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Micron Know-how, Inc. (NASDAQ:MU) This fall 2023 Earnings Convention Name September 27, 2023 4:30 PM ET
Firm Contributors
Samir Patodia – IR
Sanjay Mehrotra – President and CEO
Mark Murphy – CFO
Convention Name Contributors
Tom O’Malley – Barclays
Toshiya Hari – Goldman Sachs
Timothy Arcuri – UBS
Mehdi Hosseini – Susquehanna Monetary Group
Operator
Thanks for standing. Welcome to Micron’s Fourth Quarter 2023 Monetary Name. [Operator Instructions] As a reminder, right this moment’s program is being recorded.
And now, I might wish to introduce your host for right this moment’s program, Samir Patodia, Investor Relations. Please go forward, sir.
Samir Patodia
Thanks, and welcome to Micron Know-how’s fiscal fourth quarter 2023 monetary convention name. On the decision with me right this moment are Sanjay Mehrotra, our President and CEO, and Mark Murphy, our CFO. At the moment’s name is being webcast from our Investor Relations web site at traders.micron.com, together with audio and slides. As well as, the press launch detailing our quarterly outcomes has been posted on the web site, together with the ready remarks for this name.
At the moment’s dialogue of economic outcomes is introduced on a non-GAAP monetary foundation until in any other case specified. A reconciliation of non-GAAP to GAAP monetary measures could 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 possibly can comply with us on X at MicronTech.
As a reminder, the issues we’re discussing right this moment embrace forward-looking statements concerning market demand and provide, our anticipated outcomes, and different issues. These forward-looking statements are topic to dangers and uncertainties which will trigger precise outcomes to vary materially from statements made right this moment. We refer you to the paperwork we file with the SEC, together with our most up-to-date Type 10-Okay and 10-Q, for a dialogue of dangers which will have an effect on our future outcomes.
Though we consider that the expectations mirrored within the forward-looking statements are cheap, we can not assure future outcomes, ranges of exercise, efficiency, or achievements. We’re below no obligation to replace any of the forward-looking statements to evolve these statements to precise outcomes.
I will now flip the decision over to Sanjay.
Sanjay Mehrotra
Thanks, Samir. Good afternoon, everybody.
In fiscal This fall, Micron delivered income and gross margin above the midpoint of our steering, with EPS above the excessive finish of the vary. These outcomes replicate our robust execution, and we’re well-positioned to drive important enhancements in our monetary efficiency.
We consider pricing has now bottomed. Ongoing demand progress, buyer stock normalization, and industry-wide provide reductions have set the stage for elevated income, together with improved pricing and profitability all through fiscal 2024. We proceed to count on report {industry} TAM in calendar 2025 with extra normalized ranges of profitability.
Fiscal 2023 was a difficult yr for the reminiscence and storage {industry} because the income TAM reached a multiyear low, leading to a big impression to monetary efficiency. Regardless of this tough backdrop, the Micron group stayed centered on our technique, executed effectively and achieved a number of vital milestones.
We achieved report annual automotive income, report NAND QLC bit shipments for the complete fiscal yr, and reached report ranges in calendar Q2 for income share in information middle and shopper SSDs. We had been the primary in our {industry} to introduce 1-beta DDR5 and LP5X DRAM merchandise and the primary to ship HBM3E samples with industry-leading efficiency and energy effectivity.
We had been additionally the primary to introduce 232-layer NAND SSD merchandise in information middle, shopper and shopper markets. These accomplishments had been underpinned by our management expertise and continued robust progress in manufacturing execution. We achieved world-class mature yields in report time on our industry-leading 1-beta DRAM and 232-layer NAND applied sciences.
As well as, Micron took a number of prudent and well timed actions to cut back our CapEx and provide to be able to tackle the market imbalances by means of the course of fiscal 2023. Our industry-leading expertise roadmap continues to progress effectively. As we now have talked about earlier than, the overwhelming majority of our bits are on modern nodes 1-alpha and 1-beta in DRAM and 176-layer and 232-layer in NAND.
We proceed to make good progress on 1-gamma DRAM growth utilizing EUV and are on monitor for manufacturing in calendar 2025. Growth of our next-generation NAND node can also be effectively on monitor.
Now turning to our finish markets. Clients continued to cut back their extra stock for reminiscence and storage in fiscal This fall. Most buyer inventories for reminiscence and storage within the PC and smartphone markets at the moment are at regular ranges, in keeping with our prior forecasts. Stock ranges are regular throughout most clients within the automotive market as effectively.
Information middle buyer stock can also be bettering and can doubtless normalize in early calendar 2024. Consequently, we see demand persevering with to strengthen, which has led to an inflection in pricing. Some clients have made strategic purchases in DRAM and NAND to benefit from unsustainably low pricing because the market begins its restoration.
In information middle, conventional server demand stays lackluster whereas demand for AI servers has been robust. Information middle infrastructure operators have shifted budgets from conventional servers to higher-priced AI servers.
Whole server unit shipments are anticipated to say no in calendar 2023, the primary year-over-year decline since 2016. We count on whole server unit progress will resume in calendar 2024 to assist fulfill ever-increasing workload demand.
We additionally count on content material progress in each AI and conventional servers. In comparison with conventional servers, AI coaching servers comprise considerably larger DRAM and NAND content material with higher expertise complexity, sturdy product worth and better profitability. We consider our information middle income has bottomed, and we count on progress in fiscal Q1 and growing momentum by means of fiscal years ’24 and ’25 in our information middle enterprise.
Micron has a strengthening portfolio of options optimized for bandwidth, capability and energy. These embrace HBM3E, DDR5 and related high-capacity modules, LPDRAM, and information middle SSDs. This portfolio of industry-leading merchandise positions us effectively to seize the alternatives introduced by data-centric computing architectures and AI.
The introduction of our HBM3E product providing has been met with robust buyer curiosity and enthusiasm. Our HBM3E offers superior bandwidth, energy and capability for generative AI workloads. We developed this industry-leading design utilizing our 1-beta expertise, superior TSV, and different improvements that allow a differentiated packaging answer.
We now have been working carefully with our clients all through the event course of and have gotten a carefully built-in companion of their AI roadmaps. Micron HBM3E is at the moment in qualification for NVIDIA compute merchandise, which is able to drive HBM3E-powered AI options. We count on to start the manufacturing ramp of HBM3E in early calendar 2024 and to attain significant revenues in fiscal 2024.
Micron additionally has a powerful place within the {industry} transition to D5. We count on Micron D5 quantity to cross over D4 in early calendar 2024, forward of the {industry}. We expanded our high-capacity D5 DRAM module portfolio with a monolithic die-based 128 gigabyte module, and we now have began delivery samples to clients to assist help their AI utility wants. We count on income from this product in Q2 of calendar 2024.
Final month, we introduced the introduction of 128 gigabyte and 256 gigabyte CXL 2.0 reminiscence enlargement modules. By leveraging a singular dual-channel reminiscence structure, we’re in a position to ship larger module capability and elevated bandwidth. We now have shipped samples to a number of clients and key companions.
In information middle SSDs, Micron’s whole portfolio makes use of 176-layer or 232-layer NAND in manufacturing, a testomony to our product and expertise management. We’re well-positioned to serve the rising demand for quick storage as data-intensive AI purposes proliferate. We noticed robust demand for our information middle NVMe SSDs throughout our AI-focused, industry-leading 30-terabyte product, in addition to for our mainstream merchandise.
Micron ended the second calendar quarter with report excessive income share in information middle SSDs, primarily based on unbiased {industry} assessments. We count on to construct on this momentum in fiscal 2024. In PCs, we proceed to forecast calendar 2023 PC unit quantity to say no by a low double-digit share year-over-year after which develop by a low to mid-single-digit share in calendar 2024. AI-enabled PCs will drive content material progress and an improved refresh cycle over the following two years.
In fiscal This fall, we noticed robust sequential bit cargo progress at PC OEMs pushed by demand for LPDRAM in skinny shopper notebooks. We count on to start income shipments of our industry-leading 1-beta-based shopper D5 in fiscal Q1 to PC OEMs. In accordance with third-party analysts, in calendar Q2, we reached report income share in shopper SSDs for PC OEMs as clients adopted our industry-leading options. Our 232-layer NVMe shopper SSD is now certified at massive OEMs and delivery in quantity manufacturing.
Our SSD QLC bit cargo combine reached a brand new report for the second consecutive quarter, with progress in each shopper and shopper markets. We proceed to broaden our footprint within the high-end shopper SSD house with the launch of three new merchandise that stretch our attain into skilled content material creators and fanatic PC avid gamers.
In cellular, we count on calendar 2023 smartphone unit quantity to be down by a mid-single-digit share year-over-year after which develop by a mid-single-digit share in calendar 2024. Elasticity, together with a mixture shift towards premium telephones with higher capability, is contributing to reminiscence content material progress. A couple of third of smartphones offered right this moment have at the least 8 gigabyte of DRAM and 256 gigabyte of NAND, up greater than 7 share factors versus smartphone items a yr in the past.
Much like our view on PCs, AI-enabled cell phones may drive content material progress and a stronger refresh cycle over time. Long run, we see generative AI purposes executing on handsets. These purposes will proceed to drive new necessities for larger capability, decrease energy and elevated efficiency in reminiscence and storage.
Final, I will cowl the auto and industrial finish markets, which contribute to extra steady income and profitability. Fiscal 2023 marked one other report income yr for our automotive enterprise. Micron continues to guide in automotive market share and high quality.
Long run, we count on reminiscence and storage content material per automobile to extend in each ADAS and in-cabin purposes. As well as, fast-growing EVs usually comprise larger reminiscence and storage content material. Our automotive design win trajectory stays robust.
The economic market confirmed indicators of restoration in fiscal This fall. Stock ranges for reminiscence and storage are stabilizing at distribution companions and on the majority of our clients. We count on the amount restoration that we noticed within the second half of fiscal 2023 to proceed into 2024. We see robust progress prospects on this market over time, as industrial clients proceed to undertake and implement the IoT, AI and machine studying options.
As beforehand mentioned, the CAC or Cybersecurity Administration of China resolution earlier this yr has impacted our enterprise, notably within the home information middle and networking markets in China. We stay dedicated to serving our clients in China for these areas of their enterprise not impacted by the CAC resolution. Whereas there’s near-term impression to our demand attributable to these challenges in China, we stay centered on sustaining Micron’s world market share.
Our group’s grit and Micron’s deep relationships with our clients, underpinned by our expertise management, growing product momentum, glorious product high quality, and in depth manufacturing and provide chain capabilities place us effectively towards these objectives. Now, turning to our market outlook, beginning with demand.
We count on calendar 2023 DRAM bit demand to develop within the mid-single-digit share vary. In NAND, our expectations for demand progress this calendar yr have elevated from high-single digits to excessive teenagers share. These are beneath the anticipated long-term bit demand progress CAGRs of mid-teens in DRAM and low-20s share vary in NAND.
Whereas calendar 2023 DRAM demand has been in keeping with expectations, NAND progress expectations have elevated attributable to stronger than anticipated demand in sure components of the buyer market and a pattern of higher elasticity in per unit content material.
Whereas macroeconomic elements stay a threat, we count on sturdy year-over-year bit demand progress in calendar 2024 for each DRAM and NAND, pushed by bettering end-market demand, normalized buyer stock ranges, content material progress throughout merchandise, and ongoing progress in AI. Calendar 2024 bit demand progress is anticipated to exceed the long-term CAGR for DRAM and to be close to the long-term CAGR for NAND.
Turning to provide. Important provide and CapEx reductions throughout the {industry} have helped to stabilize the market and are enabling the restoration that’s now underway. We see each DRAM and NAND year-over-year provide progress in calendar 2023 to be adverse for the {industry}. We count on Micron’s year-on-year bit provide progress to be meaningfully adverse for DRAM. We additionally count on to provide fewer NAND bits in calendar 2023 than in calendar 2022.
In calendar 2024, we count on {industry} DRAM and NAND provide progress to be beneath {industry} demand progress and meaningfully so for DRAM. We consider calendar 2024 is positioned to be a yr of restoration within the reminiscence and storage {industry}. A sustained interval of provide progress lower than demand progress will strengthen the tempo of restoration.
HBM manufacturing might be a headwind to {industry} bit provide progress. Throughout the {industry}, the HBM3E die is roughly twice the dimensions of equivalent-capacity D5. The HBM product features a logic interface die and has a considerably extra complicated packaging stack that impacts yields.
Because of this, HBM3 and 3E demand will take up an outsized portion of {industry} wafer provide. The ramp of HBM3 and 3E manufacturing will cut back total DRAM bit provide progress industry-wide with specific provide impression on non-HBM merchandise as extra capability is diverted to addressing HBM alternatives.
Micron is experiencing an analogous impression of our deliberate HBM3E ramp on our bit provide functionality. Micron’s bit provide progress in fiscal 2024 is deliberate to be effectively beneath demand progress for each DRAM and NAND, and we count on to lower our days of stock in fiscal 2024. We proceed to execute to our technique of sustaining world bit cargo market share for DRAM and NAND whereas sustaining tight provide and CapEx administration self-discipline.
Micron’s fiscal 2024 CapEx is projected to be up barely in comparison with fiscal 2023 ranges. WFE CapEx might be down once more year-over-year in fiscal 2024. We stay centered on fastidiously managing total provide progress. In final quarter’s earnings name, we communicated that whole wafer begin reductions in each DRAM and NAND are approaching 30% versus peak 2022 ranges. Amid an intense concentrate on capital effectivity over the previous few quarters, we now have redeployed a portion of the underutilized gear to help manufacturing ramp of modern nodes in each DRAM and NAND.
Given the upper course of step depend of those modern nodes, transitioning this gear ends in a big and structural discount to our total wafer capability in each DRAM and NAND. Attributable to this structural discount in capability, our DRAM and NAND wafer begins will stay considerably beneath 2022 ranges for the foreseeable future.
Our {industry} provide projections assume an analogous structural discount in wafer capability industrywide. Lead occasions to extend this wafer capability might be lengthy and can rely on bettering demand, pricing and monetary efficiency. We count on underutilization to proceed in our legacy nodes effectively into calendar 2024. We see our demand at modern nodes exceeding our provide in fiscal and calendar 2024, notably within the second half of the yr.
Building CapEx might be elevated to help our plans to construct modern reminiscence fabs in Idaho and New York, for which we filed CHIPS purposes in August. As we now have highlighted earlier than, the requested stage of CHIPS grants for our Idaho and New York initiatives are important to the viability and world competitiveness of every of those initiatives. Our CapEx plans assume {that a} sure stage of CHIPS grant funds might be made accessible to us in fiscal yr 2024.
Meeting and Check CapEx is projected to double year-over-year in fiscal 2024, predominantly pushed by investments to help HBM3E manufacturing. Our deliberate fiscal 2024 CapEx investments in HBM capability have considerably elevated versus our prior plan in response to robust buyer demand for our industry-leading product.
Over the course of calendar 2024, we see accelerating AI-driven alternatives for reminiscence and storage throughout a number of market segments from the information middle to the sting. We’re inspired by the bettering {industry} demand and provide fundamentals.
We consider that the CapEx constraints created by the {industry} profitability surroundings, coupled with improved inventories, introduced provide reductions and the impression of the HBM ramp on DRAM bit provide progress will create situations that can more and more tighten the supply-demand stability, notably within the second half of our fiscal yr.
Our Micron group is executing effectively and they’re taking prudent and proactive actions to navigate by means of the near-term surroundings and place the corporate to emerge stronger from the present downturn. We sit up for a restoration in our enterprise financials taking form in fiscal 2024.
I’ll now flip it over to Mark for our monetary outcomes and outlook.
Mark Murphy
Thanks, Sanjay, and good afternoon, everybody.
Within the fourth quarter of fiscal 2023, Micron delivered income and gross margin larger than the midpoint of the steering vary and EPS above the excessive finish of the vary. We’re exiting the fiscal yr with the enterprise bettering attributable to a number of elements together with larger volumes, an inflection within the pricing surroundings, robust productiveness and ongoing capital self-discipline.
Whole fiscal This fall income was roughly $4 billion, up 7% sequentially and down 40% year-over-year. Fiscal 2023 whole income was $15.5 billion, down 49% year-over-year. Fiscal This fall DRAM income was $2.8 billion, representing 69% of whole income.
DRAM income elevated 3% sequentially, with bit shipments growing within the mid-teens share vary and costs declining within the high-single-digit share vary. For the fiscal yr, DRAM income declined 51% year-over-year to $11 billion, representing 71% of whole income.
Fiscal This fall NAND income was $1.2 billion, representing round 30% of Micron’s whole income. NAND income elevated 19% sequentially, with bit shipments growing over 40% pushed by timing of shipments together with strategic purchases and costs declining within the mid-teens share vary. For the fiscal yr, NAND income declined 46% year-over-year to $4.2 billion, representing 27% of whole income.
Now turning to income by enterprise unit. Compute and Networking Enterprise Unit income was $1.2 billion, down 14% sequentially. Information middle income remained weak as clients continued to regulate inventories and because of the CAC resolution. In fiscal Q1, we count on sequential progress in information middle.
Income for the Cell Enterprise Unit was $1.2 billion, up 48% sequentially attributable to seasonal results and timing of shipments. Embedded Enterprise Unit income was $860 million, down 6% sequentially. Embedded Shopper income elevated sequentially, helped by seasonality whereas automotive and industrial income declined modestly.
Income for the Storage Enterprise Unit was $739 million, up 18% sequentially and pushed by elevated shipments throughout many of the product portfolio. SBU bit shipments set information for fiscal This fall and the fiscal yr.
The consolidated gross margin for fiscal This fall was adverse 9%, bettering seven share factors sequentially. Gross margin was impacted by decrease pricing and underutilization prices, whereas the promote by means of of beforehand written-down stock supplied some uplift.
For the fiscal yr, consolidated gross margin was adverse 8%, down 54 share factors year-over-year pushed by value results, stock write-downs and the burden of underutilization. Roughly six share factors of the discount is from web stock write-downs.
Working bills in fiscal This fall had been $842 million, down $24 million sequentially attributable to ongoing expense-reduction initiatives and the timing of sure R&D program expenditures. For the fiscal yr, working bills had been $3.6 billion, down $209 million year-over-year pushed by expense-reduction initiatives.
On OpEx for the fourth quarter and yr, we ended beneath the goal we communicated beginning with our September name a yr in the past. As market situations enhance, we are going to stay disciplined in all spending, together with working bills, focusing R&D on essentially the most important applications and leveraging a aggressive and extra productive overhead construction.
We had an working lack of roughly $1.2 billion in fiscal This fall, leading to an working margin of adverse 30%, improved from adverse 39% within the prior quarter. Fiscal 2023 working loss was $4.8 billion, leading to an working margin of adverse 31%.
We recorded a tax advantage of $14 million in fiscal This fall, higher than expectations and due primarily to decrease than anticipated international taxes associated to forex results. For fiscal 2023, whole taxes had been $142 million.
The non-GAAP loss per share in fiscal This fall was $1.07, in comparison with a loss per share of $1.43 within the prior quarter and earnings per share of $1.45 within the year-ago quarter. Non-GAAP EPS was a loss per share of $4.45 for the fiscal yr.
Turning to money flows and capital spending. Our working money flows had been roughly $250 million in fiscal This fall. For the fiscal yr, we generated $1.6 billion of money from operations representing 10% of income. Capital expenditures had been $1 billion throughout the quarter and totaled $7 billion for the fiscal yr. This was in keeping with current steering, and for the yr, on the low finish of the vary of estimates we supplied on our December 2022 earnings name. Free money circulate was adverse $758 million within the quarter.
Our fiscal This fall ending stock was $8.4 billion or 170 days. As talked about final quarter, we’re holding roughly $1 billion of strategic stock inventory related to construct forward of merchandise for value optimization and threat mitigation. We see days of stock bettering into the primary half of the fiscal yr and, adjusting for this strategic inventory, count on to have just a few weeks of above goal inventories as we enter the second half of fiscal 2024. Stock ranges and profitability will stay principal elements in our selections round wafer begins and capability planning.
Persevering with with the stability sheet, we maintained traditionally excessive ranges of liquidity. At year-end, we held $10.5 billion of money and investments and had $13 billion of liquidity when together with our untapped credit score facility. We ended the yr with $13.3 billion in whole debt, a weighted common maturity of 2030 on debt, and low web leverage.
Now turning to our outlook for the fiscal first quarter. Demand is bettering as buyer stock ranges proceed to normalize and secular progress drivers stay intact. We count on report DRAM bit shipments in fiscal Q1. For NAND, we count on fiscal Q1 bit shipments to say no considerably from fiscal This fall ranges however stay comparatively robust.
In China, the Our on-line world Administration of China resolution continues to impression our income alternative, and the related headwind is mirrored in our steering. Fiscal Q1 gross margin is projected to enhance sequentially on a higher mixture of DRAM and extra sell-through of written-down inventories. We count on roughly 60% of the remaining profit from decrease value inventories to clear in fiscal Q1. Our gross margin steering doesn’t ponder any further stock write-downs attributable to pricing.
Interval prices related to underutilization will weigh on gross margins within the quarter, as first quarter interval prices are projected to be much like the prior quarter. Past fiscal Q1, we venture gross margin enchancment to proceed as costs improve and interval prices turn into much less of an element. We count on the speed of value enchancment within the second fiscal half to exceed the primary half.
We now forecast gross margins to be constructive all through the second half of fiscal 2024. As talked about final quarter, we count on fiscal Q1 working bills to extend sequentially, pushed by a rise in R&D and as short-term reductions to worker compensation come to an finish. For the complete fiscal yr 2024, we count on working bills to be up by a low-single-digit share versus fiscal 2023.
On taxes, we venture a fabric sequential quarterly improve as we transfer from a credit score in This fall to a extra regular expense. As mentioned beforehand, although total profitability stays low, a minimal stage of taxes will happen primarily based totally on native jurisdiction revenue. As we’re forecasting a consolidated pretax loss in fiscal 2024, these native elements will drive tax expense once more this yr.
We estimate our full-year fiscal 2024 taxes to be below $200 million. A primary quarter tax estimate of $80 million displays our forecasted Q1 ends in proportion to full-year projected tax expense. Adjustments within the distribution of revenue inside the yr might lead to modifications within the tax expense acknowledged every quarter.
We venture our fiscal 2024 capital expenditures to extend barely versus fiscal 2023 as we stability the long-term capability wants of the enterprise with ongoing capital self-discipline and near-term money circulate targets. In line with our feedback the previous few quarters, we do see WFE CapEx lowering from fiscal 2023 to fiscal 2024. When factoring larger building spend and anticipated grants in fiscal 2024, we forecast our CapEx to be extra evenly distributed over fiscal 2024.
A sequential improve in quarterly CapEx, along with bettering however nonetheless difficult profitability ranges within the close to time period, means free money circulate will stay considerably adverse within the first half of the fiscal yr. We forecast improved free money circulate within the again half of the fiscal yr.
We venture our stability sheet to stay robust and web leverage ratio to peak within the second quarter of fiscal 2024. To help the long-term funding priorities of the enterprise, we now have ample liquidity and prepared entry to a number of sources of credit score. We’ll proceed to handle our enterprise to keep up monetary flexibility and in a way in keeping with our dedication to our investment-grade ranking.
With all these elements in thoughts, our non-GAAP steering for fiscal Q1 is as follows. We count on income to be $4.4 billion, plus or minus $200 million. Gross margin to be within the vary of adverse 4%, plus or minus 200 foundation factors. And working bills to be roughly $900 million, plus or minus $15 million. We count on tax expense of roughly $80 million. Based mostly on a share depend of roughly 1.1 billion shares, we count on EPS to be a lack of $1.07, plus or minus $0.07.
In closing, we achieved many successes in fiscal 2023 regardless of going through a historic downturn. We sustained our expertise, product and manufacturing management and achieved mature yields in report time on the {industry}’s most superior nodes in DRAM and NAND. Micron’s main product bulletins place us effectively to handle the rising efficiency necessities of data-centric computing.
In response to extreme market situations, we acted rapidly and decisively to chop provide and capital spend, to cut back working prices and enhance productiveness, and to keep up a stable and versatile stability sheet. Because the enterprise improves in fiscal 2024, we are going to leverage our strengths in expertise, product and manufacturing whereas sustaining the productiveness and capital self-discipline that we displayed in fiscal 2023.
I’ll now flip it again over to Sanjay.
Sanjay Mehrotra
Thanks, Mark.
The previous 4 quarters examined the resilience and agility of our whole {industry}. Whereas the restoration from this downturn has begun, Micron will train continued provide self-discipline to drive a return to sustained profitability. I’m happy with our group’s response to adversity, sustaining our expertise management, bettering time to mature yield, and launching a set of modern merchandise that symbolize one of many strongest portfolio expansions in Micron’s 45-year historical past.
As our world funding bulletins all year long clearly present, Micron stays keenly centered on constructing our enterprise to satisfy future demand pushed by the proliferation of AI from the information middle to the sting. I’ve full confidence in our group, the place we now have constructed for Micron, and our collective potential to capitalize on the alternatives forward.
Thanks for becoming a member of us right this moment. We’ll now open up for questions.
Query-and-Reply Session
Operator
[Operator Instructions] And our first query for right this moment comes from the road Tom O’Malley from Barclays. Your query, please.
Tom O’Malley
Hello guys, thanks for taking my query. I simply wish to perceive the trajectory right here on the NAND enterprise. You guys within the quarter type of took your demand profile from high-single-digits to excessive teenagers and also you identified shopper specifically. What are you able to do to present us confidence that, that wasn’t a pull in from a few of your massive shopper clients, and that later this yr there may be somewhat gap there, and simply discuss in regards to the trajectory of the place you see that enterprise going, simply given you mentioned that bits are going to be down sequentially into November? Thanks.
Sanjay Mehrotra
So with respect to NAND, sure, I imply in comparison with what we now have mentioned earlier than, we noticed robust demand, notably on the buyer, together with some components of the channel and the buyer half included likes of smartphones, PCs, et cetera, and once more, as I identified, the channel as effectively. And bear in mind, with the pricing that has existed for NAND, elasticity has definitely kicked in. The content material is constant to extend within the units.
At the moment, flagship smartphones have minimal of 8 gigabyte DRAM and 128 gigabyte of NAND. In order that’s the general pattern and identical factor in PCs that the elasticity is driving, growing common capacities. And total definitely strategic vibe have influenced a few of the NAND demand for the yr as effectively.
And remember the fact that subsequent yr in 2024, we see that the demand progress might be just about near the long-term CAGR for NAND. And the strat consumers – the strategic consumers that I discussed, in fact, they assist enhance the stock place for NAND as effectively.
So total, in fact, provide cuts have been made in NAND as effectively. And as we glance forward, we do see that the demand and provide fundamentals will proceed to enhance on the NAND facet as effectively.
Tom O’Malley
Very useful.
Sanjay Mehrotra
And the inflection in pricing as effectively has occurred and, , notably within the second half of our fiscal yr we’d see that continued enchancment within the pricing as effectively.
Tom O’Malley
Useful. After which simply as a follow-up, clearly you are going through headwinds from the CAC band. Are you able to simply speak about areas of the market the place you guys are focusing on to assist make up a few of these bits. Is it simply conversations with clients within the shopper house or are you taking a look at content material will increase within the information middle, simply given the places and takes of the place you make up {that a} double-digit share gap and when you see type of any change to that. Is it getting worse or is it getting higher into February and Could of this yr? Thanks very a lot.
Sanjay Mehrotra
In order we now have talked about earlier than, the CAC headwinds are primarily within the information middle and networking markets for us in China. And the impression, the adverse impression of income because of CAC resolution is already baked in in our CQ4 outcomes, and can also be included in our FQ1 steering right here.
And preserve in minds that the CAC resolution, I imply, continues to stay a threat for our enterprise and the impression in our China demand is significant. Nevertheless, Micron has made robust progress with respect to mitigating the results as effectively with our world clients who are usually not impacted by the CAC resolution. And we’re mitigating that and impact of the mitigation is also mirrored in our FQ4 outcomes, in addition to in FQ1 steering.
So the – FQ4 outcomes and FQ1 steering replicate the online impact of the lack of income in China in addition to the success with a few of the mitigation, and naturally, we’re engaged on mitigating the China income loss with will increase in demand for us throughout our a number of end-markets, throughout all our world end-markets.
And do not forget that our aim stays to keep up our world share. Whereas there could also be some ebbs and flows within the close to time period, However our aim completely stays to keep up our world market share right here when it comes to bits.
Tom O’Malley
Thanks, Sanjay.
Operator
Thanks. One second for our subsequent query. And our subsequent query comes from the road of Toshiya Hari from Goldman Sachs. Your query, please.
Toshiya Hari
Hello guys, thanks for the query. I had a gross margin query for you, Mark. You are guiding November quarter up 5 share factors sequentially. I hoped you can present a bridge, if you’ll, on a sequential foundation. You talked somewhat bit about interval prices persevering with to be a headwind. You gave somewhat little bit of coloration for the profit you may see from promoting by means of written-down stock. However, what are your ideas on pricing. What are your ideas on cost-downs? And when you can provide directional steering for FED and the places and takes there, that might be useful as effectively. Thanks.
Mark Murphy
Positive, Toshi. I’m – so on the fourth to first quarter bridge, as you talked about, we’re forecasting roughly a 500 basis-point enchancment. We did say over the previous few quarters that this is able to be the profile of our enchancment. I’ll say that it is gotten incrementally higher. And that we mentioned earlier than that our profile can be that we’d be constructive gross margin within the fourth quarter of fiscal ’24. We now consider might be constructive gross margin by means of fiscal ’24 and so you may see this constructive margin pattern persevering with.
Because it pertains to the primary quarter, we do get a small profit roughly, , roughly a degree of incremental low-cost stock pass-through from what passes by means of within the first quarter, which might be round $600 million versus what we had pass-through within the fourth quarter, which is roughly $550 million.
We additionally will see a slight profit in value certainly within the first quarter. As we have talked about within the final a number of quarters, we first noticed pockets of enchancment. After which, we point out that costs bottoming. We’re mentioning on this name that it has bottomed and we’re seeing within the first quarter value enchancment and we count on that on this transition interval to be considerably muted within the first half after which pick-up momentum and strengthen significantly within the second half.
So that is the, , basic stroll for the primary quarter. I’ll, as a result of there’s numerous places and takes, possibly simply, it has been a really tough a number of quarters round each utilization write-downs. And thankfully, we’re on the opposite facet of that which we will cowl later on this name or the after name.
Toshiya Hari
Thanks. After which possibly as a fast follow-up on HBM for Sanjay. You already know, three months in the past, you guys talked about or at the least hinted that in fiscal ’24, you would possibly be capable of generate a number of $100 million in income. Is that kind of goal nonetheless intact? Have issues improved since then and I suppose at what level do you count on your presence in HBM to be much like your presence in DRAM total? Thanks.
Sanjay Mehrotra
We’re very excited with our HBM product. It’s an industry-leading product with respect to efficiency, energy, capability, functionality. And as we now have talked about, this product is within the qualification levels with our clients right here and we count on income to start in early 2024. And sure, we’re very a lot nonetheless on monitor for significant income, $700 million in our fiscal yr ’24.
So happy with the progress, persevering with to make good progress. It’s an thrilling alternative for the reminiscence {industry} and Micron might be well-positioned to seize the generative AI alternatives that require the type of attributes that our HBM3E reminiscence brings to the market. And, in fact, as we proceed by means of the fiscal yr, we count on to be gaining share on this vital a part of the excessive – on this vital excessive progress a part of the reminiscence market.
Toshiya Hari
Thanks a lot.
Operator
Thanks. One second for our subsequent query. And our subsequent query comes from the road of Timothy Arcuri from UBS. Your query, please.
Timothy Arcuri
Thanks lots, Mark, I wished to make clear the assertion on gross margin. So, you had mentioned within the ready remarks that it might be constructive within the again half of the fiscal yr. However in response to the query simply earlier than, you mentioned that will probably be constructive by means of fiscal ’24. So because you’re guiding adverse in fiscal Q1, does that inform us that fiscal Q2 gross margin might be constructive?
Mark Murphy
Good query, Tim. I did not touch upon fiscal Q2. I – fiscal Q3, we consider, might be constructive. And there will be a pattern of bettering gross margin fiscal Q1 by means of fiscal Q3.
Timothy Arcuri
Okay. So you do not wish to state that fiscal Q2 might be constructive, possibly will probably be, possibly it will not.
Mark Murphy
It – possibly. It relies on in fact pricing and we’re persevering with to drive productiveness and we’ll simply should see at these profitability ranges, combine and different issues matter. I imply, we do have favorable mixture of DRAM going into the primary half. You already know, we’re growing DRAM relative to NAND within the first half of the yr. In order that helps.
You already know, we, pricing, the momentum is definitively constructive. It is only a case of we’re in a transition interval, we did see , we type of needed to meet the market on some particular offers right here within the fourth quarter and these results will proceed within the first half, however we’re undoubtedly seeing new offers being struck at larger costs and we definitely count on that to strengthen within the second-half.
Timothy Arcuri
Bought it, thanks. After which as a follow-up, simply on that remark you simply made about known as particular offers and – that you simply, , struck in, , fiscal This fall. NAND demand, you are extra constructive on NAND demand, however pricing was nonetheless as unhealthy if not worse than at the least I believed it might have been in – , facet of fiscal This fall. So is – are you able to type of foot that, is that possibly you providing some huge offers on the NAND facet, some clients coming in and being opportunistic and also you choices some huge offers to maneuver bits and possibly shore up your NAND share, however on the expense of value. Are you able to simply stroll by means of that drive? Thanks.
Mark Murphy
Sure. I’d say, Tim, that, , actually NAND pricing was not – was principally in keeping with the downs that we noticed within the third quarter. So, I’d say that costs – the lower had slowed and the worth or the market was being the agency off. You already know that – clients notice that this can be a interval that is ending, the markets firming up, , and so, , there’s additionally some combine results in there.
We do see value and NAND bettering within the first quarter. It is going to be up really within the first quarter. And so I feel that is all, I might say, on value for NAND.
Timothy Arcuri
Thanks, Mark.
Operator
Thanks. One second for our subsequent query. Our subsequent query comes from the road of Mehdi Hosseini from Susquehanna Monetary Group. Your query, please.
Mehdi Hosseini
Sure, sir. Thanks for taking my query. Two follow-ups. I wish to higher perceive the dynamics of seasonality. You talked in regards to the NAND bit cargo declining within the Q1 fiscal yr and many of the progress coming from DRAM, however how ought to we take into consideration seasonality impression in February quarter? And I’ve a follow-up.
Sanjay Mehrotra
So definitely, the standard seasonality might be in place. However simply remember the fact that FQ4, we had a really robust sequential bit progress within the NAND enterprise. And – I imply coming off that huge sequential progress, we’re simply guiding to normalized stage of total shipments as a part of FQ1 and total, – and once more, the content material continues to extend throughout the end-market purposes. And that can proceed to drive elevated demand progress for us as effectively.
Mehdi Hosseini
However would there be seasonality in February quarter?
Sanjay Mehrotra
Properly, typical seasonality tendencies that exist within the shopper market can be there. However remember the fact that all of it relies on the combination of the enterprise as effectively for us. By way of NAND, , in – it – possibly I’ve already guided to the tendencies.
However total after we have a look at the full-year foundation, we’d have a look at that calendar yr ’24, NAND might be rising in keeping with the long-term CAGR or close to the long-term CAGR and DRAM might be rising when it comes to demand a lot forward of the long-term CAGR as effectively and all of that can in fact bear in mind the standard seasonality that happens within the {industry}.
Mehdi Hosseini
Nice, thanks for element. And second query has to do with the places and takes in decreasing wafer begins. And I perceive that extra emphasis is on the commerce combine. However as you – as I take into consideration reminiscence like, there is no such thing as a trailing edge. And in that context as you concentrate on bringing utilization fee again as much as the traditional stage. and a few of the trailing edge transformed to the vanguard, may that assist with an even bigger step-up in gross margin enchancment? How ought to we give it some thought, assuming that the trailing edge can be phased out?
Sanjay Mehrotra
Properly, good query and I feel I wish to take the chance to offer some context right here and total background. As that in 2023, the {industry} has skilled excessive over provide and excessive adverse impact on the profitability as effectively. And also you see now that CapEx cuts and underutilization within the fab have been carried out throughout the {industry} given the CapEx constraints that we now have, in addition to given the poor profitability and definitely Micron has executed that, however that is taking place throughout the {industry} as effectively.
And on the identical time, the demand for the brand new merchandise is growing that requires, , as you had been mentioning, forefront expertise as effectively. And to be able to preserve our provide self-discipline and to satisfy the demand for these new merchandise resembling HBM, resembling DDR5, we’re shifting a few of our gear from older nodes into the newer applied sciences to ramp up these newer applied sciences into manufacturing.
Prior to now, we’d have executed this with extra CapEx. However we’re being extraordinarily conscious of CapEx spend, extraordinarily disciplined about provide. So in consequence, after we transfer the gear from older nodes to help the ramp-up of modern nodes, it ends in a web discount in total – in a web discount and the structural discount within the wafer capability as effectively. And that total bodes effectively for the {industry} demand-supply fundamentals.
So remember the fact that as we undergo the yr, we – and , as we shift extra of the gear towards ramp up of forefront nodes, this may lead to total wafer capability discount and decreasing underutilization as effectively. After all, the legacy nodes will proceed to have underutilization by means of the course of the yr. And these are all useful elements when it comes to the demand-supply stability within the {industry}.
And , a few of the phenomena that we now have described concerning structural wafer capability discount, this isn’t distinctive to Micron. We consider that is taking place with different suppliers in addition to they grapple with the identical provide profitability and CapEx issues as we’re adjusting.
So the discount in wafer capability is definitely the headwind and provide progress. And this that growing wafer capability has a excessive bar for auto – for CapEx investments, it has a excessive bar when it comes to ROI, and naturally, it might require longer lead-time as effectively given the brand new gear that might be required. So discount – structural discount in wafer capability is total good coupled the place the underutilization within the legacy nodes.
And as we identified, the brand new merchandise within the modern nodes additionally do require extra wafer capability for a similar gigabits of manufacturing given the character of like HBM that – the place the die-size is twice as huge. So, these new merchandise additionally even have a good impression on the {industry} provide progress functionality.
And these tendencies of provide progress with respect to structural wafer capacity-reduction and the brand new merchandise that find yourself requiring extra new wafer capability are extraordinarily vital elements when it comes to actually understanding the bettering, strengthening demand-supply fundamentals as we have a look at our fiscal yr ’24 and calendar yr 2024.
Mehdi Hosseini
Thanks.
Operator
Thanks. This does conclude the query and reply session, in addition to right this moment’s program. Thanks, women and gents, to your participation. You could now disconnect. Good day.
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