Micron has signed 16 offtake agreements with customers, securing a minimum guaranteed revenue of $100 billion over the next decade and receiving $18 billion in upfront cash deposits.

Article author, source: Invest Wall Street

The CEO stated that AI has elevated memory to the status of a "strategic asset," and the industry-wide shortage of memory supply is expected to persist beyond 2027. The memory demand per humanoid robot is ten times that of a conventional automobile, potentially triggering the next decade-long supercycle. With hundreds of billions of dollars in long-term "take-or-pay" contracts secured, memory supply shortages are projected to continue beyond 2027. Micron has already signed 16 exclusive long-term agreements, guaranteeing a minimum revenue of $100 billion over the next decade and securing $18 billion in upfront cash deposits.

I. Key Focus of the Conference Call

Micron Technology held its third-quarter fiscal year 2026 earnings call after market close on June 24, Eastern Time, with CEO Sanjay Mehrotra and CFO Mark Murphy in attendance. The key takeaways from this call can be summarized in the following six points:

Total revenue for the quarter reached $41.46 billion, up 73.8% sequentially and 346% year-over-year; non-GAAP gross margin was 83.2%, significantly exceeding the previous guidance ceiling of 81% and setting a new historical record for gross margin in the storage industry. Annualized revenue run rate for the data center business surpassed $100 billion. Operating cash flow and free cash flow both reached all-time highs.

The company's Q4 revenue guidance is $49–51 billion (midpoint: $50 billion), representing approximately a 20% sequential increase; non-GAAP gross margin guidance is 84%–86%; EPS guidance is $30–32. Management explicitly stated that the upper bound of Q4 revenue is not due to demand saturation, but rather constrained by existing wafer and packaging physical capacity. Additional HBM capacity will only be released upon the commissioning of new cleanrooms in fiscal year 2027.

The company announced it has signed 16 strategic customer agreements (SCAs), which are expected to "fundamentally transform our business model." These long-term contracts, spanning three to five years, lock in prices and capacity for all HBM production in 2026. The CEO explicitly stated that these agreements will "significantly enhance the durability and predictability of Micron's strong financial performance."

Management judgment: Industry demand continues to significantly outstrip supply, and the shortage is expected to persist beyond the 2027 calendar year. Micron is currently able to meet only about 60% of the order demand from top AI customers. The company "cannot currently foresee when memory supply will catch up with growing demand."

The three major hard constraints limiting supply are repeatedly emphasized: HBM die sizes are large, hybrid bonding processes are complex, and the same wafer output yields only 35% of the bits compared to conventional DRAM; the benefits from advanced DRAM process node iterations are diminishing year over year; and the delivery cycles for cleanrooms, EUV tools, and advanced packaging equipment range from two to three years.

The full-year FY26 capital expenditure has been increased to $26 billion (up from $25 billion), with 70% allocated to EUV, TC bonding, and advanced packaging equipment, and 30% directed toward expansions of cleanrooms in Tonglu, Taiwan; Boise, USA; and Singapore. Additional capital expenditures related to cleanroom expansions in FY27 will increase by a further $11 billion on top of the FY26 level. Long-term volume commitments have been secured with ASML to lock in all required EUV equipment for 2026–2028.

Q1 (Is demand slowing?): Sanjay explicitly stated that the Q4 guidance of $50 billion is not due to weakening demand, but rather a hard physical capacity constraint. All HBM capacity for the full year 2026 has been locked in through long-term agreements with SCA. The unit price increases for standard DRAM and NAND are limited and insufficient to bridge the revenue gap created by overly optimistic institutional expectations.

Q2 (Will expansion lead to overcapacity by 2028?): Three hedging measures: ① All newly built capacity has pre-locked customers through long-term agreements; ② AI computing demand is growing exponentially, with new capacity fully aligned with future demand; ③ Samsung and SK Hynix are simultaneously exercising rational production control, avoiding a repeat of past unchecked expansion cycles.

Q3 (Competitive Landscape): SK Hynix proactively reduced HBM wafer allocations to shift production toward standard DRAM, while Samsung's HBM packaging capacity is constrained, leading to extended delivery times. Micron is currently not aggressively pursuing market share through price cuts, prioritizing the maintenance of a gross margin above 80%.

II. In-Depth Analysis: Key Signals Revealed in the Conference Call

The most significant signal from this meeting is not the performance figures themselves, but the execution of 16 SCA long-term agreements. The cyclicality of the traditional storage industry stems from sharp fluctuations in supply and demand—boom periods drive aggressive capacity expansion, while downturns lead to price collapses. By locking in prices and minimum production volumes over 3 to 5 years, the SCA long-term agreements fundamentally alter Micron’s earnings volatility.

This means Micron is transitioning from a "cyclical semiconductor company" to an "AI infrastructure platform." As management stated, "The storage industry has been fundamentally transformed by the rise of AI." The existence of long-term agreements enables the company to confidently pursue annual capital expenditures exceeding $26 billion without concern that capacity expansions will lack demand.

The Q4 revenue guidance of $50 billion significantly exceeds the market average expectation (approximately $43.2 billion), but falls short of some institutions' optimistic $60 billion forecast. This highlights Micron's core challenge: unlimited demand, limited supply.

Management has emphasized on multiple occasions that new capacity will not be released until fiscal year 2027. This means that before 2027, Micron’s revenue growth will be constrained by physical production capacity, not by demand-side issues. For investors, this is both a positive (supply rigidity supports pricing) and a negative (a visible near-term growth ceiling).

Previously, the market generally expected storage supply and demand to balance out by mid-2027. However, this meeting extended the period of shortage beyond the calendar year 2027, emphasizing that "supply improvements will be a gradual process until 2028."

This confidence stems from two factors: first, the exponential growth in memory bandwidth demand from AI large model training and inference; second, three key supply-side constraints—HBM process complexity, diminishing process advantages, and equipment delivery lead times—cannot be resolved in the short term.

SK Hynix has proactively reduced HBM wafer allocations and shifted production to standard DRAM, while Samsung's HBM packaging capacity remains constrained—these capacity limitations on two major competitors have given Micron a relatively favorable pricing environment in the high-end HBM market. The company has clearly stated, "At this stage, we are not actively pursuing market share through low pricing; our priority is maintaining a gross margin above 80%." This is a classic aggressive strategy prioritizing profit over market share.

CFO Mark Murphy clearly outlined the capital allocation priorities: ① expansion of production equipment and facilities; ② debt repayment; ③ consistent quarterly dividends. There are currently no plans for large-scale stock buybacks. This sequence clearly signals management’s focus—prioritizing capacity expansion to seize the historic opportunity in AI storage over short-term stock price management.

At the same time, the company continues to optimize its net cash structure, with low debt and strong cash flow supporting significant production expansion investments over the next three years. After proactively repaying long-term debt, long-term liabilities have been reduced from approximately $14 billion to $5.14 billion.

III. Summary

Micron's third-quarter fiscal year 2026 earnings call painted a clear picture:

Short-term (6–12 months): Q4 guidance of $50 billion in revenue, 86% gross margin, and $31 EPS; production capacity constraints imply high earnings visibility. Supply shortages are expected to persist at least until after 2027, providing strong price support.

Medium-term (1–3 years): Sixteen SCA long-term contracts have locked in revenue and profit floors for multiple years, shifting the business model from "cyclical speculation" to "long-term contract locking." The additional $11 billion in capital expenditures planned for FY27 will unlock new capacity, but a supply-demand gap is still expected to persist.

Long-term (over 3 years): Structural growth in AI-driven storage demand, generational advancement in HBM technology (HBM4 has already been delivered in bulk to NVIDIA’s Vera Rubin, with HBM4E expected to enter mass production in the first half of fiscal year 2027), and a full product portfolio shift toward high-margin AI segments form the three pillars of long-term growth.

Four, Investment Analysis

Positive factors

Risk factors

1. Further disclosure on SCA long-term agreements—16 agreements have been signed; future coverage and term details will be key variables in valuation reassessment.
2. Can the gross margin remain above 80%—Q4 guidance of 84%-86% is the most direct indicator of whether pricing power is weakening?
3. New production capacity ramp-up schedule — Capacity release timeline for the $11 billion in capital expenditures added in FY27
4. AI capital expenditure trends among hyperscale enterprises—the primary variable on the demand side
5. HBM4E Mass Production Progress — Achievement of Mass Production in the First Half of Fiscal Year 2027

Overall, Micron is at the heart of the AI storage supercycle, with improved profit predictability from long-term SCA contracts serving as the primary catalyst for its valuation re-rating. However, significant short-term constraints include a substantial stock price increase, persistently high capital expenditures, and the potential risk of concentrated capacity ramp-up in 2028.

Full transcript of Micron's third quarter fiscal year 2026 earnings call

Sanjay Mehrotra, President and Chief Executive Officer:

Micron delivered an outstanding performance in the third quarter of fiscal year 2023, setting significant records in revenue, gross margin, and earnings per share, all exceeding the upper end of our guidance. Our data center business revenue surpassed $25 billion in the third quarter of this fiscal year, with an annualized run rate exceeding $100 billion, underscoring Micron’s leadership position in the AI era.

Our data center SSG business revenue exceeded $5 billion, more than doubling quarter-over-quarter. Demand in the DRAM and NAND industries continues to significantly outstrip supply. We expect this tightness to persist beyond the 2027 calendar year due to AI-driven demand across all market segments, combined with structural supply constraints.

We are pleased to announce that we have now signed 16 strategic customer agreements (SCAs), which we expect will fundamentally transform our business model. The memory industry has undergone a structural transformation due to the adoption of AI. We are only at the early stage of the significant innovations and productivity gains that will gradually permeate every corner of the global economy.

Data center-driven growth will increasingly be complemented by AI capabilities in smartphones, high-end PCs, new consumer devices, and applications in automotive, industrial, and robotics sectors. The exciting possibilities brought by robots, humanoid robots, and fully autonomous vehicles signal a strong long-term demand environment for memory and storage. On the supply side, our customers recognize that shortages in memory and storage will take considerable time to improve. Even though we anticipate gradual industry supply improvements by 2028, we currently cannot foresee when memory supply will catch up with growing demand.

Supply growth in the memory industry depends on large-scale new construction and expansion projects for fabs. These projects are massive, complex, and time-consuming. Additionally, their pace is constrained by multiple factors, including long lead times for global fab construction, a shortage of workers with critical process skills, complex regulations including permitting, and the need for enhanced energy infrastructure.

Meanwhile, memory manufacturing technology—one of the most advanced and challenging technologies in the semiconductor field—has become increasingly complex with each new node introduction. This technological transition is causing wafer capacity growth to slow over time, significantly increasing demand for cleanroom space and new fabs. Additionally, the growth of HBM (High Bandwidth Memory) and the rising trade ratio (the proportion of wafer capacity consumed by HBM versus non-HBM products) in each new generation are further pressuring non-HBM supply.

In the NAND sector, industry suppliers have shifted cleanroom capacity from NAND to DRAM, and the overall limited availability of cleanroom space constrains NAND bit supply growth. Together, these factors mean that, despite our comprehensive efforts to increase supply, the growth of supply and its ability to meet industry demand are structurally limited.

AI systems are powered by GPU, ASIC, and CPU designs from an increasingly broad range of suppliers. However, they all share one critical commonality: the performance of AI systems is fundamentally dependent on the performance and capacity of the memory subsystem. This has led to the emergence of more complex memory hierarchies, creating greater differentiation opportunities for Micron than at any time in its history.

This also elevates memory’s role in the AI world to a strategic asset. Strong long-term demand growth, structurally constrained supply growth, and memory’s strategic importance have led customers to recognize that their product roadmaps depend on access to advanced memory technologies and reliable, long-term memory supply commitments.

Micron has long been an industry pioneer, and we have pioneered a new type of Strategic Customer Agreement (SCA) with exceptionally strong terms. We are pleased to announce that we have completed 16 SCAs with customers across the data center, consumer, and automotive markets. These SCAs are accelerating the transformation of our business model, strengthening partnerships in technology and innovation, and providing customers with contractually guaranteed supply. Typically, these agreements have a five-year term, spanning from the 2026 calendar year through the end of the 2030 calendar year. Agreements in the automotive sector are typically three years in duration. The 16 signed agreements represent approximately 20% of our DRAM sales and one-third of our NAND sales during this period.

These SCAs include four very large customers and three mid-sized customers. The remaining agreements involve smaller customers from the automotive industry, reflecting our commitment to this important sector. Upon completion, we expect approximately half or more of the company’s revenue to come from these SCAs, which serve customers across diverse end markets.

Customers value our U.S. supply agreements, as reflected in our SCAs. These SCAs are structured as take-or-pay contracts, containing binding commitments to purchase specified quantities over multi-year terms. The largest agreements typically set an upper price cap at the current second-quarter market price for existing products, along with a lower price floor during the agreement period. Several SCAs (accounting for a small portion of SCA-related revenue) include fixed prices or no price range, making their pricing subject to market conditions. Once all planned SCAs are executed, agreements with fixed prices or price caps at or near current second-quarter market levels are expected to account for approximately 40% of our revenue.

For SCA agreements that indeed include such price ranges, pricing is designed to remain within this lower-to-upper bound throughout the agreement period. This pricing visibility will help us better support our SCA customers across various market segments in managing their businesses and growing demand. For our SCA agreements with price ranges, the lower bound ensures Micron’s gross margin remains very strong, significantly exceeding the peak quarterly margins seen in any prior cycle.

We have signed 14 out of 16 SCA agreements, which, based on contracted minimum prices, represent approximately $100 billion in revenue over the remaining term of the agreements. These agreements also enhance our long-term financial performance, profit margins, and free cash flow expectations through greater visibility and improved business stability.

Based on the SCAs we have signed to date, we expect to receive $22 billion in cash collateral and related financial commitments. This further demonstrates customer commitment to this new business model. Mark will provide further details. Our SCAs with customers in data centers, consumer devices, automotive, and industrial applications have established a new paradigm for strengthening customer relationships. These agreements provide customers with committed supplies of DRAM (including appropriate HBM) and NAND over multi-year periods. This supply visibility is extremely valuable to customers during periods of severe shortage. This visibility enables our customers to leverage SCA-backed supply to advance their strategic plans, drive growth, and deliver benefits to their end consumers. We deeply appreciate our customers for partnering with us during this period of supply constraint, collaborating with strong mutual commitment to create long-term, win-win outcomes for the entire ecosystem and end consumers.

AI's insatiable demand for memory bandwidth, capacity, low latency, and low power is driving decisions around memory architecture selection, shifts in memory product portfolios, and manufacturing process technology—all of which are increasing the complexity of the industry’s memory and storage roadmaps. Micron is building on its technological leadership. Our One Gamma DRAM node and G9 NAND node are both ramping production smoothly and are on track to become the highest-volume nodes in Micron’s history. Development of our next-generation DRAM and NAND nodes is also progressing well, with volume production expected to begin in the second half of calendar year 2027. We are applying our leading DRAM and NAND nodes across our entire product portfolio. The production ramp of HBM4 12-layer high-bandwidth memory is twice as fast as that of HBM3E 12-layer, and our HBM4 revenue has already exceeded $1 billion. We expect HBM4 12-layer to reach mature yields significantly faster than HBM3E 12-layer. For additional highlights on our HBM, high-capacity DDR and server DRAM, data center SSDs, PC, smartphone, and automotive product portfolios, please refer to our earnings press release.

We expect future memory demand to continue shifting toward higher-performance, higher-value products, whose increased complexity results in higher cost per die. The transition from LP5 to LP6, DDR5 to DDR6, and to next-generation HBM is accompanied by rising die costs. This trend, combined with the ramp-up of large-scale new capacity over the coming years, is expected to increase the blended die cost of DRAM from current levels. Our customer SCA has positioned itself to negotiate appropriate price premiums for these new products in the future.

Turn to our end-market. AI is driving unprecedented growth in data centers, with industry-wide data center DRAM and NAND bit shipments expected to more than double over the next two years by 2026 calendar year. Agentive AI is structurally reshaping data center infrastructure, extending beyond accelerator-only racks to include CPU racks for agent control planes and program execution, as well as storage racks for rapidly scaling context memory. We now anticipate that industry server shipments in 2026 calendar year will grow by a high single-digit percentage, exceeding our previous low double-digit forecast, driven by single-digit growth in traditional servers and stronger growth in AI accelerator servers. We estimate that the upward revision in shipment growth expectations is partially offset by a modest decline in average DRAM content per server, as customers prioritize maximizing units shipped under extremely tight memory allocations. In the NAND space, AI context memory storage and HDD replacement opportunities are expanding the addressable market for SSDs.

Despite declining shipments in the PC and smartphone industries, revenue is expected to grow, reflecting resilient demand for high-end, premium devices within the endpoint category. Agent-based AI platforms like OpenClo enhance the value of edge devices by enabling better technological economics, improved privacy, lower latency, and more efficient AI orchestration between the cloud and edge. Over time, we expect the value of on-device AI, combined with suppressed upgrade demand, to drive growth in memory demand for PCs and smartphones.

In the automotive sector, ADAS (Advanced Driver Assistance Systems) remains a powerful driver of content growth. The memory and storage content in vehicles with L2+ and higher levels of automation (with progressively enhanced autonomous driving capabilities) average more than five times that of conventional vehicles. The share of L2+ and higher-level vehicles is expected to more than double this year, reaching over 20%, and is projected to exceed 40% by 2030. As the market mix shifts toward higher levels of autonomy (with higher content levels), average automotive memory and storage content is expected to continue increasing.

In the field of robotics, ongoing advancements in simulation, foundation models, and integrated hardware-software stacks are accelerating the development of physical AI. This is creating increasingly rich opportunities for high-bandwidth, low-power memory and storage that support real-time perception, reasoning, and control. Humanoid robots carry 10 times the memory capacity of typical L2+ level vehicles, and we anticipate the second half of this decade will mark the beginning of a sustained, large-scale, multi-decade cycle of memory demand.

Now let’s turn to our market outlook. We continue to expect tight supply and demand conditions for DRAM and NAND to persist beyond the 2027 calendar year. For DRAM, we anticipate industry DRAM bit shipments to grow in the low to mid-20% range for the 2026 calendar year, slightly above our prior forecast. For NAND, we expect industry NAND bit shipments to grow approximately 20% for the 2026 calendar year, in line with our prior forecast. We expect Micron’s DRAM supply growth to broadly align with industry supply growth, while Micron’s NAND supply growth for the 2026 calendar year is expected to be slightly below industry supply growth. Our SCA has enhanced our visibility into long-term demand and increased our confidence in capital expenditures and R&D investments. We are focused on maximizing factory output, including working with suppliers to accelerate tool procurement, factory tool installation, ramp-up, and tool replacement and upgrades to improve productivity. Recently, we entered into a multi-year EUV (extreme ultraviolet lithography) supply agreement with ASML to support increased EUV adoption at our One Delta node and future generations. We have also made strong progress in expanding our global manufacturing footprint to increase supply over time. This includes significant investments in leading-edge DRAM manufacturing in the U.S.—namely, our ID1 and ID2 fabs in Idaho, whose construction is progressing on schedule, and our first fab cluster in New York, which broke ground in January of this year. ID1 is expected to begin wafer production in mid-2027, with ID2 expected in late 2028. We recently initiated first production of One Alpha DDR4 technology at our facility in Manassas, Virginia, which will enhance our ability to support legacy product demand from customers in automotive, industrial, medical, aerospace, and defense markets. At our newly acquired facility in Taiwan, we expect meaningful product shipments to begin in mid-2027 from the existing 300,000-square-foot fab—approximately one quarter ahead of our prior expectation. In addition to the existing fab, we have begun construction of a second cleanroom of similar scale at this site, which will support EUV equipment. Construction activities and timelines at our other facilities in Japan and Singapore are also on track. Complementing our advanced packaging capabilities in Taiwan, our Singapore site will serve as another advanced packaging center of excellence. We expect this facility to make a meaningful contribution to Micron’s HBM packaging capacity beginning in the first half of the 2027 calendar year. As we execute these investments, we will maintain a disciplined approach and respond to market conditions to appropriately adjust our supply plans. I will now turn the call over to Mark to review our financial results and outlook for the third quarter of fiscal year 2023.

Mark Murphy, Chief Financial Officer:

Thank you, Sanjay. Good afternoon, everyone. Micron delivered an outstanding performance in the third quarter of fiscal year 2023, with revenue, gross margin, and earnings per share all exceeding the high end of our guidance. Our results and today’s outlook underscore the growing value of memory in the AI era and the structural strengths of our business. As mentioned, we have signed 16 strategic customer agreements. For SCAs with clearly defined pricing—whether fixed or subject to price caps and floors—we began disclosing remaining performance obligations (RPO) starting this quarter in May, in accordance with revenue recognition accounting standards.

As of the end of the third quarter of fiscal year 2023, RPO exceeded $5 billion. For SCAs we have signed, including agreements executed after the end of the third quarter of fiscal year 2023, RPO is approximately $100 billion. RPO is determined based on minimum committed quantities and minimum pricing, reflecting an inherently conservative estimate. RPO does not represent the total revenue we expect to recognize in future periods. Therefore, we expect revenue recognized over the term of the agreements to significantly exceed the related RPO. As Sanjay mentioned, based on the SCAs we have signed to date, we anticipate receiving $22 billion in cash deposits and related financial commitments.

The vast majority of these commitments, approximately $18 billion, will be in the form of cash collateral. Once all targeted SCA milestones are achieved, we expect the levels of SCA customer collateral and related commitments to increase significantly. This customer collateral will appear more prominently on our balance sheet in the fourth quarter of fiscal year 2024.

Cash flows related to customer margins appear in cash flows from financing activities and do not affect our free cash flow. This cash will be returned to customers over time during the second half of the agreement period. We are excited about the progress we’ve made in executing these SCA agreements, which will strengthen our long-term financial performance and drive sustained, strong ROI for the company.

Total revenue for the third quarter of fiscal year 2023 reached $41.5 billion, representing a 74% sequential increase and a 346% year-over-year increase, marking our fifth consecutive quarter of revenue records. The $17.6 billion sequential growth is the largest in our history, surpassing the previous quarter’s record of $10.2 billion. DRAM revenue for the third quarter of fiscal year 2023 reached a record $31.3 billion, up 343% year-over-year and accounting for 76% of total revenue. Sequentially, DRAM revenue increased by 67%. Bit shipments rose in the low single-digit percentage range. Prices increased by over 60%, driven by tight industry supply and a favorable product mix. NAND revenue for the third quarter of fiscal year 2023 reached a record $9.9 billion, up 361% year-over-year and accounting for 24% of total revenue. Sequentially, NAND revenue increased by 99%. Bit shipments rose in the mid-single-digit percentage range. Prices increased by approximately 80%, driven by tight NAND industry supply and a favorable product mix. The consolidated gross margin for the third quarter of fiscal year 2023 was 84.9%, up 10 percentage points sequentially. This improvement was primarily driven by higher pricing, supported by continued strong execution and a favorable product mix. The gross margin for the third quarter of fiscal year 2023 more than doubled compared to the same period last year, setting a new company record. Now turning to the quarterly financial performance of each business segment.

The cloud memory business unit revenue reached a record $13.8 billion, accounting for 33% of the company's total revenue. CMBU revenue increased by 78% quarter-over-quarter, driven by higher pricing and bit shipments. CMBU gross margin was 83%, up 9 percentage points quarter-over-quarter, due to higher pricing.

Core Data Center Business Unit revenue reached a record $11.5 billion, accounting for 28% of the company's total revenue. CDBU revenue increased by 103% quarter-over-quarter, driven by higher pricing and a favorable product mix. CDBU gross margin was 87%, up 12 percentage points quarter-over-quarter, due to higher pricing.

Mobile and Client Business Unit revenue reached a record $11.5 billion, accounting for 28% of the company’s total revenue. MCBU revenue increased 49% quarter-over-quarter, driven by higher pricing, partially offset by lower unit shipments. MCBU gross margin was 87%, up 9 percentage points quarter-over-quarter, primarily due to higher pricing and a favorable product mix.

Automotive and embedded business unit revenue reached a record $4.6 billion, accounting for 11% of the company’s total revenue. AEBU revenue increased by 71% quarter-over-quarter, driven by higher pricing and increased bit shipments. AEBU gross margin was 79%, up 11 percentage points quarter-over-quarter, due to higher pricing and a favorable product mix.

Operating expenses for the third quarter of fiscal year 2023 were $1.5 billion, an increase of $970 million sequentially. The sequential increase was due to higher variable compensation expenses driven by strong business performance. We achieved $33.7 billion in revenue for the third quarter of fiscal year 2023, with an operating margin of 81.2%, up 12 percentage points sequentially and 54 percentage points year-over-year.

Tax expense for the third quarter of fiscal year 2023 was $5.1 billion, with an effective tax rate of 14.9%. Non-GAAP diluted earnings per share for the third quarter of fiscal year 2023 were $25.11, representing a 106% sequential increase.

Turn to cash flow and capital expenditures. In the third quarter of fiscal year 2023, operating cash flow was $25.4 billion. Capital expenditures were $7.1 billion, resulting in free cash flow of $18.3 billion. The free cash flow for the third quarter of fiscal year 2023 set a company quarterly record. Inventory at the end of the third quarter of fiscal year 2023 was $8.6 billion, with inventory days at 120 days. DRAM inventory is very tight, below 120 days. Cash and investments at the end of the quarter reached a record $30.2 billion.

In the third quarter of fiscal year 2023, we reduced our debt by $4.4 billion, including $4.3 billion in senior notes repurchased through cash tender offers. The weighted average maturity of our outstanding debt is April 2035. At the end of the quarter, we had $5.7 billion in debt and a net cash balance of $24.4 billion.

This fiscal year, we received upgrades from all three major credit rating agencies, including an upgrade to BBB+ based on our technological and product positioning, financial outlook, and strong balance sheet. Our balance sheet has never been stronger, and we expect it to become even more robust even as we increase investment in technology and required capacity.

Now turning to guidance. We expect revenue for the fourth quarter of fiscal year 2024 to reach a record $50 billion, plus or minus $1 billion. Gross margin is expected to be approximately 86%, with operating expenses around $1.65 billion. Based on approximately 1.15 billion shares outstanding, we anticipate record earnings per share of $31, plus or minus $1. Our gross margin guidance for the fourth quarter of fiscal year 2024 reflects a meaningful slowdown in the pace of price increases. We expect operating expenses to increase by approximately $1 billion in fiscal year 2027 as we expand research and development to capitalize on unprecedented opportunities in memory and storage. We anticipate the growth in operating expenses will be concentrated in the second half of the year. We expect the tax rate for the fourth quarter of fiscal year 2024 and fiscal year 2026 to be approximately 15%.

Micron continues to invest globally in a disciplined manner to meet customer demand. For context, our capital expenditures reflect net amounts after deducting expected government incentives. In the fourth quarter of fiscal year 2024, we anticipate capital expenditures of approximately $10 billion, resulting in full-year fiscal year 2026 capital expenditures of approximately $27 billion. We expect quarterly capital expenditures in fiscal year 2027 to exceed the level seen in the fourth quarter of fiscal year 2024, with more than half of the year-over-year increase in fiscal year 2027 coming from construction-related capital spending, as we accelerate the introduction of cleanroom capacity to meet long-term demand. We project that free cash flow in the fourth quarter of fiscal year 2024 will again grow significantly. Starting December 9, 2026—the second anniversary of our final chip agreement—we intend to increase capital returns. Over time, we plan to return 100% of excess cash to shareholders. Any potential impacts from trade or geopolitical developments are not included in our guidance. I will now turn the call over to Sanjay for closing remarks.

Sanjay Mehrotra, President and Chief Executive Officer:

Thank you, Mark. AI has elevated the value of memory. In this supply-constrained environment, Micron is working closely with our customers and suppliers across our technology, product, manufacturing, and commercial teams. Strategic customer agreements are ushering in an exciting new era for Micron. We expect these SCAs to significantly enhance the durability and predictability of Micron’s strong financial performance and accelerate the transformation of our business model. I thank the global Micron team members for their relentless focus and execution across all areas, enabling Micron to become a leader in this new AI era as we continue to advance our mission—to accelerate intelligence and enrich life.

We are now beginning the questions.

Q&A Session

Meeting host:

We now begin the Q&A session. (Host note) Your first question is from Timothy Akurri of UBS. Your line is connected; please go ahead.

Timothy Akuri, Analyst:

Hi Sanjay, I— I think we’re all trying to figure out how much revenue is locked in under the floor price scenario over the next five years. You mentioned two points: that 14 out of 16 SCA agreements represent $100 billion in cumulative revenue. That would imply roughly $20 billion in annual floor price revenue, which is significantly lower than the run rate you just cited. This suggests that not much revenue is covered by floor prices, but you also mentioned that 40% of revenue will be included in these SCAs. Could you please elaborate and help us think through the floor price scenario? Can you help us estimate how much annual revenue is guaranteed?

Sanjay Mehrotra, President and Chief Executive Officer:

As we noted, under these completed SCA agreements, revenue is projected to reach $100 billion based on the floor price. However, as Mark highlighted in his remarks, we expect revenue to significantly exceed this amount. Please note that even at the floor price, our gross margin levels surpass the peak profit margins seen in any previous period.

Overall, approximately 20% of DRAM and about 30% of NAND sales are currently covered by these SCAs. This represents roughly 25% of our revenue, which you can forecast during the term of these agreements. RPO, calculated at the lower end of pricing, is reported as an accounting metric, but we fully expect actual revenue to significantly exceed this amount.

Timothy Akuri, Analyst:

Understood. Regarding how these agreements are specifically implemented, Mark—how much of the revenue for the August quarter will be under SA (Strategic Agreements)? I’m just trying to understand how to incorporate this into the model and when full run rate will be achieved—by the fourth quarter of next fiscal year, will you reach full run rate under these SCAs? Could you help us understand this?

Mark Murphy, Chief Financial Officer:

Yes, Tim. So you’ll see a disclosure in the Q (quarterly report) that outlines the future 12 months of revenue associated with each agreement that has an RPO. For example, for agreements completed within the third quarter, you’ll see an RPO of $5 billion or more, and you’ll see approximately $1.8 billion in future 12-month revenue associated with it.

This is because some of them are smaller protocols, such as the automotive sector protocols mentioned by Sanjay. In the fourth quarter, as Sanjay noted, you will see that 14 out of these 16 protocols reported an RPO of approximately $100 billion.

The related revenue for the next 12 months will also be disclosed in the K (annual report), so you’ll be able to get a general sense of how these are being phased in. Keep in mind that this RPO figure represents the minimum contractually enforceable amount at the intersection of volume and price. So, Tim, it’s important to remember that what you’re seeing is a minimum number—we explicitly state that this does not reflect what we believe will actually occur. Additionally, this RPO figure changes each quarter, adjusting based on new contracts and potentially on additional volume commitments with fixed pricing.

It varies based on the volume of shipments and how the RPO decreases upon completion of performance obligations. As a result, you’ll receive additional reporting. This all follows ASC 606 guidelines. I know this isn’t something we typically emphasize in certain reports, but with the RPO feature, you’ll see it clearly.

I also want to emphasize that, as Sanjay mentioned, even at the lower bound price, we expect approximately 40% of revenue to be under these RPO-related commitments. However, even at the lower bound price, we anticipate margins to be significantly higher than previous peak margins.

Timothy Akuri, Analyst:

Alright. Thank you both.

Meeting host:

Your next question is from Joseph Moore of Morgan Stanley. Your line is connected; please go ahead.

Unverified attendees:

I also have questions regarding LTAs (Long-Term Agreements). Could you explain the role of cash collateral? Should we view it as a custodial security account? If a customer cancels, can you use this cash? If it’s not revenue, then what is the purpose of this collateral, and how does it relate to RPOs (if any)?

Sanjay Mehrotra, President and Chief Executive Officer:

Alright, Joe. Regarding collateral, we mentioned that, as of this call, we have signed agreements totaling $22 billion in collateral and financial commitments, of which approximately $18 billion is cash collateral. We will receive this collateral; we received over $400 million in the third quarter and will receive approximately $10 billion in the fourth quarter. These amounts—yes, these will be classified as cash collateral and will appear in the cash flow from financing activities, without impacting free cash flow. During the performance period of the agreements, they are held by us. As these agreements are fulfilled, the collateral will be returned over time, primarily concentrated in the second half. The difference between the $22 billion and the $18 billion—approximately $4 billion—represents letters of credit.

Unverified attendees:

Got it. But what is its purpose? I mean, what happens to this cash? It seems they posted a margin and then got it back. Why did they commit to this cash? Is this related to some take-or-pay arrangement? It’s not an advance payment. Could you help us understand this?

Mark Murphy, Chief Financial Officer:

Yes. Thank you, Joe. This is not an advance payment. It is a separate commitment from the customer, reflecting our binding agreement. These are take-or-pay agreements, and we hold cash, demonstrating our shared commitment to fulfilling these agreements. This benefits Micron, as these agreements allow us to see demand and committed volumes, giving us confidence to make large-scale capital investments and build closer technological relationships. It also benefits the customers, as they secure supply and gain access to leading-edge technology.

Therefore, in our view, this is a win-win situation, and we are very satisfied with the nature of the agreement, its impact on the business, and its significance as a milestone in Micron’s business model transformation.

Unverified attendees:

Very helpful. Thank you for all the disclosures on this. Really useful. Thank you.

Meeting host:

Your next question is from C.J. Muses of Cantor Fitzgerald. Your line is connected; please proceed.

C.J. Muses, analyst:

Good afternoon. Thank you for answering my question. As a follow-up to Joe’s question, Mark—when you consider these cash margins, do you view them as discretionary cash available for capital expenditures? And as part of that, when evaluating capital returns, particularly after the December 14 chip bill deadline?

Will you include these received cash amounts in your total cash and return on capital calculations? Or, given that you will eventually need to return this cash, does this lead you to believe that, all else being equal, you need to hold more total cash in a steady state?

Mark Murphy, Chief Financial Officer:

CJ, this is unrestricted.

C.J. Muses, analyst:

But would this change your consideration of how much total cash you need to feel comfortable?

Mark Murphy, Chief Financial Officer:

Not in the short term. We believe we will certainly maintain sufficient liquidity to support our business operations, including the return of margins over time as customers and Micron fulfill their contracts. This is important, but we will hold liquidity to meet investments we consider essential to the business.

We have a lot going on—we’re currently running major projects to deliver supply, as well as R&D initiatives. So—I’ll reiterate, as I mentioned before—clients will get this deposit back in the latter half of the protocol.

C.J. Muses, analyst:

Understood. As a follow-up regarding HBM revenue, could you share your views on the market share and total revenue for the 2026 calendar year? Additionally, is there an expectation that by the 2027 calendar year, you can elevate its profit margin to near D5 levels, or will this remain a permanently below-D5-margin segment? Thank you very much.

Sanjay Mehrotra, President and Chief Executive Officer:

Regarding HBM, we are very pleased with our HBM4 product and the fact that our HBM4 revenue has already exceeded $1 billion. In terms of HBM market share, we have strategically chosen to align it closely with our DRAM market share. This is important due to HBM’s trade ratio—the wafer consumption ratio. As you know, HBM consumes a significant number of wafers and puts pressure on non-HBM supply in the industry. Therefore, by setting our HBM market share target to be close to our DRAM share, we strategically position ourselves to serve a diversified range of end-market customers, including those in data centers, consumer electronics, automotive, and industrial sectors that require non-HBM supply.

Regarding your question about pricing next year, we do not comment on pricing, but we can confidently say that HBM is a product in which Micron holds a strong leadership position. We have demonstrated significant success with HBM3E 8-layer, HBM3E 12-layer, and now HBM4, and we have a robust roadmap with strong confidence in our execution capabilities.

Compared to non-HBM products per bit, it is a higher-priced product, and it is critical to the entire AI ecosystem, from data centers to the edge. Strategically, it is a very important product for us and also one that delivers strong ROI.

C.J. Muses, analyst:

Thank you.

Meeting host:

Your next question is from Vivek Arya of Bank of America Securities. Your line is open; please proceed.

Vivek Arya, Analyst:

Thank you for answering my question. First, Sanjay, you mentioned four large and three medium-sized customer agreements. I’m curious how many of those are related to data centers. Should we expect more announcements related to data centers? Is the $10 billion figure aligned with large and medium-sized customers, or does it include small customers? I’m still trying to understand what a typical data center customer’s SCA looks like. Have you provided enough insight for us to estimate the trajectory of data center SCAs over the coming years?

Sanjay Mehrotra, President and Chief Executive Officer:

Our large customers include data center clients, and the large and medium-sized customers you mentioned, along with our small customers, indeed cover the data center, consumer, and automotive markets. We have already provided relevant information: large agreements typically have price ceilings, with a price range that includes both a floor and a ceiling. The ceiling is set at the current second-quarter price level, and as you know, this second-quarter price level is reflected in our third-quarter results and fourth-quarter guidance, which deliver unprecedented profitability. These price ranges also establish a floor price at which gross margins far exceed the peak levels seen in any prior cycle in the company’s history. The large agreements we referenced are multi-year contracts that provide us with significant demand visibility, strong customer commitments, and, of course, financial commitments—including cash collateral as previously detailed by Mark.

Vivek Arya, Analyst:

Thank you. As a follow-up question, Mark, regarding gross margin, will the 86% level persist for some time? Is there an upper limit? And as these SCA initiatives begin to take effect, should we assume some normalization between your current mid-80% level and the previous peak of just over 60%? As a long-term investor building models for 2027 and 2028, should we assume a normalized gross margin range of around the mid-70s, between your current level and the prior peak? Could you provide guidance on how to think about gross margins after the recent 86%, and how these margins are likely to evolve over the long term? Thank you.

Mark Murphy, Chief Financial Officer:

Yes, Vivek, we do not provide guidance beyond the fourth quarter. However, we are at a margin level where, as we’ve previously discussed, the marginal impact of price increases on gross margin expansion is diminishing. Nevertheless, as we mentioned, we’ve updated our view on market conditions and expect the market to remain tight beyond 2027.

We are currently at a stage where memory is highly valued as a strategic asset, driving value for AI advancement and demanding greater quantities and higher-performance memory. Therefore, we continue to allocate capacity toward higher-performance applications such as data centers and edge devices, which will help us optimize capacity allocation with our customers—including those signed to these SCAs—as price increases moderate. Meanwhile, as we have stated, we will begin to realize significant new capacity starting mid-2027, with further growth in 2028. There will be some initial startup costs, but these will be absorbed as production ramps up. Over time, this will generate operating leverage.

Yes. So we feel very confident about the trajectory of our business, Micron’s technological position, and our world-class product portfolio—you can see that we are operating exceptionally well, and all of this contributes to our consistent delivery of strong financial performance.

Vivek Arya, Analyst:

Thank you.

Meeting host:

Your final question is from Krish Sankar at TD Cowen. Your line is connected; please go ahead.

Krish Sankar, Analyst:

Yes, hi. Thank you for answering my question. I have two questions for Sanjay or Mark. Congratulations on your outstanding performance. Regarding the floor pricing for LTAs, you mentioned it’s roughly around the previous peak gross margin or somewhere in the low 60s (about 62%). If I try to estimate the price of a 64GB server DRAM, I might arrive at around $700, whereas today it’s $1,500, which roughly suggests a floor of about $10 to $12 per GB, compared to the current price of around $20 per GB. Is this the range we should consider for these LTAs—that is, a pricing range of low teens to mid-twenties per GB?

Sanjay Mehrotra, President and Chief Executive Officer:

Krish, we won’t go into specific pricing details, but I just want to reiterate that I’ve said the gross margin at the lower price point will far exceed the highs we’ve seen in past cycles—those historical highs. So, significantly higher than those, right? But obviously, we won’t disclose specific details related to pricing.

The bottom line is that these SCA initiatives have genuinely helped us gain visibility into the demand, its intensity, and its sustainability. They have absolutely accelerated our financial performance and business transformation at a fundamental level.

Krish Sankar, Analyst:

Understood. Very helpful, Sanjay. To follow up quickly, you mentioned that DRAM is expected to grow by just over 20% this year, in the low to mid-teens percentage range, while NAND is projected to grow by about 20%. Clearly, both are in short supply. Is there a way to quantify what might happen by 2027? Is there a way to estimate whether the supply-demand imbalance in 2027 could be twice as severe as this year, or how else to assess the supply-demand imbalance in 2027?

Sanjay Mehrotra, President and Chief Executive Officer:

We anticipate overall tightness through 2027. We have previously indicated that we expect this tightness to persist beyond 2027, and while we are working to increase supply, we have shared with you that it will take considerable time to bring online the additional capacity needed to meet customer demand—additional wafer capacity, of course, along with technology transitions, diminishing bit gains per node generation, and the high trade ratio of HBM (wafer consumption ratio) are all placing significant pressure on overall supply growth.

Therefore, even in 2028, when supply begins to gradually improve, we expect demand to remain on a strong trajectory, as these AI trends are very long-term. AI is still in its very early stages. The entire token economics (referring to the cost of AI model processing) requires more memory. AI system performance is actually constrained by memory capacity, memory performance, and memory bandwidth.

Therefore, as computing demands grow and our customers recognize the massive transformation opportunities ahead, they will continue to invest in infrastructure for memory like never before. The demand trajectory is extremely strong.

Memory is at the core of our operations, and securing memory supply is clearly a top priority, as evidenced by the multi-year agreements our customers have signed with us. These agreements reflect their confidence in growing demand. We are working to increase supply, but we expect tight conditions to persist beyond 2027.

Krish Sankar, Analyst:

Thank you so much, Sanjay. I truly appreciate it.

Meeting host:

This concludes today’s conference call. Thank you for participating. You may now hang up.