Micron Know-how (MU) Q1 2025 Earnings Name Transcript

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As a reminder, the issues we’re discussing at this time embrace forward-looking statements relating to market demand and provide; market, pricing, and price discount tendencies and drivers; our plans for manufacturing; the affect of creating applied sciences equivalent to AI; product ramp plans; applied sciences and market place; anticipated capabilities of our future merchandise; our anticipated outcomes and steering; and different issues. These forward-looking statements are topic to dangers and uncertainties that will trigger precise outcomes to vary materially from the statements made at this time. We refer you to the paperwork we filed with the SEC, together with our Type 10-Okay, Varieties 10-Q, and different stories and filings, for a dialogue of dangers that will have an effect on our future outcomes. Though we imagine that the expectations mirrored within the forward-looking statements are affordable, we can’t assure future outcomes, ranges of exercise, efficiency, or achievements.

We’re underneath no obligation to replace any of the forward-looking statements to evolve these statements to precise outcomes. I’ll now flip the decision over to Sanjay.

Sanjay Mehrotra — President and Chief Government Officer

Thanks, Satya. Good afternoon, everybody. I’m happy to report that Micron achieved report income in fiscal Q1 with income, gross margins, and EPS all at or above the midpoint of our steering vary. Information middle income grew over 400% yr over yr and 40% sequentially, reaching a report stage with information middle income combine surpassing 50% of Micron’s income for the primary time.

We delivered report income in information middle SSDs and achieved new data in market share for information middle SSDs and general SSDs. Our HBM shipments have been forward of plan, and we achieved greater than a sequential doubling of HBM income. Income from our largest information middle buyer was roughly 13% of complete firm income. The HBM market will exhibit sturdy development over the following few years.

In 2028, we count on the HBM TAM to develop 4 occasions from the $16 billion stage in 2024 and to exceed $100 billion by 2030. Our TAM forecast for HBM in 2030 can be larger than the dimensions of all the DRAM {industry}, together with HBM, in calendar 2024. This HBM development can be transformational for Micron, and we’re enthusiastic about our {industry} management on this necessary product class. Modern DRAM provide stays tight, pushed by sturdy demand in information middle DRAM, together with HBM, which can underpin our enterprise outcomes all through fiscal and calendar 2025.

We had beforehand shared our expectation that buyer stock reductions within the consumer-oriented segments and seasonality would affect fiscal Q2 bit shipments. We are actually seeing a extra pronounced affect of buyer stock reductions. Consequently, our fiscal Q2 bit cargo outlook is weaker than we beforehand anticipated. We count on this adjustment interval to be comparatively transient and anticipate buyer inventories reaching more healthy ranges by spring, enabling stronger bit shipments within the second half of fiscal and calendar 2025.

We’re on monitor to attain our HBM targets and likewise ship a considerable report in Micron income, considerably improved profitability, and constructive free money circulation in fiscal 2025. Our expertise highway map continues to progress very properly, and we’re in manufacturing with the {industry}’s most superior DRAM and NAND nodes. We proceed to ramp our 1-beta expertise node, which helps HBM3E, and we’re getting ready to ramp our 1-gamma expertise node utilizing EUV in calendar 2025. In NAND, we’re sustaining expertise management with our industry-leading G8 and G9 nodes and are managing the ramp of those notes in line with our demand.

We count on fiscal 2025 DRAM front-end value reductions, excluding HBM, to be within the mid- to excessive single-digit proportion vary. We count on fiscal 2025 NAND front-end value reductions to be within the low teenagers proportion vary. Earlier this month, we finalized an settlement with the U.S. Division of Commerce for an award of as much as $6.1 billion underneath the CHIPS and Science Act to assist superior DRAM manufacturing fabs in Idaho and New York.

Moreover, we now have entered right into a preliminary memorandum of phrases with the U.S. Division of Commerce for an award of as much as $275 million for our Virginia fab that helps manufacturing of long-lifecycle chips in areas equivalent to automotive, industrial, aerospace, and protection and allows efficiencies throughout our world fab community. With the assist of the Singapore authorities, we now have finalized plans to increase our manufacturing footprint in Singapore, beginning with an funding for a brand new HBM superior packaging facility. This funding permits us to meaningfully increase our complete superior packaging capability starting in calendar 2027 to assist AI-driven demand and can be synergistic with our current operations in Singapore.

These plans additionally embrace assist for our long-term manufacturing necessities for NAND. Now, turning to our finish markets. Quite a few advances are pushing the boundaries of AI capabilities as coaching mannequin sizes proceed to extend and inference fashions evolve to handle totally different use circumstances. Multimodal fashions post-training and chain-of-thought inferencing represents new frontiers of innovation, all of that are reminiscence intensive and may profit from greater reminiscence bandwidth and capability.

AI brokers will develop into ever extra succesful and deal with vertical market shopper and enterprise use circumstances, driving accelerating monetization of AI. Micron is very well-positioned to leverage this long-term development alternative, which has the potential to remodel the dynamics of our enterprise. We’ve got upgraded our view of server unit proportion development and now count on it to achieve low teenagers in calendar 2024, fueled by sturdy AI demand in addition to a strong conventional server refresh cycle. And we anticipate server unit development to proceed in 2025.

Micron achieved new data in each complete information middle income and the income combine for information middle in fiscal Q1. Our portfolio of high-capacity DRAM merchandise, together with monolithic die-based 128-gigabyte DIMMs and LP5-based server DRAM merchandise, continues to see sturdy demand and stays on monitor to generate a number of billions of {dollars} in income in fiscal 2025. We made wonderful progress on HBM, greater than doubling our income sequentially through the quarter and exceeding our plans because of stable execution on yield and capability ramps. In fiscal Q1, our HBM gross margins have been considerably accretive to each DRAM and general firm gross margins.

We’re proud to share that Micron’s HBM3E 8-high is designed into NVIDIA’s Blackwell B200 and GB200 platforms. Micron’s HBM3E operates at full velocity whereas sustaining management in energy effectivity. This month, we commenced high-volume shipments to our second giant HBM buyer and can begin high-volume shipments to our third giant buyer in CQ1, increasing our HBM buyer base. We proceed to see constructive suggestions from our main prospects for Micron’s HBM3E 12-high best-in-class energy consumption, which is 20% decrease than the competitors’s HBM3E 8-high, even because the Micron product delivers 50% greater reminiscence capability and industry-leading efficiency.

We’ve got elevated our HBM market TAM estimate to now exceed $30 billion in 2025, and we proceed to count on to attain HBM market share commensurate with our general DRAM market share someday within the second half of calendar 2025. As we now have mentioned earlier than, our HBM is bought out for calendar 2025, with pricing already decided for this time-frame. In fiscal 2025, we count on to generate a number of billions of {dollars} of HBM income. We’re enthusiastic about Micron’s HBM management highway map by the remainder of this decade.

Leveraging the sturdy basis and continued investments in confirmed 1-beta course of expertise, we count on Micron’s HBM4 will keep time-to-market and energy effectivity management whereas boosting efficiency by over 50% over HBM3E. We count on HBM4 to ramp in excessive quantity for the {industry} in calendar 2026. Improvement work is properly underway with a number of prospects on HBM4E, which can comply with HBM4. HBM4E will introduce a paradigm shift within the reminiscence enterprise by incorporating an choice to customise the logic base die for sure prospects utilizing a sophisticated logic foundry manufacturing course of from TSMC.

We count on this customization functionality to drive improved monetary efficiency for Micron. Primarily based on our buyer design wins and success in establishing deep partnerships with prospects, {industry} enablers, and key expertise companions like TSMC, we count on to be a number one provider of HBM with essentially the most sturdy, trusted, and industry-leading expertise highway map and execution report. Micron has additionally been main the adoption of LP DRAM in information facilities with NVIDIA’s Grace CPU. Micron’s LP5X supplies better than 500 gigabyte of capability and reminiscence bandwidth of better than 540 gigabyte per second, thus delivering engaging efficiency per watt for AI platforms.

NVIDIA’s Grace CPU makes use of Micron’s LP5X to supply techniques with extra cache coherent reminiscence to complement HBM for the ever-growing reminiscence wants of AI workloads. Our general SSD and information middle SSD income reached new quarterly income data in fiscal Q1, and we’re on monitor to ship one other yr of share features in calendar 2024. We proceed to strengthen our information middle SSD product highway map, leveraging our management G8 NAND expertise and vertical integration. We introduced the 6550 ION SSD, which delivers the {industry}’s quickest 60-terabyte SSD and the primary within the {industry} with Gen5 functionality at this capability level.

In comparison with the competitors, Micron’s 6550 ION SSD delivers 20% decrease energy whereas offering 60% higher efficiency and higher information middle footprint effectivity with as much as 67% extra density per rack for exascale information facilities. Our 9550 PCIe Gen5 information middle SSDs have been certified for the really helpful vendor checklist for NVIDIA’s GB200 NVL72 system and supply a 34% greater throughput and over 80% decrease vitality per terabyte of knowledge switch versus the competitors. We proceed to count on to generate a number of billions of {dollars} in information middle SSD income in fiscal 2025 and to develop our market share as soon as once more in calendar 2025. Turning to PC.

The PC refresh cycle is unfolding extra progressively, and we count on PC unit quantity development to be flattish in calendar 2024, barely beneath prior expectations. We stay optimistic about AI PC adoption over time. AI PCs would require extra DRAM content material with a minimal of 16 gigabyte of DRAM for entry-level PCs and 24 gigabyte and above for the higher-end segments versus 12-gigabyte common PC content material final yr. Home windows 10 finish of life in October 2025 and an growing old put in base will present a catalyst for PC market development in 2025.

We count on PC market items to develop within the mid-single-digit proportion vary in calendar 2025, with development weighted towards the second half of the calendar yr. Turning to cell. Smartphone unit volumes in calendar 2024 stay on monitor to develop within the mid-single-digit proportion vary, and we count on low single-digit proportion development in 2025, each in line with our prior expectations. AI adoption continues to be a robust driver for cell DRAM content material development, the place we see the expertise utilized in purposes equivalent to native search and contextually conscious consumer interfaces rising over time.

DRAM content material development remained sturdy in CQ3, with the combo of smartphones with 8-gigabyte or better rising to over 60%, considerably greater than a yr in the past. Smartphone buyer stock dynamics proceed to play out as anticipated, and we count on bit shipments to be weighted to the second half of our fiscal yr. Micron stays centered on the excessive finish of the cell market. We’re leveraging our industry-leading portfolio of DRAM and NAND merchandise to assist essentially the most demanding purposes, which would require elevated content material, excessive efficiency, and energy effectivity.

Turning to the automotive market. Decrease-than-expected automotive unit manufacturing, mixed with a shift towards value-trim automobiles from premium fashions and EVs, has slowed reminiscence and storage content material development and resulted in stock changes at OEMs. Long term, we stay optimistic that ADAS, infotainment, and AI adoption throughout auto will drive long-term reminiscence and storage content material development. Industrial market demand continues to be impacted by stock changes, and we count on a restoration on this market later in calendar 2025.

Now, turning to our market outlook. We count on {industry} DRAM bit demand development to be within the excessive teenagers proportion vary in calendar 2024 and within the mid-teens proportion vary in calendar 2025. We see general calendar 2025 DRAM {industry} bit provide rising roughly in step with bit demand, with tightness in modern nodes pushed by HBM provide ramp within the {industry}. Our outlook for {industry} NAND bit demand development in each calendar 2024 and 2025 is now within the low double-digit proportion vary, which is decrease than our prior expectations.

Key drivers embrace slower development in NAND content material in shopper gadgets, ongoing stock changes and demand dynamics in numerous finish markets, as outlined earlier, and a short lived moderation in near-term information middle SSD purchases by prospects after a number of quarters of very fast development. In information middle, we stay keen about long-term demand development as NAND is a key enabler for AI workloads, offering sooner information entry, decrease energy, and higher general complete value of possession important for AI infrastructure. Within the subsequent few years, we additionally count on high-capacity NAND SSDs to begin displacing capability HDDs within the information middle, an inflection that may drive long-term NAND demand development. The decline in 2024 and 2025 {industry} NAND demand development outlook implies that offer actions can be mandatory to attain stability.

As talked about beforehand, since NAND expertise transitions present a major enhance in general bit output, the tempo of expertise transitions may even must gradual to be able to align provide to {industry} demand. Micron is decisively taking actions to align our NAND provide with {industry} demand tendencies. We’ve got lowered NAND capex versus prior plan and have slowed the tempo of expertise node transitions. As well as, we’re decreasing NAND wafer begins by a mid-teens proportion versus prior ranges.

These actions will align our provide to present market demand. According to analyst stories, we now have seen a rise in bit provide at legacy expertise nodes from a China-based DRAM and a China-based NAND provider. In calendar 2024, analyst stories point out that China-based provide will signify a mid-single-digit proportion of {industry} bit provide for DRAM and a excessive single-digit % of provide for NAND. Competitors from China provide is concentrated on China market demand: in DRAM with DDR4 and LP4 merchandise; and in NAND with shopper, shopper, and lower-performance cell merchandise.

We count on Micron’s worldwide income associated to LP4 and D4 DRAM merchandise for the rest of fiscal 2025 to be roughly 10%. We count on Micron’s gross sales of merchandise to China-headquartered prospects to be concentrated within the excessive finish of our prospects’ portfolio, leveraging our expertise and product management and the efficiency and high quality necessities of our prospects. I’ll now flip it over to Mark for our monetary outcomes and outlook.

Mark Murphy — Government Vice President, Chief Monetary Officer

Thanks, Sanjay, and good afternoon, everybody. Micron delivered fiscal Q1 income and gross margins on the midpoint and EPS above the midpoint of the steering vary. Whole fiscal Q1 income was roughly $8.7 billion, up 12% sequentially and up 84% yr over yr, and reached a brand new report. Fiscal Q1 DRAM income was $6.4 billion, up 87% yr over yr, and represented 73% of complete income.

Sequentially, DRAM income elevated 20%, with bit shipments up within the low double-digit % vary and costs rising within the excessive single-digit proportion vary. Sturdy sequential bit cargo development in DRAM was pushed by demand in information middle. Fiscal Q1 NAND income was $2.2 billion, up 82% yr over yr, and represented 26% of Micron’s complete income. Sequentially, NAND income decreased 5%, with bit shipments and costs each reducing within the low single-digit proportion vary.

Now, turning to income by enterprise unit. Compute and Networking Enterprise Unit income was up 46% sequentially to $4.4 billion and now represents over half of our complete income. CNBU income reached a brand new quarterly report, pushed by cloud server DRAM demand in addition to HBM revenues, which greater than doubled sequentially within the quarter. Cell Enterprise Unit income was $1.5 billion, down 19% sequentially.

As our cell prospects centered on bettering their stock well being, we shifted provide to satisfy information middle demand. Embedded Enterprise Unit income was $1.1 billion, down 10% sequentially. Auto, industrial, and shopper prospects proceed to handle their inventories decrease. Income for the Storage Enterprise Unit was $1.7 billion, up 3% sequentially.

SBU income reached a brand new quarterly report, pushed by report income within the information middle SSD phase. In fiscal 2025, we count on Micron’s income combine with corporations headquartered in Mainland China and Hong Kong, together with direct gross sales in addition to oblique gross sales by distributors, to be roughly mid-teens % of our worldwide income. This combine is impacted by market elements described earlier in addition to by the China CAC actions introduced in Could 2023. The consolidated gross margin for fiscal Q1 was 39.5%, bettering 300 foundation factors sequentially.

Gross margin enchancment was pushed by greater pricing in DRAM, improved product combine to information middle in each DRAM and NAND, offset partly by decrease pricing in NAND. Working bills in fiscal Q1 have been $1.05 billion, down $34 million sequentially and benefiting from decrease labor-related prices and ongoing tight expense management. We generated working revenue of $2.4 billion in fiscal Q1, leading to an working margin of 27.5%, which was up roughly 500 foundation factors sequentially and up 48 proportion factors from the year-ago quarter. Fiscal Q1 adjusted EBITDA was $4.4 billion, leading to an EBITDA margin of fifty.6%, up 265 foundation factors sequentially and up 31 proportion factors or $3.5 billion from the year-ago quarter.

Fiscal Q1 taxes have been $333 million on an efficient tax charge of 14.1%, which was in step with our steering. Non-GAAP diluted earnings per share in fiscal Q1 was $1.79, in comparison with $1.18 per share within the prior quarter and a loss per share of $0.95 within the year-ago quarter. We delivered fiscal Q1 EPS on the greater finish of our steering vary. Turning to money flows and capital spending.

Our working money flows have been roughly $3.2 billion in fiscal Q1. Capital expenditures have been $3.1 billion, leading to free money circulation of $112 million within the quarter. Our fiscal Q1 ending stock was $8.7 billion or 149 days, a decline of 9 days from the prior quarter and pushed by DRAM. On the stability sheet, we held $8.7 billion of money and investments at quarter-end and maintained $11.2 billion of liquidity when together with our untapped credit score facility.

We ended the quarter with $13.8 billion in complete debt, low web leverage, and a weighted common maturity on our debt of 2031. Now, turning to our outlook for the second fiscal quarter. We count on DRAM bit shipments to say no sequentially and count on a significant sequential decline in NAND bit shipments for causes talked about beforehand which are impacting near-term demand. We mission our bit shipments to renew development after fiscal Q2 and count on second half fiscal yr bit shipments to be stronger than the primary half.

We count on fiscal Q2 gross margins to be impacted by NAND {industry} situations, partly offset by continued development in HBM and information middle DRAM. Along with these elements, we count on NAND underloading to have an effect on fiscal Q3 gross margins. We forecast working bills in fiscal Q2 to be roughly $1.1 billion, primarily reflecting deliberate will increase in R&D spending. We count on fiscal 2025 opex to extend by a low to mid-teens %, beneath our prior mid-teens plan.

We proceed to prioritize R&D applications, together with for HBM, to capitalize on sturdy development forward. We count on each stock {dollars} and days of stock to extend sequentially in fiscal Q2 on decrease volumes. With stronger bit shipments, we count on DIO to enhance within the second half of the fiscal yr. We count on to finish fiscal 2025 with tight DRAM inventories, beneath our goal ranges.

For fiscal Q2 and the rest of fiscal 2025, we estimate our non-GAAP tax charge to be within the mid-teens % vary. We count on our fiscal 2026 tax charge to be within the excessive teenagers proportion vary following Singapore’s adoption of worldwide minimal tax. In fiscal Q2, we forecast web capex to be roughly $3 billion. For fiscal 2025, we’re prioritizing our investments to ramp 1-beta and 1-gamma expertise nodes in addition to greenfield fab investments for DRAM, which can assist us assist HBM and long-term DRAM demand.

We’ve got minimize our NAND capex and are prudently managing the tempo of our NAND expertise node ramps to handle our provide. We count on general capex spending in fiscal 2025 to be roughly $14 billion, plus or minus $500 million. The overwhelming majority of the fiscal 2025 capex is to assist HBM in addition to facility, development, back-end manufacturing, and R&D investments. With all these elements in thoughts, our non-GAAP steering for fiscal Q2 is as follows: we count on income to be $7.9 billion, plus or minus $200 million; gross margin to be within the vary of 38.5%, plus or minus 100 foundation factors; and working bills to be roughly $1.1 billion, plus or minus $15 million.

As talked about, we count on the fiscal Q2 tax charge to be within the mid-teens % vary. Primarily based on a share depend of roughly 1.14 billion shares, we count on EPS to be $1.43 per share, plus or minus $0.10. In closing, Micron will stay circumspect and versatile with all our spending, together with working bills and capital investments. We’re making disciplined investments in DRAM and are driving the ramp of high-bandwidth reminiscence.

In NAND, we’re taking immediate and decisive actions to chop our capital spending and minimize our wafer output to keep up provide self-discipline. We count on to ship a considerable income report, considerably improved profitability, and constructive free money circulation in fiscal 2025. I’ll now flip it again over to Sanjay.

Sanjay Mehrotra — President and Chief Government Officer

Thanks, Mark. At our 2022 Investor Day, we had laid out a daring plan to shift our portfolio combine and to extend our share of high-growth and fewer seasonal segments from roughly 45% in fiscal 2021 to 62% in fiscal 2025. In fiscal Q1 2025, we now have already considerably exceeded that purpose, pushed by sturdy demand for AI-enabled options and reflecting Micron’s expertise, product, and manufacturing management. Micron is within the strongest aggressive place in its historical past, and we proceed to achieve share in all high-margin, strategically necessary product classes in our {industry} whereas sustaining general steady bit share in each DRAM and NAND.

Thanks for becoming a member of us at this time. We are going to now open for questions.

Questions & Solutions:

Operator

Definitely. And our first query for at this time comes from the road of C.J. Muse from Cantor Fitzgerald. Your query, please.

C.J. Muse — Analyst

Yeah. Good afternoon. Thanks for taking the query. I assume first query, may you converse to what provides you the arrogance that we will see a Could quarter form of seasonal pickup and/or cyclical pickup throughout each DRAM and NAND? And I assume if there’s any type of sense of magnitude we ought to be eager about for every can be very useful.

Sanjay Mehrotra — President and Chief Government Officer

C.J., I am going to take this one. As we mentioned, our FQ2 outlook is impacted by stock changes in consumer-oriented markets and naturally, the standard seasonality that exists in CQ1 as properly. And we now have additionally seen some moderation in purchases of knowledge middle SSDs after a number of quarters of fast development in that a part of the market. So, that is what is impacting our FQ2 outlook right here.

And sure, we imagine that buyer inventories within the consumer-oriented markets will enhance within the spring time-frame. Understand that the sell-through that is taking place in these consumer-oriented markets like smartphone and PCs is OK. It is extra that they’ve constructed stock and subsequently, their purchases are lower than their sell-through. And we noticed that their inventories improved in CQ4, and we count on them to enhance additional in CQ1 time-frame.

So, by spring time-frame, we count on the inventories to — at prospects within the consumer-oriented markets to enhance, and that is what’s going to drive cargo development within the fiscal second half for us. And naturally, information middle SSD as properly, we count on, it tends to be that a part of the market, information middle storage can typically be lumpy, and we count on the information middle storage demand, given the information middle build-out that’s taking place, continues to be taking place, pushed by AI demand development may even return towards development within the fiscal second half. That is why we mentioned fiscal second half stronger than the fiscal first half.

C.J. Muse — Analyst

Very useful. After which a fast query to Mark. Are you able to assist us with just a little extra granularity when it comes to the affect from NAND underloadings into the present information in addition to whether or not there’s an affect past that? After which for all of calendar ’25, is there a framework for eager about the tailwind from rising HBM combine within the revenues? Thanks.

Mark Murphy — Government Vice President, Chief Monetary Officer

Certain, C.J. So, let me begin with offering granularity on the second quarter information. So, we’re down 100 foundation factors first to second quarter within the information, and that is pushed by NAND. First, as Sanjay talked about, the NAND {industry} market situations are weak, weaker than we had anticipated.

And that shopper market, PC, smartphones, demand is weaker, and stock changes are occurring. Secondly, NAND information middle SSD volumes moderated. And so, there’s this era of digestion. And that was, as we all know, higher-margin NAND enterprise.

So, these two issues are the principal driver. After all, with income down within the information $800 million, we see some damaging leverage results on ongoing interval prices, however these prices don’t embrace underload expenses within the second quarter. So, these expenses will start to have an effect on us within the third quarter. And so, within the third quarter, as NAND continues to have a interval the place there are some difficult situations into the calendar first quarter after which improves by the calendar yr, our provide response in NAND will weigh on third-quarter margins, and it’ll considerably constrain our capacity to increase gross margins within the third quarter.

Now, past the third quarter, the enterprise quantity development, AI-driven information middle, and edge-driven development, favorable combine results, together with HBM, the place we talked about multi-billion after which only a extra constructive setting, particularly in DRAM, the place we now have tight inventories on the forefront and have indicated that we mainly have been beneath our goal in inventories by finish of yr. So, we see the situations for margin growth occurring after third quarter.

C.J. Muse — Analyst

Thanks.

Operator

Thanks. And our subsequent query comes from the road of Timothy Arcuri from UBS. Your query, please.

Timothy Arcuri — Analyst

Thanks lots. I am making an attempt to get at what the magnitude of the income ramp goes to be within the fiscal again half. And I am type of taking a look at what you have been saying about capex. You had mentioned that it might be mid-30s of the full-year income.

So, if I take the $14 billion which was just a little higher than what folks thought, I feel most individuals have been pondering $13.5 billion. So, you really are doing a bit extra capex. And if I divide by the mid-30s, I get to a quantity like $40 billion for the fiscal yr. Is that — I am not asking you to information the fiscal yr, however I am simply asking you to supply some type of magnitude for just like the fiscal again half versus the fiscal entrance half.

Sanjay Mehrotra — President and Chief Government Officer

So, let me simply reply the fiscal second half. And naturally, the drivers of development, there can be improved stock in consumer-oriented markets, information middle SSD demand resuming, and naturally, HBM, continued momentum in HBM. We’re enthusiastic about our product place there. And we now have indicated to you that within the second half of the calendar yr, we goal reaching our HBM share to be in step with DRAM share.

And we’re executing very properly on the HBM momentum. So, HBM can also be, after all, persevering with to drive our income development as you stay up for the second half of the yr. After which simply take into account that we now have mentioned smartphone and PC items. We’ve got offered you coloration within the script on these in calendar yr 2025 as properly.

And there can be rising penetration of AI smartphone and PC items, which are inclined to have greater DRAM content material as properly. So, all of those elements will contribute primarily AI from information middle to edge, shopper stock changes, getting previous the seasonality of CQ1, all of those would be the elements that may decide, that may actually give us optimism towards sturdy second-half shipments and naturally, a more healthy income outlook within the second half as properly. And Mark, you possibly can touch upon the capex.

Mark Murphy — Government Vice President, Chief Monetary Officer

Yeah. Tim, we made it clear we’re slicing NAND capex. We’re — sure, there’s nonetheless going to be elevated ranges of DRAM spend, and our earlier steering of mid-30s can be greater 30s % of gross sales now.

Timothy Arcuri — Analyst

Received it, Mark. OK. Thanks. After which I wish to ask on the share repo.

So, within the 8-Okay final week that was associated to the CHIPS Act, it contained language which you can solely purchase again to offset dilution through the first two years and actually, you are solely free to jack up the repo greater than that in Years 3 to five to deliver down share depend. How do you consider that in type of within the broader capital return? Thanks, Mark.

Mark Murphy — Government Vice President, Chief Monetary Officer

Yeah. Tim, we’re — we do not see any significant constraints on our capacity to return capital. Our unusual course dividends are unaffected. So, we’d nonetheless count on to pay a dividend and develop that over time.

We’re capable of repurchase shares. Through the first two years, we’re capable of repurchase shares to assist offset inventory comp shareholder dilution. After which in Years 3 by 5, we’re unrestricted as sure monetary and different situations are met. And we predict these situations are affordable.

They contain how a lot we’re spending on R&D, how a lot we’re spending on capex and our credit score, and so forth. And these items are how we’d usually run the enterprise in a shareholder and broader stakeholder method. So, we predict that we have no significant constraints underneath the agreements.

Timothy Arcuri — Analyst

OK. Thanks.

Operator

Thanks. And our subsequent query comes from the road of Vivek Arya from Financial institution of America Securities. Your query, please.

Vivek Arya — Analyst

Thanks for taking my query. So, Sanjay, you upgraded the HBM TAM by, I feel, about 20% or so. What has modified to extend that estimate? And I feel you form of stored your goal share to be the identical as earlier than, despite the fact that I feel you form of shifted it extra to the second half. However what’s the bottleneck? Why cannot your share get to the goal stage earlier? Is it only a matter of rolling out in numerous merchandise? So simply what modified the TAM estimate? After which what’s inflicting the change so that you can get to your goal extra within the second half slightly than I feel you mentioned someday in ’25 earlier than?

Sanjay Mehrotra — President and Chief Government Officer

So, we proceed to work intently with our prospects to evaluate the market necessities, and we offer you updates. And we, infrequently, replace our outlook. And based mostly on our newest estimates with our prospects and, after all, all of the build-out associated to AI information facilities and the great alternative, and it’s — we now have elevated our estimate from $25 billion to $30 billion for calendar yr 2025. And that is pushed by elevated demand, elevated quantity that can be required in 2025 for HBM.

And simply take into account that HBM simply continues to be nonetheless in tight provide in calendar yr 2025. And relating to our personal momentum, we now have a really sturdy momentum. We beforehand had mentioned that someday in calendar yr 2025, we’ll attain our share goal in HBM to be equal to our DRAM {industry} share. And now as 2025 is approaching, we’re offering you additional specificity across the timing, and we’re specifying that we’ll be reaching that in second half of 2025.

After all, HBM ramp-up, simply take into account, it was not way back. It was FQ3 of ’24 once we had indicated that we now have over $100 million of income in HBM. We’re — our group is doing an excellent job in persevering with to ramp up the capability in addition to yield. We identified that in our FQ1, we delivered extra HBM than our plan, and our yields have been additionally forward of our plan.

So, we proceed to do properly, and we’re extraordinarily centered on ramping up capability, proceed to ramp up yields towards mature yields, and we really feel very assured about our alternatives for HBM in 2024. We’ve got mentioned that we count on to achieve a number of billions of {dollars} of income within the coming yr, in 2025. So, an incredible alternative. And we, after all, proceed to look ahead to constructing the momentum of our highway map from thereon.

completely seize the alternatives. We imagine that HBM4 in addition to 4E, which can be extra alternatives ’26 and past time-frame, we can be in a robust management place with our merchandise. And we’ll, after all, seize the alternatives and stay disciplined with respect to our investments as properly.

Vivek Arya — Analyst

Received it. And for my follow-up, Mark, just some questions on gross margins. So, you might be guiding Q2 gross sales down, however gross margins are solely taking place by one level. So, is that a few of the tailwinds you are seeing in HBM, proper, offsetting a few of the unit affect? So, if there’s a approach to quantify how a lot raise is HBM offering? After which the opposite factor I simply wished to make clear.

Did you say Q3 gross margins greater than Q2 gross margin regardless of that NAND headwind? I simply wished to make clear that. So, simply how a lot raise from HBM? After which is Q3 greater than Q2 from what you mentioned earlier than? Thanks.

Mark Murphy — Government Vice President, Chief Monetary Officer

Yeah. So, Vivek, good questions. So, we’re — in 2Q, we’re seeing undoubtedly favorable results from each greater DRAM income as a mixture of our complete enterprise after which the favorable DRAM product combine, so HBM and different information middle merchandise. So, these are tailwinds within the second quarter, and we count on these to proceed however they’re greater than offset by the headwinds, notably NAND.

After which what I discussed earlier to C.J.’s query was, whereas we proceed to have these DRAM constructive combine results, we’re — it’s going to take a while and properly into this calendar first quarter for the NAND market situations to start to enhance. After which we, after all, begin to see information middle SSD development beginning once more, quantity development within the third quarter. After which the — however situations there’ll nonetheless be weak. After which the availability response prices will weigh on third-quarter margins and can constrain our capacity to increase margins in third quarter.

Now, past third quarter, we see continued income development, favorable combine results, extra constructive markets and see the chance for margin growth from there.

Vivek Arya — Analyst

Thanks.

Operator

Thanks. And our subsequent query comes from the road of Joseph Moore from Morgan Stanley. Your query, please.

Joe Moore — Analyst

Nice. Thanks. My query was additionally on HBM. I assume how do you consider market share there over the long run? Ought to we consider your pure DRAM share as being a limiter on condition that one in all your opponents is struggling there? And at one level, you had talked about perhaps having a premium pricing due to the standard of the efficiency per watt.

Is that one thing you are still capable of extract? Or does the main target proceed to be extra on provide?

Sanjay Mehrotra — President and Chief Government Officer

So, with respect to HBM share, I imply, we’re extraordinarily centered on attaining our share to be in step with the {industry} DRAM share within the second half of 2025. Excited, as I mentioned, about our product and all of the suggestions that we now have obtained on that product. We’ve got highlighted that we now have already begun shipments to a second-large HBM prospects. And I additionally mentioned that in CQ1, we can be including a 3rd giant buyer for HBM as properly.

So, our momentum is continuous to construct up in HBM. And that is, after all, all once more, constructed on sturdy product that has vital efficiency and efficiency per watt advantages right here. And that, after all, helps us with respect to our momentum on the share, helps us get premium pricing versus others within the market. And we wish — we plan to completely leverage this past simply 8-high HBM3E as we transfer to 12-high in 2025.

And naturally, past 2025, leverage our momentum with product management with HBM4 and 4E as properly. I am not specifying our share at this level for future targets. However after all, we’ll — we’re extraordinarily centered on persevering with to shift the combo of our product portfolio — general product portfolio towards greater revenue swimming pools of the {industry}, whereas remaining completely disciplined in managing the demand and provide stability and managing our — responsibly managing our investments, capital investments which are associated to that as properly.

Joe Moore — Analyst

Nice. Thanks very a lot.

Operator

Thanks. And our subsequent query comes from the road of Krish Sankar from TD Cowen. Your query, please.

Krish Sankar — Analyst

Hello. Thanks for taking my query. I had two of them, and sorry to harp on this level once more, Sanjay. Simply to make clear, you raised your calendar ’25 TAM estimate from $25 billion to $30 billion, sustaining your market share however value and quantity is fastened, however the yields are bettering.

So, simplistically, ought to we assume three months in the past, when you thought $5.5 billion to $6 billion in HBM income exiting second half of 2025, that is extra like $6.5 billion to $7 billion now. Is it the correct math to consider for Micron’s HBM revenues in someday in second half of calendar ’25?

Sanjay Mehrotra — President and Chief Government Officer

We aren’t offering specifics on income for HBM, however apart from saying that HBM can be a number of billions of {dollars} of income for us in ’25. And that we’ll — we’re properly on our approach to attaining our goal of shares to line up with {industry} DRAM share as properly. I am not going by the specificity on our income numbers. However once more, I can let you know that that is, after all, a giant a part of our development.

And we’re excited concerning the long-term HBM potential as properly. We shared with you that we see HBM turning into a $100 billion — greater than $100 billion market in 2030 time-frame. And with 2028 — in 2028, HBM being 4 occasions of what it’s in 2024. And with a robust roadmap of merchandise that’s forward of us, we, after all, will seize the alternatives on this a part of the market.

And HBM will — on condition that it’s a extra advanced product to make, it’s a higher-cost product, it brings greater worth, it brings greater ASPs. So, this positions us very properly towards our goal of constant to shift towards greater revenue pool of the {industry}.

Krish Sankar — Analyst

Received it. Very useful. After which a fast follow-up, Sanjay. You are at HBM3E 8-high, so whenever you go to 12-high, the commerce ratio will increase.

And also you go to HBM4, it is also larger die measurement, commerce ratio will increase. So, as you go make these transitions, would not it have a damaging affect in your gross margin purely as a result of yield will form of get reset? Or do you suppose the transition can be seamless that it should have no affect on gross margins?

Sanjay Mehrotra — President and Chief Government Officer

We’ve got shared earlier than that HBM3E has a commerce ratio of roughly three. And HBM4, we now have mentioned earlier than, could have a better commerce ratio. And naturally, these commerce ratio concerns apply to all the HBM {industry}. And once we go from 8-high to 12-high, you possibly can definitely count on that given the elevated complexity of the product, that may have, 12-high could have its personal definitely yield ramp, however the learnings of 8-high will definitely be a profit, benefiting us going ahead as properly.

And our group has finished an excellent job in ramping up merchandise. So, I am fairly positive that as we go from 8-high to 12-high, our group will do a superb job in ramping up the yields on 12-high as properly. And all of these elements, after all, play a task in general HBM aims that we now have forward of us. And simply take into account that the worth of HBM completely continues to develop.

As we go from 8-high to 12-high, after all, that offers our prospects a chance to connect extra content material to their GPUs, to their accelerators simply by the sheer enhance within the capability inside every dice, 50% enhance in capability inside every dice. And so, general, the worth of HBM continues to develop in addition to we go from 8-high to 12-high and in a while to HBM4 and sooner or later, with HBM4E having the optionality of customization as properly.

Krish Sankar — Analyst

Thanks, Sanjay. Very useful.

Operator

Thanks. And our subsequent query comes from the road of Chris Danely from Citi. Your query, please.

Christopher Danely — Analyst

Hey, thanks, guys. I assume only a larger query on DRAM. So, if provide goes to equal demand subsequent yr and there is extra stock on the market, like how is the market going to do properly? After which as a portion of that, you mentioned that high-end DRAM and HBM or modern DRAM and HBM are doing properly. Are you able to simply outline what vanguard or what proportion of the market that’s and what is going on to occur to the remainder of the market if it stays in oversupply?

Sanjay Mehrotra — President and Chief Government Officer

So, once more, sure, modern nodes are in tight provide, and never solely simply HBM that’s in tight provide however LP5, DDR5. These are additionally built-in modern nodes, and these are all in tight provide. And we see tight provide for the {industry} in 2025. Because the HBM necessities enhance, that places much more stress on non-HBM, places extra stress on the modern provide.

So, we see modern outlook remaining tight and favorable demand-supply setting. And general DRAM {industry}, we count on to be wholesome. Understand that we now have pointed to not solely a number of billions of {dollars} of income in ’25 with — in our fiscal ’25 with HBM but in addition to a number of billion — we now have pointed to a number of billions of {dollars} of income with high-density DIMMs and LP5 options. And simply take into account that these are additionally crucial merchandise for the AI purposes.

HBM works intently with LP5 and lots of accelerator platforms with respect to driving the complete potential of AI. And naturally, general, we see the demand setting wholesome. And overwhelming majority of general manufacturing, as we now have already famous in our ready remarks, is on modern nodes that are our 1-alpha and 1-beta node at this time. And in 2025, we’ll start to ramp our 1-gamma node as properly.

Mark Murphy — Government Vice President, Chief Monetary Officer

Yeah. Chris, I might simply add that as you talked about, inventories on the finish of the yr in your query that we at the moment mission our DRAM inventories complete to be beneath our goal ranges.

Christopher Danely — Analyst

Received it. OK. After which simply — OK. Thanks, Mark.

After which as a fast follow-up to that. So, what will get the non-leading-edge DRAM market wholesome once more as a result of it’s nonetheless part of your enterprise?

Sanjay Mehrotra — President and Chief Government Officer

Look, I imply, after all, our provide combine is, after all, shifting towards extra of the merchandise which are wanted within the market, and we’re always managing our provide shift. And our manufacturing is extra towards vanguard whereas remaining disciplined with our capex and with our provide development.

Christopher Danely — Analyst

Received it. Thanks, guys.

Operator

Thanks. And our last query for at this time comes from the road of Toshiya Hari from Goldman Sachs. Your query, please.

Toshiya Hari — Analyst

Nice. Thanks a lot for taking the query. I had two as properly. The primary one is on China competitors.

Sanjay, you talked about LP4 and DDR4 for the remainder of the fiscal yr is 10% of your enterprise. What are your ideas on their capacity to compete in DDR5 and LP5, not within the close to time period, however as you consider the aggressive panorama over the following, name it, 18, 24 months, what are your ideas? And the way do you propose to reply to that?

Sanjay Mehrotra — President and Chief Government Officer

So, our product mixture of LP4 and DDR4, which we now have mentioned is about 10% for the rest of fiscal yr ’25 will, after all, proceed to go down within the years forward as properly. And that simply signifies that the legacy node combine continues to go down within the years forward as properly. And China competitors is extra within the lower-performance merchandise. It addresses extra the decrease finish of the buyer market, primarily in China.

And simply take into account that the markets are shifting an increasing number of towards greater efficiency merchandise. And better efficiency merchandise, definitely, whenever you have a look at the market transferring extra to the information middle market purposes versus simply the buyer and the combo of knowledge middle continues to extend, that additionally requires extra high quality necessities. And the platforms proceed to maneuver sooner towards the necessities of superior nodes. So, these are all — whenever you have a look at that, I imply, those who have a protracted monitor report in modern nodes in addition to modern merchandise with sturdy efficiency, low energy in addition to top quality, then the leaders are higher positioned on this regard.

So, the competitors that we see in China is extra on the buyer facet of the enterprise and extra on the decrease finish, whereas the market is shifting an increasing number of towards the necessities of upper finish equivalent to in information middle. And that is the place Micron is concentrated with our expertise and with our superior product highway map to handle these elements of the market. And once more, that is the place the upper pool of the revenue of the {industry} is, and that is the place we’re shifting our combine as properly.

Toshiya Hari — Analyst

Nice. After which as my follow-up, you talked about high-capacity enterprise SSDs displacing nearline HDDs over the following couple of years. I do know it is a view that you’ve got held for a really very long time. I am simply curious when you’ve seen something not too long ago that will drive an acceleration in that development.

You talked about NAND front-end value downs for you guys in fiscal ’25 being within the low teenagers. That appears fairly much like what your friends within the drive enterprise are doing. So, I am simply curious if something has modified not too long ago as you consider that dynamic. Thanks.

Sanjay Mehrotra — President and Chief Government Officer

Yeah. After all, we proceed to work intently with our prospects, and it is actually concerning the complete value of possession that SSDs present, and SSDs proceed to make sturdy progress in that regard. It is concerning the efficiency. It is about, after all, energy.

It is concerning the footprint, all of that. And naturally, value is a crucial issue there. And all of that interprets into value of possession. And we see that sooner or later, SSDs will start to displace HDDs, once more, working intently with prospects on this regard.

And clearly, AI will proceed to be a robust driver on this regard in addition to we noticed final yr, I imply, sturdy demand. I imply, once I say final yr, I imply, as we noticed earlier on this calendar yr, there was a robust demand for our information middle SSDs pushed by AI. And all of these necessities of efficiency, energy, footprint will completely be required sooner or later information facilities displacing — the place SSDs can be displacing HDDs. And we have a look at it as a phenomenon that’s 2027 and past.

Toshiya Hari — Analyst

Thanks.

Operator

Thanks. This does conclude the question-and-answer session in addition to at this time’s program. [Operator signoff]

Length: 0 minutes

Name individuals:

Satya Kumar — Company Vice President, Investor Relations and Treasury

Sanjay Mehrotra — President and Chief Government Officer

Mark Murphy — Government Vice President, Chief Monetary Officer

C.J. Muse — Analyst

Timothy Arcuri — Analyst

Tim Arcuri — Analyst

Vivek Arya — Analyst

Joe Moore — Analyst

Krish Sankar — Analyst

Christopher Danely — Analyst

Chris Danely — Analyst

Toshiya Hari — Analyst

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