Micron Technology holds a post-earnings analyst call discussing market demand, supply, trends, and drivers, as well as expected results and guidance, with forward-looking statements subject to risks and uncertainties.

The dialogue discusses the impact of non-mix pricing and lower shipments on Micron's gross margins, with a focus on the company's DRAM pricing trends and the significant increase in its enterprise and data center SSD market share. Micron highlights its robust data center revenue trajectory, driven by growth in APM and data center SSD shipments, despite near-term market challenges. The company expects sequential reacceleration in data center SSD business in fiscal Q3 and throughout 2025, attributing this to strong AI demand and its industry-leading product portfolio.

The discussion highlights concerns over the impact of underload charges and challenging market conditions on gross margins, estimating a close to Ed basis points effect. Positive drivers, including growth in the data center sector, higher margin product mixes, and volume growth, are expected to support margin expansion beyond the third quarter. Additionally, the conversation touches on the company's position in the LPDDR 5x and data center opportunities, emphasizing their pioneering role in memory supply for data centers.

Micron is leading the market for LP in data centers worldwide, driving significant innovations for reliability, availability, and serviceability in DDR5. The company's partnerships and advancements in high-capacity DIMMs and HBM contribute to a multi-billion-dollar opportunity, reflecting over 50% of its revenue from the data center segment.

The delay in the anticipated PC refresh cycle and higher-than-expected customer inventories have led to a cautious near-term outlook. Despite the delay, the refresh cycle is expected to occur, driven by the need to upgrade aging PCs and future-proof hardware specs. Calendar 2024 PC shipment forecasts have been adjusted to show flattish year-over-year growth due to inventory adjustments and seasonality. Data center SSD demand has also moderated temporarily, impacting the outlook. However, the data center segment's revenue trajectory remains solid through fiscal 2025. By springtime, inventories are expected to improve, allowing for resumed shipment growth in the second half of the fiscal year.

The company clarifies that the majority of the revenue decline in Q2 is due to a meaningful decrease in NAND demand, with DRAM bits also expected to be down. Consumer-oriented segments are driving the DRAM decline, while data center segments remain strong. Improvement is anticipated post-Q2, with sequential increases in volume for both DRAM and NAND starting in Q3.

The speaker discusses the trade ratio between HBM and conventional DRAM as yields mature, indicating that growing HBM share will affect conventional DRAM wafer starts. They aim to maintain DRAM bit share during the transition and expect overall DRAM bit growth to align with industry demand. On the CapEx side, the query is about the split between HBM and conventional DRAM investments.

The largest portion of the fiscal year's CapEx is dedicated to HBM, encompassing front-end fabs, assembly, testing processes, and clean room capabilities. Additional focuses include facilities, construction, backend investments in India, and reduced spending on J NAND.

The company discusses decisive actions to align supply growth with demand in the NAND market, avoiding speculation on competitors' strategies. On the DRAM side, despite a significant shift towards DDR5 and HBM products, a portion of production remains dedicated to DDR4 and LP4 for long-life cycle segments like industrial and automotive. The focus is on leading-edge products due to node constraints, with a strong commitment to increasing Hpm production and maintaining natural market share by the second half of calendar 25.

The speaker confirms a significant sequential decline in the NAND market, possibly exceeding expectations. They also inquire about the impact of high inventory levels on revenue decline and seek quantification of inventory reduction progress, suggesting most of the reduction is anticipated in the second quarter.

The company experienced a sequential decline in consumer-facing business, leading to increased inventory levels. However, inventory is expected to decrease through the year due to data center SSD volume growth, a refresh cycle, and content-driven growth in consumer markets. Despite current inventory levels being above target, there's confidence in demand and inventory consumption improving by the spring.

Industry bit supply and demand for DRAM are projected to grow in the mid-teens, with volumes down in the second quarter but expected to align with industry trends annually. For NAND, growth is forecasted in the low double digits. The company anticipates maintaining a relatively stable bit share in both DRAM and NAND across calendar years 2024 and 2025, aiming to ship in line with demand growth for both technologies.

The speaker explains that agreements regarding HBM bits and cubes specify quarterly purchases and pricing, with customers able to cancel before firm purchase orders are placed due to lengthy lead times. Customers have consistently placed firm orders, boosting confidence in a strong ramp ahead.

The company discusses its robust ramp strategy for High-Bandwidth Memory (HBM) revenue, aiming to match its DRAM supply share in the calendar second half. Despite not disclosing exact HBM revenue figures, it outlines expectations for significant growth, driven by capacity expansion, process scalability, and transitioning production to new facilities. Constraints include space and TSV capacity, with capacity increases expected to align with the Taiwan facility's progress. The focus is on gradual capacity addition through new equipment installation and qualification throughout the fiscal and calendar years.