Micron Technology (MU) Q1 2025 Earnings Call Transcript

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Micron Technology (MU -4.33%)
Q1 2025 Earnings Call
Dec 18, 2024, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for standing by, and welcome to Micron Technology’s fiscal first quarter 2025 monetary convention name. At this time all members are in listen-only mode. After the audio system’ presentation, there can be a question-and-answer session. [Operator instructions] As a reminder, right this moment’s program is being recorded.

And now, I’d prefer to introduce your host for right this moment’s program, Satya Kumar, company vp, investor relations and treasury. Please go forward, sir.

Satya Kumar — Corporate Vice President, Investor Relations and Treasury

Thank you, and welcome to Micron Technology’s fiscal first quarter 2025 monetary convention name. On the decision with me right this moment are Sanjay Mehrotra, our president and CEO; and Mark Murphy, our CFO. Today’s name is being webcast from our Investor Relations web site at buyers.micron.com, together with audio and slides. In addition, the press launch detailing our quarterly outcomes has been posted on the web site, together with the ready remarks for this name.

Today’s dialogue of monetary outcomes is introduced on a non-GAAP monetary foundation except in any other case specified. A reconciliation of the GAAP to non-GAAP monetary measures might be discovered on our web site. We encourage you to go to our web site at micron.com all through the quarter for essentially the most present data on the corporate, together with data on monetary conferences that we could also be attending. You also can observe us on X @MicronTech.

As a reminder, the issues we’re discussing right this moment embody forward-looking statements concerning market demand and provide; market, pricing, and price discount developments and drivers; our plans for manufacturing; the influence of growing applied sciences corresponding 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 right this moment. We refer you to the paperwork we filed with the SEC, together with our Form 10-Okay, Forms 10-Q, and different experiences and filings, for a dialogue of dangers that will have an effect on our future outcomes. Although we consider that the expectations mirrored within the forward-looking statements are affordable, we can’t assure future outcomes, ranges of exercise, efficiency, or achievements.

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

Sanjay Mehrotra — President and Chief Executive Officer

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

We delivered document income in knowledge heart SSDs and achieved new data in market share for knowledge heart SSDs and general SSDs. Our HBM shipments have been forward of plan, and we achieved greater than a sequential doubling of HBM income. Revenue from our largest knowledge heart buyer was roughly 13% of whole firm income. The HBM market will exhibit strong progress over the following few years.

In 2028, we anticipate the HBM TAM to develop 4 instances from the $16 billion stage in 2024 and to exceed $100 billion by 2030. Our TAM forecast for HBM in 2030 could be greater than the dimensions of your complete DRAM {industry}, together with HBM, in calendar 2024. This HBM progress can be transformational for Micron, and we’re enthusiastic about our {industry} management on this vital product class. Leading-edge DRAM provide stays tight, pushed by strong demand in knowledge heart DRAM, together with HBM, which is able to 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 influence fiscal Q2 bit shipments. We at the moment are seeing a extra pronounced influence of buyer stock reductions. As a consequence, our fiscal Q2 bit cargo outlook is weaker than we beforehand anticipated. We anticipate this adjustment interval to be comparatively temporary and anticipate buyer inventories reaching more healthy ranges by spring, enabling stronger bit shipments within the second half of fiscal and calendar 2025.

We are on monitor to realize our HBM targets and likewise ship a considerable document in Micron income, considerably improved profitability, and constructive free money circulate in fiscal 2025. Our expertise street map continues to progress very nicely, 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 making 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 step with our demand.

We anticipate fiscal 2025 DRAM front-end value reductions, excluding HBM, to be within the mid- to excessive single-digit proportion vary. We anticipate 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. Department 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.

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

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

AI brokers will develop into ever extra succesful and handle vertical market client and enterprise use instances, driving accelerating monetization of AI. Micron is very well-positioned to leverage this long-term progress alternative, which has the potential to rework the dynamics of our enterprise. We have upgraded our view of server unit proportion progress and now anticipate it to achieve low teenagers in calendar 2024, fueled by sturdy AI demand in addition to a sturdy conventional server refresh cycle. And we anticipate server unit progress to proceed in 2025.

Micron achieved new data in each whole knowledge heart income and the income combine for knowledge heart 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 strong demand and stays on monitor to generate a number of billions of {dollars} in income in fiscal 2025. We made glorious progress on HBM, greater than doubling our income sequentially throughout the quarter and exceeding our plans on account of strong 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 are 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 clients 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% increased reminiscence capability and industry-leading efficiency.

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

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

We anticipate this customization functionality to drive improved monetary efficiency for Micron. Based on our buyer design wins and success in establishing deep partnerships with clients, {industry} enablers, and key expertise companions like TSMC, we anticipate to be a number one provider of HBM with essentially the most strong, trusted, and industry-leading expertise street map and execution document. Micron has additionally been main the adoption of LP DRAM in knowledge facilities with NVIDIA’s Grace CPU. Micron’s LP5X gives larger than 500 gigabyte of capability and reminiscence bandwidth of larger than 540 gigabyte per second, thus delivering enticing efficiency per watt for AI platforms.

NVIDIA’s Grace CPU makes use of Micron’s LP5X to offer techniques with extra cache coherent reminiscence to complement HBM for the ever-growing reminiscence wants of AI workloads. Our general SSD and knowledge heart SSD income reached new quarterly income data in fiscal Q1, and we’re on monitor to ship one other yr of share positive aspects in calendar 2024. We proceed to strengthen our knowledge heart SSD product street 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.

Compared to the competitors, Micron’s 6550 ION SSD delivers 20% decrease energy whereas offering 60% higher efficiency and higher knowledge heart footprint effectivity with as much as 67% extra density per rack for exascale knowledge facilities. Our 9550 PCIe Gen5 knowledge heart SSDs have been certified for the really helpful vendor listing for NVIDIA’s GB200 NVL72 system and supply a 34% increased throughput and over 80% decrease power per terabyte of knowledge switch versus the competitors. We proceed to anticipate to generate a number of billions of {dollars} in knowledge heart 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 steadily, and we anticipate PC unit quantity progress to be flattish in calendar 2024, barely under 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. Windows 10 finish of life in October 2025 and an getting old put in base will present a catalyst for PC market progress in 2025.

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

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

Turning to the automotive market. Lower-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 progress and resulted in stock changes at OEMs. Longer time period, we stay optimistic that ADAS, infotainment, and AI adoption throughout auto will drive long-term reminiscence and storage content material progress. Industrial market demand continues to be impacted by stock changes, and we anticipate a restoration on this market later in calendar 2025.

Now, turning to our market outlook. We anticipate {industry} DRAM bit demand progress 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 consistent with bit demand, with tightness in modern nodes pushed by HBM provide ramp within the {industry}. Our outlook for {industry} NAND bit demand progress in each calendar 2024 and 2025 is now within the low double-digit proportion vary, which is decrease than our prior expectations.

Key drivers embody slower progress in NAND content material in client gadgets, ongoing stock changes and demand dynamics in several finish markets, as outlined earlier, and a brief moderation in near-term knowledge heart SSD purchases by clients after a number of quarters of very fast progress. In knowledge heart, we stay captivated with long-term demand progress as NAND is a key enabler for AI workloads, offering quicker knowledge entry, decrease energy, and higher general whole value of possession important for AI infrastructure. In the following few years, we additionally anticipate high-capacity NAND SSDs to start out displacing capability HDDs within the knowledge heart, an inflection that may drive long-term NAND demand progress. The decline in 2024 and 2025 {industry} NAND demand progress outlook implies that offer actions can be essential to realize stability.

As talked about beforehand, since NAND expertise transitions present a major improve in general bit output, the tempo of expertise transitions may even must gradual with a view to align provide to {industry} demand. Micron is decisively taking actions to align our NAND provide with {industry} demand developments. We have diminished NAND capex versus prior plan and have slowed the tempo of expertise node transitions. In addition, we’re decreasing NAND wafer begins by a mid-teens proportion versus prior ranges.

These actions will align our provide to present market demand. Consistent with analyst experiences, we have now 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 experiences 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. Competition from China provide is targeted on China market demand: in DRAM with DDR4 and LP4 merchandise; and in NAND with client, shopper, and lower-performance cellular merchandise.

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

Mark Murphy — Executive Vice President, Chief Financial Officer

Thank you, 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. Total fiscal Q1 income was roughly $8.7 billion, up 12% sequentially and up 84% yr over yr, and reached a brand new document. Fiscal Q1 DRAM income was $6.4 billion, up 87% yr over yr, and represented 73% of whole 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. Strong sequential bit cargo progress in DRAM was pushed by demand in knowledge heart. Fiscal Q1 NAND income was $2.2 billion, up 82% yr over yr, and represented 26% of Micron’s whole income. Sequentially, NAND income decreased 5%, with bit shipments and costs each lowering within the low single-digit proportion vary.

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

As our cellular clients centered on enhancing their stock well being, we shifted provide to fulfill knowledge heart demand. Embedded Business Unit income was $1.1 billion, down 10% sequentially. Auto, industrial, and client clients proceed to handle their inventories decrease. Revenue for the Storage Business Unit was $1.7 billion, up 3% sequentially.

SBU income reached a brand new quarterly document, pushed by document income within the knowledge heart SSD section. In fiscal 2025, we anticipate 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 means of distributors, to be roughly mid-teens % of our worldwide income. This combine is impacted by market components described earlier in addition to by the China CAC actions introduced in May 2023. The consolidated gross margin for fiscal Q1 was 39.5%, enhancing 300 foundation factors sequentially.

Gross margin enchancment was pushed by increased pricing in DRAM, improved product combine to knowledge heart in each DRAM and NAND, offset partly by decrease pricing in NAND. Operating 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 earnings 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 fee of 14.1%, which was consistent 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 increased 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 circulate 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 whole 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 anticipate DRAM bit shipments to say no sequentially and anticipate a significant sequential decline in NAND bit shipments for causes talked about beforehand which can be impacting near-term demand. We mission our bit shipments to renew progress after fiscal Q2 and anticipate second half fiscal yr bit shipments to be stronger than the primary half.

We anticipate fiscal Q2 gross margins to be impacted by NAND {industry} circumstances, partly offset by continued progress in HBM and knowledge heart DRAM. In addition to those components, we anticipate 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 anticipate fiscal 2025 opex to extend by a low to mid-teens %, under our prior mid-teens plan.

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

For fiscal Q2 and the rest of fiscal 2025, we estimate our non-GAAP tax fee to be within the mid-teens % vary. We anticipate our fiscal 2026 tax fee 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 is able to assist us assist HBM and long-term DRAM demand.

We have minimize our NAND capex and are prudently managing the tempo of our NAND expertise node ramps to handle our provide. We anticipate 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 components in thoughts, our non-GAAP steering for fiscal Q2 is as follows: we anticipate 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 anticipate the fiscal Q2 tax fee to be within the mid-teens % vary. Based on a share rely of roughly 1.14 billion shares, we anticipate 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 are 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 take care of provide self-discipline. We anticipate to ship a considerable income document, considerably improved profitability, and constructive free money circulate in fiscal 2025. I’ll now flip it again over to Sanjay.

Sanjay Mehrotra — President and Chief Executive Officer

Thank you, 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 have now already considerably exceeded that objective, 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 vital product classes in our {industry} whereas sustaining general secure bit share in each DRAM and NAND.

Thank you for becoming a member of us right this moment. We will now open for questions.

Questions & Answers:

Operator

Certainly. And our first query for right this moment comes from the road of C.J. Muse from Cantor Fitzgerald. Your query, please.

C.J. Muse — Analyst

Yeah. Good afternoon. Thank you for taking the query. I assume first query, may you converse to what offers you the arrogance that we’ll see a May quarter sort 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 fascinated with for every could be very useful.

Sanjay Mehrotra — President and Chief Executive Officer

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

And sure, we consider that buyer inventories within the consumer-oriented markets will enhance within the spring time-frame. Keep in thoughts that the sell-through that is taking place in these consumer-oriented markets like smartphone and PCs is OK. It’s extra that they’ve constructed stock and due to this fact, their purchases are lower than their sell-through. And we noticed that their inventories improved in CQ4, and we anticipate them to enhance additional in CQ1 time-frame.

So, by spring time-frame, we anticipate the inventories to — at clients within the consumer-oriented markets to enhance, and that is what’s going to drive cargo progress within the fiscal second half for us. And in fact, knowledge heart SSD as nicely, we anticipate, it tends to be that a part of the market, knowledge heart storage can generally be lumpy, and we anticipate the information heart storage demand, given the information heart build-out that’s taking place, continues to be taking place, pushed by AI demand progress may even return towards progress within the fiscal second half. That’s why we mentioned fiscal second half stronger than the fiscal first half.

C.J. Muse — Analyst

Very useful. And then a fast query to Mark. Can you assist us with a bit of extra granularity when it comes to the influence from NAND underloadings into the present information in addition to whether or not there’s an influence past that? And then for all of calendar ’25, is there a framework for fascinated with the tailwind from rising HBM combine within the revenues? Thank you.

Mark Murphy — Executive Vice President, Chief Financial Officer

Sure, 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 circumstances are weak, weaker than we had anticipated.

And that client market, PC, smartphones, demand is weaker, and stock changes are occurring. Secondly, NAND knowledge heart 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. Of course, with income down within the information $800 million, we see some unfavorable leverage results on ongoing interval prices, however these prices don’t embody 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 circumstances into the calendar first quarter after which improves by means of the calendar yr, our provide response in NAND will weigh on third-quarter margins, and it’ll considerably constrain our capacity to broaden gross margins within the third quarter.

Now, past the third quarter, the enterprise quantity progress, AI-driven knowledge heart, and edge-driven progress, 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 have now tight inventories on the forefront and have indicated that we principally have been under our goal in inventories by finish of yr. So, we see the circumstances for margin enlargement occurring after third quarter.

C.J. Muse — Analyst

Thank you.

Operator

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

Timothy Arcuri — Analyst

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

So, if I take the $14 billion which was a bit of higher than what folks thought, I believe most individuals have been considering $13.5 billion. So, you truly 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’m not asking you to information the fiscal yr, however I’m simply asking you to offer some type of magnitude for just like the fiscal again half versus the fiscal entrance half.

Sanjay Mehrotra — President and Chief Executive Officer

So, let me simply reply the fiscal second half. And in fact, the drivers of progress, there could be improved stock in consumer-oriented markets, knowledge heart SSD demand resuming, and naturally, HBM, continued momentum in HBM. We are enthusiastic about our product place there. And we have now indicated to you that within the second half of the calendar yr, we goal reaching our HBM share to be consistent with DRAM share.

And we’re executing very nicely on the HBM momentum. So, HBM can be, in fact, persevering with to drive our income progress as you look forward to the second half of the yr. And then simply needless to say we have now mentioned smartphone and PC items. We have offered you colour within the script on these in calendar yr 2025 as nicely.

And there can be rising penetration of AI smartphone and PC items, which are inclined to have increased DRAM content material as nicely. So, all of those components will contribute primarily AI from knowledge heart to edge, client stock changes, getting previous the seasonality of CQ1, all of those would be the components 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 nicely. And Mark, you’ll be able to touch upon the capex.

Mark Murphy — Executive Vice President, Chief Financial Officer

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

Timothy Arcuri — Analyst

Got it, Mark. OK. Thank you. And then I need to ask on the share repo.

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

Mark Murphy — Executive Vice President, Chief Financial Officer

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

We are in a position to repurchase shares. During the primary two years, we’re in a position to repurchase shares to assist offset inventory comp shareholder dilution. And then in Years 3 by means of 5, we’re unrestricted as sure monetary and different circumstances are met. And we predict these circumstances 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 manner. So, we predict that we have no significant constraints underneath the agreements.

Timothy Arcuri — Analyst

OK. Thank you.

Operator

Thank you. And our subsequent query comes from the road of Vivek Arya from Bank of America Securities. Your query, please.

Vivek Arya — Analyst

Thanks for taking my query. So, Sanjay, you upgraded the HBM TAM by, I believe, about 20% or so. What has modified to extend that estimate? And I believe you sort of saved your goal share to be the identical as earlier than, though I believe you sort of shifted it extra to the second half. But what’s the bottleneck? Why cannot your share get to the goal stage earlier? Is it only a matter of rolling out in several merchandise? So simply what modified the TAM estimate? And then what’s inflicting the change so that you can get to your goal extra within the second half relatively than I believe you mentioned someday in ’25 earlier than?

Sanjay Mehrotra — President and Chief Executive Officer

So, we proceed to work carefully with our clients to evaluate the market necessities, and we offer you updates. And we, once in a while, replace our outlook. And primarily based on our newest estimates with our clients and, in fact, all of the build-out associated to AI knowledge facilities and the super alternative, and it’s — we have now 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 needless to say HBM simply continues to be nonetheless in tight provide in calendar yr 2025. And concerning our personal momentum, we have now 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.

Of course, HBM ramp-up, simply bear in mind, it was not way back. It was FQ3 of ’24 after we had indicated that we have now over $100 million of income in HBM. We are — our crew 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 nicely, 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 have mentioned that we anticipate to achieve a number of billions of {dollars} of income within the coming yr, in 2025. So, an incredible alternative. And we, in fact, proceed to look ahead to constructing the momentum of our street map from thereon.

completely seize the alternatives. We consider 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, in fact, seize the alternatives and stay disciplined with respect to our investments as nicely.

Vivek Arya — Analyst

Got it. And for my follow-up, Mark, only a few 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 among the tailwinds you are seeing in HBM, proper, offsetting among the unit influence? So, if there’s a strategy to quantify how a lot raise is HBM offering? And then the opposite factor I simply needed to make clear.

Did you say Q3 gross margins increased than Q2 gross margin regardless of that NAND headwind? I simply needed to make clear that. So, simply how a lot raise from HBM? And then is Q3 increased than Q2 from what you mentioned earlier than? Thank you.

Mark Murphy — Executive Vice President, Chief Financial Officer

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

And then what I discussed earlier to C.J.’s query was, whereas we proceed to have these DRAM constructive combine results, we’re — it can take a while and nicely into this calendar first quarter for the NAND market circumstances to start to enhance. And then we, in fact, begin to see knowledge heart SSD progress beginning once more, quantity progress within the third quarter. And then the — however circumstances there’ll nonetheless be weak. And then the availability response prices will weigh on third-quarter margins and can constrain our capacity to broaden margins in third quarter.

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

Vivek Arya — Analyst

Thank you.

Operator

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

Joe Moore — Analyst

Great. Thank you. My query was additionally on HBM. I assume how do you consider market share there over the long run? Should 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 in a position to extract? Or does the main focus proceed to be extra on provide?

Sanjay Mehrotra — President and Chief Executive Officer

So, with respect to HBM share, I imply, we’re extraordinarily centered on reaching our share to be consistent 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 have now obtained on that product. We have highlighted that we have now already begun shipments to a second-large HBM clients. And I additionally mentioned that in CQ1, we can be including a 3rd giant buyer for HBM as nicely.

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

And in fact, past 2025, leverage our momentum with product management with HBM4 and 4E as nicely. I’m not specifying our share at this level for future targets. But in fact, we’ll — we’re extraordinarily centered on persevering with to shift the combo of our product portfolio — general product portfolio towards increased 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 can be associated to that as nicely.

Joe Moore — Analyst

Great. Thank you very a lot.

Operator

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

Krish Sankar — Analyst

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

So, simplistically, ought to we assume three months in the past, in case 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 appropriate math to consider for Micron’s HBM revenues in someday in second half of calendar ’25?

Sanjay Mehrotra — President and Chief Executive Officer

We should not 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 are going to — we’re nicely on our strategy to reaching our goal of shares to line up with {industry} DRAM share as nicely. I’m not going by means of the specificity on our income numbers. But once more, I can let you know that that is, in fact, a giant a part of our progress.

And we’re excited in regards to the long-term HBM potential as nicely. 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 instances of what it’s in 2024. And with a robust roadmap of merchandise that’s forward of us, we, in fact, 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 increased worth, it brings increased ASPs. So, this positions us very nicely towards our goal of continuous to shift towards increased revenue pool of the {industry}.

Krish Sankar — Analyst

Got it. Very useful. And then a fast follow-up, Sanjay. You’re at HBM3E 8-high, so if you go to 12-high, the commerce ratio will increase.

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

Sanjay Mehrotra — President and Chief Executive Officer

We have shared earlier than that HBM3E has a commerce ratio of roughly three. And HBM4, we have now mentioned earlier than, may have the next commerce ratio. And in fact, these commerce ratio issues apply to your complete HBM {industry}. And after we go from 8-high to 12-high, you’ll be able to actually anticipate that given the elevated complexity of the product, that may have, 12-high may have its personal actually yield ramp, however the learnings of 8-high will definitely be a profit, benefiting us going ahead as nicely.

And our crew has completed an excellent job in ramping up merchandise. So, I’m fairly positive that as we go from 8-high to 12-high, our crew will do a very good job in ramping up the yields on 12-high as nicely. And all of these components, in fact, play a job in general HBM goals that we have now forward of us. And simply needless to say the worth of HBM completely continues to develop.

As we go from 8-high to 12-high, in fact, that provides our clients a possibility to connect extra content material to their GPUs, to their accelerators simply by the sheer improve within the capability inside every dice, 50% improve 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 nicely.

Krish Sankar — Analyst

Thank you, Sanjay. Very useful.

Operator

Thank you. 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 greater 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 nicely? And then as a portion of that, you mentioned that high-end DRAM and HBM or modern DRAM and HBM are doing nicely. Can you simply outline what forefront 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 Executive 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. As the HBM necessities improve, that places much more strain on non-HBM, places extra strain on the modern provide.

So, we see modern outlook remaining tight and favorable demand-supply setting. And general DRAM {industry}, we anticipate to be wholesome. Keep in thoughts that we have now pointed to not solely a number of billions of {dollars} of income in ’25 with — in our fiscal ’25 with HBM but additionally to a number of billion — we have now pointed to a number of billions of {dollars} of income with high-density DIMMs and LP5 options. And simply needless to say these are additionally essential merchandise for the AI functions.

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

Mark Murphy — Executive Vice President, Chief Financial Officer

Yeah. Chris, I’d 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 whole to be under our goal ranges.

Christopher Danely — Analyst

Got it. OK. And then simply — OK. Thanks, Mark.

And then 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 what you are promoting?

Sanjay Mehrotra — President and Chief Executive Officer

Look, I imply, in fact, our provide combine is, in fact, shifting towards extra of the merchandise which can be wanted within the market, and we’re continually managing our provide shift. And our manufacturing is extra towards forefront whereas remaining disciplined with our capex and with our provide progress.

Christopher Danely — Analyst

Got it. Thanks, guys.

Operator

Thank you. And our last query for right this moment comes from the road of Toshiya Hari from Goldman Sachs. Your query, please.

Toshiya Hari — Analyst

Great. Thank you a lot for taking the query. I had two as nicely. The first one is on China competitors.

Sanjay, you talked about LP4 and DDR4 for the remainder of the fiscal yr is 10% of what you are promoting. 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 how do you plan to reply to that?

Sanjay Mehrotra — President and Chief Executive Officer

So, our product mixture of LP4 and DDR4, which we have now mentioned is about 10% for the rest of fiscal yr ’25 will, in fact, proceed to go down within the years forward as nicely. And that simply implies that the legacy node combine continues to go down within the years forward as nicely. 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 needless to say the markets are shifting increasingly towards increased efficiency merchandise. And increased efficiency merchandise, actually, if you have a look at the market transferring extra to the information heart market functions versus simply the buyer and the combo of knowledge heart continues to extend, that additionally requires extra high quality necessities. And the platforms proceed to maneuver quicker towards the necessities of superior nodes. So, these are all — if you have a look at that, I imply, those who have an extended monitor document 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 aspect of the enterprise and extra on the decrease finish, whereas the market is shifting increasingly towards the necessities of upper finish corresponding to in knowledge heart. And that is the place Micron is targeted with our expertise and with our superior product street 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 nicely.

Toshiya Hari — Analyst

Great. And then 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 have held for a really very long time. I’m simply curious in case you’ve seen something just lately that may drive an acceleration in that pattern.

You talked about NAND front-end value downs for you guys in fiscal ’25 being within the low teenagers. That appears fairly just like what your friends within the drive enterprise are doing. So, I’m simply curious if something has modified just lately as you consider that dynamic. Thank you.

Sanjay Mehrotra — President and Chief Executive Officer

Yeah. Of course, we proceed to work carefully with our clients, and it is actually in regards to the whole value of possession that SSDs present, and SSDs proceed to make sturdy progress in that regard. It’s in regards to the efficiency. It’s about, in fact, energy.

It’s in regards to the footprint, all of that. And in fact, 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 carefully with clients 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 knowledge heart SSDs pushed by AI. And all of these necessities of efficiency, energy, footprint will completely be required sooner or later knowledge 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

Thank you.

Operator

Thank you. This does conclude the question-and-answer session in addition to right this moment’s program. [Operator signoff]

Duration: 0 minutes

Call members:

Satya Kumar — Corporate Vice President, Investor Relations and Treasury

Sanjay Mehrotra — President and Chief Executive Officer

Mark Murphy — Executive Vice President, Chief Financial 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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