MICRON TECHNOLOGY INC Q4 FY2026 earnings call

• Financial Excellence: Fiscal 2026 closed with record revenue of $133.2 billion, an 81.1% gross margin, and EPS of $75.52. Fiscal Q4 exceeded the high end of guidance across revenue, gross margin, and EPS.
• AI-Driven Demand: AI is becoming 'super intelligence,' enhancing platform value through memory capacity. Micron leverages technology leadership (1 Gamma DRAM, G9 NAND) and advanced packaging to meet complex AI demands.
• Supply Chain Tightness: Supply-demand conditions are expected to be much tighter in fiscal 2027 and 2028 than in 2026. The industry does not have a line of sight to when supply and demand will balance.
• Strategic Customer Agreements (SCAs): 26 SCAs signed, covering over 35% of estimated revenue through 2030. Financial commitments increased to $32 billion, mostly cash deposits. Customers are requesting supply beyond 2030, with agreements extending into 2031.
• Manufacturing Expansion: Investing in US-based supply assurance (Virginia, Idaho, New York fabs). Japan DRAM fab groundbreaking held; Singapore HPM packaging ahead of plan; Tongluo facility shipments expected mid-2027.
• Product Leadership: HBM revenue grew faster than total company revenue in Q4. Agreements for vast majority of calendar 2027 HBM bid supply completed with significant price increases. Working with NVIDIA on custom HBM4E (NVHBM).
• Data Center SSD Strength: Data Center SSD revenue nearly $10 billion in Q4 (>10x YoY), representing >2/3 of NAND revenue. On track for fifth consecutive year of record market share.
• Physical AI Opportunity: Autonomous vehicles and humanoid robots require substantial memory/storage (>200GB DRAM, multiple TB storage per vehicle). Micron is increasing investments to capitalize on this growth by end of decade.
• Leadership Appointments: Manish Bhatia appointed President and COO; Scott DeBoer appointed President and Chief Technology and Products Officer.

DRAM Revenue: $39.8 billion (73% of total revenue), up 343% year-over-year and 27% sequentially. NAND Revenue: $14.1 billion (26% of total revenue), up 526% year-over-year and 42% sequentially. Cloud Memory Business Unit (CMBU) Revenue: $16.3 billion (30% of total revenue). Core Data Center Business Unit (CDBU) Revenue: $18.0 billion (33% of total revenue). Mobile and Client Business Unit (MCBU) Revenue: $13.1 billion (24% of total revenue). Automotive and Embedded Business Unit (AEBU) Revenue: $6.8 billion (13% of total revenue). Consolidated Gross Margin for Q4 was 87%.

• Fiscal Q1 FY2027: Expected revenue of $61.5 billion (+/- $1.5 billion). Gross margin approx. 86.25%. Operating expenses approx. $2.06 billion. EPS approx. $38.15 (+/- $1.00).
• Fiscal 2027 Outlook: Expects another record year with sequential revenue growth each quarter. Fiscal Q1 is anticipated to be the floor for gross margins in FY2027 due to absorption of higher incentive compensation costs from FY2026 into inventory. Margins expected to improve in subsequent quarters.
• Capex Guidance: Projected Capex for Fiscal Q1 around $11.5 billion. First half of Fiscal 2027 Capex approx. $25 billion, with higher spending in the second half. Mix shifting toward construction CapEx vs. equipment CapEx.
• Tax Rate: Expected effective tax rate of approx. 15.5% for Fiscal Q1 and full Fiscal 2027.

• Supply-Demand Imbalance: Structural gap between DRAM supply and demand growth rates results in ongoing tightness. Clean room additions are required but take time to ramp.
• Inventory Costs: Higher incentive compensation absorbed into inventories in Q4 impacts Q1 gross margins.
• Execution Risks: Ramp-up of new fabrication facilities (e.g., Virginia, Singapore) takes time and may face delays or yield challenges.
• Market Volatility: While current outlook is strong, the semiconductor industry historically experiences volatility; however, SCAs provide durability and predictability.

Q: Timothy Arcuri (UBS) asked about capital return milestones given Micron's massive cash balance ($73.5B) and free cash flow strength. / A: CFO Mark Murphy stated that while near-term FCF will exceed $33B (reported in Q4), they aim to reach a target cash level by end of Q1. They intend to increase capital returns (primarily share repurchases) starting December 9, 2026, consistent with CHIPS agreement anniversaries. Current authorization is $2.2B, with plans to seek additional approval soon. Regarding capital intensity, Murphy noted it is at historic lows due to memory's strategic asset status, but they remain disciplined in adding capacity for adequate returns.

Q: CJ Muse (Cantor Fitzgerald) asked about the impact of higher ASP inventory on Q1 gross margins and the growth trajectory/pricing of HBM. / A: Murphy explained that roughly $1B in higher cost inventory from Q4 incentive compensation impacts Q1 margins, creating a headwind. However, structural profitability remains strong. CEO Sanjay Mehrotra added that HBM pricing for 2027 is significantly higher than 2026, narrowing the margin gap with conventional DRAM. HBM is outgrowing industry DRAM demand, with strong momentum in HBM3E, HBM4, and future HBM4E products.

Q: Vivek Arya (Bank of America) questioned why Micron wouldn't return more cash if generating $100B+ in FCF from Q2-Q4, and Sanjay addressed concerns about pricing peaks and customer despecking. / A: Murphy reiterated intent to increase capital returns from Dec 9, citing durable FCF strength. Sanjay argued that supply-demand tightness will persist into 2028 due to long cleanroom build times and node transition trade ratios. He dismissed fears of despecking reducing overall memory needs, noting that optimizations allow customers to ship more units, driving server growth. He emphasized that >75% of 2027 output is already committed, including non-SCA POs, indicating robust demand visibility.

Q: Krish Sankar (TD Cowan) asked if HBM despecking would reallocate wafers to DDR, increasing supply, and if equipment constraints limit Capex. / A: Sanjay stated that latent demand for memory remains strong due to AI model complexity; customer optimizations do not reduce the fundamental need for more memory. Regarding Capex, Murphy clarified that the shift to construction-heavy Capex is driven by the strong supply-demand imbalance and lead times for greenfield capacity, not equipment shortages. They will equip fabs as appropriate based on current views.

Q: Harlan Sir (JPMorgan) asked about future SCA coverage percentage and R&D/CapEx focus in NAND relative to competitors. / A: Sanjay clarified that while >75% of 2027 output is committed (SCA + non-SCA), long-term SCA coverage objective remains around 50% of revenue through 2030 to maintain flexibility. On NAND, he highlighted strong execution in Data Center SSDs (record market share, $10B Q4 revenue). Investments continue in R&D and manufacturing (Singapore fab) to support G9 NAND tech transitions and capture AI-driven storage opportunities like KV cache offload.