Sanjay Mehrotra
President & Chief Executive Officer at Micron Technology
Thank you, Satya. Good afternoon, everyone.
I am pleased to report that Micron delivered fiscal Q3 revenue, gross margin, and EPS, all above the high end of guidance ranges. Micron drove robust price increases as industry supply-demand conditions continued to improve. This improved pricing, combined with our strengthening product mix, resulted in increased profitability across all our end markets. In data center, rapidly growing AI demand enabled us to grow our revenue by over 50% on a sequential basis, and we grew share in high-margin AI-related product categories such as HBM, high-capacity DIMMs, and data center SSDs.
Our mix of data center revenue is on track to reach record levels in fiscal 2024 and to grow significantly from there in fiscal 2025. Robust AI-driven demand for data center products is causing tightness on our leading-edge nodes. Consequently, we expect continued price increases throughout calendar 2024 despite only steady near-term demand in PCs and smartphones. As we look ahead to 2025, demand for AI PCs and AI smartphones and continued growth of AI in the data center create a favorable setup that gives us confidence that we can deliver a substantial revenue record in fiscal 2025, with significantly improved profitability underpinned by our ongoing portfolio shift to higher-margin products.
Micron is ramping the industry's most advanced technology nodes in both DRAM and NAND. Over 80% of our DRAM bit production is now on leading-edge 1-alpha and 1-beta nodes. Over 90% of our NAND bit production is on our two leading-edge NAND nodes. 1-gamma DRAM pilot production using extreme ultraviolet lithography is progressing well, and we are on track for volume production in calendar 2025. Our next-generation NAND node is on track, with high-volume production planned for calendar 2025. We experienced some operational disruptions after the recent Taiwan earthquake but were able to recover quickly, thanks to diligent efforts from Micron Taiwan team members working together with our global operations teams.
Despite impacts from the earthquake, we now expect our fiscal 2024 DRAM front-end cost reductions, excluding HBM, to be in the high single-digit percentage range. We expect our fiscal 2024 NAND front-end cost reductions to be in the low-teens percentage range. These cost reductions are supported by our industry-leading 1beta DRAM and 232-layer NAND nodes. During the quarter, Micron signed a nonbinding preliminary memorandum of terms, or PMT, with the US government for $6.1 billion in grants under the CHIPS and Science Act. These grants support our planned leading-edge memory manufacturing expansions in Idaho and New York.
Federal and state incentives, projected power-cost advantages and R&D co-location synergies will enable Micron to achieve cost-competitive, leading-edge memory manufacturing in the United States when these projects reach efficient manufacturing scale. Fab construction in Idaho is underway, and we are working diligently to complete the regulatory and permitting processes in New York. This additional leading-edge greenfield capacity, along with continued technology transition investments in our Asia facilities, is required to meet long-term demand in the second half of this decade and beyond. These investments support our objective to maintain our current bit share over time and to grow our memory bit supply in line with long-term industry bit demand. Micron retains flexibility under the PMT to manage construction and timing of supply growth in a manner that allows us to remain responsive to market conditions.
Now turning to our end markets. We are in the early innings of a multi-year race to enable artificial general intelligence, or AGI, which will revolutionize all aspects of life. Enabling AGI will require training ever-increasing model sizes with trillions of parameters and sophisticated servers for inferencing. AI will also permeate to the edge via AI PCs and AI smartphones, as well as smart automobiles and intelligent industrial systems. These trends will drive significant growth in the demand for DRAM and NAND, and we believe that Micron will be one of the biggest beneficiaries in the semiconductor industry of the multi-year growth opportunity driven by AI.
Most data center customer inventories have normalized, and demand from customers continues to strengthen. PC and smartphone customers have built additional inventories due to the rising price trajectory, the anticipated growth in AI PCs and AI smartphones, as well as the expectation of tight supply as an increasing portion of DRAM and NAND output is dedicated to meeting growing data center demand. Due to expectations for continued leading-edge node tightness, we are seeing increased interest from many customers across market segments to secure 2025 long-term agreements ahead of their typical schedule. In data center, industry server unit shipments are expected to grow in the mid-to-high single digits in calendar 2024, driven by strong growth for AI servers and a return to modest growth for traditional servers.
Micron is well positioned with our portfolio of HBM, D5, LP5, high-capacity DIMM, CXL, and data center SSD products. Recently, our customers have announced their long-term AI server product roadmaps, with an annual cadence of new products with significantly improved capabilities for the next several years. Micron's technology and product leadership puts us in an excellent position to support this growth. Customers continue to provide feedback that our HBM3E solution has 30% lower power consumption compared to competitors' solutions. Our HBM shipment ramp began in fiscal Q3, and we generated over $100 million in HBM3E revenue in the quarter, at margins accretive to DRAM and overall company margins.
We expect to generate several hundred million dollars of revenue from HBM in fiscal 2024 and multiple billions of dollars in revenue from HBM in fiscal 2025. We expect to achieve HBM market share commensurate with our overall DRAM market share sometime in calendar 2025. Our HBM is sold out for calendar 2024 and 2025, with pricing already contracted for the overwhelming majority of our 2025 supply. We are making significant strides toward expanding our HBM customer base in calendar 2025, as we design-in our industry-leading HBM technology with major HBM customers. We have sampled our 12-high HBM3E product and expect to ramp it into high-volume production in calendar 2025 and increase in mix throughout 2025.
We have a robust roadmap for HBM and are confident we will maintain our technology leadership with HBM4 and HBM4E. Our next generations of HBM will provide further performance and capacity enhancements while enhancements while we continue to evolve our industry-leading low-power innovations. We achieved full validation on our 1-beta 32 gigabit monolithic-die-based 128 gigabyte high-capacity server DIMM products and are on track to achieve several hundred million dollars of revenue from high-capacity DIMMs in the second half of fiscal 2024. Additionally, we continue to see strong interest in our industry-leading 1-beta LPDRAM in data center applications. Data center SSD is in the midst of a strong demand recovery as customers have worked through their 2023 inventory.
Hyperscale demand is improving, driven primarily by AI training and inference infrastructure, and supplemented by the start of a recovery of traditional compute and storage infrastructure demand. Micron is gaining share in data center SSDs as we reach new revenue and market share records in this important product category. During the quarter, we more than tripled bit shipments of our 232-layer-based 6500 30 terabyte SSDs, which offer best-in-class performance, reliability, and endurance for AI data lake applications. We continued our leadership and innovation by becoming the first NAND vendor to supply 200-plus-layer QLC for the enterprise storage market. In PC, unit volumes remain on track to grow in the low single-digit range for calendar 2024.
We are optimistic that the planned Windows 10 end-of-life in 2025, the launch of Windows 12, and the introduction of a new generation of AI PCs will accelerate the PC replacement cycle starting in late calendar 2024. The PC replacement cycle should gather momentum through calendar 2025 as new AI applications are rolled out. During COMPUTEX in Taiwan, we saw several announcements of next-generation chipsets and AI PCs. These devices feature high-performance neural processing unit chipsets, and we expect these devices will have 40% to 80% more DRAM content than today's average PC.
Microsoft's minimum system requirement for Copilot+ PCs, such as the Surface Pro, is 16 gigabyte of DRAM. We expect next-gen AI PCs to make up a meaningful portion of total PC units in calendar 2025, growing each year until most PCs ultimately support next-gen AI PC specs. AI PCs are also likely to require higher performance and higher average capacity SSDs than traditional PCs, aligning well with our leading technology portfolio on our 232-layer NAND with our performance 3500 SSD and our industry-leading value QLC 2500 NVMe SSDs.
Turning to mobile. Smartphone unit volumes in calendar 2024 remain on track to grow in the low- to mid-single-digit percentage range. Leading smartphone OEMs recently announced new AI capabilities, and we are optimistic that delivering high-quality AI experiences can accelerate the smartphone refresh cycle. Smartphones have tremendous potential for personalized AI capabilities that offer greater security and responsiveness when executed on device. Micron's leading LP5X is enabling the recent 12 gigabyte and 16 gigabyte AI phone releases at all Android tier 1 customers, representing a 50% to 100% increase over last year's flagship models.
Micron's leading mobile solutions provide the critical performance, capacity, and power efficiency needed to unlock AI capability. Our mobile DRAM and NAND solutions are now widely adopted in industry-leading flagship smartphones. In calendar Q1, we received recognition for being Number One in quality by five of the world's leading smartphone OEMs. Qualifications are on track for our second-generation 1-beta LP5X products, and we see broadening use of our 232-layer NAND, moving beyond flagship phones into high-capacity high- and mid-tier phones.
Turning to auto and industrial. The automotive sector continued to experience robust demand for memory and storage, and Micron achieved a record quarter for automotive revenues. Car production volumes are returning to pre-pandemic levels, and broader adoption of intelligent digital cockpits and more advanced driver-assistance capabilities are driving content growth. We anticipate further content growth as additional intelligence, including generative AI-based technologies, is adopted in vehicles. Micron continues to be a leader in automotive with high-quality and industry-first product introductions.
In the fiscal third quarter, we launched the world's first multiport Gen 4 NVMe SSD in support of next-generation centralized compute architectures. In industrial and retail consumer segments, which are a smaller part of our business, we are seeing some near-term demand uncertainty from our distribution partners and end customers. We remain confident in the long-term fundamentals and growth drivers of these businesses, especially with the increasing adoption of AI in a variety of applications.
Now turning to our market outlook. We forecast calendar 2024 bit demand growth for the industry to be in the mid-teens percentage range for both DRAM and NAND. Over the medium term, we expect industry bit demand growth CAGRs of mid-teens in DRAM and high teens in NAND.
Turning to supply. We expect calendar 2024 industry supply to be below demand for both DRAM and NAND. As discussed previously, the ramp of HBM production will constrain industry supply growth in non-HBM products. Industry-wide, HBM3E consumes approximately three times the wafer supply as D5 to produce a given number of bits in the same technology node. With increased performance and packaging complexity, across the industry, we expect this trade ratio for HBM4 to be even higher than the trade ratio for HBM3E. We anticipate strong HBM demand due to AI, combined with increasing silicon intensity of the HBM roadmap, to contribute to tight supply conditions for DRAM across all end markets.
As the memory industry is still recovering from the challenging environment in 2023, this tight supply environment will help drive the considerable improvements in profitability and ROI that are needed to enable the investments required to support future growth. Micron's bit supply growth in fiscal 2024 remains below our demand growth for both DRAM and NAND. Micron will continue to exercise supply and capex discipline and focus on improving profitability while maintaining our bit market share for DRAM and NAND. We continue to project we will end fiscal 2024 with low double-digit percentage less wafer capacity in both DRAM and NAND than our peak levels in fiscal 2022.
We intend to use our existing inventory to drive a portion of the bit growth supporting our revenue in fiscal 2025 to enable a more optimized use of our capex investments. Micron's fiscal 2024 capex plan will be approximately $8 billion, and WFE spending will be down year-on-year in fiscal 2024. We expect to increase our capital spending materially next year, with capex around mid-30%s range of revenue for fiscal 2025, which will support HBM assembly and test equipment, fab and back-end facility construction as well as technology transition investment to support demand growth.
The construction capex in the planned Idaho and New York greenfield fabs in fiscal 2025 will be half or more of the expected increase in total capex. In fact, the growth in both greenfield fab construction and HBM capex investments, is projected to make up the overwhelming majority of the year-over-year capex increase. These fab construction investments are necessary to support supply growth for the latter half of this decade. This Idaho fab will not contribute to meaningful bit supply until fiscal 2027, and the New York construction capex is not expected to contribute to bit supply growth until fiscal 2028 or later. The timing of future WFE spend in these fabs will be managed to align supply growth with expected demand growth.
I will now turn it over to Mark for our financial results and outlook.
