Date: March 18, 2026 | Source: Motley Fool (fool.com) / company press release
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Sanjay Mehrotra (President & CEO): Micron Technology, Inc. delivered an exceptional fiscal Q2, with stellar records in revenue, gross margin, EPS, and free cash flow. Quarterly revenue nearly tripled versus one year ago, and revenue for DRAM, NAND, HBM, and each business unit reached new highs. Our fiscal Q3 single-quarter revenue guidance exceeds the full-year revenue for every year in our company's history through fiscal 2024. For fiscal Q3, we anticipate exceptional growth across revenue, gross margin, EPS, and free cash flow. Reflecting confidence in the sustained strength of our business, I am pleased to announce that our Board has approved a 30% increase in our quarterly dividend.
The step-up in our results and outlook are the outcome of an increase in memory demand driven by AI, structural supply constraints, and Micron's strong execution across the board. AI has not just increased demand for memory; it has fundamentally recast memory as a defining strategic asset in the AI era. We continue to work with customers on strategic customer agreements, or SCAs, that are different from prior LTAs and have specific commitments over a multiyear time horizon. We are excited to have signed our first five-year SCA.
We are making excellent progress ramping our industry-leading 1ฮณ DRAM and G9 NAND technology nodes. Our 1ฮณ node was already the fastest ramp to mature yields and is on track to become a majority of our DRAM bit mix by mid-calendar 2026. We plan to increase EUV adoption at the 1ฮด DRAM node. In NAND, our G9 node remains on track to constitute a majority of bits by mid-calendar 2026. We also achieved a record mix of QLC bits in the quarter.
At NVIDIA's GTC, we announced that Micron has begun volume shipment of its HBM4 36GB 12-Hi in 2026, designed for NVIDIA Vera Rubin. With our HBM4 production ramp and volume shipments underway, we expect to reach mature yields faster than HBM3E. We have also sampled our HBM4 16-Hi product, which provides 48GB of HBM capacity, a 33% increase. Development of HBM4E is well underway, and we expect to ramp volume in calendar 2027.
We pioneered the development of LPDRAM for the data center, which consumes one-third the power of DDR DRAM server modules. Building on this leadership, we sampled the industry's first 256GB LP SoC-M2 product, built using our 1ฮณ node, enabling a massive 2TB of capacity per CPU, quadrupling the content from just a year ago. At GTC, NVIDIA announced Grok 3 LPX, which implements up to 12TB of DDR5 in a rack-scale architecture.
We are seeing an acceleration in NAND-based demand in the data center due to AI use cases such as vector database and KV cache offload. We are now in high-volume production of our G9 NAND-based PCIe Gen6 high-performance data center SSDs. Our 122TB high-capacity SSD is seeing strong adoption. In fiscal Q2, data center NAND revenues more than doubled sequentially to a substantial new record. Our data center SSD market share increased for the fourth consecutive calendar year in 2025 to a new record.
We expect both DRAM and NAND industry bit demand in calendar 2026 to be constrained by supply, and we expect supply and demand to remain tight beyond calendar 2026. We expect industry DRAM bit shipments in calendar 2026 to grow in the low-twenties percentage range, slightly above our prior outlook. We expect industry NAND bit shipments in calendar 2026 to grow approximately 20%.
We achieved several important milestones in expanding our global manufacturing footprint. In DRAM, we announced the successful closing of the acquisition of the Tongluo site from Powerchip Semiconductor, completing the transaction ahead of schedule, expected to support meaningful product shipments beginning in fiscal 2028. We continue to expect initial wafer output at our first Idaho fab in mid-calendar 2027, and ground preparation has begun for our second Idaho fab. We broke ground on our first fab at the New York site. In NAND, we decided to break ground for a new NAND fab at our Singapore site, with initial wafer output expected in 2028. In assembly and test, we commenced commercial shipments from our new facility in India.
We expect fiscal 2026 CapEx to be above $25 billion, with the majority of the increase driven by cleanroom facility-related CapEx, of which the largest factor is Tongluo, followed by construction spend in our U.S. fab projects. We project our fiscal 2027 CapEx to step up meaningfully to support HBM and DRAM-related investments, with construction-related CapEx to increase by over $10 billion year over year in fiscal 2027. I will now turn it over to Mark for our fiscal Q2 financial results and outlook.
Mark Murphy (CFO): Thank you, Sanjay. Micron delivered strong financial results for the fiscal second quarter, with revenue, gross margin, and EPS all exceeding the high end of our guidance. In fiscal Q2, we generated record free cash flow, reduced our debt, and closed the quarter with the highest net cash position in our history. Total fiscal Q2 revenue was $23.9 billion, up 75% sequentially and up 196% year over year, representing our fourth consecutive quarterly revenue record. The $10.2 billion sequential increase is the largest in our history.
Fiscal Q2 DRAM revenue was a record $18.8 billion, up 207% year over year, and represented 79% of total revenue. Sequentially, DRAM revenue increased 74%. Bit shipments were up mid-single digits. Prices increased in the mid-sixties percentage range. Fiscal Q2 NAND revenue was a record $5.0 billion, up 169% year over year, and represented 21% of total revenue. Sequentially, NAND revenue increased 82%. Prices increased in the high-seventies percentage range. The consolidated gross margin for fiscal Q2 was 75%, up 18 percentage points sequentially, driven primarily by higher pricing and also including favorable mix and cost performance. Fiscal Q2 gross margin nearly doubled from a year ago and was a company record.
Cloud Memory Business Unit revenue was a record $7.7 billion, 32% of total revenue, up 47% sequentially, with GM 74%, up 9 points. Core Data Center Business Unit revenue was a record $5.7 billion, 24% of total, with GM 74%, up 23 points sequentially. Mobile and Client Business Unit revenue was a record $7.7 billion, 32% of total, up 81% sequentially, with GM 79%, up 25 points. Automotive and Embedded Business Unit revenue was a record $2.7 billion, 11% of total, up 57% sequentially, with GM 68%, up 23 points.
We generated operating income of $16.5 billion in fiscal Q2, resulting in an operating margin of 69%, up 22 percentage points sequentially and 44 percentage points year over year. Fiscal Q2 taxes were $2.5 billion on an effective tax rate of 15.1%. Non-GAAP diluted earnings per share in fiscal Q2 was $12.20, with 155% sequential growth and 682% growth versus the year-ago quarter.
In fiscal Q2, operating cash flows were $11.9 billion, capital expenditures were $5.0 billion, resulting in free cash flow of $6.9 billion โ a quarterly record, exceeding our prior record in fiscal Q1 2026 by 77%. Ending inventory was $8.3 billion, with days of inventory at 123. DRAM inventory days remain especially tight and below 120 days. We reached record levels of cash and investments of $16.7 billion at quarter end, with liquidity over $20 billion including our untapped credit facility. We repurchased $350 million of shares and reduced debt by $1.6 billion, closing the quarter with $10.1 billion of debt and a net cash balance of $6.5 billion. As Sanjay mentioned, the Board has approved a 30% increase in our quarterly dividend to $0.15 per share.
Now turning to our guidance. We expect fiscal Q3 revenue to be a record $33.5 billion, plus or minus $750 million, gross margin to be approximately 81%, and operating expenses to be approximately $1.4 billion. Based on a share count of 1.15 billion shares, we expect EPS to be a record $19.15 per share, plus or minus $0.40. We expect higher price, lower cost, and favorable mix to all contribute to gross margin expansion in Q3. We now project our capital spending in fiscal 2026 to be above $25 billion. Any impact that may occur due to trade or geopolitical developments are not included in our guidance.
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Krish Sankar (TD Cowen): The 81% GM guide is impressive. How to think about sustainability as you bring more HBM4 into the mix?
Mark Murphy: We provide a strong guide up, up 600 basis points sequentially into the third quarter. We are not going to provide fourth quarter gross margin guidance. However, we expect market conditions to remain tight beyond 2026. The margins reflect the benefits of AI driving a multiyear investment cycle, most of which is ahead of us.
Krish Sankar: How different is the SCA from an LTA?
Sanjay Mehrotra: SCA is a multiyear agreement. LTAs have tended to be typically one-year agreements. In this environment of extremely tight supply, customers are motivated to have structural strategic agreements with us. These agreements are meant to bring stability and greater visibility to our business model, with robust provisions for us as well as for our customers.
Joseph Moore (Morgan Stanley): Do you worry about demand destruction for PCs and smartphones? How are you thinking about allocation?
Sanjay Mehrotra: Supply is extremely tight across all end markets. Price-sensitive markets such as consumer may have some demand impacted by higher prices, but overall demand stays pretty strong. Data center is becoming a bigger part of the industry TAM, so a bigger portion of supply goes there. We maintain a well-diversified mix across end markets. What we said last earnings call โ that we're able to fulfill only 50% to two-thirds of key customers' demand โ still remains the case.
Timothy Arcuri (UBS): Is there a mechanism in the SCAs that limits gross margin on the downside?
Sanjay Mehrotra: We are not getting into the specifics of these SCAs for confidentiality reasons. These SCAs are multiyear and have specific commitments. They are meant to give us visibility and stability. Beyond that, I cannot get into specifics.
Timothy Arcuri: What do you do with $35-40B of FCF this fiscal year?
Mark Murphy: We are thrilled with the improvement in the balance sheet. We're going to continue to build on balance sheet strength and improve our net cash position, continue to delever and pay down debt. We received two credit upgrades in the quarter, so we are now a solid triple-B. You saw today we announced a dividend increase of 30%. We believe we will have significant capacity for returning cash to shareholders through repurchase.
Christopher Muse (Cantor): Is the SCA with only hyperscale or others? Any capex-forward requirements?
Sanjay Mehrotra: The SCA we signed is with a large customer. These agreements are focused on allowing us to invest with confidence in our future supply plans, and SCA discussions are proceeding with multiple customers across multiple markets.
Harlan Sur (JPMorgan): Does the data center SSD ramp give a runway for sequential growth through the year? Thoughts on high-bandwidth flash (HBF)?
Sanjay Mehrotra: Data center SSDs are a big driver of NAND growth, and we are well positioned with our portfolio. On HBF, it has some positive attributes like capacity, but has NAND's limitations on write speed, power, and retention. There may be some workloads where it's a possible solution, but it's really early.
Vivek Arya (BofA): HBM share in the Vera Rubin generation?
Sanjay Mehrotra: We reached our HBM share in line with our DRAM share in 2025. The market is there for both HBM4 as well as HBM3E in calendar 2026, and we feel very good about our overall HBM position.
Mark Murphy: Keep in mind the industry is supply constrained and conditions will remain very tight beyond 2026. AI is a transformational secular driver. The margins reflect recognition that memory is a lot more valuable and an efficient way to monetize AI. Customers are recognizing that and entering into these agreements.