Micron's Q4 2025: Contradictions Emerge on HBM Market Share and Demand, DRAM/NAND Conditions, HBM4 Efficiency, and Inventory Management

The above is the analysis of the conflicting points in this earnings call

Guidance:

• FY25 net CapEx ~ $18B (vs ~$13B prior), FY26 net CapEx ~ $18B; majority for DRAM construction/equipment.
• DRAM market is tight now and expected to tighten further into 2026; NAND conditions improving with stronger demand in 2026.
• Expect second-quarter gross margin to be up relative to first quarter.
• HBM share to be higher in calendar 2026 vs 2025; 2026 HBM supply effectively sold out.
• 1-gamma DRAM node ramp is primary driver of FY26 bit supply growth.
• New Idaho fab targeted to start meaningful wafer production in second half of 2027.

Business Commentary:

* Demand and Supply Dynamics in NAND Industry: - Micron Technology reported a bit reduction in its NAND segment in the previous quarter, suggesting noise due to changing mix rather than an overall decline. - The company expects improvements in the NAND industry conditions, particularly for data center SSD deployment, driven by AI server deployment needs and hyperscaler storage shortages from the HDD segment. - Micron's strong position in the data center SSD market, with record share gains, will benefit from these tailwinds.

• Increased DRAM Demand and Pricing:
• Micron stated that DRAM conditions are already tight and are expected to further tighten, with a robust demand outlook for 2026.
• This tightness is driven by limits on supply growth due to factors like silicon intensity and long lead times for capacity additions, leading to improved pricing and margins.

• The company is working down inventories and has reduced wafer outs to address supply-demand imbalances.

• CapEx and Investment Strategy:

• Micron announced an increase in CapEx to approximately $18 billion for fiscal 2025 and a similar level for fiscal 2026, with the majority allocated to DRAM.
• The significant investment in DRAM is aimed at expanding production and addressing the current tight supply situation.

• The company does not foresee major additional NAND investments, focusing on data center and high-margin products.

• HBM Market Expansion and Performance:

• Micron expects to achieve HBM market share higher than calendar 2025 in 2026, with a supply share close to DRAM supply share by Q3 2025.
• The company's HBM products, including HBM4, are reported to have superior performance, with higher bandwidth than HBM3E, driven by customer demands for increased performance and lower costs per token.
• Micron plans to leverage its HBM capabilities to meet these customer demands, focusing on high-value applications like data center and AI workloads.

Sentiment Analysis:

• Management cited a tight DRAM market and improving NAND, reported operating margin at the highest since Nov ’18, and said, “we expect second quarter gross margin to be up relative to first.” They emphasized HBM leadership (“HBM4 has the highest performance…”) and stated 2026 HBM supply is sold out. CapEx is increasing to support DRAM growth, and inventories are low, supporting pricing.

Q&A:

• Question from Thomas O'Malley (Barclays): State of NAND demand, bits down and ASPs, capacity additions?
  Response: Bit decline in FQ4 was mix noise; NAND demand set to improve into 2026 with hyperscalers increasing SSD use; DRAM is already tight; supply held in check via slowed node ramps/low CapEx; exiting managed NAND frees supply for data center.

• Question from Thomas O'Malley (Barclays): Clarify CapEx trajectory to ~$18B and mix toward DRAM?
  Response: Net CapEx rises from ~$13B to ~$18B in FY25 and ~ $18B in FY26, with the vast majority for DRAM construction and equipment.

• Question from Joseph Moore (Morgan Stanley): HBM share ambitions and DRAM share stance?
  Response: HBM share will be higher in 2026 vs 2025; by CQ3’25 HBM share near overall DRAM supply share; focus remains on ROI and competitive positioning rather than specific share targets.

• Question from Joseph Moore (Morgan Stanley): HBM gross margins vs non-HBM DRAM and pricing locks?
  Response: HBM uses long-term volume/price locks for stable, higher through-cycle ROI; non-HBM DRAM pricing can at times exceed HBM profitability in tight markets; both models are complementary.

• Question from James Schneider (Goldman Sachs): Will HBM4 share sustainably exceed HBM3 given performance?
  Response: Micron enters HBM4 from a stronger capacity/yield base; believes HBM4 has industry-best performance; expects strong customer preference and 2026 supply sold out; any competitive share shifts likely between others.

• Question from James Schneider (Goldman Sachs): CapEx split WFE vs facilities and changes next year?
  Response: No detailed breakout; majority spend is DRAM; expanding and equipping fab capacity (e.g., Idaho) and executing tech transitions in Japan/Taiwan.

• Question from Christopher Danely (Citi): DDR4/DDR5 mix and margin contribution vs HBM?
  Response: DDR4 is low single-digit percent of business; EOL extended due to shortages with better margins; no margin split vs HBM due to differing pricing models.

• Question from Christopher Danely (Citi): Drivers of gross margin expansion and outlook?
  Response: Tight DRAM and improving NAND, low inventories, extended DDR4/LP4 life constraining transitions, HBM silicon intensity, and limited new capacity drive pricing/mix; expect Q2 gross margin up vs Q1.

• Question from Vijay Rakesh (Mizuho): 1-gamma vs 1-beta mix through FY26?
  Response: 1-gamma achieved mature yields and first hyperscaler shipments; will be primary supply growth driver in FY26; combined 1-gamma + 1-beta already majority of bit output with mix shifting to 1-gamma.

• Question from Vijay Rakesh (Mizuho): HBM4 margin vs HBM3?
  Response: HBM4 has higher cost and meaningfully higher price than HBM3E; no product-level margin disclosure; expect strong long-term ROI from HBM.

• Question from Aaron Rakers (Wells Fargo): FY25 cost-down cadence for DRAM/HBM and NAND?
  Response: FY25 cost reductions: DRAM front-end ex-HBM slightly better than high single digits; DRAM incl. HBM low single digits; NAND front-end mid-teens; NAND overall low teens.

• Question from Aaron Rakers (Wells Fargo): Enterprise SSD capacity trends for AI servers into FY26?
  Response: Average capacities are rising; Micron announced 122TB and 245TB drives; expect meaningful uptake; HDD shortages at hyperscalers push more NAND SSD adoption.

• Question from Brian Chin (Stifel): HBM3E assembly/packaging yield efficiencies into next year?
  Response: 12-high HBM3E yields reached maturity significantly faster than 8-high; most ramp benefits realized, with ongoing incremental efficiency gains.

• Question from Brian Chin (Stifel): Structural mix shift to data center vs past cycles?
  Response: AI has expanded data center beyond prior ~1/3 TAM ceiling; data center now >50% and higher value; HBM/high-cap DIMMs/LP for data center totaled ~$10B of FY25 revenue, lifting margins across the portfolio.

• Question from Quinn Bolton (Needham): Any FY26 cost-down targets?
  Response: Only FY25 cost-down metrics were provided; no FY26 targets given.

• Question from Quinn Bolton (Needham): Impact of GDDR7-based inference GPUs on HBM outlook?
  Response: AI workloads will diversify; many inference tasks are memory-bound; Micron targets a broad solution set—HBM, industry-leading GDDR7, and LPDRAM in data center—to address varied architectures.

• Question from John Vinh (KeyBanc): Why HBM4 specs exceed JEDEC and customer needs?
  Response: Customers seek higher bandwidth to lower cost per token and improve time-to-first-token; Micron sampled >11Gbps and 2.8TB/s HBM4, setting a higher performance bar.

• Question from John Vinh (KeyBanc): Is interest income positive in guidance?
  Response: Yes; net interest flips to income due to greater capitalized interest, lower debt, and higher cash balances.

• Question from Kevin Cassidy (Rosenblatt Securities): Long-term agreements amid tight supply?
  Response: There is interest, but Micron will be selective on terms given U.S. manufacturing plans, potential tariffs, and mix shifts; leveraging these factors in customer discussions.

• Question from Kevin Cassidy (Rosenblatt Securities): Rationale and customer impact of exiting managed NAND for smartphones?
  Response: Exit driven by ROI; focus resources on higher-ROI data center SSDs; supported customer transitions; DRAM relationships remain strong; NAND generated positive FCF for a second year.