Micron Technology closed out its fiscal 2026 with a quarterly earnings report that shattered multiple records and delivered a forward outlook far exceeding market expectations, revealing that the AI-driven memory supercycle carries more durable momentum than outsiders had estimated.
After the U.S. market close on September 30, Micron Technology (NASDAQ: MU) released its fiscal fourth-quarter earnings report for the period ended September 3. The data showed Micron's Q4 revenue hit a record $54.2 billion, up 31% quarter-over-quarter and a staggering 379% year-over-year, while quarterly gross margin surged to 87%.
For the full fiscal 2026, Micron's total revenue reached $133.2 billion — 3.5 times the record level of the prior fiscal year — with data center revenue quadrupling.
On the earnings call, Micron Chairman and CEO Sanjay Mehrotra framed the current industry transformation as follows:
Superintelligence is creating the most compelling opportunity in Micron's history.
Sanjay Mehrotra stated that Micron has signed 26 long-term agreements locking in approximately $150 billion in long-term orders, and that memory supply-demand conditions in 2027 and 2028 will be even tighter than in 2026, with "no end in sight to the restoration of supply-demand balance."
Chief Financial Officer Mark Murphy said fiscal 2027 first-quarter revenue will reach $61.5 billion with earnings per share of $38.15, continuing to climb quarter-over-quarter, and explicitly noted that this quarter will mark the low point for gross margin in fiscal 2027, with margins expected to gradually recover in subsequent quarters.
In addition, Micron sketched out a new narrative around "physical AI" for the market. Sanjay Mehrotra pointed out:
Autonomous vehicles are the first major deployment of physical AI... L4 and above autonomous vehicles typically have memory capacity exceeding 200GB and storage capacity reaching several TB, an order of magnitude higher than today's L2+/L3 levels.
He emphasized that humanoid robots are expected to have similar demand requirements, and by the end of this decade, physical AI will become a significant driver of memory demand.
Backed by strong cash flow, Micron announced fiscal 2027 first-half capital expenditures of $25 billion and committed to returning 100% of excess cash to shareholders going forward.
We see no inflection point for when supply and demand will rebalance
Behind the consistently better-than-expected results is the unprecedented structural shortage the memory industry is undergoing. The market is intensely focused on whether this high growth is sustainable, and Micron has given an extremely unequivocal answer.
Sanjay Mehrotra made clear on the call that industry demand has strengthened further since the last earnings call. Sanjay Mehrotra stated:
We expect memory and storage supply-demand conditions in fiscal 2027 and fiscal 2028 to be significantly tighter than in fiscal 2026.
He attributed this trend to the evolution of AI architecture:
AI is becoming superintelligence, and memory enhances this intelligence as well as the competitiveness of customer platforms. Whether running open-source or closed-source models, running AI applications on platforms with stronger memory capabilities enables more scalable growth.
Regarding supply-side bottlenecks, Sanjay Mehrotra delivered the most attention-grabbing remark of the session:
Structural supply-demand growth rate gaps are causing persistent supply tightness... Even factoring in the industry's planned new DRAM cleanroom space, under strong demand trends — including customers' continuously increasing incremental requests — we see no inflection point for when supply and demand will rebalance.
In the closely watched HBM (high-bandwidth memory) segment, Micron said industry HBM demand growth will continue to outpace traditional DRAM through 2028.
Sanjay Mehrotra revealed that the majority of Micron's 2027 HBM supply has already been contracted, with "prices rising significantly year-over-year, narrowing the gross margin gap between (HBM) and traditional DRAM."
$150 billion in blockbuster long-term orders locked in, over 75% of 2027 output already sold out
To cope with the extremely tight supply chain, major downstream customers are sparing no expense to lock in Micron's long-term capacity, which also forms the cornerstone of high certainty for Micron's future performance.
Micron CFO Mark Murphy disclosed a stunning set of order data on the call:
To date, we have signed a total of 26 strategic customer agreements (SCAs), with our remaining performance obligations (RPO) of approximately $150 billion.
SCAs are long-term contracts with "take-or-pay" provisions. Sanjay Mehrotra added:
Across these 26 SCAs and extensions, customer financial commitments have increased to $32 billion, the vast majority in cash deposits. Customers want supply assurance beyond 2030, and we have now signed SCAs extending to 2031.
This long-term contract model has fundamentally transformed the visibility of Micron's business. According to management, these agreements are expected to account for more than 35% of Micron's total revenue through 2030 (and potentially as much as 50%).
Currently, more than 75% of Micron's 2027 output has been committed by customers, and most negotiations with customers are now centered on 2028.
Shareholder return commitments and surging capital expenditures
Against the backdrop of extremely strong fundamentals, Micron's cash flow and capital expenditure plans have become another major focus for investors.
In Q4 alone, Micron generated a remarkable $44 billion in operating cash flow and $33.2 billion in free cash flow.
Faced with the reality of "cash piling up like a mountain," Mark Murphy provided a clear timeline for shareholder returns:
Over time, we expect to return 100% of excess cash to shareholders. We intend to begin increasing capital returns starting December 9, 2026 — the second anniversary of our signing of the final CHIPS Act agreement — primarily through share repurchases.
At the same time, to alleviate the capacity thirst for 2028 and beyond, Micron is being forced to significantly increase capital expenditures.
The company expects CapEx of approximately $25 billion in the first half of fiscal 2027, with the second half higher, and most of the incremental amount going toward new wafer fab construction (building expenditures) rather than pure equipment procurement.
The CFO explained that this is entirely because long-term contracts provide sufficient demand visibility, and greenfield fab construction requires extremely long lead times.
The next decade's imagination space: physical AI and humanoid robots
Beyond the currently booming data center segment, Micron painted a picture for the market of the next enormous incremental market — physical AI.
Sanjay Mehrotra believes:
Autonomous vehicles are the first major deployment of physical AI, and we believe it will expand over time to humanoid robots and other intelligent autonomous systems.
Sanjay Mehrotra offered specific data projections:
L4 and above autonomous vehicles typically have memory capacity exceeding 200GB and storage capacity reaching multiple TB, more than an order of magnitude higher than today's L2+ and L3 semi-autonomous vehicles. Humanoid robots are expected to have similar storage requirements.
Micron believes that with the dual growth of device numbers and per-device memory content, by the end of this decade, physical AI will become an extremely important driver of memory demand. As Sanjay Mehrotra said in his closing remarks:
Superintelligence is creating the most compelling opportunity in Micron's history.
Micron Technology Q4 Earnings Call Full Transcript (AI-assisted translation):
Operator:
Good afternoon, everyone, and welcome to Micron Technology's fiscal 2026 fourth-quarter earnings conference call. After today's prepared remarks, we will conduct a question-and-answer session.
I will now turn the call over to Satya Kumar, Corporate Vice President of Investor Relations and Finance. Satya, please go ahead.
Satya Kumar (Corporate Vice President, Investor Relations and Finance):
Thank you for joining us for Micron Technology's fiscal 2026 fourth-quarter earnings call. Joining me on the call today are Chairman and CEO Sanjay Mehrotra and Chief Financial Officer Mark Murphy.
This call is being webcast live via our Investor Relations website at investors.micron.com, with audio and slides available. Additionally, the press release for this quarter's results has been posted on the company's website, and the prepared remarks for this call have also been uploaded.
Today's discussion contains forward-looking statements that involve risks and uncertainties, including trends and expectations regarding the company's future financial and operating results, business model, and business, customers, markets, industry, products, and regulatory matters. These statements are based on our current assumptions, and we undertake no obligation to update them.
Please refer to our most recently filed 10-K annual report, 10-Q quarterly reports, and other filings with the Securities and Exchange Commission for risks and uncertainties that could cause actual results to differ materially from expectations.
Today's discussion of financial results is on a non-GAAP basis unless otherwise noted. Reconciliations between GAAP and non-GAAP financial measures are available on the company's website.
I will now turn the call over to Sanjay.
Sanjay Mehrotra (Chairman, President and CEO):
Thank you, Satya. Micron delivered exceptional results in fiscal 2026's fourth quarter, with revenue, gross margin, and earnings per share all reaching record highs and exceeding the upper end of our guidance range.
Fiscal 2026 was a remarkable year:
Revenue reached 3.5 times the prior fiscal year's record level, data center revenue grew fourfold; Micron's DRAM business surpassed $100 billion in revenue in fiscal 2026. I deeply appreciate the extraordinary efforts of our global employees in achieving these remarkable results. To recognize their contributions and acknowledge Micron's strong execution, we increased performance bonuses for all employees for fiscal 2026, reinforcing our performance-driven culture and aligning employee interests closely with long-term shareholder value creation.
While fiscal 2026 was already outstanding, we expect fiscal 2027 to be even better.
Industry demand continues to strengthen
Since our last earnings call, industry demand has strengthened further. We expect memory and storage supply-demand conditions in fiscal 2027 and fiscal 2028 to be tighter than in 2026.
AI-powered memory advantage
Artificial intelligence is evolving toward superintelligence, and memory is the key to enhancing this intelligence and strengthening the competitiveness of customer platforms. Whether based on open-source or closed-source models, AI applications across end markets run on a variety of competing customer platforms, all of which share one important characteristic: their value proposition is enhanced by the performance and capacity of memory and storage. Running AI applications on platforms with stronger memory capabilities enables more scalable growth and usage, improves end-user experience, and increases the value users derive from AI applications.
Micron's differentiated opportunity
The strategic importance of memory to customers also provides Micron with an unprecedented differentiation opportunity. In addressing AI-driven, increasingly complex memory product demands, we have the opportunity to stand out through differentiated performance and quality, time-to-market advantages, and geographically diversified supply including U.S.-based DRAM manufacturing. Compared to competitors, we also have a richer product portfolio focused on higher-value solutions.
Micron's technology leadership, strong product portfolio, strategic customer agreements (SCAs), and excellent manufacturing capabilities position us to capture these opportunities.
Technology leadership
Micron is the technology leader in the industry. Our 1-Gamma DRAM node and G9 NAND node are currently the largest-volume production nodes and are poised to become the highest-shipping technology nodes in Micron's history.
Development work on next-generation DRAM and NAND technology nodes is progressing well, with volume production expected to begin in the second half of 2027. We are leveraging these technology nodes and advanced packaging capabilities to deliver leading products across the memory hierarchy, including industry-leading HBM, high-capacity SOCAMM, high-capacity high-performance DDR modules, and data center SSD products.
Global capacity expansion
We are advancing global manufacturing expansion to meet growing customer demand through the end of this decade and beyond. Micron is continuously investing through wafer fabs in Virginia, Idaho, and New York to provide long-term domestic supply assurance for DDR, LPDRAM, and HBM products, supporting customers in data center, PC, mobile, automotive, aerospace and defense, medical, humanoid robotics, and other industrial and consumer markets.
Last quarter, we celebrated a significant construction milestone for our first wafer fab in New York, with initial wafer output expected in 2030. The ID1 fab is scheduled to begin wafer output in mid-2027, and the ID2 fab is scheduled to begin wafer output by the end of 2028. In the fourth quarter of fiscal 2026, we held a groundbreaking ceremony for the expansion of our Japan DRAM fab, with initial output expected by the end of 2028 to support technology node transitions. In Taiwan, the Tongluo site is expected to achieve meaningful product shipments in mid-2027. In Singapore, cleanroom preparation for our HBM advanced packaging facility is ahead of schedule, with initial output expected in early 2027; additionally, construction of the new Singapore NAND fab is proceeding on plan, with output expected to begin in the second half of 2028.
Volume ramp of new DRAM and NAND fabs takes time, typically contributing meaningfully only several quarters after initial output.
Strategic Customer Agreements (SCAs)
Micron's strategic customer agreements are accelerating our business transformation. These multi-year "take-or-pay" agreements allow us to plan long-term supply more clearly while enhancing the durability and predictability of our strong financial performance. These agreements also provide customers with supply assurance and deepen collaboration on technology roadmaps, helping customers invest with greater confidence in their own businesses and enabling their end consumers to benefit.
To date, we have signed 26 SCAs, with contract value expected to cover more than 35% of our revenue through 2030. Three-quarters of the estimated revenue has a clear pricing framework, most with price floors and ceilings; the remaining quarter of SCA revenue is priced periodically based on market prices.
Customers want SCA-guaranteed supply beyond 2030. We have signed SCAs extending to 2031, as well as two agreements with one-year renewals extending to 2031. Any SCA negotiations involving new pricing are being conducted at higher prices based on current market conditions and outlook.
To date, across the 26 signed SCAs and extensions, customer financial commitments have increased to $32 billion, the vast majority in cash deposits. These financial commitments fully demonstrate customers' confidence in long-term memory demand.
End market overview
Please see our earnings press release for detailed product portfolio highlights, covering high-capacity DDR and LP server DRAM, data center SSDs, PC, smartphone, and physical AI products.
We expect server shipments to grow in the high-teens percentage range in both calendar 2026 and 2027. This strong server shipment growth is supported by slightly lower content growth rates than previously expected, amid tight memory supply.
Growing model parameter sizes, longer context windows, and higher concurrency demands continue to drive increased memory and storage content required to efficiently execute AI workloads. Micron is leveraging technology leadership and manufacturing excellence to deliver innovative products across the memory hierarchy to data center customers.
In HBM, as we continue to expand HBM shipments to a growing number of customers, HBM revenue growth in the fourth quarter of fiscal 2026 exceeded the company's overall revenue growth. We have completed agreements for the majority of HBM supply for calendar 2027, with prices significantly higher than the prior year, further narrowing the gross margin gap between HBM and traditional DRAM. We continue to execute well on HBM4 volume ramp and have a strong future HBM product roadmap. We are honored to partner with NVIDIA to advance the industry's first customized HBM4e implementation, NVHBM, which will be used in next-generation GPUs and the NVLink Fusion platform.
In NAND, AI context storage for KV Cache offloading and HDD replacement opportunities are continuing to expand the addressable market for SSDs. In the fourth quarter of fiscal 2026, data center SSD revenue approached $10 billion, growing more than 10 times year-over-year and accounting for more than two-thirds of the company's total NAND revenue. We are on track to achieve a record data center SSD market share for the fifth consecutive year in calendar 2026. This achievement is driven by our NAND technology leadership, end-to-end data center storage portfolio, and deep collaboration with customers, securing design wins across major data center deployment projects.
In PC and mobile markets, although overall shipments in both markets may decline by double digits, industry revenue is still expected to grow this calendar year, driven by strong high-end market demand. OEMs continue to introduce new AI features in flagship PCs and smartphones, driving strong demand for high-performance devices with higher DRAM and NAND capacity. Micron is focused on these high-end markets and, with an industry-leading memory portfolio, is well-positioned to support customers as they expand edge AI capabilities. In the fourth quarter of fiscal 2026, nearly half of MCBU (Mobile and Client Business Unit) revenue came from 1-Gamma products, reflecting customers' accelerating qualification and active adoption of our latest technology, which offers lower power consumption and higher performance.
In physical AI, autonomous vehicles are the first major scaled deployment scenario, and we believe this trend will gradually extend to humanoid robots and other intelligent autonomous systems. These increasingly complex systems require higher-performance, more power-efficient memory and storage devices to operate in real time. L4 and above autonomous vehicles typically have memory capacity exceeding 200GB and storage capacity reaching several TB, both more than an order of magnitude higher than today's L2+ and L3 semi-autonomous vehicles. Humanoid robots are expected to have storage requirements comparable to autonomous vehicles.
With both shipment volumes and memory content expected to increase, physical AI is poised to become a significant driver of memory and storage demand by the end of this decade. Multiple physical AI customers are currently sampling our next-generation products, and we continue to increase investment in our technology roadmap to ensure we can capture this opportunity.
Market outlook
We expect memory supply-demand conditions in calendar 2027 and 2028 to be tighter than in 2026.
In NAND: For calendar 2026, we expect industry bit shipments to grow in the low-twenties percentage range, slightly above previous expectations; Micron NAND supply growth is expected to be below industry supply growth. In 2027 and 2028, we expect industry NAND bit shipments to grow approximately in the mid-twenties percentage range, with tight supply maintained throughout both years.
In DRAM: For calendar 2026, we expect industry bit shipments to grow in the mid-twenties percentage range, with Micron DRAM supply growth expected to be roughly in line with industry supply growth. In 2027 and 2028, we expect industry DRAM bit shipments to grow approximately in the low-twenties percentage range, with tight supply maintained throughout both years.
We expect HBM bit shipment growth to continue outpacing traditional DRAM through 2028.
The structural gap in DRAM supply and demand is causing persistent supply tightness, requiring additional cleanroom space to supplement supply gains from node transitions and help bridge the supply-demand gap. Even factoring in the industry's planned new DRAM cleanroom space, combined with strong customer demand — including new upward purchase requests — we currently see no indication of when supply and demand will rebalance.
Increased CapEx
Given the urgent need for DRAM cleanroom space and the stronger visibility into demand through the end of this decade and beyond provided by SCAs, we plan to increase capital expenditures in fiscal 2027. The majority of the incremental amount is construction-related CapEx, primarily to accelerate cleanroom space availability by the end of 2028 and beyond. At the same time, we are optimizing capacity in existing cleanroom space, which is partly driving earlier equipment spending. Mark will provide more details on capital expenditures.
While advancing cleanroom space investment, we will maintain strict capital discipline and appropriately expand equipment capacity based on actual demand in the market environment.
Management appointments
To further accelerate execution efficiency and innovation across the company, last month we announced management appointments: Manish Bhatia was appointed President and Chief Operating Officer, and Scott DeBoer was appointed President and Chief Technology and Product Officer.
Manish is responsible for leading Micron's business units and global operations, with P&L responsibility. As COO, he is responsible end-to-end from demand to supply, enabling faster, more integrated decision-making and strengthening organizational alignment to meet customers' evolving needs.
Scott is responsible for leading Micron's innovation, technology, and product organization. As Chief Technology and Product Officer, he is responsible for advancing Micron's industry-leading memory roadmap, accelerating innovation to meet customers' rapidly evolving needs, and overseeing Micron Research — a global flagship research center focused on breakthroughs in memory and computing technology.
I will now turn the call over to Mark to discuss fiscal 2026 fourth-quarter financial results and outlook.
Mark Murphy (Executive Vice President and Chief Financial Officer):
Thank you, Sanjay, and good afternoon, everyone.
Micron closed the fiscal year with outstanding results, with fiscal 2026 fourth-quarter revenue, gross margin, and earnings per share all exceeding the upper end of our guidance range.
Full-year results review
Full-year revenue reached a record $133.2 billion, up 256% year-over-year. Fiscal 2026 gross margin expanded to 81.1%, up 40 percentage points from fiscal 2025; earnings per share increased 811% year-over-year to $75.52.
To date, we have signed a total of 26 SCAs, with remaining performance obligations (RPO) of approximately $150 billion. All SCAs contain take-or-pay committed volumes, and RPO reflects only SCA contract value with definite pricing frameworks (fixed prices or with price floors and ceilings), based on committed volumes and minimum pricing, which is inherently conservative. As we mentioned in our last earnings call, even at price floors, we expect gross margins to be significantly above any historical cycle peak level. We expect actual revenue over the agreement period to substantially exceed the corresponding RPO amounts.
Fourth-quarter results
Fiscal 2026 fourth-quarter consolidated revenue was $54.2 billion, up 31% quarter-over-quarter and 379% year-over-year, marking the sixth consecutive quarter of record revenue.
DRAM: Fourth-quarter revenue reached a record $39.8 billion, up 343% year-over-year, accounting for 73% of total revenue; up 27% quarter-over-quarter, with bit shipments growing in the mid-single-digit percentage range and ASP increases in the high-teens percentage range, benefiting from tight DRAM industry supply. NAND: Fourth-quarter revenue reached a record $14.1 billion, up 526% year-over-year, accounting for 26% of total revenue; up 42% quarter-over-quarter, with bit shipments growing approximately 10% and prices rising approximately 30%, benefiting from tight NAND industry supply. Fourth-quarter consolidated gross margin was 87%, up 210 basis points quarter-over-quarter, primarily driven by price increases and strong execution, partially offset by product mix changes.
Quarterly results by business unit
Cloud Memory Business Unit (CMBU): Revenue reached a record $16.3 billion, accounting for 30% of total company revenue, up 18% quarter-over-quarter, driven by price increases and higher bit shipments; gross margin was 83%, flat quarter-over-quarter, with price increase contributions offset by higher HBM mix.
Core Data Center Business Unit (CDBU): Revenue reached a record $18.0 billion, accounting for 33% of total company revenue, up 56% quarter-over-quarter, driven by price increases and higher bit shipments; gross margin was 90%, up 290 basis points quarter-over-quarter, driven by price increases and favorable product mix.
Mobile and Client Business Unit (MCBU): Revenue reached a record $13.1 billion, accounting for 24% of total company revenue, up 14% quarter-over-quarter, driven by price increases, partially offset by lower bit shipments; gross margin was 90%, up 260 basis points quarter-over-quarter, primarily driven by price increases and favorable product mix.
Automotive and Embedded Business Unit (AEBU): Revenue reached a record $6.8 billion, accounting for 13% of total company revenue, up 47% quarter-over-quarter, driven by price increases and higher bit shipments; gross margin was 84%, up 470 basis points quarter-over-quarter, driven by price increases.
Operating expenses and profitability
Fourth-quarter operating expenses were $2.6 billion, up $1.1 billion quarter-over-quarter, primarily due to increased performance bonuses for all employees and our decision to invest $300 million in the community.
Fourth-quarter operating income was $44.6 billion, with an operating margin of 82.3%, up 110 basis points quarter-over-quarter and up 47 percentage points year-over-year.
Fourth-quarter tax expense was $6.8 billion, with an effective tax rate of 15%. Non-GAAP diluted earnings per share was $33.42, up 33% quarter-over-quarter.
Cash flow and capital expenditures
Fourth-quarter operating cash flow was $44 billion, capital expenditures were $10.8 billion, and free cash flow was $33.2 billion.
It should be noted that customer cash deposits related to SCAs are recorded in financing activities and therefore do not affect free cash flow. Customer cash deposits received in the fourth quarter were $12.3 billion.
Fourth-quarter ending inventory was $10.4 billion, with days of inventory (DIO) of 129 days, up 9 days quarter-over-quarter. The increase in DIO partly reflects the impact of manufacturing-related incentive compensation being recorded in inventory in the fourth quarter, which does not include any end-of-life product stocking. Our inventory levels and supply remain extremely tight, and we expect DIO to decline in coming quarters.
As of quarter-end, cash and investment balances reached a record $73.5 billion. At the end of the fourth quarter, customer cash deposits on the balance sheet were $12.7 billion. SCA cash deposits are unrestricted and will be gradually returned to customers at the end of the agreement period, provided customers meet minimum purchase requirements.
In the fourth quarter, we repaid approximately $500 million in debt, including approximately $300 million in senior note redemptions. The weighted average maturity of existing debt is approximately 9 years. At quarter-end, debt outstanding was $5.2 billion, with a net cash balance of $68.3 billion.
During the quarter, we received credit rating upgrades from two rating agencies, and all three major credit rating agencies now rate us at BBB+ or equivalent. Our balance sheet has never been stronger and is expected to continue to strengthen even as we increase technology and capacity investments.
As previously mentioned, we plan to increase capital returns starting December 9, 2026 — the second anniversary of our signing of the final CHIPS Act agreement. Over the long term, we expect to return all excess cash to shareholders.
Business outlook
We expect fiscal 2027 first-quarter revenue to reach a record $61.5 billion (plus or minus $1.5 billion), with gross margin of approximately 86.25% and operating expenses of approximately $2.06 billion. Based on a share base of approximately 1.5 billion shares, we expect earnings per share of $38.15 (plus or minus $1).
We expect fiscal 2027 to be another record year, with quarterly revenue continuing to grow sequentially. Consistent with the strong execution previously expected and the company's record financial performance, incentive compensation levels for fiscal 2027 are expected to be higher than in fiscal 2026.
We expect fiscal 2027 first quarter to be the low point for full-year gross margin, with gross margins gradually improving in subsequent quarters and more moderate price increases.
As Sanjay mentioned, we decided in the fourth quarter to increase fiscal 2026 incentive compensation. The majority of the manufacturing-related portion of the fiscal 2026 incentive compensation increase was recorded in inventory in the fourth quarter. Therefore, the impact of selling this higher-cost inventory will primarily be reflected in first-quarter gross margin. The second quarter will benefit from reduced absorption of fourth-quarter-related compensation expenses, but this benefit will be offset by the impact of higher fiscal 2027 incentive compensation.
We expect fiscal 2027 full-year operating expenses to increase by approximately $2.5 billion, primarily from continued increased R&D investment to capture the unprecedented opportunities in memory and higher incentive compensation plans.
We expect the tax rate for the first quarter and fiscal 2027 overall to be approximately 15.5%.
Capital expenditure planning
Micron will maintain strict capital discipline across its global footprint to address customer demand. As a reminder, our capital expenditure figures are net of expected government incentives.
We expect first-quarter capital expenditures of approximately $11.5 billion and fiscal 2027 first-half capital expenditures of approximately $25 billion; second-half capital expenditures are expected to increase further. In fiscal 2027, construction-related capital expenditures will grow significantly faster than equipment-related capital expenditures.
Finally, I would also like to express my heartfelt thanks to all Micron employees worldwide for their dedication to technology and product innovation and their rigorous execution, which have made today's impressive results and positive outlook possible.
I will now turn the call back to Sanjay for closing remarks.
Sanjay Mehrotra (Chairman, President and CEO):
Thank you, Mark. Superintelligence is creating the most compelling opportunity in Micron's history. Fiscal 2026 was a remarkable year, and we expect fiscal 2027 to be even better.
As Micron celebrates its 48th anniversary, I would like to pay tribute to the generations of employees over nearly five decades whose innovation, rigorous execution, and resilience have laid a solid foundation for Micron to embrace this historic moment.
Now, let's begin the question-and-answer session.
Q&A session
Operator: We will now begin the question-and-answer session. Our first question comes from Timothy Arcuri of UBS Securities. Please go ahead.
Timothy Arcuri (UBS Securities):
Mark, I'd like to ask about capital returns. I know you don't want to reveal too much too early, but can you give us some reference points? How are you thinking about minimum cash balances? You're holding roughly twice as much cash as Apple or NVIDIA, so how much is enough? Do you plan to retain $100 billion in cash and return all excess to shareholders? Can you provide some framework?
Sanjay Mehrotra:
Tim, I'm happy to share some perspective. The current market environment, combined with Micron's execution in technology, products, and operations, is driving very strong free cash flow — in the fourth quarter we reported $33 billion in free cash flow. Under continued market conditions and rigorous operational discipline, even as we further increase R&D and capital expenditures, we expect the strong free cash flow momentum to continue. Combining demand drivers, structural supply-side factors, and our long-term binding agreements with customers, along with Micron's technology strength and execution capabilities, we believe this strong free cash flow trajectory is more durable.
In the near term, combining first-quarter guidance and our disclosed capital expenditure figures, first-quarter free cash flow will be significantly higher than the $33 billion in the fourth quarter.
Regarding target cash levels, we expect to reach our target cash level around the end of the first quarter. After that, as timing and pace are determined, we plan to return excess cash to shareholders primarily through share repurchases. We have clearly stated that we will increase capital returns starting December 9. Finally, we currently have $2.2 billion in share repurchase authorization remaining, and you can expect us to seek additional repurchase authorization in the near term.
Timothy Arcuri:
Thank you. One more question: on capital expenditures, you haven't given full-year guidance, but from what we can see, it seems full-year could reach $55 billion or even higher, roughly equivalent to high-teens percentage of fiscal 2027 revenue. I understand revenue is now larger, and capital expenditures will take time to catch up, but from a long-term perspective, how should we think about capital intensity? You previously mentioned a level in the mid-thirties percentage range, which seems high; could 20% to 25% become the new normal?
Sanjay Mehrotra:
Tim, your understanding is correct — we provided first-half capital expenditure figures and said the second half will be higher. Importantly, the composition of capital expenditures is shifting toward more construction-related CapEx rather than equipment spending, and this trend is expected to continue in coming years.
As for capital intensity, as you noted, current capital intensity is at historically low levels, reflecting that memory and storage have become strategic assets. The industry has undergone a structural reset, and we will continue to expand capacity in a highly disciplined manner, ensuring appropriate returns on every capacity investment.
CJ Muse (Cantor Fitzgerald):
My first question is about gross margin. In the November quarter guidance, can you quantify the impact of higher-cost inventory? What other structural factors should we be watching?
Mark Murphy:
CJ, let me provide some context to help everyone understand the margin drivers for the fourth and first quarters.
In the fourth quarter, we decided to increase incentive compensation, which is most clearly reflected in the operating expense figures — comparing third and fourth quarter operating expenses shows this. On the manufacturing cost side, most of this expense was recorded in fourth-quarter inventory, so the direct impact on fourth-quarter gross margin was minimal.
The higher-cost inventory formed by increased incentive compensation will be concentrated in first-quarter sales, combined with some previously mentioned startup costs and other costs, with incentive compensation being the main reason for the lower first-quarter gross margin outlook. Overall, the additional costs from these factors in the first quarter are approximately $1 billion, from which the gross margin impact can be calculated.
It's also worth noting that we significantly increased fiscal 2027 incentive compensation levels as well. The first-quarter operating expense guidance already reflects this impact, while the manufacturing-side impact of higher fiscal 2027 incentive compensation will gradually appear in gross margin starting from the second quarter.
In fiscal 2027, beyond normal cost increases from higher production volumes and depreciation, incentive compensation, higher startup costs, and other factors will collectively create approximately $1 billion in ongoing cost pressure. Despite the first-quarter headwind and some ongoing costs throughout the year, it's worth emphasizing here that the company's profitability and returns have fundamentally changed structurally — we are operating on a stronger foundation, and I expect market conditions in 2027 and 2028 to be more favorable than in 2026, with long-term binding agreements providing us good visibility beyond the contract period.
Some of these costs can be considered variable or temporary. We expect the first quarter to be the low point for full-year gross margin, with gross margins gradually improving in subsequent quarters as prices continue to rise and operational performance remains strong.
CJ Muse:
Very helpful. On HBM, you mentioned prices are converging with traditional DRAM — does this price increase take effect from January 1? Also, what is the overall growth expectation for the HBM business?
Sanjay Mehrotra:
2026 HBM prices were negotiated with customers last year. As we mentioned, most of 2027 HBM supply has been sold, with prices significantly higher than 2026, helping to narrow the margin gap between HBM and non-HBM memory.
Overall, the HBM business has strong momentum. We expect, from an industry perspective, HBM demand growth to outpace overall DRAM demand growth. Our HBM3E, HBM4 products, and HBM4E products coming later next year are all in very favorable market positions. The strong growth momentum of the HBM business, premium product mix, and price increases starting from calendar 2027 will continue to drive the narrowing of the gross margin gap between HBM and non-HBM DRAM.
Vivek Arya (Bank of America Securities):
Mark, I'd like to ask again about cash returns. At the current pace, from the second quarter to the fourth quarter, Micron's cash generation could exceed $100 billion. Even with first-quarter cash accumulation to reach target levels, cash generation from the second quarter onward appears sufficient to support at least $100 billion or more in cash returns. Is this rough estimate reasonable? Or am I missing something?
Mark Murphy:
Vivek, I can only add one point: we have clearly expressed our ability and willingness to increase capital returns. Please expect us to increase capital returns starting December 9, in accordance with CHIPS Act provisions, after obtaining additional repurchase authorization.
Vivek Arya:
My second question is for Sanjay. Based on current valuations of memory stocks, the market seems to believe next year will be the peak of pricing and earnings for this cycle, because the industry is bringing on incremental capacity, or some data center customers may downgrade memory specifications due to memory shortages or cost pressures. I know you don't discuss specific pricing, but conceptually speaking, considering the potential pressure from incremental capacity coming online and customer spec downgrades, how likely is it that industry pricing will remain favorable or even rise further in 2028?
Sanjay Mehrotra:
As we have indicated, in calendar 2027 and 2028, we expect demand to continue exceeding supply, with industry supply tightness more pronounced than in 2026.
Even as we work to expand capacity, as I mentioned in my remarks, even with new cleanrooms coming online by 2028, supply will remain tight — for several reasons: first, cleanroom construction itself takes an extremely long time; second, even after first wafers come out of a cleanroom, capacity ramp is gradual; third, as HBM transitions from 3E to larger-scale HBM4 and HBM4E, the higher conversion ratio constrains supply growth; fourth, the per-wafer production efficiency gains from future node transitions are also narrowing. Together, these factors constitute structural headwinds to supply growth, and even with new cleanrooms gradually coming online by 2028, supply will remain tight.
Meanwhile, the demand backdrop remains strong. Although content growth rates on some server platforms may slow slightly from previous expectations, overall server shipments continue to increase — we expect server shipments to grow in the high-teens percentage range in both 2026 and 2027, which also lays a good foundation for data center DRAM shipment growth in 2028.
When customers moderately lower content growth rates on certain platforms, their core purpose is to ship more units and achieve greater scale growth while capturing AI's expanding end-market opportunities. Such optimization behavior does not change the system's inherent need for more memory, and the room for optimization itself is diminishing.
Combined with larger model sizes in AI applications, growing context windows, higher concurrency demands, and widespread deployment of enterprise and consumer intelligent agents, demand for memory — both capacity and performance — will continue to grow. Therefore, we remain highly optimistic about industry supply-demand balance and pricing prospects.
Finally, our SCAs provide us with extremely strong customer demand visibility. SCA customers are seeking more supply from us, non-SCA customers have also been submitting 2027 purchase orders, and most discussions with customers are now beginning to focus on 2028. Demand extends beyond 2030, with some customers even having signed or renewed agreements extending to 2031. We currently see no clear indication of when supply and demand will rebalance.
Krish Sankar (TD Cowen):
Sanjay, there are rumors that a major customer is downgrading HBM specifications. Considering HBM's high conversion ratio, if related capacity is reallocated to DDR, would that significantly increase DDR supply?
Sanjay Mehrotra:
We actually expect overall HBM demand to outpace overall industry DRAM demand growth in 2027 and 2028, with the memory market remaining supply-constrained throughout both years.
AI platforms need more and faster memory to handle growing context, concurrency demands, and larger model sizes to reach their maximum potential, and this inherent demand remains strong. Customer optimization behavior is typically aimed at reasonable resource allocation while ensuring shipment growth and capturing AI market expansion opportunities. Such optimization does not change the system's fundamental need for more memory, and the room for further optimization is diminishing. By comparison, memory's value proposition and long-term growth logic in AI platforms are far more durable than short-term optimization adjustments. Overall, we are more optimistic about market prospects in 2027 and 2028 than in 2026. Additionally, HBM demand growth will continue to outpace traditional DRAM through 2028.
Krish Sankar:
Mark, a brief follow-up. Fiscal 2027 capital expenditures are clearly above $50 billion, free cash flow looks like it will exceed $100 billion, and construction-related capital expenditures are growing faster than equipment. My question is, are there supply constraints on equipment procurement? Or is this not a limiting factor?
Mark Murphy:
Krish, this is mainly related to the strong supply-demand imbalance we face and the lead times required for new capacity to come online. We have detailed multiple fabs under construction and planned, including ID1, ID2, Japan, Singapore, Tongluo, and others. Through the demand visibility provided by strategic customer agreements, we have the confidence to advance these new capacity projects, and we will equip these fabs with equipment in due course based on the latest demand assessments.
Harlan Sur (JPMorgan):
When 16 SCAs were signed previously, you thought future revenue coverage could exceed 50%. Now with 26 SCAs signed and industry supply-demand even tighter, if all SCAs under negotiation are finalized, what SCA coverage of future revenue would you expect? You mentioned that more than 75% of fiscal 2027 output has been committed by customers — does this mean that including both SCA and non-SCA customers, SCA coverage could reach 60% or even 70% in coming years?
Sanjay Mehrotra:
First, let me clarify my statement about more than 75% of 2027 output being committed — this figure covers both SCA and non-SCA customers, not SCA alone. We also maintain relationships with some large customers through annual purchasing, and we are currently receiving 2027 purchase orders from non-SCA customers as well.
Regarding the ultimate revenue percentage SCAs may cover, our previously mentioned target — covering approximately 50% of revenue by 2030 — remains largely unchanged. Of course, this percentage may vary depending on our overall business revenue scale, and the final result may be slightly below 50%.
We always manage the overall structural balance of the business — maintaining the ability to flexibly allocate supply among customers, end-market segments, and emerging customers, which is especially important in our rapidly changing industry with constant innovation.
The core value of SCAs is giving us long-term visibility into future demand, enabling us to plan capacity investments in advance with a solid basis, which is a fundamental change for the healthy operation of the industry. Compared to the past, we can now manage supply-demand expectations and investment planning over a longer time horizon, which will help reduce the industry's cyclical volatility.
Harlan Sur:
On the NAND business, although Micron ranks fourth or fifth globally in NAND bit shipment market share, the team maintains a strong number two market share in data center and enterprise SSDs. Behind this leading position is not just G9 technology leadership but also controller technology, firmware customization capabilities, and participation in NVIDIA's SCADA (GPU direct storage access) project. As KV Cache functions are offloaded to storage in more inference scenarios and flash-based storage tiers are incorporated into more storage architectures, does this change the team's overall assessment of R&D and capital expenditure investment in the NAND business?
Sanjay Mehrotra:
The memory hierarchy from HBM to DRAM to SSD is being increasingly deeply utilized as context windows grow and AI continues to evolve, and we are very satisfied with our current product portfolio positioning.
Our data center SSD portfolio is the strongest in the company's history, particularly well-suited to capture the enormous AI-driven market opportunity. As we reported, data center SSDs have achieved market share growth for five consecutive years, with fourth-quarter data center SSD revenue approaching $10 billion, accounting for more than two-thirds of the company's total NAND revenue — all confirming our team's excellent execution in this area.
We are of course also continuing to increase product R&D investment and continuously allocate resources on the manufacturing side, with NAND-related capital expenditures also accounting for a significant share of our overall capital expenditures. As we mentioned, we are building our next NAND fab in Singapore, expected to begin production by the end of 2028. Current capital expenditures are supporting the G9 NAND technology node transition, equipment capacity optimization, NAND R&D investment, and other related work in Singapore operations.
Operator: That concludes the question-and-answer session and today's conference call. Thank you all for your participation. Please disconnect. The call has ended.
Comments