becoming healthier as anticipated. This is also part of the reason for the increase in the consumer product mix in Q3, especially in the smartphone sector, where orders have rebounded, not only due to improved inventory and sales conditions but also because the average capacity has increased from 8GB to 12 GB.

In recent months, the supply from China has mainly been DDR4 and LP4. Looking ahead, only about 10% of revenue will be affected by this part. DDR5 has not been mass-produced during the previously mentioned period, and the impact over the past few quarters has mainly come from other aspects rather than China's DDR5 supply, thus reducing the overlap of direct competition on DDR5.

Q: Why do you believe that this year's DRAM and NAND shipments will be lower than end-market demand? Is the high proportion of HBM helping to offset the competitive impact of Chinese manufacturers in consumer-grade DRAM and NAND?

A: We do not mean to imply that industry shipments will be lower than demand, but rather that Micron's supply growth will be lower than demand growth, which will naturally reduce our inventory. Regarding HBM, as the current silicon consumption ratio is 3:1, the proportion of HBM in demand is continuously increasing, and with the development of HBM4E, the future ratio will exceed 4:1 These factors have led to limitations in the non-HBM portion of DRAM supply, necessitating more investment to expand wafer capacity to prevent excessive constraints on this segment of supply.

Looking ahead, we expect the market situation to be healthier, with continued growth in HBM. The demand drivers will expand from being solely AI-driven to more areas, such as the smartphone market, which is already improving. With the phasing out of Windows 10, Windows PCs and AI PCs will also improve, leading to an increase in average capacity. Improvements in industrial and automotive inventories will also drive related markets.

Q: If industry supply is constrained by overall capital investment and the proportion of HBM trade continues to increase, will capital investment need to rise from the current level of $14 billion per year to achieve HBM market share targets for fiscal year 2026? Will these two factors limit the profit margin growth brought by the increase in HBM sales proportion?

A: Currently, we will not provide a capital expenditure forecast for 2026 and will offer relevant guidance closer to the fiscal year 2026. There is no doubt that the multi-year growth of HBM and customer demand forecasts for our HBM require more HBM capacity.

The increase in HBM capacity will increasingly constrain the non-HBM portion of the industry, necessitating certain investments to ensure that the demand for the non-HBM segment is met. We will continue to seek a balance between the two. Additionally, we have announced the construction of a second HBM manufacturing facility, which will be operational and producing products by 2027. This facility will involve HBM-specific investments, primarily in the backend, for assembly and testing, to meet market demands for increased output and technical requirements as HBM evolves from HBM3E to HBM4 and future generations.

Regarding expenditures on core DRAM wafer manufacturing technology and equipment, we will remain prudent and respond to market demand and supply signals.

Q: Senior management mentioned that Micron is in the best competitive position. Historically, Micron's earnings per share exceeded $15 in 2018, reaching its peak. When it is said that Micron is in the best competitive position, does this mean that profit opportunities could reach double digits and create new records?

A: Micron's competitive positioning refers to its advantages in product and technology capabilities compared to competitors. Micron is gaining market share in all high-profit areas, such as high-bandwidth memory (HBM), high-capacity dual in-line memory modules (DIMMs), low-power dynamic random-access memory (LPDRAM) for data centers, solid-state drives (SSDs) for data centers, mobile products UFS4, and high-speed LP5X automotive products. Micron is advancing its business mix into areas with profits above the industry average, where product strength is strong and market share is continuously increasing, while overall bit share remains stable.

In terms of earnings per share and operating profit margins, the NAND industry environment is challenging. Micron has adopted a three-pronged strategy: short-term underutilization of capacity, mid-term reduction of capital expenditures and capacity, and long-term extension of node transition times to improve industry health.

The DRAM industry is better than NAND in terms of balance, health, and profitability, and Micron continues to focus on technology and business mix in this area. From a technological perspective, Micron is the first company in the industry to adopt cost-effective extreme ultraviolet (EUV) lithography technology in the 1 gamma process With the improvement of the industry environment, especially in the NAND sector, Micron's operating profit is expected to have a better development trajectory.

Micron's financial potential is influenced by market conditions and industry status. On the demand side, AI-driven demand brings positive trends, with graphics processing units (GPUs) and application-specific integrated circuit (ASIC) architectures driving differentiated memory demand; on the supply side, the trade ratio driven by HBM in DRAM will limit supply, and Micron has a clear advantage in cutting-edge fields, while also demonstrating discipline in NAND. Additionally, Micron has a strong balance sheet, capable of maintaining its leading position and capitalizing on favorable future markets.

Q: Considering the long-term trends outlined by Micron, how should we understand the sustainability of the profit opportunities brought by these trends, how will operating profit change as the proportion of high-margin businesses in the business portfolio increases, and can profitability be sustained?

A: The transformation of the business portfolio and the increase in the added value of specific products, along with AI demand for HBM and low-power DRAM, have all had a positive impact. However, due to the severe downturn in the industry previously, overall industry inventory levels remain high, although the situation is improving.

In the last quarter, inventory slightly increased, DRAM sales declined, and NAND saw moderate growth, with an increase in shipments in the third quarter, leading to a decrease in Micron's overall inventory levels. It is expected that by the end of the year, DRAM inventory will be below target levels, which is related to more favorable market conditions.

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