Ask AI: How Is AI Demand Driving Storage Chip Value Skyrocketing?

Cailian Press, March 19 (Editor Liu Rui) On March 18, Eastern Time, Micron Technology released its fiscal 2026 second quarter financial report, delivering a dazzling scorecard that set multiple historical records.

Micron executives stated during the earnings conference call that driven by the continuous explosion of AI demand, tight supply of storage products in the industry, and the mass production and implementation of the company’s advanced technologies, Micron’s second quarter core financial indicators including revenue, gross margin, and free cash flow all refreshed historical peaks. All product lines and business segments are flourishing, and the company’s third quarter guidance once again vastly exceeded expectations.

Micron executives also mentioned that the storage chip industry is currently in a state of supply shortage, and this situation will persist through 2026 and beyond, providing solid support for product pricing in both the near and medium term. Driven by robust demand, Micron has signed its first five-year strategic customer agreement.

Executives revealed that Micron’s HBM4, designed specifically for NVIDIA’s Vera Rubin, has begun volume shipments, with the next-generation HBM4E progressing smoothly in R&D and expected to enter mass production in 2027. Meanwhile, to meet strong customer demand, Micron will significantly increase capital expenditures over the next two fiscal years to build factories and purchase equipment, thereby boosting production capacity.

I. Core Product Line Performance

1. DRAM: Revenue of $18.8 billion, year-over-year +207%, quarter-over-quarter +74%; pricing increased 65%-67% quarter-over-quarter with bit shipments showing single-digit growth. 1γ DRAM reached the fastest mass production speed in company history and will become the main production driver by mid-2026.

2. NAND: Revenue of $5 billion, year-over-year +169%, quarter-over-quarter +82%; pricing increased 75%-79% quarter-over-quarter with bit shipments showing low single-digit growth. G9 NAND is progressing as planned and will become the main production driver by mid-2026, with data center NAND revenue doubling quarter-over-quarter, setting a record.

3. Premium products: HBM4 has entered volume shipment (designed specifically for NVIDIA’s Vera Rubin), HBM4E R&D is progressing smoothly with production targeted for 2027; PCIe Gen6 SSD based on G9 NAND has achieved high-volume production, with 122TB large-capacity SSDs receiving strong market acceptance.

II. Industry and Market Outlook

1. Supply-demand dynamics: DRAM/NAND supply tightness will persist through 2026 and beyond. In 2026, industry DRAM bit shipments will grow approximately 20% at low levels, NAND bit shipments approximately 20%, with Micron’s supply growth matching industry pace. Core customer demand fulfillment rates stand at only 50%-2/3.

2. AI core impact: In 2026, AI will push data center DRAM/NAND bit TAM to exceed 50% of industry totals for the first time. AI server demand is robust, with 2026 server unit shipments showing low double-digit growth, and DRAM capacity per server continuing to increase.

3. Terminal markets: In 2026, PC and smartphone unit shipments may decline by low double digits, but AI-driven storage content will increase significantly (flagship phone 12GB+ DRAM share rising from 20% to 80%, AI PC recommended 32GB+ configuration).

4. Emerging tracks: The robotics industry is entering a 20-year growth cycle, with humanoid robot storage demands rivaling L4 autonomous vehicles, becoming a new growth engine.

III. Strategic Deployment and Capacity Expansion

1. Customer partnerships: Signed the first 5-year strategic customer agreement (SCA), replacing traditional 1-year LTAs, with explicit capacity/supply commitments. Discussions ongoing with multiple customers, deepening R&D and roadmap synchronization.

2. Technology R&D: FY2027 will significantly increase R&D investment; 1δ DRAM will expand EUV application, with coordinated R&D and mass production to accelerate product launch.

3. Global capacity: Acquired Powerchip’s Tainan facility and plans second cleanroom (FY2028 shipments); Idaho, New York, and Hiroshima, Japan capacity development progressing. New NAND fab in Singapore (production targeted 2028); India packaging/testing facility already commercially shipping, Singapore HBM advanced packaging facility contributing supply in 2027.

Below is the transcript from Micron’s earnings conference (AI-assisted translation, some content abbreviated)

Date: March 18, 2026 (Wednesday), 4:30 PM Eastern Time, USA

Participants:

Chief Executive Officer: Sanjay Mehrotra

Chief Financial Officer: Mark Murphy

Sanjay Mehrotra: In this fiscal year’s second quarter, the company’s revenue, gross margin, earnings per share, and free cash flow all reached glorious historical highs. Micron Technology delivered a dazzling financial report, with quarterly revenue nearly tripling compared to the same period last year. Revenue from DRAM, NAND, high bandwidth memory (HBM), and all business segments all set historical records.

The Q3 FY2026 quarterly revenue guidance we released has surpassed all full-year revenue from FY2024 and all prior fiscal years. We expect that in Q3 FY2026, the company’s revenue, gross margin, earnings per share, and free cash flow will achieve transformative growth. Based on confidence in the company’s continued strong business performance, I am pleased to announce that the Board of Directors has approved a 30% increase in the quarterly dividend.

**The substantial improvement in company performance and optimistic outlook stem from AI-driven storage demand growth, structural supply constraints in the industry, and Micron’s comprehensive operational excellence.**Our storage solutions are the core support of this AI revolution. Storage technology makes AI smarter and more powerful, enabling longer context windows, deeper reasoning chains, and multi-agent orchestration. As AI technology continues to evolve, we anticipate that computing architectures will increasingly rely on storage. This is also why we are confident that Micron will be one of the largest beneficiaries and enablers in the AI field.AI has not only driven storage demand growth but fundamentally reshaped storage’s value, making it a core strategic asset in the AI era.

We continue to engage with customers and advance strategic customer agreement (SCA) signings. These agreements differ fundamentally from previous long-term agreements (LTAs), containing multi-year explicit commitments that enhance business model visibility and stability. These agreements also enable customers to plan their own business more clearly, while deepening long-term cooperation across our entire product portfolio. We are very pleased to announce that the company has signed its first five-year strategic customer agreement. Our industry-leading 1γ DRAM and ninth-generation NAND flash technology node mass production efforts are progressing smoothly, with 1γ DRAM expected to become the largest mass production technology node in Micron history.

Our 1γ DRAM (sixth-generation 10-nanometer-class DRAM) not only achieved the fastest yield ramp-up in history but also achieved production scaling speed far exceeding all previous technology nodes. As planned, it will become the main driver of Micron’s DRAM bit shipments by mid-2026. We plan to further expand the application of extreme ultraviolet lithography (EUV) technology at the 1δ DRAM (seventh-generation 10-nanometer-class DRAM) node, utilizing the latest generation of 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, the ninth-generation technology node is also progressing as planned, expected to become the main driver of Micron’s NAND bit shipments by mid-2026. This quarter, the company’s quad-level cell (QLC) flash shipment share also reached a historical high.

Looking ahead, the company plans coordinated layout of R&D centers and high-volume production wafer fabs at Boise and Singapore facilities to accelerate leading-edge product launches. We see that in the AI era, storage is experiencing unprecedented development opportunities across market segments, so we plan to significantly increase R&D investment in fiscal 2027.

Micron’s technology leadership, product competitiveness, and manufacturing operational capabilities have been recognized by customer quality scores. I’m pleased to report that the vast majority of customers rate Micron as the number one quality storage supplier. Next, I’ll discuss company performance across various terminal markets.

In 2026, AI demand will push the bit market size of DRAM and NAND in data centers to exceed 50% of the overall industry bit market size for the first time. Driven by both generative AI-related workload demand and comprehensive server upgrades, traditional server market demand remains robust. AI server demand continues to be vibrant, while both AI and traditional server demand are constrained by insufficient DRAM and NAND supply. It is expected that in 2026, driven by both AI server and traditional server growth, server unit shipments will achieve low double-digit growth. With new platform launches, DRAM capacity per server in 2026 will continue to increase.

At NVIDIA’s GPU Technology Conference (GTC), we announced that Micron has achieved volume shipment of 36GB 12-layer stacked HBM4 in 2026, a product designed specifically for NVIDIA’s Vera Rubin chip. **As HBM4 mass production ramps up and volume shipments advance, we expect the speed at which its yield reaches mature levels will far exceed HBM3E.**At the same time, we have released 48GB 16-layer stacked HBM4 samples, with 33% increased capacity compared to 12-layer stacked HBM4.Our next-generation high bandwidth memory HBM4E R&D is progressing smoothly, with mass production expected in 2026.

Our HBM4E will be built on Micron’s mass-production-verified, industry-leading 1γ DRAM technology, achieving transformative performance improvements to provide core support for the industry’s next-generation AI computing platforms. Additionally, customized options for HBM4D will bring us more differentiated competitive advantages and promote deeper R&D collaboration with customers.

Micron developed industry-leading low-power DRAM (LPDRAM) for data centers, consuming only one-third the power of data center DDR DRAM server modules. Leveraging this technology advantage, we introduced the industry’s first 256GB low-power system-on-chip storage module (LP SoC-M2) based on 1γ process, supporting up to 2TB storage capacity per CPU, a four-fold increase from a year ago.

We expect that in coming years, low-power DRAM applications in data centers will continue expanding, and the company will continue maintaining industry-leading innovative product roadmaps in this market. The rapid AI development has driven the emergence of new computing architectures optimized for specific workloads and TOKEN economics. Micron’s rich product portfolio, including high bandwidth memory (HBM), low-power memory (LP), dual data rate memory (DDR), and solid-state drives (SSD), is the core support for landing these new architectures. At this GPU Technology Conference, NVIDIA’s released Grok 3 LPX model is equipped with up to 12TB of DDR5 memory in a rack-level architecture.

Driven by AI application scenarios such as vector databases and key-value cache offloading, and SSDs’ increasing share in capacity storage layers, NAND flash demand in data centers is 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 have achieved large-scale mass production. Our 122TB ultra-large capacity SSDs have received high market recognition, with sequential read throughput per unit power 16 times that of same-capacity hard disk drives (HDD). The company’s strategic positioning and operational execution continue translating into performance results.

In 2025, the company’s data center SSD market share achieved growth for the fourth consecutive calendar year, setting a historical high. In Q2 FY2026, data center NAND revenue doubled quarter-over-quarter, setting a record, with expected continued growth next quarter. Micron’s data center SSD product portfolio is at industry-leading levels, having won numerous design wins from customers. Looking ahead, the company’s NAND demand will significantly exceed current supply capacity.

In 2026, affected by DRAM and NAND supply shortages and multiple other factors, PC and smartphone unit shipments may decline by low double digits. But in the long term, the commercial value of terminal-side AI will drive continued significant increases in storage capacity deployed in PCs and smartphones. In the PC sector, generative AI applications have recently experienced an innovation explosion, such as OpenClaw, where AI agents can independently complete tasks on local computers or initiate workload requests to the cloud. PCs with terminal-side generative AI functionality recommend a minimum storage configuration of 32GB, double that of ordinary PCs. Additionally, personal AI workstations, an emerging category, are growing rapidly, such as NVIDIA DGX Spark and AMD Ryzen AI Halo, both equipped with 128GB storage configuration, ideal for running large language models locally.

In the smartphone sector, manufacturers recently released multiple flagship models integrating generative AI functionality, such as Samsung Galaxy S26 and Google Pixel 10, with AI features built into their mobile operating systems. By Q4 2026, flagship smartphones equipped with 12GB or more DRAM increased to nearly 80%, compared to less than 20% a year ago. With industry-leading product portfolio, Micron is well-positioned to capitalize on this market opportunity.

In the PC sector, the company has completed low-power compute storage module 2 (LPCAM2) certification with a mainstream manufacturer. In SSD, we introduced the industry’s first fifth-generation client quad-level cell (QLC) SSD based on ninth-generation NAND flash.

Micron’s low-power dual data rate 5X memory (LPDDR5X) has successfully landed in mainstream personal AI workstations, expanding our addressable market, currently achieving large-volume shipments to core customers. In smartphones, low-power dual data rate 6 memory (LPDDR6) samples based on 1γ process have received high attention and positive feedback from phone manufacturers and ecosystem partners. The company’s 10.7 Gbps 1γ process LPDDR5X 16Gb product has completed additional manufacturer certifications and entered production, with market momentum continuing to climb. Automotive, industrial, and embedded market product pricing continues rising, with Automotive and Embedded Business Unit (AEBU) revenue reaching all-time high, with automotive and industrial combined quarterly revenue exceeding $2 billion.

In automotive, manufacturers are accelerating deployment of L2+ level Advanced Driver Assistance Systems (ADAS) across vehicle lineups. Currently, most vehicles have autonomous driving below L2 level with approximately 16GB DRAM capacity, while vehicles with L4 autonomous driving capability require DRAM capacity exceeding 300GB. As more advanced driver assistance systems and smart cabins proliferate, we anticipate long-term robust automotive storage demand growth. The company released the industry’s first automotive-grade 1γ process LPDDR5 DRAM sample; in NAND flash, we first introduced automotive-grade Universal Flash Storage 4.1 (UFS 4.1) solutions based on ninth-generation NAND flash, further cementing our technology leadership in this market.

Rapid AI technology iteration is substantially enhancing robot functionality and performance. We believe the robotics industry is about to enter a 20-year growth cycle, potentially becoming one of the largest product categories in technology. Humanoid robots will be equipped with AI systems whose computing platform performance rivals high-end L4 autonomous vehicles, requiring massive storage and memory support. We expect this highly promising new growth category will further solidify the storage industry’s long-term positive development trajectory. Leveraging industry-leading technology, product solutions, operational capabilities, and close customer collaboration, Micron is well-prepared to capitalize on robotics development opportunities.

Next, I’ll discuss market outlook. **It is expected that in 2026, industry DRAM and NAND bit demand will continue constrained by supply, and this tight supply situation will persist through 2026 and beyond. It is expected that in 2026, industry DRAM bit shipments will achieve approximately 20% low-level growth, slightly higher than our previous expectations.**In the DRAM sector, factors including limited cleanroom capacity, long factory construction cycles, increased HBM trade ratio, accelerating HBM demand growth, and slowing bit output growth per wafer from process node upgrades collectively constrain bit supply growth.It is expected that in 2026, industry NAND bit shipments will grow approximately 20%. In NAND, some industry suppliers shifting cleanroom capacity toward DRAM production, combined with overall cleanroom capacity insufficiency, constrains NAND bit supply growth. It is expected that in 2026, Micron’s DRAM and NAND bit supply growth will align with industry average levels.

To address the massive supply-demand gap, Micron is actively advancing global capacity deployment, with multiple important milestone achievements this quarter. In DRAM, earlier this week we announced early completion of the acquisition of Powerchip’s Tainan facility. The existing wafer fab at this facility is expected to achieve substantial product shipments in FY2028. Beyond the existing fab, we plan to begin construction of a second cleanroom of equivalent scale at this facility before 2026. Idaho’s first wafer fab is expected to begin first wafer production by mid-2027, with second fab site preparation already initiated. New York facility’s first fab has broken ground with site preparation progressing beyond expectations. In Japan, Hiroshima facility’s cleanroom expansion project site preparation is progressing well, providing production capacity support for future technology node upgrades.

In NAND, based on adjusted demand expectations and the company’s decision to coordinate R&D cleanroom with mass production fab deployment, we plan to begin construction of a new NAND fab at the Singapore facility, expected to begin first wafer production in 2028. In packaging/testing, the company’s new factory in India has achieved commercial shipments, becoming one of the world’s largest single-layer packaging/testing cleanrooms. Singapore’s HBM advanced packaging facility is progressing on schedule, expected to provide critical support to Micron’s HBM supply in 2027. FY2026 capital expenditures are expected to exceed $25 billion. Compared to previous earnings conference estimates, this capex increase mainly results from cleanroom facility investments, with Tainan facility acquisition and construction taking the largest share, followed by increased U.S. fab construction investment.

FY2027 capital expenditures are expected to increase substantially, primarily for HBM and DRAM-related investments. FY2027 factory construction-related capex is expected to increase by over $10 billion year-over-year, primarily for global fab construction to meet long-term market demand. Additionally, FY2027 equipment procurement spending is also expected to increase year-over-year. While making these investments, we will continue monitoring market environment and customer needs, reasonably adjusting supply plans. Next, Mark will discuss FY2026 Q2 financial results and guidance.

Mark Murphy: Thank you, Sanjay. Good afternoon everyone. In FY2026 Q2, Micron achieved robust financial results, with revenue, gross margin, and earnings per share all exceeding guidance upper limits. This quarter, the company generated record free cash flow, repaid debt, with quarter-end net cash position reaching all-time high. FY2026 Q2 total revenue was $23.9 billion, up 75% quarter-over-quarter and 196% year-over-year, achieving fourth consecutive quarter of record highs, with $10.2 billion quarter-over-quarter increase also setting company records. Q2 DRAM revenue was $18.8 billion, setting record high, up 207% year-over-year, representing 79% of total revenue, up 74% quarter-over-quarter, with bit shipments achieving mid-single-digit growth.

Affected by industry supply tightness, combined with product mix optimization, DRAM pricing increased approximately 65% quarter-over-quarter. Q2 NAND revenue was $5 billion, setting record high, up 169% year-over-year, representing 21% of total revenue, up 82% quarter-over-quarter, with bit shipments achieving low single-digit growth. Affected by industry supply tightness, combined with product mix optimization, NAND pricing increased over 75% quarter-over-quarter. Overall company gross margin was 75%, up 18 percentage points quarter-over-quarter, with growth mainly driven by pricing, also benefiting from portfolio optimization and cost control. Q2 gross margin nearly doubled year-over-year, setting all-time high.

Next, I’ll discuss quarterly financial performance by business unit. Cloud Memory Business Unit (CMBU) revenue was $7.7 billion, setting record high, representing 32% of total revenue, up 47% quarter-over-quarter driven by pricing and mix optimization, with 74% gross margin, up 9 percentage points quarter-over-quarter, driven by pricing and cost control. Core Data Center Business Unit (CDBU) revenue was $5.7 billion, setting record high, representing 24% of total revenue, with 74% gross margin, up 23 percentage points quarter-over-quarter, driven by pricing and mix optimization. Mobile/Consumer Business Unit (MCBU) revenue was $7.7 billion, setting record high, representing 32% of total revenue, up 81% quarter-over-quarter driven by pricing (partially offset by bit shipment declines), with 79% gross margin, up 25 percentage points quarter-over-quarter, mainly driven by pricing and mix optimization.

Automotive and Embedded Business Unit (AEBU) revenue was $2.7 billion, setting record high, representing 11% of total revenue, up 57% quarter-over-quarter driven by pricing (partially offset by bit shipment declines), with 68% gross margin, up 23 percentage points quarter-over-quarter, mainly driven by pricing. FY2026 Q2 operating expenses were $1.4 billion, up $87 million quarter-over-quarter, mainly driven by increased R&D expenses. Q2 operating profit was $16.5 billion, with 69% operating margin, up 22 percentage points quarter-over-quarter and 44 percentage points year-over-year. Q2 tax expense was $2.5 billion, with 15.1% effective tax rate. Non-GAAP diluted earnings per share was $12.20, up 155% quarter-over-quarter and 682% year-over-year.

Next, I’ll discuss cash flow and capital expenditure. FY2026 Q2 operating cash flow was $11.9 billion, capital expenditures were $5 billion, achieving $6.9 billion free cash flow, setting single-quarter company record, up 77% from FY2026 Q1’s record. Q2 inventory was $8.3 billion, up $62 million quarter-over-quarter, with 123 days inventory on hand, with DRAM inventory days particularly tight at below 120 days. Quarter-end cash and investments totaled $16.7 billion, setting record high; including unused credit facilities, company liquidity exceeded $20 billion. This quarter, per Chips and Science Act provisions, the company repurchased $350 million in stock. Meanwhile, the company repaid $1.6 billion debt, including redemption of senior notes due 2029 and 2030, with weighted average maturity of outstanding debt at August 2034. Quarter-end total debt was $10.1 billion, with net cash position of $6.5 billion.

Capital allocation’s top priority is reinvesting funds toward profitable business growth, including R&D, capital expenditure and other strategic investments. We remain committed to maintaining robust balance sheet, having paid down over $5 billion total debt over past three quarters, currently at best-ever net cash position. As Sanjay mentioned, leveraging the company’s technology leadership and strong cash generation capability, the Board has approved 30% quarterly dividend increase to $0.15 per share.

Next, issuing guidance. FY2026 Q3 revenue is expected at $33.5 billion, plus or minus $750 million; gross margin approximately 81%; operating expenses approximately $1.4 billion. Based on 1.15 billion diluted shares, Q3 earnings per share expected at $19.15, plus or minus $0.40. Pricing increases, cost reduction and mix optimization are expected to collectively drive further Q3 gross margin improvement. As mentioned last quarter, FY2026 is a 53-week year, with the additional week in Q4 impacting operating expenses. FY2027, to capitalize on unprecedented long-term development opportunities in storage, company R&D investment will increase, with operating expenses expected to correspondingly rise. FY2026 Q3 and full-year effective tax rate expected approximately 15.1%.

To meet customer demand, Micron is making planned global capacity investments. As mentioned, the company is raising FY2026 capex expectations to over $25 billion. FY2026 Q3 capex is expected approximately $7 billion, while company will achieve substantial free cash flow and operating cash flow growth. Driven by cleanroom capacity needs, for FY2026 and FY2027, factory construction spending growth is expected to exceed equipment procurement spending. This guidance does not assume impacts from trade or geopolitical factors. Next, Sanjay for closing remarks.

Sanjay Mehrotra: Thank you, Mark. Decades of continued investment, innovation and operational execution have established Micron as technology leader in storage and one of the semiconductor industry’s largest AI beneficiaries and enablers. As America’s only advanced storage product manufacturer, Micron holds unique advantages in capitalizing on unprecedented future opportunities. I want to thank all global employees for their hard work; your excellent execution created this dazzling quarter. Despite this quarter’s stellar performance, I’m even more excited about Micron’s future development. We now begin the Q&A session.

Moderator: Thank you. We now begin Q&A, with each questioner limited to one primary question and one follow-up. The first question comes from Krish Sankar, RBC Capital Markets, please proceed.

Krish Sankar: The company’s 81% gross margin guidance is very impressive. I’d like to understand,as HBM4 mass production scales, how sustainable is gross margin? Can you analyze Q4 August and subsequent gross margin trends? Also, I have another question for Sanjay.

Mark Murphy: Krish, it’s Mark. The company’s Q3 gross margin guidance shows strong 6 percentage point quarter-over-quarter increase. We’re not currently issuing Q4 gross margin guidance, but previously stated that industry supply tightness will persist through 2026 and beyond. Therefore, Q4 and beyond, gross margin will continue benefiting from AI-driven multi-year investment cycle, with most of this cycle’s benefits still ahead. AI requires more, higher-performance storage products, which will directly reflect in gross margin. Meanwhile, as we stated, industry supply constraints persisting through 2026 and beyond will support gross margin.

The 81% gross margin guidance already factors in HBM4 mass production growth, and as I said, the market environment will continue improving. However, it’s worth noting that at current high gross margin levels, pricing’s marginal contribution to gross margin will weaken somewhat. Otherwise, we’re not disclosing additional Q4 gross margin information.

Krish Sankar: Understood. Next, a question for Sanjay about strategic customer agreements (SCA). Congratulations on signing the first five-year SCA. How does this differ fundamentally from previous long-term agreements (LTA)? Does it contain multi-year locked shipment volumes and pricing, or is pricing renegotiated annually? Additionally, if industry cycles downward, how are termination conditions specified?

Sanjay Mehrotra: Thank you. Thank you for attention to our first SCA signing. As you noted, SCA is multi-year agreement, which I also mentioned in my earlier remarks. Prior LTAs typically were one-year agreements. Given current industry supply tightness will persist into foreseeable future, customers very willing to sign this type of structural long-term strategic collaboration to better plan their own business and enhance predictability. Such agreements not only bring customers stability but also enhance our business model visibility.

Currently the company has signed only one SCA, so I cannot disclose specific details, which I’m sure you understand given confidentiality. But core objective is ensuring customers receive explicit supply commitments for business planning while securing our explicit customer commitments. The agreement term spans different business cycle phases, whether supply-tight or otherwise, which was the original intent of signing long-term agreements, so terms are binding on both parties. Agreement terms set complete rights and obligations for both Micron and our customers.

Krish Sankar: Understood, thank you very much.

Moderator: Next question from Joseph Mueul, Morgan Stanley, please proceed.

Joseph Mueul: I’d like to ask about the company’s product allocation strategy across terminal markets. Clearly, AI demand is most urgent, butis the company concerned about PC and smartphone market demand softening? In product allocation, how does the company balance large and small customers? What’s the overall allocation thinking?

Sanjay Mehrotra: Currently, supply is extremely tight across all terminal markets, with all markets maintaining strong demand trends. Though price-sensitive markets you mentioned like consumer electronics may face some demand pressure from pricing, overall demand remains vibrant.**

Our core strategy has always been becoming a diversified supplier across terminal markets, critical for company development. Of course, data centers are becoming increasingly important in industry TAM, so company supply resources will tilt toward this sector, also industry and company’s core growth driver.

But PCs, smartphones, automotive, industrial and other markets equally important; we hope maintaining product portfolio diversity across terminal markets. Worth emphasizing, whether data centers or consumer electronics markets like smartphones and PCs, AI trends continue driving storage capacity increases. In tight supply environment, customers also actively adjusting their product portfolio strategies. Overall, we maintain close communication and collaboration with customers across terminal markets.

Joseph Mueul: Okay,** thank you. I recall the company previously stated that certain customers have 70% demand fulfillment rates. Has this changed currently? Do different customer fulfillment rates differ, and how has it changed versus three months ago?

Sanjay Mehrotra: In our last earnings conference,we stated that in the medium term, for certain core customers, we can only fulfill 50% to two-thirds of product demand; this situation remains unchanged currently.

Joseph Mueul: Okay, thank you. This quarter’s great performance, thanks for sharing.

Moderator: Next question from Timothy Michael Arcuri, please proceed.

Michael Arcuri: Thank you. Sanjay, I also want to ask about strategic customer agreements (SCA). We’re all thinking about post-cycle market structure, hoping such agreements provide gross margin downside protection. I understand you can’t disclose many details, but can you disclose whether the agreement includes mechanisms limiting cash margin declines during downturns?

Sanjay Mehrotra: Due to agreement confidentiality, we cannot disclose specific SCA terms. Currently the company has signed only one SCA while discussing with multiple customers. We’ll disclose more details after signing additional agreements as appropriate. I want to emphasize that SCA is multi-year agreement with explicit mutual commitments and comprehensive terms, core objective enhancing business model visibility and stability. Otherwise, currently unable to disclose more details.

Timothy Michael Arcuri: Okay, thank you. Mark, I have another cash flow question. This year’s free cash flow expected $35-40 billion, with year-end cash reserves potentially exceeding $50 billion. How does the company plan utilizing these funds? Will it reserve funds for countercyclical buybacks during downturns? Additionally, with Chips and Science Act constraints, are there plans pushing for clause adjustments? Thank you.

Mark Murphy: Timothy, we’re thrilled about executive performance and balance sheet improvement. Q2 net cash position and free cash flow both hit record highs, with free cash flow up 77% from previous record. From Q3 guidance with capex plans, company free cash flow should achieve near-doubling quarter-over-quarter. We’ll continue solidifying balance sheet, further enhancing net cash position while repaying debt. Worth noting, this quarter we received two credit ratings upgrades, now maintaining stable BBB rating.

Company’s financials continue improving while, as you see, we plan increasing capex and R&D investment. Regarding capital allocation priorities you mentioned, balance sheet strength remains top priority, followed by organic business investment including technology upgrades and high-value-bit capacity, core market needs currently. Now company ROIC exceeded 30%, expected reaching 50%, but maintaining investment prudence. As today announced, we’re raising quarterly dividend 30%, reflecting confidence in prospects, stability judgment, and future dividend planning.

Additionally, as you noted, company will have ample future funds for buybacks, returning to shareholders, including hedging dilution from equity compensation and opportunistic buybacks.

Timothy Michael Arcuri: Thank you Mark.

Moderator: Next question from Christopher James Muse, Cantor Fitzgerald, please proceed.

Christopher James Muse: Good afternoon everyone, thanks for answers. I also want to follow up on strategic customer agreements (SCA). Company agreements evolved from LTA, binding LTA to today’s SCA. I’d like understanding current SCA discussion customer scope. Are these only hyperscale cloud vendors or also other customer types? I know you can’t disclose details, with previous question, does agreement include capital expenditure prerequisites? Is pricing tied to these investments’ capital returns (ROIC)? Thank you.

Sanjay Mehrotra: We previously disclosed the first SCA partner is a large customer. Such agreements’ core objective is enabling more confident future supply capacity planning, while through explicit terms enhancing future demand visibility, and as previously stated, strengthening business model stability. Otherwise, unable disclosing additional SCA information; only noting currently discussing multiple customers with discussions spanning multiple market segments.

Christopher James Muse: Very grateful. Another HBM question—company previously issued HBM annual CAGR 40% guidance. By this math, 2026 market size approximately $50 billion. Has this changed? Also, given current non-HBM products’ higher margins, are industry players considering shifting capacity from HBM to DDR5? Thank you.

Sanjay Mehrotra: Right, currently non-HBM products indeed have higher margins than HBM, but HBM demand remains robust. We haven’t adjusted previous HBM TAM expectations. Data center DDR5, low-power memory (LP) and HBM demand all remaining vibrant. As data center AI demand grows, we’ll continue optimizing product mix