Ask AI · How does AI demand drive the soaring value of storage chips?
Cailian Press, March 19th (Editor Liu Rui) On March 18th Eastern Time, Micron Technology released its Q2 FY2026 financial report, delivering a remarkable report card with multiple historical records.
Micron executives stated on the earnings call that driven by sustained explosive AI demand, tight industry storage product supply, and the company’s advanced technology mass production rollout, Micron’s Q2 core financial indicators including revenue, gross margin, and free cash flow all set historical peaks, with all product lines and business segments flowering comprehensively, while the company’s Q3 guidance once again significantly exceeded expectations.
Micron executives also mentioned that the current storage chip industry is facing supply shortages, and this situation will continue beyond 2026, providing solid support for near and medium-term product pricing. Driven by robust demand, Micron signed its first five-year strategic customer agreement.
Executives revealed that Micron’s HBM4, specifically designed for NVIDIA’s Vera Rubin, has achieved mass shipments, with the next-generation HBM4E in successful development and expected to reach mass production in 2027. Meanwhile, to meet strong customer demand, Micron will significantly increase capital expenditure over the next two fiscal years to build factories and purchase equipment, thereby boosting capacity.
I. Core Product Line Performance
DRAM: Revenue $18.8 billion, YoY +207%, QoQ +74%; pricing increased 65%-67% QoQ with mid-single digit shipment growth, 1γ DRAM mass production speed reaches company historical record, will become production mainstay by mid-2026.
NAND: Revenue $5 billion, YoY +169%, QoQ +82%; pricing increased 75%-79% QoQ with low single digit shipment growth; G9 NAND proceeding as planned, will become production mainstay by mid-2026, data center NAND revenue doubled QoQ setting record.
High-end Products: HBM4 achieving mass shipment (specifically designed for NVIDIA Vera Rubin), HBM4E development proceeding smoothly, mass production in 2027; PCIe Gen6 SSD based on G9 NAND achieving high volume production, 122TB large-capacity SSD market recognition is high.
II. Industry and Market Outlook
Supply-Demand Structure: DRAM/NAND supply tightness will continue beyond 2026, 2026 industry DRAM bit shipment growing low 20% or so, NAND approximately 20% growth, Micron supply growth pace in line with industry; core customer demand fulfillment rate only 50%-2/3.
AI Core Impact: 2026 AI will drive data center DRAM/NAND bit TAM for first time exceeding 50% of industry; AI server demand robust, 2026 server system shipment low double-digit growth, DRAM capacity per system continuing to increase.
End Market: 2026 PC/smartphone system shipment possibly low double-digit decline, but AI-driven storage capacity growth significant (flagship phone 12GB+ DRAM share rising from 20% to 80%, AI PC recommended 32GB+ configuration).
Emerging Tracks: Robotics industry entering 20-year growth cycle, humanoid robot storage demand comparable to L4 autonomous vehicles, becoming new growth pole.
III. Strategic Layout and Capacity Expansion
Customer Cooperation: Signed first 5-year strategic customer agreement (SCA), replacing traditional 1-year LTA, containing clear capacity/supply commitments, in discussion with multiple customers, deepening R&D and roadmap coordination.
Technology R&D: FY2027 will significantly increase R&D investment; 1δ DRAM will expand EUV application, R&D and mass production coordination layout accelerating product launch.
Global Capacity: Acquired Force Semiconductor Tainan facility and planning second cleanroom (FY2028 shipment); Idaho, New York, Hiroshima capacity construction advancing, new Singapore NAND fab (2028 mass production); India packaging test facility already commercial shipment, Singapore HBM advanced packaging facility 2027 contributing supply.
Following is the Micron earnings call transcript (AI-assisted translation, some content abridged)
Date: March 18, 2026 (Wednesday), 4:30 PM Eastern Time
Participants:
Chief Executive Officer: Sanjay Mehrotra
Chief Financial Officer: Mark Murphy
Sanjay Mehrotra: This fiscal Q2, the company’s revenue, gross margin, EPS, and free cash flow all set brilliant historical records. Micron delivered a remarkable report, quarterly revenue nearly tripled YoY, DRAM, NAND, high-bandwidth memory (HBM), and all business unit revenue setting historical records.
Our FY2026 Q3 single-quarter revenue guidance has exceeded all full-year revenue from company FY2024 and earlier. We expect FY2026 Q3 company revenue, gross margin, EPS, and free cash flow to achieve breakthrough growth. Based on confidence in the company’s sustained robust business development, I’m pleased to announce the board has approved raising quarterly dividend 30%.
**The significant improvement in company performance and positive outlook stem from AI-driven storage demand growth, structural industry supply constraints, and Micron’s comprehensive operational excellence.**Our storage solutions are core support for this AI revolution. Storage technology makes AI smarter and more powerful, enabling longer context windows, deeper reasoning chains, and multi-agent coordination. As AI technology evolves, we anticipate computing architecture will develop toward greater storage dependence. This is why we firmly believe Micron will be among the largest beneficiaries and enablers in AI domain.AI not only brings storage demand growth, but fundamentally reshapes storage value, making it a core strategic asset in the AI era.
We continuously engage with customers and advance signed strategic customer agreements (SCA), which fundamentally differ from previous long-term agreements (LTA), containing multiple-year explicit commitments, helping enhance company business model visibility and stability. These agreements enable customers to better plan their business while deepening long-term cooperation across full product lines. We’re very pleased to announce the company has signed its first five-year SCA. The company’s industry-leading 1γ process DRAM and ninth-generation NAND flash technology node mass production is proceeding smoothly, with 1γ process DRAM expected to become Micron’s largest-scale production technology node ever.
Our 1γ DRAM (sixth-generation 10nm-class DRAM) achieved historically fastest yield ramp speed, production scale expansion far exceeding all previous company technology nodes, as planned will become company DRAM bit shipment mainstay by mid-2026. We plan to further expand extreme ultraviolet lithography (EUV) technology application at 1δ DRAM (seventh-generation 10nm-class DRAM) node, adopting latest-generation EUV lithography equipment. These more advanced tools will help us optimize cleanroom space utilization and lithography pattern precision in 1δ and subsequent more advanced process upgrades.
In NAND flash, ninth-generation technology node also proceeding as planned, expected to become company NAND bit shipment mainstay by mid-2026. This quarter, company QLC flash shipment share also set historical record. Looking ahead, company plans R&D center and high-volume production fab coordination layout at Boise and Singapore bases, accelerating cutting-edge product launch. We see that in AI era, storage domain faces unprecedented development opportunities across market segments, therefore plan to significantly increase R&D investment in FY2027.
Micron’s technology leadership, product competitiveness, and manufacturing operational capability also received recognition in customer quality scores. I’m pleased to report that the vast majority of customers rank Micron as the #1 quality storage supplier. Next, I’ll introduce company performance across end markets.
In 2026, AI demand will drive data center DRAM and NAND bit market size for first time exceeding 50% of industry overall bit market size. Driven by both generative AI-related workload demand and server comprehensive upgrades, traditional server market demand remains robust. AI server demand remains strong, while both AI and traditional server demand constrained by DRAM and NAND supply shortfall. We expect 2026, driven by both AI and traditional server growth, server overall shipment to achieve low double-digit growth. With new platform launches, 2026 server DRAM capacity per system will continue increasing.
At NVIDIA GTC, we announced Micron achieved 36GB 12-layer HBM4 mass shipment in 2026, specifically designed for NVIDIA Vera Rubin chip. **As HBM4 mass production ramps and shipments advance, we expect its yield maturity speed will far exceed HBM3E.**Simultaneously, we’ve introduced 48GB 16-layer HBM4 samples, with 33% capacity improvement versus 12-layer HBM4.Company next-generation high-bandwidth memory HBM4E development proceeding smoothly, expected to achieve mass production in 2026.
Our HBM4E will leverage Micron’s mass-production-validated, industry-leading 1γ process DRAM technology, achieving breakthrough performance improvements, providing core support for industry’s next-generation AI computing platform. Additionally, HBM4D customization options will bring greater differentiation advantages, also driving deeper R&D collaboration with customers.
Micron first developed low-power DRAM (LPDRAM) for data centers, with power consumption only one-third of data center DDR DRAM server modules. Leveraging this technology leadership, we introduced industry’s first 256GB low-power system-on-chip storage module (LP SoC-M2) based on 1γ process, per CPU supporting up to 2TB storage capacity, a four-fold increase from a year ago.
We expect in coming years low-power DRAM data center application will continue expanding, company will also continue maintaining industry-leading innovative product roadmap in this market. AI rapid development has driven emergence of novel computing architectures optimizing TOKEN economics for specific workloads. Micron’s rich product portfolio including high-bandwidth memory (HBM), low-power memory (LP), dual data rate memory (DDR), and solid-state drive (SSD), forms core support for these novel architectures deployment. At this GTC, NVIDIA released Grok 3 LPX model incorporating up to 12TB DDR5 memory in rack-level architecture.
Driven by vector database, key-value cache offload and other AI application scenarios, and SSDs’ increasing share in capacity storage tier, data center NAND flash demand accelerating. Leveraging technology leadership and vertical integration advantages, Micron’s data center SSD product portfolio achieves comprehensive coverage from extreme performance to ultra-large capacity. Currently, PCIe Gen6 high-performance data center SSDs based on ninth-generation NAND flash achieving large-scale mass production. Our 122TB ultra-large capacity SSDs gained high market recognition, with 16x sequential read throughput per unit power versus same-capacity mechanical drives (HDD). Company’s strategic layout and operational execution continuously translating to performance results.
2025, company data center SSD market share achieved fourth consecutive calendar year growth, setting historical record. FY2026 Q2, data center NAND flash revenue doubled QoQ setting historical record, expected to continue growing next quarter. Micron’s data center SSD product portfolio maintaining industry leadership, winning substantial design wins in customer base. Foreseeable future, company NAND flash demand will substantially exceed current supply capacity.
2026, impacted by DRAM and NAND supply shortages among multiple factors, PC and smartphone systems overall shipment possibly experiencing low double-digit decline. But long-term, endpoint AI commercial value will drive PC and smartphone storage capacity continued substantial growth. In PC domain, generative AI applications recently experiencing innovation explosion, such as OpenClaw, whose AI agents can independently complete tasks locally or request cloud workloads. PCs featuring endpoint generative AI functions recommend storage configuration at least 32GB, double ordinary PCs. Additionally, personal AI workstation, an emerging category, growing rapidly, such as NVIDIA DGX Spark and AMD Ryzen AI Halo, both incorporating 128GB storage configuration, ideally suited for running large language models locally.
In smartphone domain, manufacturers recently released multiple flagship models with integrated generative AI features, such as Samsung Galaxy S26 and Google Pixel 10, whose mobile OS both embedding AI features. Q4 2026, flagship smartphones with 12GB+ DRAM share climbing to nearly 80%, whereas just a year ago this ratio was under 20%. Leveraging industry-leading product portfolio, Micron is fully prepared capturing this market opportunity.
In PC domain, company completed LPCAM2 low-power computer storage module certification at mainstream manufacturer. In SSD domain, we’ve introduced industry’s first fifth-generation client QLC SSD based on ninth-generation NAND flash.
Micron’s low-power DDR 5X memory (LPDDR5X) successfully integrated into mainstream personal AI workstations, expanding target market, currently achieving large-volume shipment to core customers. In smartphones, samples based on 1γ process low-power DDR 6 memory (LPDDR6) gained high attention and positive feedback from manufacturers and ecosystem partners. Company’s 10.7 Gbps 1γ process LPDDR5X 16Gb product completed additional manufacturer certification achieving mass production, market momentum sustaining climb. Auto, industrial, and embedded market product pricing sustaining rise, automotive and embedded business unit (AEBU) revenue setting historical record, with auto and industrial business combined revenue this quarter exceeding $2 billion.
In auto domain, auto manufacturers accelerating deployment of L2+ Advanced Driver Assistance System (ADAS) across full vehicle models. Currently, ordinary vehicle autonomous driving level mostly below L2, DRAM capacity about 16GB; whereas vehicles with L4 autonomous capability require DRAM capacity exceeding 300GB. As more advanced ADAS and smart cabins proliferate, we expect vehicle storage demand facing long-term robust growth. Company introduced industry’s first automotive-grade 1γ process LPDDR5 DRAM samples; in NAND flash domain, we first introduced automotive-grade universal flash storage 4.1 (UFS 4.1) solutions based on ninth-generation NAND flash, further consolidating company’s technology leadership in this market.
Rapid AI technology iteration substantially enhancing robot functionality and performance. We believe robotics industry is about to enter a 20-year growth cycle, potentially becoming one of science-technology sector’s largest product categories. Humanoid robots will integrate AI systems, their computing platform performance comparable with high-end L4 autonomous vehicles, therefore requiring ultra-large storage and memory support. We expect this highly promising emerging growth category will further strengthen storage industry’s long-term positive development landscape. Leveraging industry-leading technology, product solutions, and operational capability, plus close customer cooperation, Micron is fully prepared capturing robotics domain opportunities.
Next, I’ll introduce market outlook. **We expect 2026, industry DRAM and NAND bit demand will sustain supply constraint, and this supply tightness situation will continue beyond 2026. We expect 2026 industry DRAM bit shipment achieving approximately low 20% growth, slightly higher than our previous expectation.**In DRAM domain, cleanroom capacity limitation, extended factory construction cycles, high-bandwidth memory (HBM) trade ratio increase, accelerating HBM demand growth, and process node upgrade bringing slowed wafer unit bit output growth, jointly constraining bit supply growth.We expect 2026 industry NAND bit shipment increasing approximately 20%. In NAND domain, certain industry suppliers converting cleanroom capacity toward DRAM production, superimposed overall cleanroom capacity insufficiency, constraining NAND bit supply growth. We expect 2026 Micron DRAM and NAND bit supply growth pace basically in line with industry average level.
To address the vast supply-demand gap, Micron actively advancing global capacity layout, this quarter achieving multiple important milestone progress. In DRAM domain, earlier this week, we announced early completion of Force Semiconductor Tainan facility acquisition. The facility’s existing fab expected achieving meaningful product shipment in FY2028. Besides existing fab, we plan opening second equal-scale cleanroom at facility before 2026. Idaho’s first fab expected achieving first wafer mass production by mid-2027, currently second fab site preparation initiated. New York facility first fab broken ground, site preliminary preparation progressing well, exceeding expectations. In Japan, Hiroshima facility cleanroom expansion project site preparation progressing well, providing capacity support for company’s future technology node upgrades.
In NAND domain, based on upward market demand revision, and company decision to coordinate R&D cleanroom with mass production fab strategic consideration, we plan opening new NAND fab at Singapore facility, expected achieving first wafer mass production in 2028. In packaging and testing domain, company’s new factory in India achieved commercial shipment, this state-of-the-art facility becoming one of global largest single-layer packaging and testing cleanrooms. Singapore high-bandwidth memory (HBM) advanced packaging facility proceeding as planned, expected 2027 providing important support for Micron’s HBM supply. Expect FY2026 company capex exceeding $25 billion. Compared to previous conference call estimate, this capex increase primarily from cleanroom facility investment, with Tainan facility acquisition and construction largest share, followed by US fab project construction investment increase.
Expect FY2027 company capex will substantially increase, primarily for high-bandwidth memory (HBM) and DRAM-related investment. FY2027 company factory construction-related capex expected increasing over $10 billion YoY, primarily for global fab construction, meeting long-term market demand. Additionally, FY2027 equipment purchase capex expected also increasing YoY. While making these investments, we’ll continue monitoring market environment and customer demand, reasonably adjusting supply plans. Next, Mark will introduce FY2026 Q2 financial results and guidance.
Mark Murphy: Thank you Sanjay. Good afternoon everyone. FY2026 Q2 Micron achieved strong financial results, revenue, gross margin, and EPS all exceeding guidance upper limit. This quarter company created record free cash flow, repaid portion of debt, period-end net cash position setting historical record. FY2026 Q2 total revenue $23.9 billion, QoQ up 75%, YoY up 196%, fourth consecutive quarter setting historical record, $10.2 billion QoQ increase also setting company history record. Q2 DRAM revenue $18.8 billion setting historical record, YoY up 207%, representing 79% of total revenue, QoQ up 74%, bit shipment achieving mid-single digit growth.
Impacted by industry supply tightness, combined with product mix optimization, DRAM product QoQ increase reaching approximately 65%. Q2 NAND revenue $5 billion setting historical record, YoY up 169%, representing 21% of total revenue, QoQ up 82%, bit shipment achieving low single digit growth. Impacted by industry supply tightness, combined with product mix optimization, NAND product QoQ increase exceeding 75%. Company overall gross margin 75%, QoQ up 18 percentage points, growth momentum primarily from product price increase, also benefiting from product mix optimization and cost control effectiveness. This quarter gross margin nearly doubled versus prior year, setting company historical record.
Next I’ll introduce each business unit quarterly financial performance. Cloud and Client Business Unit (CMBU) revenue $7.7 billion setting historical record, representing 32% of total revenue, driven by product price increase and mix optimization, QoQ up 47%, gross margin 74%, QoQ up 9 percentage points, growth momentum from product price increase and cost control. Core Data Center Business Unit (CDBU) revenue $5.7 billion setting historical record, representing 24% of total revenue, gross margin 74%, QoQ up 23 percentage points, growth momentum from product price increase and mix optimization. Mobile/Consumer Business Unit (MCBU) revenue $7.7 billion setting historical record, representing 32% of total revenue, driven by product price increase (partially offset by bit shipment decline), QoQ up 81%, gross margin 79%, QoQ up 25 percentage points, growth momentum primarily from product price increase and mix optimization.
Automotive and Embedded Business Unit (AEBU) revenue $2.7 billion setting historical record, representing 11% of total revenue, driven by product price increase (partially offset by bit shipment decline), QoQ up 57%, gross margin 68%, QoQ up 23 percentage points, growth momentum primarily from product price increase. FY2026 Q2 operating expense $1.4 billion, QoQ increase $87 million, primarily driven by increased R&D expense. This quarter company operating profit $16.5 billion, operating margin 69%, QoQ up 22 percentage points, YoY up 44 percentage points. Q2 tax expense $2.5 billion, effective tax rate 15.1%. Non-GAAP diluted EPS $12.20, QoQ up 155%, YoY up 682%.
Next I’ll introduce cash flow and capex situation. FY2026 Q2 operating cash flow $11.9 billion, capex $5 billion, achieving free cash flow $6.9 billion setting company single-quarter history record, growing 77% versus FY2026 Q1 history record. Q2 period-end inventory $8.3 billion, QoQ increase $62 million, inventory days outstanding 123 days, with DRAM inventory days particularly tight, under 120 days. Period-end cash and investments totaling $16.7 billion setting historical record; plus unused credit facilities, company liquidity exceeding $20 billion. This quarter per Chips and Science Act provisions, company repurchased $350 million stock. Meanwhile company repaid $1.6 billion debt, including redeeming preferred notes due 2029 and 2030, company outstanding debt weighted average maturity August 2034. Quarter-end total debt $10.1 billion, net cash position $6.5 billion.
Company capital allocation first priority is reinvesting funds in business profitable growth, including R&D, capex, and other strategic investment. We’re committed to maintaining robust balance sheet, past three quarters total debt repayment exceeding $5 billion, currently net cash position at history best level. As Sanjay said, leveraging company leading technology strength and robust cash generation capability, board approved raising quarterly dividend 30%, to $0.15 per share.
Next I’ll announce guidance. FY2026 Q3 revenue $33.5 billion plus or minus $0.75 billion; gross margin approximately 81%; operating expense approximately $1.4 billion. Based on 1.15 billion outstanding shares, expected Q3 EPS $19.15 per share plus or minus $0.40. We expect product price increase, cost decrease and mix optimization will jointly drive Q3 gross margin further improving. As mentioned previous quarter, FY2026 is 53-week fiscal year, Q4 additional week will impact operating expense. FY2027 to capture storage domain unprecedented long-term development opportunity, company R&D investment will increase, operating expense expected accordingly rising. Expect FY2026 Q3 and full-year effective tax rate both approximately 15.1%.
To meet customer demand, Micron systematically conducting global capacity investment. As previously stated, company raising FY2026 capex expectation to $25 billion or over. FY2026 Q3 capex expected approximately $7 billion, meanwhile company will achieve substantial free cash flow and operating cash flow growth. Driven by cleanroom capacity demand, expect FY2026 and FY2027 company factory construction-related spending growth exceeding equipment purchase spending. This guidance not considering possible impact from trade or geopolitical factors. Next Sanjay will make closing remarks.
Sanjay Mehrotra: Thank you Mark. Decades of sustained investment, innovation, and operational execution made Micron storage domain technology leader, also among semiconductor industry AI domain’s largest beneficiaries and enablers. As America’s sole advanced storage product manufacturer, Micron uniquely positioned capturing unprecedented future development opportunity. I must thank all global employees’ dedicated efforts, your outstanding execution created this remarkable quarter. Despite this quarter’s excellent performance, I’m even more expectant of Micron’s future development. Now entering Q&A session.
Moderator: Thank you. Now beginning Q&A session, each questioner limited to one main question and one follow-up. First question from Royal Bank of Canada Capital Markets’ Krish Sankar, please ask.
Krish Sankar: Company’s 81% gross margin guidance extremely impressive. I’d like to understandwith HBM4 mass production scale expanding, gross margin sustainability how? Can you analyze August quarter (i.e., Q4 fiscal year) and subsequent gross margin trajectory? Additionally I have another question to ask Sanjay.
Mark Murphy: Krish, I’m Mark. Company Q3 gross margin guidance surged significantly 6 percentage points QoQ, showing strong performance. Currently we’re not releasing Q4 gross margin guidance, but previously stated industry supply tightness will sustain beyond 2026. Therefore Q4 and beyond gross margin will continue benefiting from AI-driven multi-year investment cycle, most of this cycle’s benefits still ahead. AI requires more, higher-performance storage products, this will directly reflect in gross margin. Simultaneously as we previously said, industry supply constraints sustaining beyond 2026 will also support gross margin.
81% gross margin guidance already considering HBM4 mass production growth factors, and as I said, market environment will improve. But note at current high gross margin level, product price increase’s marginal gross margin boost effect will somewhat weaken. Besides this we currently cannot disclose more Q4 gross margin information.
Krish Sankar: Understood. Next question for Sanjay regarding strategic customer agreement (SCA), congratulations on company signing first five-year SCA. How does this agreement substantially differ from previous long-term agreements (LTA)? Does it include multi-year shipment volume and pricing lock-in commitments, or pricing still requires annual negotiation? Additionally if industry cycle downturn, how are agreement termination clauses stipulated?
Sanjay Mehrotra: Thank you. Thanks for attention to company’s first SCA signing. As you said SCA is multi-year agreement, which I also mentioned in previous remarks. While LTA typically one-year agreement. Current industry supply tightness situation will persist in foreseeable future, therefore customers wanting better self-business planning, enhanced predictability extremely willing signing this structural long-term strategic cooperation agreement with us. This type agreement not only brings customer stability, also enhances our business model visibility.
Company currently only signed one SCA, therefore presently cannot disclose specific agreement details, believing you understand such agreements inherently possess confidentiality. But core objective both enabling customers obtaining clear supply commitments facilitating business planning, while enabling us obtaining clear customer cooperation commitments. Agreement terms spanning different cycle stages, whether supply tightness or other stages, this also was motivation for signing long-term agreements, therefore agreement terms binding on both parties. Agreement terms establish complete rights and obligations for both Micron and customer.
Krish Sankar: Understood very much thank you.
Moderator: Next question from Morgan Stanley’s Joseph Mule, please ask.
Joseph Mule: Want to ask company product allocation strategy across end markets. Obviously AI domain demand most urgent, butis company concerned consumer PC and smartphone markets experiencing demand shrinkage? In product allocation how does company balance large and small-mid customers? What’s overall allocation thinking?
Sanjay Mehrotra: Currently all end market supplies extremely tight, all market demand trends sustaining robust. Although you mentioned price-sensitive consumer electronics markets may experience some demand impact from product price increase, overall demand remains vigorous.**
Our core strategy always being diverse supplier across end markets this absolutely crucial to company development. Of course data center becoming increasingly important component in industry market size (TAM), therefore company supply resources will tilt toward this domain, this also is industry and company core growth driver.
But PCs, smartphones, autos, industrial and other markets equally important to us, we hope maintaining diverse end market product portfolio. Must emphasize whether data center or consumer electronics markets (such as smartphones, PCs), AI trend sustaining driving storage capacity enhancement. Under widespread supply tightness environment customers also actively adjusting self-product portfolio strategy. Overall we’re maintaining close communication and cooperation with various end market customers.
Joseph Mule: Good, thank you. I recall company previously saying certain customers’ demand fulfillment rate approximately 70%, currently has this proportion changed? Do different customers’ fulfillment rates exist variance, what changed versus three months ago?
Sanjay Mehrotra: In previous earnings conference we statedfor certain core customers medium-term we can only meet 50% to two-thirds their product demand, currently this situation remains unchanged.
Joseph Mule: Good thank you. This quarter performance excellent congratulations on sharing.
Moderator: Next question from Timothy Michael Arcuri, please ask.
Michael Arcuri: Thank you. Sanjay I also want to ask SCA-related questions. We’re all thinking about market landscape after industry cycle downturns, hoping such agreements can set downside protection mechanism for company gross margin. I know you cannot disclose excessive details but can you reveal whether agreement contains related mechanism limiting company gross margin decline amplitude during cycle downturns?
Sanjay Mehrotra: Due agreement confidentiality we presently cannot disclose SCA’s specific terms. Company currently only signed one SCA meanwhile actively discussing related cooperation with multiple customers. Upon subsequently signing more agreements we’ll disclose additional details based on actual circumstances. I want emphasize SCA is multi-year agreement containing clear bilateral commitments, complete provisions, core objective enhancing company business model visibility and stability. Besides this currently cannot provide additional details.
Timothy Michael Arcuri: Good thanks. Mark I have another cash flow question. This fiscal year company’s expected free cash flow reaching 350-400 million dollars, by end of 2026 company cash reserves potentially exceeding 500 million dollars. How does company plan utilizing these funds? Will company reserve portion funds undertaking stock repurchase during industry cycle downturns? Also impacted by Chips and Science Act relevant provisions limiting company stock repurchase, does company plan promoting clause adjustment? Thanks.
Mark Murphy: Timothy company’s outstanding business performance and continuous balance sheet optimization making us deeply gratified. Q2 company net cash position and free cash flow both setting historical records, free cash flow growing 77% versus previous historical record. From Q3 guidance we released combined with capex expectations company free cash flow hopefully achieving near double QoQ improvement. We’ll continuously strengthen balance sheet further enhancing net cash position meanwhile continuing debt repayment. Worth mentioning is this quarter company obtained two credit rating upgrades currently possessing stable BBB credit rating.
Company financial position sustaining improvement meanwhile as you see we plan increasing capex and R&D investment. Regarding capital allocation priority question you mentioned balance sheet robustness always first priority followed by organic business investment including technology upgrade and high-value bit capacity construction this also is current market core demand. Currently company capital return rate exceeded 30% hoped to further improving to 50% but we’ll maintain investment prudence. As announced today company raising quarterly dividend 30% embodying our confidence in business prospects judgment regarding business stability and future cash dividend planning.
Additionally as you said company future will have ample funds for stock repurchase returning to shareholders including offsetting equity incentive share dilution and opportunistically capturing market opportunities.
Timothy Michael Arcuri: Thanks Mark.
Moderator: Next question from Cantor Fitzgerald’s Christopher James Muse, please ask.
Christopher James Muse: Good afternoon all thanks for answering. I also want to follow-up SCA question. Company’s customer agreements underwent evolution from LTA, binding LTA to current SCA I want understanding current SCA negotiation customer scope? Does it only include hyperscale cloud vendors or other customer types? I know you cannot disclose agreement specifics combined with previous question want asking whether agreement contains pre-conditions related company capex? Does pricing couple with these investment capital return rates (ROIC)? Please answer thanks.
Sanjay Mehrotra: We previously disclosed first SCA’s cooperating party major customer. These agreement type’s core objective is enabling us more confidently planning future supply capacity investment meanwhile by clear terms enhancing future demand visibility as I previously said also strengthening company business model stability. Besides this we presently cannot disclose additional SCA information only saying currently actively discussing cooperation with multiple customers and discussion scope covering multiple market segments.
Christopher James Muse: Very much thanks. Ask another HBM-related question company previously issued HBM market CAGR 40% guidance per which estimating 2026 market scale approximately $50 billion currently has this expectation changed? Additionally considering current non-HBM products’ gross margin higher HBM does industry participant plan converting storage capacity from HBM to DDR5? Thanks.
Sanjay Mehrotra: Right currently non-HBM products’ gross margin indeed higher than HBM but HBM demand sustaining robust. We currently haven’t adjusted previous HBM market scale (TAM) expectation issued. Data center domain DDR5, low-power memory (LP) and HBM demand all sustaining vigorous. Following data center AI demand growth we’ll continue optimizing product mix strategy. As previously stated besides data center we’ll continue focusing other core markets ensuring respective market share. Currently from data center to edge AI demand trend sustaining robust we’ll continue optimizing product mix Micron’s full product line maintaining strong data center growth potential. Must emphasize our product portfolio spans HBM, LP, SoC-M, DDR5 and data center SSDs past years company data center SSD market share achieved substantial improvement.
Moderator: Next question from JPMorgan’s Harlan L. Sur please ask.
Harlan L. Sur: Good afternoon all congratulations company achieving impressive performance and excellent quarterly operational performance. Sanjay following your recent SSD topic I previously estimated November 2025 company enterprise SSD business revenue occupying nearly 50% flash memory business total revenue at time this business revenue QoQ growing 60% product portfolio optimization bringing company significant gross margin improvement Micron team performance excellent. In this excellent performance foundation 2026 February 2 company enterprise SSD business revenue QoQ doubled currently still occupying 50% NAND flash business.
Looking ahead following ninth-generation (G9) NAND flash node continuing mass production company based on this node’s next-generation enterprise SSDs achieved full category coverage including performance-optimized, capacity-optimized and mainstream products this whether providing sufficient momentum for company enterprise SSD business for remainder 2026 and 2027 sequential growth? Additionally want asking company’s view toward emerging high-bandwidth flash (HBF) storage tier does Micron team plan investing R&D resource layout this domain?
Sanjay Mehrotra: Regarding data center SSD question this domain’s future growth potential robust. Currently NAND flash supply sustaining tight demand remaining vigorous data center SSDs are primary NAND flash growth driver. Leveraging technology leadership and vertical integration advantages Micron’s data center SSD product portfolio achieving comprehensive performance to ultra-large capacity coverage. Currently based ninth-generation NAND flash’s PCIe Gen6 high-performance
ストレージの「半導体不足」は来年まで続く見込み！マイクロンの決算会議：顧客の50%の需要しか満たせず、早急に「投資して工場を建てる」必要がある
Ask AI · How does AI demand drive the soaring value of storage chips?
Cailian Press, March 19th (Editor Liu Rui) On March 18th Eastern Time, Micron Technology released its Q2 FY2026 financial report, delivering a remarkable report card with multiple historical records.
Micron executives stated on the earnings call that driven by sustained explosive AI demand, tight industry storage product supply, and the company’s advanced technology mass production rollout, Micron’s Q2 core financial indicators including revenue, gross margin, and free cash flow all set historical peaks, with all product lines and business segments flowering comprehensively, while the company’s Q3 guidance once again significantly exceeded expectations.
Micron executives also mentioned that the current storage chip industry is facing supply shortages, and this situation will continue beyond 2026, providing solid support for near and medium-term product pricing. Driven by robust demand, Micron signed its first five-year strategic customer agreement.
Executives revealed that Micron’s HBM4, specifically designed for NVIDIA’s Vera Rubin, has achieved mass shipments, with the next-generation HBM4E in successful development and expected to reach mass production in 2027. Meanwhile, to meet strong customer demand, Micron will significantly increase capital expenditure over the next two fiscal years to build factories and purchase equipment, thereby boosting capacity.
I. Core Product Line Performance
DRAM: Revenue $18.8 billion, YoY +207%, QoQ +74%; pricing increased 65%-67% QoQ with mid-single digit shipment growth, 1γ DRAM mass production speed reaches company historical record, will become production mainstay by mid-2026.
NAND: Revenue $5 billion, YoY +169%, QoQ +82%; pricing increased 75%-79% QoQ with low single digit shipment growth; G9 NAND proceeding as planned, will become production mainstay by mid-2026, data center NAND revenue doubled QoQ setting record.
High-end Products: HBM4 achieving mass shipment (specifically designed for NVIDIA Vera Rubin), HBM4E development proceeding smoothly, mass production in 2027; PCIe Gen6 SSD based on G9 NAND achieving high volume production, 122TB large-capacity SSD market recognition is high.
II. Industry and Market Outlook
Supply-Demand Structure: DRAM/NAND supply tightness will continue beyond 2026, 2026 industry DRAM bit shipment growing low 20% or so, NAND approximately 20% growth, Micron supply growth pace in line with industry; core customer demand fulfillment rate only 50%-2/3.
AI Core Impact: 2026 AI will drive data center DRAM/NAND bit TAM for first time exceeding 50% of industry; AI server demand robust, 2026 server system shipment low double-digit growth, DRAM capacity per system continuing to increase.
End Market: 2026 PC/smartphone system shipment possibly low double-digit decline, but AI-driven storage capacity growth significant (flagship phone 12GB+ DRAM share rising from 20% to 80%, AI PC recommended 32GB+ configuration).
Emerging Tracks: Robotics industry entering 20-year growth cycle, humanoid robot storage demand comparable to L4 autonomous vehicles, becoming new growth pole.
III. Strategic Layout and Capacity Expansion
Customer Cooperation: Signed first 5-year strategic customer agreement (SCA), replacing traditional 1-year LTA, containing clear capacity/supply commitments, in discussion with multiple customers, deepening R&D and roadmap coordination.
Technology R&D: FY2027 will significantly increase R&D investment; 1δ DRAM will expand EUV application, R&D and mass production coordination layout accelerating product launch.
Global Capacity: Acquired Force Semiconductor Tainan facility and planning second cleanroom (FY2028 shipment); Idaho, New York, Hiroshima capacity construction advancing, new Singapore NAND fab (2028 mass production); India packaging test facility already commercial shipment, Singapore HBM advanced packaging facility 2027 contributing supply.
Following is the Micron earnings call transcript (AI-assisted translation, some content abridged)
Date: March 18, 2026 (Wednesday), 4:30 PM Eastern Time
Participants:
Chief Executive Officer: Sanjay Mehrotra
Chief Financial Officer: Mark Murphy
Sanjay Mehrotra: This fiscal Q2, the company’s revenue, gross margin, EPS, and free cash flow all set brilliant historical records. Micron delivered a remarkable report, quarterly revenue nearly tripled YoY, DRAM, NAND, high-bandwidth memory (HBM), and all business unit revenue setting historical records.
Our FY2026 Q3 single-quarter revenue guidance has exceeded all full-year revenue from company FY2024 and earlier. We expect FY2026 Q3 company revenue, gross margin, EPS, and free cash flow to achieve breakthrough growth. Based on confidence in the company’s sustained robust business development, I’m pleased to announce the board has approved raising quarterly dividend 30%.
**The significant improvement in company performance and positive outlook stem from AI-driven storage demand growth, structural industry supply constraints, and Micron’s comprehensive operational excellence.**Our storage solutions are core support for this AI revolution. Storage technology makes AI smarter and more powerful, enabling longer context windows, deeper reasoning chains, and multi-agent coordination. As AI technology evolves, we anticipate computing architecture will develop toward greater storage dependence. This is why we firmly believe Micron will be among the largest beneficiaries and enablers in AI domain.AI not only brings storage demand growth, but fundamentally reshapes storage value, making it a core strategic asset in the AI era.
We continuously engage with customers and advance signed strategic customer agreements (SCA), which fundamentally differ from previous long-term agreements (LTA), containing multiple-year explicit commitments, helping enhance company business model visibility and stability. These agreements enable customers to better plan their business while deepening long-term cooperation across full product lines. We’re very pleased to announce the company has signed its first five-year SCA. The company’s industry-leading 1γ process DRAM and ninth-generation NAND flash technology node mass production is proceeding smoothly, with 1γ process DRAM expected to become Micron’s largest-scale production technology node ever.
Our 1γ DRAM (sixth-generation 10nm-class DRAM) achieved historically fastest yield ramp speed, production scale expansion far exceeding all previous company technology nodes, as planned will become company DRAM bit shipment mainstay by mid-2026. We plan to further expand extreme ultraviolet lithography (EUV) technology application at 1δ DRAM (seventh-generation 10nm-class DRAM) node, adopting latest-generation EUV lithography equipment. These more advanced tools will help us optimize cleanroom space utilization and lithography pattern precision in 1δ and subsequent more advanced process upgrades.
In NAND flash, ninth-generation technology node also proceeding as planned, expected to become company NAND bit shipment mainstay by mid-2026. This quarter, company QLC flash shipment share also set historical record. Looking ahead, company plans R&D center and high-volume production fab coordination layout at Boise and Singapore bases, accelerating cutting-edge product launch. We see that in AI era, storage domain faces unprecedented development opportunities across market segments, therefore plan to significantly increase R&D investment in FY2027.
Micron’s technology leadership, product competitiveness, and manufacturing operational capability also received recognition in customer quality scores. I’m pleased to report that the vast majority of customers rank Micron as the #1 quality storage supplier. Next, I’ll introduce company performance across end markets.
In 2026, AI demand will drive data center DRAM and NAND bit market size for first time exceeding 50% of industry overall bit market size. Driven by both generative AI-related workload demand and server comprehensive upgrades, traditional server market demand remains robust. AI server demand remains strong, while both AI and traditional server demand constrained by DRAM and NAND supply shortfall. We expect 2026, driven by both AI and traditional server growth, server overall shipment to achieve low double-digit growth. With new platform launches, 2026 server DRAM capacity per system will continue increasing.
At NVIDIA GTC, we announced Micron achieved 36GB 12-layer HBM4 mass shipment in 2026, specifically designed for NVIDIA Vera Rubin chip. **As HBM4 mass production ramps and shipments advance, we expect its yield maturity speed will far exceed HBM3E.**Simultaneously, we’ve introduced 48GB 16-layer HBM4 samples, with 33% capacity improvement versus 12-layer HBM4.Company next-generation high-bandwidth memory HBM4E development proceeding smoothly, expected to achieve mass production in 2026.
Our HBM4E will leverage Micron’s mass-production-validated, industry-leading 1γ process DRAM technology, achieving breakthrough performance improvements, providing core support for industry’s next-generation AI computing platform. Additionally, HBM4D customization options will bring greater differentiation advantages, also driving deeper R&D collaboration with customers.
Micron first developed low-power DRAM (LPDRAM) for data centers, with power consumption only one-third of data center DDR DRAM server modules. Leveraging this technology leadership, we introduced industry’s first 256GB low-power system-on-chip storage module (LP SoC-M2) based on 1γ process, per CPU supporting up to 2TB storage capacity, a four-fold increase from a year ago.
We expect in coming years low-power DRAM data center application will continue expanding, company will also continue maintaining industry-leading innovative product roadmap in this market. AI rapid development has driven emergence of novel computing architectures optimizing TOKEN economics for specific workloads. Micron’s rich product portfolio including high-bandwidth memory (HBM), low-power memory (LP), dual data rate memory (DDR), and solid-state drive (SSD), forms core support for these novel architectures deployment. At this GTC, NVIDIA released Grok 3 LPX model incorporating up to 12TB DDR5 memory in rack-level architecture.
Driven by vector database, key-value cache offload and other AI application scenarios, and SSDs’ increasing share in capacity storage tier, data center NAND flash demand accelerating. Leveraging technology leadership and vertical integration advantages, Micron’s data center SSD product portfolio achieves comprehensive coverage from extreme performance to ultra-large capacity. Currently, PCIe Gen6 high-performance data center SSDs based on ninth-generation NAND flash achieving large-scale mass production. Our 122TB ultra-large capacity SSDs gained high market recognition, with 16x sequential read throughput per unit power versus same-capacity mechanical drives (HDD). Company’s strategic layout and operational execution continuously translating to performance results.
2025, company data center SSD market share achieved fourth consecutive calendar year growth, setting historical record. FY2026 Q2, data center NAND flash revenue doubled QoQ setting historical record, expected to continue growing next quarter. Micron’s data center SSD product portfolio maintaining industry leadership, winning substantial design wins in customer base. Foreseeable future, company NAND flash demand will substantially exceed current supply capacity.
2026, impacted by DRAM and NAND supply shortages among multiple factors, PC and smartphone systems overall shipment possibly experiencing low double-digit decline. But long-term, endpoint AI commercial value will drive PC and smartphone storage capacity continued substantial growth. In PC domain, generative AI applications recently experiencing innovation explosion, such as OpenClaw, whose AI agents can independently complete tasks locally or request cloud workloads. PCs featuring endpoint generative AI functions recommend storage configuration at least 32GB, double ordinary PCs. Additionally, personal AI workstation, an emerging category, growing rapidly, such as NVIDIA DGX Spark and AMD Ryzen AI Halo, both incorporating 128GB storage configuration, ideally suited for running large language models locally.
In smartphone domain, manufacturers recently released multiple flagship models with integrated generative AI features, such as Samsung Galaxy S26 and Google Pixel 10, whose mobile OS both embedding AI features. Q4 2026, flagship smartphones with 12GB+ DRAM share climbing to nearly 80%, whereas just a year ago this ratio was under 20%. Leveraging industry-leading product portfolio, Micron is fully prepared capturing this market opportunity.
In PC domain, company completed LPCAM2 low-power computer storage module certification at mainstream manufacturer. In SSD domain, we’ve introduced industry’s first fifth-generation client QLC SSD based on ninth-generation NAND flash.
Micron’s low-power DDR 5X memory (LPDDR5X) successfully integrated into mainstream personal AI workstations, expanding target market, currently achieving large-volume shipment to core customers. In smartphones, samples based on 1γ process low-power DDR 6 memory (LPDDR6) gained high attention and positive feedback from manufacturers and ecosystem partners. Company’s 10.7 Gbps 1γ process LPDDR5X 16Gb product completed additional manufacturer certification achieving mass production, market momentum sustaining climb. Auto, industrial, and embedded market product pricing sustaining rise, automotive and embedded business unit (AEBU) revenue setting historical record, with auto and industrial business combined revenue this quarter exceeding $2 billion.
In auto domain, auto manufacturers accelerating deployment of L2+ Advanced Driver Assistance System (ADAS) across full vehicle models. Currently, ordinary vehicle autonomous driving level mostly below L2, DRAM capacity about 16GB; whereas vehicles with L4 autonomous capability require DRAM capacity exceeding 300GB. As more advanced ADAS and smart cabins proliferate, we expect vehicle storage demand facing long-term robust growth. Company introduced industry’s first automotive-grade 1γ process LPDDR5 DRAM samples; in NAND flash domain, we first introduced automotive-grade universal flash storage 4.1 (UFS 4.1) solutions based on ninth-generation NAND flash, further consolidating company’s technology leadership in this market.
Rapid AI technology iteration substantially enhancing robot functionality and performance. We believe robotics industry is about to enter a 20-year growth cycle, potentially becoming one of science-technology sector’s largest product categories. Humanoid robots will integrate AI systems, their computing platform performance comparable with high-end L4 autonomous vehicles, therefore requiring ultra-large storage and memory support. We expect this highly promising emerging growth category will further strengthen storage industry’s long-term positive development landscape. Leveraging industry-leading technology, product solutions, and operational capability, plus close customer cooperation, Micron is fully prepared capturing robotics domain opportunities.
Next, I’ll introduce market outlook. **We expect 2026, industry DRAM and NAND bit demand will sustain supply constraint, and this supply tightness situation will continue beyond 2026. We expect 2026 industry DRAM bit shipment achieving approximately low 20% growth, slightly higher than our previous expectation.**In DRAM domain, cleanroom capacity limitation, extended factory construction cycles, high-bandwidth memory (HBM) trade ratio increase, accelerating HBM demand growth, and process node upgrade bringing slowed wafer unit bit output growth, jointly constraining bit supply growth.We expect 2026 industry NAND bit shipment increasing approximately 20%. In NAND domain, certain industry suppliers converting cleanroom capacity toward DRAM production, superimposed overall cleanroom capacity insufficiency, constraining NAND bit supply growth. We expect 2026 Micron DRAM and NAND bit supply growth pace basically in line with industry average level.
To address the vast supply-demand gap, Micron actively advancing global capacity layout, this quarter achieving multiple important milestone progress. In DRAM domain, earlier this week, we announced early completion of Force Semiconductor Tainan facility acquisition. The facility’s existing fab expected achieving meaningful product shipment in FY2028. Besides existing fab, we plan opening second equal-scale cleanroom at facility before 2026. Idaho’s first fab expected achieving first wafer mass production by mid-2027, currently second fab site preparation initiated. New York facility first fab broken ground, site preliminary preparation progressing well, exceeding expectations. In Japan, Hiroshima facility cleanroom expansion project site preparation progressing well, providing capacity support for company’s future technology node upgrades.
In NAND domain, based on upward market demand revision, and company decision to coordinate R&D cleanroom with mass production fab strategic consideration, we plan opening new NAND fab at Singapore facility, expected achieving first wafer mass production in 2028. In packaging and testing domain, company’s new factory in India achieved commercial shipment, this state-of-the-art facility becoming one of global largest single-layer packaging and testing cleanrooms. Singapore high-bandwidth memory (HBM) advanced packaging facility proceeding as planned, expected 2027 providing important support for Micron’s HBM supply. Expect FY2026 company capex exceeding $25 billion. Compared to previous conference call estimate, this capex increase primarily from cleanroom facility investment, with Tainan facility acquisition and construction largest share, followed by US fab project construction investment increase.
Expect FY2027 company capex will substantially increase, primarily for high-bandwidth memory (HBM) and DRAM-related investment. FY2027 company factory construction-related capex expected increasing over $10 billion YoY, primarily for global fab construction, meeting long-term market demand. Additionally, FY2027 equipment purchase capex expected also increasing YoY. While making these investments, we’ll continue monitoring market environment and customer demand, reasonably adjusting supply plans. Next, Mark will introduce FY2026 Q2 financial results and guidance.
Mark Murphy: Thank you Sanjay. Good afternoon everyone. FY2026 Q2 Micron achieved strong financial results, revenue, gross margin, and EPS all exceeding guidance upper limit. This quarter company created record free cash flow, repaid portion of debt, period-end net cash position setting historical record. FY2026 Q2 total revenue $23.9 billion, QoQ up 75%, YoY up 196%, fourth consecutive quarter setting historical record, $10.2 billion QoQ increase also setting company history record. Q2 DRAM revenue $18.8 billion setting historical record, YoY up 207%, representing 79% of total revenue, QoQ up 74%, bit shipment achieving mid-single digit growth.
Impacted by industry supply tightness, combined with product mix optimization, DRAM product QoQ increase reaching approximately 65%. Q2 NAND revenue $5 billion setting historical record, YoY up 169%, representing 21% of total revenue, QoQ up 82%, bit shipment achieving low single digit growth. Impacted by industry supply tightness, combined with product mix optimization, NAND product QoQ increase exceeding 75%. Company overall gross margin 75%, QoQ up 18 percentage points, growth momentum primarily from product price increase, also benefiting from product mix optimization and cost control effectiveness. This quarter gross margin nearly doubled versus prior year, setting company historical record.
Next I’ll introduce each business unit quarterly financial performance. Cloud and Client Business Unit (CMBU) revenue $7.7 billion setting historical record, representing 32% of total revenue, driven by product price increase and mix optimization, QoQ up 47%, gross margin 74%, QoQ up 9 percentage points, growth momentum from product price increase and cost control. Core Data Center Business Unit (CDBU) revenue $5.7 billion setting historical record, representing 24% of total revenue, gross margin 74%, QoQ up 23 percentage points, growth momentum from product price increase and mix optimization. Mobile/Consumer Business Unit (MCBU) revenue $7.7 billion setting historical record, representing 32% of total revenue, driven by product price increase (partially offset by bit shipment decline), QoQ up 81%, gross margin 79%, QoQ up 25 percentage points, growth momentum primarily from product price increase and mix optimization.
Automotive and Embedded Business Unit (AEBU) revenue $2.7 billion setting historical record, representing 11% of total revenue, driven by product price increase (partially offset by bit shipment decline), QoQ up 57%, gross margin 68%, QoQ up 23 percentage points, growth momentum primarily from product price increase. FY2026 Q2 operating expense $1.4 billion, QoQ increase $87 million, primarily driven by increased R&D expense. This quarter company operating profit $16.5 billion, operating margin 69%, QoQ up 22 percentage points, YoY up 44 percentage points. Q2 tax expense $2.5 billion, effective tax rate 15.1%. Non-GAAP diluted EPS $12.20, QoQ up 155%, YoY up 682%.
Next I’ll introduce cash flow and capex situation. FY2026 Q2 operating cash flow $11.9 billion, capex $5 billion, achieving free cash flow $6.9 billion setting company single-quarter history record, growing 77% versus FY2026 Q1 history record. Q2 period-end inventory $8.3 billion, QoQ increase $62 million, inventory days outstanding 123 days, with DRAM inventory days particularly tight, under 120 days. Period-end cash and investments totaling $16.7 billion setting historical record; plus unused credit facilities, company liquidity exceeding $20 billion. This quarter per Chips and Science Act provisions, company repurchased $350 million stock. Meanwhile company repaid $1.6 billion debt, including redeeming preferred notes due 2029 and 2030, company outstanding debt weighted average maturity August 2034. Quarter-end total debt $10.1 billion, net cash position $6.5 billion.
Company capital allocation first priority is reinvesting funds in business profitable growth, including R&D, capex, and other strategic investment. We’re committed to maintaining robust balance sheet, past three quarters total debt repayment exceeding $5 billion, currently net cash position at history best level. As Sanjay said, leveraging company leading technology strength and robust cash generation capability, board approved raising quarterly dividend 30%, to $0.15 per share.
Next I’ll announce guidance. FY2026 Q3 revenue $33.5 billion plus or minus $0.75 billion; gross margin approximately 81%; operating expense approximately $1.4 billion. Based on 1.15 billion outstanding shares, expected Q3 EPS $19.15 per share plus or minus $0.40. We expect product price increase, cost decrease and mix optimization will jointly drive Q3 gross margin further improving. As mentioned previous quarter, FY2026 is 53-week fiscal year, Q4 additional week will impact operating expense. FY2027 to capture storage domain unprecedented long-term development opportunity, company R&D investment will increase, operating expense expected accordingly rising. Expect FY2026 Q3 and full-year effective tax rate both approximately 15.1%.
To meet customer demand, Micron systematically conducting global capacity investment. As previously stated, company raising FY2026 capex expectation to $25 billion or over. FY2026 Q3 capex expected approximately $7 billion, meanwhile company will achieve substantial free cash flow and operating cash flow growth. Driven by cleanroom capacity demand, expect FY2026 and FY2027 company factory construction-related spending growth exceeding equipment purchase spending. This guidance not considering possible impact from trade or geopolitical factors. Next Sanjay will make closing remarks.
Sanjay Mehrotra: Thank you Mark. Decades of sustained investment, innovation, and operational execution made Micron storage domain technology leader, also among semiconductor industry AI domain’s largest beneficiaries and enablers. As America’s sole advanced storage product manufacturer, Micron uniquely positioned capturing unprecedented future development opportunity. I must thank all global employees’ dedicated efforts, your outstanding execution created this remarkable quarter. Despite this quarter’s excellent performance, I’m even more expectant of Micron’s future development. Now entering Q&A session.
Moderator: Thank you. Now beginning Q&A session, each questioner limited to one main question and one follow-up. First question from Royal Bank of Canada Capital Markets’ Krish Sankar, please ask.
Krish Sankar: Company’s 81% gross margin guidance extremely impressive. I’d like to understandwith HBM4 mass production scale expanding, gross margin sustainability how? Can you analyze August quarter (i.e., Q4 fiscal year) and subsequent gross margin trajectory? Additionally I have another question to ask Sanjay.
Mark Murphy: Krish, I’m Mark. Company Q3 gross margin guidance surged significantly 6 percentage points QoQ, showing strong performance. Currently we’re not releasing Q4 gross margin guidance, but previously stated industry supply tightness will sustain beyond 2026. Therefore Q4 and beyond gross margin will continue benefiting from AI-driven multi-year investment cycle, most of this cycle’s benefits still ahead. AI requires more, higher-performance storage products, this will directly reflect in gross margin. Simultaneously as we previously said, industry supply constraints sustaining beyond 2026 will also support gross margin.
81% gross margin guidance already considering HBM4 mass production growth factors, and as I said, market environment will improve. But note at current high gross margin level, product price increase’s marginal gross margin boost effect will somewhat weaken. Besides this we currently cannot disclose more Q4 gross margin information.
Krish Sankar: Understood. Next question for Sanjay regarding strategic customer agreement (SCA), congratulations on company signing first five-year SCA. How does this agreement substantially differ from previous long-term agreements (LTA)? Does it include multi-year shipment volume and pricing lock-in commitments, or pricing still requires annual negotiation? Additionally if industry cycle downturn, how are agreement termination clauses stipulated?
Sanjay Mehrotra: Thank you. Thanks for attention to company’s first SCA signing. As you said SCA is multi-year agreement, which I also mentioned in previous remarks. While LTA typically one-year agreement. Current industry supply tightness situation will persist in foreseeable future, therefore customers wanting better self-business planning, enhanced predictability extremely willing signing this structural long-term strategic cooperation agreement with us. This type agreement not only brings customer stability, also enhances our business model visibility.
Company currently only signed one SCA, therefore presently cannot disclose specific agreement details, believing you understand such agreements inherently possess confidentiality. But core objective both enabling customers obtaining clear supply commitments facilitating business planning, while enabling us obtaining clear customer cooperation commitments. Agreement terms spanning different cycle stages, whether supply tightness or other stages, this also was motivation for signing long-term agreements, therefore agreement terms binding on both parties. Agreement terms establish complete rights and obligations for both Micron and customer.
Krish Sankar: Understood very much thank you.
Moderator: Next question from Morgan Stanley’s Joseph Mule, please ask.
Joseph Mule: Want to ask company product allocation strategy across end markets. Obviously AI domain demand most urgent, butis company concerned consumer PC and smartphone markets experiencing demand shrinkage? In product allocation how does company balance large and small-mid customers? What’s overall allocation thinking?
Sanjay Mehrotra: Currently all end market supplies extremely tight, all market demand trends sustaining robust. Although you mentioned price-sensitive consumer electronics markets may experience some demand impact from product price increase, overall demand remains vigorous.**
Our core strategy always being diverse supplier across end markets this absolutely crucial to company development. Of course data center becoming increasingly important component in industry market size (TAM), therefore company supply resources will tilt toward this domain, this also is industry and company core growth driver.
But PCs, smartphones, autos, industrial and other markets equally important to us, we hope maintaining diverse end market product portfolio. Must emphasize whether data center or consumer electronics markets (such as smartphones, PCs), AI trend sustaining driving storage capacity enhancement. Under widespread supply tightness environment customers also actively adjusting self-product portfolio strategy. Overall we’re maintaining close communication and cooperation with various end market customers.
Joseph Mule: Good, thank you. I recall company previously saying certain customers’ demand fulfillment rate approximately 70%, currently has this proportion changed? Do different customers’ fulfillment rates exist variance, what changed versus three months ago?
Sanjay Mehrotra: In previous earnings conference we statedfor certain core customers medium-term we can only meet 50% to two-thirds their product demand, currently this situation remains unchanged.
Joseph Mule: Good thank you. This quarter performance excellent congratulations on sharing.
Moderator: Next question from Timothy Michael Arcuri, please ask.
Michael Arcuri: Thank you. Sanjay I also want to ask SCA-related questions. We’re all thinking about market landscape after industry cycle downturns, hoping such agreements can set downside protection mechanism for company gross margin. I know you cannot disclose excessive details but can you reveal whether agreement contains related mechanism limiting company gross margin decline amplitude during cycle downturns?
Sanjay Mehrotra: Due agreement confidentiality we presently cannot disclose SCA’s specific terms. Company currently only signed one SCA meanwhile actively discussing related cooperation with multiple customers. Upon subsequently signing more agreements we’ll disclose additional details based on actual circumstances. I want emphasize SCA is multi-year agreement containing clear bilateral commitments, complete provisions, core objective enhancing company business model visibility and stability. Besides this currently cannot provide additional details.
Timothy Michael Arcuri: Good thanks. Mark I have another cash flow question. This fiscal year company’s expected free cash flow reaching 350-400 million dollars, by end of 2026 company cash reserves potentially exceeding 500 million dollars. How does company plan utilizing these funds? Will company reserve portion funds undertaking stock repurchase during industry cycle downturns? Also impacted by Chips and Science Act relevant provisions limiting company stock repurchase, does company plan promoting clause adjustment? Thanks.
Mark Murphy: Timothy company’s outstanding business performance and continuous balance sheet optimization making us deeply gratified. Q2 company net cash position and free cash flow both setting historical records, free cash flow growing 77% versus previous historical record. From Q3 guidance we released combined with capex expectations company free cash flow hopefully achieving near double QoQ improvement. We’ll continuously strengthen balance sheet further enhancing net cash position meanwhile continuing debt repayment. Worth mentioning is this quarter company obtained two credit rating upgrades currently possessing stable BBB credit rating.
Company financial position sustaining improvement meanwhile as you see we plan increasing capex and R&D investment. Regarding capital allocation priority question you mentioned balance sheet robustness always first priority followed by organic business investment including technology upgrade and high-value bit capacity construction this also is current market core demand. Currently company capital return rate exceeded 30% hoped to further improving to 50% but we’ll maintain investment prudence. As announced today company raising quarterly dividend 30% embodying our confidence in business prospects judgment regarding business stability and future cash dividend planning.
Additionally as you said company future will have ample funds for stock repurchase returning to shareholders including offsetting equity incentive share dilution and opportunistically capturing market opportunities.
Timothy Michael Arcuri: Thanks Mark.
Moderator: Next question from Cantor Fitzgerald’s Christopher James Muse, please ask.
Christopher James Muse: Good afternoon all thanks for answering. I also want to follow-up SCA question. Company’s customer agreements underwent evolution from LTA, binding LTA to current SCA I want understanding current SCA negotiation customer scope? Does it only include hyperscale cloud vendors or other customer types? I know you cannot disclose agreement specifics combined with previous question want asking whether agreement contains pre-conditions related company capex? Does pricing couple with these investment capital return rates (ROIC)? Please answer thanks.
Sanjay Mehrotra: We previously disclosed first SCA’s cooperating party major customer. These agreement type’s core objective is enabling us more confidently planning future supply capacity investment meanwhile by clear terms enhancing future demand visibility as I previously said also strengthening company business model stability. Besides this we presently cannot disclose additional SCA information only saying currently actively discussing cooperation with multiple customers and discussion scope covering multiple market segments.
Christopher James Muse: Very much thanks. Ask another HBM-related question company previously issued HBM market CAGR 40% guidance per which estimating 2026 market scale approximately $50 billion currently has this expectation changed? Additionally considering current non-HBM products’ gross margin higher HBM does industry participant plan converting storage capacity from HBM to DDR5? Thanks.
Sanjay Mehrotra: Right currently non-HBM products’ gross margin indeed higher than HBM but HBM demand sustaining robust. We currently haven’t adjusted previous HBM market scale (TAM) expectation issued. Data center domain DDR5, low-power memory (LP) and HBM demand all sustaining vigorous. Following data center AI demand growth we’ll continue optimizing product mix strategy. As previously stated besides data center we’ll continue focusing other core markets ensuring respective market share. Currently from data center to edge AI demand trend sustaining robust we’ll continue optimizing product mix Micron’s full product line maintaining strong data center growth potential. Must emphasize our product portfolio spans HBM, LP, SoC-M, DDR5 and data center SSDs past years company data center SSD market share achieved substantial improvement.
Moderator: Next question from JPMorgan’s Harlan L. Sur please ask.
Harlan L. Sur: Good afternoon all congratulations company achieving impressive performance and excellent quarterly operational performance. Sanjay following your recent SSD topic I previously estimated November 2025 company enterprise SSD business revenue occupying nearly 50% flash memory business total revenue at time this business revenue QoQ growing 60% product portfolio optimization bringing company significant gross margin improvement Micron team performance excellent. In this excellent performance foundation 2026 February 2 company enterprise SSD business revenue QoQ doubled currently still occupying 50% NAND flash business.
Looking ahead following ninth-generation (G9) NAND flash node continuing mass production company based on this node’s next-generation enterprise SSDs achieved full category coverage including performance-optimized, capacity-optimized and mainstream products this whether providing sufficient momentum for company enterprise SSD business for remainder 2026 and 2027 sequential growth? Additionally want asking company’s view toward emerging high-bandwidth flash (HBF) storage tier does Micron team plan investing R&D resource layout this domain?
Sanjay Mehrotra: Regarding data center SSD question this domain’s future growth potential robust. Currently NAND flash supply sustaining tight demand remaining vigorous data center SSDs are primary NAND flash growth driver. Leveraging technology leadership and vertical integration advantages Micron’s data center SSD product portfolio achieving comprehensive performance to ultra-large capacity coverage. Currently based ninth-generation NAND flash’s PCIe Gen6 high-performance