Micron Technology, Inc. (MU) Q1 FY2026 Earnings Call Transcript & Summary

Thank you for standing by, and welcome to Micron's Post-Earnings Analyst Call. [Operator Instructions] I would now like to hand the call over to Satya Kumar, Investor Relations. Please go ahead.

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 and 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 a 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 confirm these statements to actual results. We can now open the call up for Q&A.

[Operator Instructions] Our first question comes from the line of Aaron Rakers of Wells Fargo.

I guess my first question is, 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 is your guide factored in between bit shipments between NAND and flash in this current quarter?

So I think, Aaron, one thing I wanted to mention was 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 '26. And we're doing that through efforts within an existing footprint and just efficiencies in the fabs. We're doing that with node transitions as we've said, 160 -- Aaron, I'm sorry, 1-gamma and G9 to get additional bits for DRAM and NAND. And we're pulling in what we can on construction that will help us largely in '27, but we are able to provide growth what we think will be in line with the market in fiscal '26 -- or calendar '26. I think we did have a very modest bit shipment growth sequentially in the first quarter. We expect a little bit more in the second quarter, but we -- again, a quarter primarily driven by price as it relates to revenue growth.

Yes. That's helpful, Mark. And then as a real quick follow-up. 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?

Yes. I mean we've guided the second quarter. It will be sort of flattish in the third quarter relative to the second, that will be up in the fourth quarter. And up and plus the additional week.

Our next question comes from the line of Vijay Rakesh of Mizuho.

Great quarter. So just a quick question, Sumit, Mark and Manish. On the -- when you look at the -- DRAM pricing is 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 the conventional DRAM profitability is improving very significantly. So just wondering how that reasoning -- how you look at that as you look through '26, '27? I have a follow-up.

Yes. 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 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, all parts of the market. There is a mismatch between supply and demand, and that continues for the foreseeable future because the -- 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 adequate level of diversification in our business across segments, across customers, and focus on our strategic customers when it comes to 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. And 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.

Got it. And then on the eSSD side, you're seeing a very strong pickup with your QLC, Gen 9 SSDs as you mentioned, 122 terabyte, 245 terabyte. Is there a way to kind of look at what is the attach rate that you're seeing now with the SSDs on AI servers versus last year, especially as some of these inferencing vectors with reasoning and answer and all that starts to pick up? How do you see that attach rate growing year-on-year?

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 Gen 6 SSDs have come into the picture. So we have been the first company to supply qualified Gen 6 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 our 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 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.

I do want to note that on SSDs that if you remember, our business was over $1 billion in the first quarter of '25, and in the first quarter '26, 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.

Our next question comes from the line of Vivek Arya of Bank of America Securities.

I actually had 2 questions. First, back on the gross margin, I think you are at 68%. Is there reasonable way to think about what can be the 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 the 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 have close to 70% gross margin, you're right, your customers, NVIDIA, AMD are also talking about very high gross margins or expanding gross margins for their business. So I'm just curious to know how you think conceptually about the path forward for your gross margins.

Yes. They're -- 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. First is the demand driven by this generational change in tech with AI. And that's a multiyear build-out done by well-capitalized companies. So we think that's sustainable. And fortunately, AI needs more and better memory to perform better. So the underlying secular driver for memory is positive. 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. We've got this supply shortfall and you see the price movement associated with that. And this is a -- not in supply gap, that's not easy to address in the near term given we can do with node transition, but you've got greenfield capacity that 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 putting on earth, the most -- some of the largest and most complex factories on the planet. So we need partnership to do that, and we're going to do it carefully. So with all that, we do expect that margin can go up from second quarter. It will go up on the basis of, we believe market conditions that should remain positive beyond '26. 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 equivalent increase in price, we're going to get less gross margin expansion. So there can be -- as we mentioned on the call, on the primary earnings call, there's -- the increase from here would be more gradual than you've seen in fourth to first or first to second quarter guide, but we do believe that margins can go up.

And for my follow-up, 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 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 what scenarios let them continue to upside the numbers, unless it's just a share shift between you and your peers. Like if they continue to upside the numbers, can you help them do that? How much more flex is there in your production for HBM?

Yes. So I think the way to read what we are saying is that 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, 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 good terms. But when it comes to the overall aggregate business, the demand on us is so much higher than the supply, that even small increases in supply are not going to be able to make a dent in that demand. So we are 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.

And Vivek, I'll just add on HBM and DRAM because the whole market is short. And HBM production in fab output is shared with DRAM production, right, all in our 1-beta node. So this constraint is kind of across the entirety of our market, as Sumit mentioned, and as we said before, which is incredibly constrained. So we are working hard to try to increase supply for DRAM, HBM and NAND. Yields are -- yields have come up really well for both our 1-gamma and our Gen 9, and those are going to be, as we gave color, the majority of the bit growth for next year is coming from those transitions. And we're also going to have the majority of those -- of our DRAM bits on 1-gamma in the second half of next year. And Gen 9, as we go through the year, will become the highest volume node for us in NAND. So technology transitions are moving aggressively. We're optimizing and looking to maximize production where we can. And 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 HBM3E 8-high yield ramps. So we're gaining confidence in our HBM capability at scale. So all those are things that we're continuing to work on, but just the demand environment is such that it's really way oversupply, whatever we can or what the rest of the industry can supply.

Comes from the line of Kevin Cassidy of Rosenblatt Securities.

My question, along those lines, if you're saying the HBM4 yield is better than HBM3. What -- 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? Do they stay in production longer?

I'm not quite sure of that. 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 early part of calendar year '26 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.

My question was more on a bigger picture. Will 1-gamma get qualified for HBM4? Or will it always be 1-beta?

HBM4 is on 1-beta, and we haven't given specific guidance on how future generations will be, but HBM4 will be on 1-gamma. And the cadence of platform -- I'm sorry, 1-beta. And the cadence of our customers' platforms continues to be rapid every 12 months. So we're just going to be focused on delivering new memory -- new high bandwidth memory solutions for our customers on an approximately 12-month cadence. So that's not slowing down.

Okay. Maybe another question. Just how quickly can you change your wafer allocation from HBM to low power to high performance, I guess how far into the process technology -- process can you change what the final product is?

So they are shared process between the 2 -- 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 -- the answer to your question is that, basically, it's one process cycle time that we can change between any of these different products.

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 road maps and what products go on what node at what time. And 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's stability and 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 1-gamma is available at the right time that we can use that node. Otherwise, we have plenty of other bit requirements that 1-gamma, we're ramping that as quickly as we can to get bit supply.

I mean, generally speaking, we tell our customers that it takes us 5 months if they want to make changes, that use different die in the fab, 3 months, 3.5 months to get to the front end and 6 to 8 weeks depending on the complexity of the product on the back end. So roughly speaking, 5-plus months of lead time. And customers understand that, they know that these things take a long time.

Our next question comes from the line of Steven Fox of Fox Advisors LLC.

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 -- and how it might change between '26 and '27, that mix?

Yes. We've not indicated anything about '27 other than that it will be -- '27 total CapEx will be up versus '26. I did on the call, I believe, indicate that '25 to '26, the plans to -- our fiscal plans to roughly double the construction CapEx. And so that gives you sort of an indication on direction of travel. Now we've got -- '27 will have Idaho 1 finishing, we've got Idaho 2. We've got Japan, we've got a lot of construction sites. So those are going to contribute to that sequential '26 to '27 CapEx increase. And Manish, on HBM and Singapore...

We do have a considerable amount of construction, I was going to say, 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 '26. So yes, there's going to be a mix of growth in terms of construction CapEx to fund the mid-term and long term equipment CapEx into 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.

Yes. I'll just maybe add to this point. Tim asked about capital intensity on the earlier call. We had CapEx as a percent of sales in the first quarter was 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 we've talked about strengthening free cash flow. So we're not only increasing investment in order to get the bit supply, we are generating a lot more cash. We had 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, $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.

Our next question comes from the line of Jim Schneider of Goldman Sachs.

First one would be just in terms of the capacity allocation question that came up earlier. Maybe to put it in a different way, can you maybe -- I know you're sort of a key supplier in many embedded and other kind of mission-critical applications, automotive and the like. 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 given your importance in that market? Or conversely, can you maybe talk a little bit about sort of what is the maximum level of data center capacity or data center exposure do you feel comfortable having?

Yes. 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 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 taking 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 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 life cycle 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 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.

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?

Sure, Jim. What we said is that we are working to develop and deploy next-generation DRAM technologies there with the support of METI and 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.

But not in 2026, to be fair.

No, not in '26.

Our next question comes from the line of Joseph Moore of Morgan Stanley.

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? Is it kind of just the highest gross margin is the focus? And how do you make sure that the mid-tier PC companies kind of have enough that there customers when you need them down the road? Just how are you kind of thinking about balancing the allocation across these different markets?

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 and 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 impact that could occur to our customers' business due to lack of adequate DRAM or NAND as the case maybe.

That's helpful. And then just my follow-up. You mentioned a few minutes ago 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, just between dividend, buybacks or other uses of cash that you might think about?

Yes, Joe, the priority for our cash generation is always to reinvest in the business. So we're going to make sure that we're investing in this case the capacity we need to support the market and ensure that we're getting clear line of sight to return on that. 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 a priority. And also with that, maintaining the technology leadership that we enjoy today and that we intend to maintain. The balance sheet also will always be a priority, and that's moving in the right direction. It was already strong and getting stronger every day, in fact, today, on this call, we're record liquidity. And we recently got put on positive watch by one of the agencies. And we effectively have no net leverage now. In fact, we're a positive cash, net cash and 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. And then we would -- as we've said before, intend to grow the dividend over time. And then 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 for the first 2 years. We've ended that first year. We're in that limitation period in 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 will -- we believe we'll easily be able to surpass those. So I think that's the rough cut of the capital allocation.

Our next question comes from the line of Tom O'Malley of Barclays.

I just have one. Could you remind us as a mix of your CapEx this year, how much was construction CapEx? Or if you haven't given that, were trends on a normalized basis?

Yes, Tom. So we haven't, but we did say -- I think Mark did say that from fiscal year '25 to '26, we're doubling our construction CapEx. That gives you some sense. We got...

Yes, just looking for the base.

Higher than -- Yes. Yes.

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.