Online First - Micron's Latest Financial Report Telephone Conference Q&A Compilation I just searched around and found that even the Seeking Alpha and other places haven't provided a transcript yet. Let me organize the content of the Q&A, as the questions are usually sharp and the most concerning issue in the market. Analysts are racking their brains to ask questions, and management has to answer core questions, which are theoretically quite valuable. Hand typing throughout the entire process. If you find it helpful, like, forward, or comment. Thank you ~~~~~~~~~~~~~~~ Q1: How much future revenue have these multi-year supply agreements (SEA) locked in? (This is actually verifying whether AI memory requirements are real or if customers are just talking) A1: The SEA agreements that have already been signed correspond to approximately $100 billion in revenue at the lowest price, and we expect actual revenue to be much higher than this figure. Currently, about 20% of DRAM shipments and about 30% of NAND shipments have been covered by these SEA protocols, which means 25% of revenue has been locked in. The profit margin of Floor Price is higher than the peak profit margin of historical cycles (which means that even if the most pessimistic situation occurs, the money earned in this cycle is higher than in previous business cycles) My comment: Micron's management is even more optimistic about the AI memory cycle in the next 3-5 years than previously expected by the market. ~~~~~ Q2: When do these long-term supply agreements (SEA) start contributing revenue? How much income will be covered in the future? A2: 1. It has already come into effect The small agreement signed in Q3 has already started to contribute revenue. Starting from Q4, 14 large-scale agreements will be disclosed. The corresponding minimum guarantee amount is about 100 billion US dollars. $100 billion is just the minimum guarantee This number is not the expected income but the minimum amount that must be executed in the contract. The actual revenue is expected to be much higher than 100 billion US dollars. 3.40% of revenue enters the long-term agreement system. My comment: Micron is trying to transform the memory industry from a "cyclical product business" to a "long-term contract business". If this logic holds true, the valuation system for Micron and Hynix in the future will change. In the past, cyclical stocks were valued by PE, and in the future, infrastructure stocks or long-term growth stocks may begin to be valued. ~~~~~~~ Q3: Why are these clients willing to pay a cash deposit of $18 billion in advance? This has hardly happened in the memory industry in the past. Because it seems that the client has paid the deposit and will receive it back in the future, why do we have to do this. A3: This is indeed not a prepayment, it is an additional commitment made by the customer. These agreements belong to: Take-or-Pay Agreement Either take the goods or pay. The advantage of these agreements is that we can obtain demand visibility in advance and know how many goods customers will definitely buy in the future. They have obtained supply guarantee and advanced technology. These agreements not only improve business, but also represent a transformation of Micron's business model. My comment: Take or Pay is a common term in the energy industry, which means you have to pay even if you don't buy. This is no longer an ordinary procurement contract, but a strategic resource locking agreement. And the management once again mentioned the transformation of the business model. ~~~~~~` Q3: Can the $18 billion deposit received be used as regular cash? For example: to do CapEx (expansion), to do research and development, to repurchase stocks, or to repay customers in the future? A3: These cash have no legal restrictions. From a technical perspective, they can enter the company's cash pool, which does not change our attitude towards cash management. Most of these deposits will be returned to customers in the latter half of the contract. My comment: This is actually equivalent to Micron obtaining ultra long term, ultra-low cost financing ~~~~~~~ Q4: Who signed these long-term agreements (SEA/FCA)? Is it mainly from AI data center customers? Will there be more data center customers joining in the future? What types of customers are mainly targeted by the $100 billion agreement scale you mentioned? A4: Our large clients, including data center clients, actually cover multiple end markets: data centers/consumer electronics/automotive. We have already disclosed some key features regarding large-scale agreements. These protocols have: Ceiling Price/Floor Price/Price Band, where the price ceiling refers to the current market price level. And these price levels have already been reflected in the FYQ3 performance and FYQ4 guidance. These agreements correspond to extremely strong profitability. And the lower price limit can ensure that even in the most pessimistic situation, the company's gross profit margin is still much higher than the historical cycle peak. These large-scale agreements are all multi-year agreements, which bring the company visibility of requirements, customer commitments, and long-term order protection They are also accompanied by financial commitments, including cash deposits My comment: Analysts have been making clich é s about whether these major clients are Microsoft or not? Meta？ Google？ The management never named anyone and repeatedly emphasized that it includes data center customers. This basically indicates that the Hyperscalers speculated by the market are probably inside, but the company cannot say. ~~~~~~~~~ Q5: Your gross profit margin has now reached 86%, which may continue for some time due to the existence of a pricing cap mechanism. In the future, as more SKUs and products are launched, should we expect that the gross profit margin will find a new balance between the current 86% and the top 50% of the historical cycle? That is to say, for long-term investors, should we understand the long-term normalized gross profit margin as around 70% or even higher when establishing the 2027 and 2028 models? If supply and demand remain tight in the coming years, should Micron's profit margin be permanently reassessed? (This is actually a test: is Micron no longer a cyclical stock?)? ） A5: We will not provide specific guidance after the fourth quarter, but as we have previously stated, as prices continue to rise, the marginal contribution to gross profit margin will gradually decrease. In other words, if prices continue to rise, profit margins will not increase indefinitely. But we have updated our market judgment. We expect the market tension to continue beyond 2027. At the same time, the market is increasingly recognizing that memory is a strategic asset and has critical value for enhancing AI intelligence. More memory and higher performance memory are needed in the future Therefore, in the future, Micron will continue to allocate more production capacity to high-value application areas such as data centers and edge AI devices. Even if the future price growth slows down, we can still maintain profitability through a better product mix. Starting from mid-2027, the company will acquire new production capacity, which will continue to grow until 2028. Of course, there will be initial start-up costs, but as production capacity climbs, economies of scale will gradually manifest and operational leverage will gradually be released. Therefore, we feel very positive about the future development trajectory of Micron. Whether it is technological leadership, product portfolio, or execution capability, all support the company to continue creating strong financial performance in the future. My comment: The key point of this paragraph is: 1. They did not deny a gross profit margin of over 70% 2. The market is no longer discussing whether 2026 will be good, but whether 2028 can still be so good, indicating that analysts have started using the gross profit margin of 2028 to create valuation models for Micron. This is the most typical feature of the market trend. ~~~~~~~~ Q6: The analyst first inquired about the pricing mechanism of Long Term Agreements (LTAs). (He is actually trying to deduce what price range Micron's long-term contract with customers actually locks in.). ） Subsequently, the analyst turned the issue to the supply-demand relationship in 2027, pointing out that the demand growth of the DRAM industry this year is about 20%, and the industry is currently in a clear state of supply shortage. So if the demand for AI continues to grow, will the supply-demand gap become more severe by 2027 than it is now? A6: The CFO did not directly answer the specific price question, but he emphasized once again something very important: Even if executed at the lowest price in the contract, Micron's gross profit margin will still be much higher than the highest gross profit margin level in the historical cycle. Here he specifically used the phrase 'well beyond' instead of simply 'higher than'. This indicates that the management hopes the market understands that even if the industry experiences a certain degree of price decline in the next few years, profitability may not necessarily return to the ups and downs of the memory industry in the past. Later, he emphasized again that the core value of these long-term agreements is not just locking in prices, but locking in demand, locking in customer commitments, and locking in visibility of revenue for the next few years. From the management's perspective, these agreements are helping Micron transition from a traditional cyclical storage vendor to a company with long-term contract revenue characteristics. For the second question, Sanjay's answer was actually very firm. He stated that Micron not only believes that the market will remain tight in 2027, but also believes that this tension will continue beyond 2027. His logic mainly comes from several aspects. Firstly, the construction period for new production capacity is very long. Whether building a new wafer fab or expanding existing production capacity, it requires a significant amount of time and capital investment, making it difficult for supply to quickly respond to demand growth. Secondly, the Bit Growth brought by advanced process nodes is decreasing. In other words, in the past, each generation of process upgrades could significantly improve output efficiency, but now the magnitude of this improvement is decreasing, so the overall supply growth rate of the industry is naturally limited. Thirdly, and as he repeatedly emphasized, HBM is continuously consuming a large amount of wafer production capacity. Due to the much higher manufacturing complexity of HBM compared to regular DRAM, producing a certain amount of HBM will occupy more wafer resources, thereby squeezing the supply of regular DRAM. At the same time, the demand side continues to strengthen. Sanjay believes that AI is still in a very early stage of development. He specifically mentioned that the performance of AI systems is increasingly limited by memory capacity, memory bandwidth, and memory performance. Therefore, as the scale of AI models expands and the demand for inference grows, the industry's demand for memory will continue to increase. He also pointed out that the current investment in AI infrastructure by customers has reached a historically rare level, and major technology companies are building data centers and AI computing infrastructure on an unprecedented scale. This is also why more and more customers are willing to sign multi-year procurement agreements, and even pay huge deposits in advance to lock in future supply. Therefore, Micron's current assessment is: Even though supply will gradually increase in the coming years, the growth rate of demand is still fast enough that the market will remain tight after 2027. My comment: The real importance of this question and answer is not in the specific price, but in the management's repeated emphasis that they believe the memory demand growth brought by AI is not a short-term cycle of two or three years, but a long-term trend that lasts for many years. All aspects such as long-term agreements, margin, floor price, HBM expansion, and tight supply are essentially centered around this core judgment. ~~~~~~~~~~~~~~~ The final sentence summarizes: I was originally worried that Micron's financial report would become a node for AI memory logic to be falsified, but the message conveyed by the phone call is exactly the opposite. The management has shown unprecedented confidence in the certainty of demand, HBM status, and supply and demand pattern for the next 3-5 years. Bullish！ Screen recording portal for telephone conferences: https://events. (q4inc.com)/attendee/580144984