Prepared remarks
Ladies and gentlemen, thank you for joining us. And welcome to Micron Technology's Fiscal Third Quarter 2026 Financial Conference Call. After today's prepared remarks, we will host a question and answer session. Webcast viewers, please note that you will be able to advance the slides as you view at your own pace. I will now hand the conference over to Satya Kumar, corporate vice president of investor relations and treasury. Satya, please go ahead.
Thank you, and welcome to Micron Technology's fiscal third quarter 2026 financial conference call. On the call with me today are Sanjay Mehrotra, our Chairman, President and Chief Executive Officer, and Mark J. Murphy, our Chief Financial Officer. Today's call is being webcast from our Investor Relations site at investors.micron.com, including audio and slides. In addition, the press release detailing our quarterly results has been posted on the website along with the prepared remarks for this call. Today's discussion contains forward-looking statements that are subject to risks and uncertainties. These forward-looking statements include statements regarding our future financial and operating performance and our business model, as well as trends and expectations in our business, customers, market, industry, products, and regulatory and other matters. These statements are based on our current assumptions and we assume no obligation to update these statements. Please refer to our most recent financial reports on Form 10-K, Forms 10-Q, and other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations. Today's discussion of financial results is presented on a non-GAAP financial basis unless otherwise specified. A reconciliation of GAAP to non-GAAP financial measures can be found on our website. I will now turn the call over to Sanjay.
Thank you, Satya. With significant records in revenue, Micron delivered an exceptional fiscal Q3 gross margin and EPS, all exceeding the high end of our guidance. Demonstrating Micron's position as a leader enabling the AI era, our data center revenue exceeded $25 billion in fiscal Q3 on an annualized run rate of over $100 billion. Our data center SLC revenue exceeded $5 billion, more than doubling sequentially. DRAM and NAND industry demand continues to significantly exceed industry supply. We expect tight conditions to persist beyond calendar 2027 as a result of AI-driven demand across all segments coupled with structural supply constraints. We are excited to announce that we have now signed 16 strategic customer agreements, or SCAs, which we expect will fundamentally transform our business model. The memory industry has been structurally transformed by the proliferation of AI. We are only in the early innings of the significant innovation and productivity that can be unleashed in every part of the global economy over time. Data center-driven growth will be increasingly complemented by AI-enabled features in smartphones, high-end PCs, and new consumer devices, as well as in automotive, industrial applications, and robotics. Exciting possibilities enabled by robotics and humanoids as well as fully autonomous vehicles portend a robust long-term demand environment for memory and storage. With respect to supply, our customers are recognizing that supply shortages in memory and storage will take considerable time to improve. Even as we expect industry supply to improve gradually in 2028, we currently do not have line of sight as to when memory supply will be able to catch up with increasing demand. Memory industry supply growth is dependent on significant greenfield fab expansion. These greenfield projects are large, complex, and time-consuming. Further, the pace is constrained by several factors, including long lead times for fab construction across the world, shortage of workers with critical trade skills, complex regulations and permitting, and the need for enhanced energy infrastructure. Meanwhile, memory process technology, which is among the most advanced to develop and complex to manufacture in semiconductors, is getting more complex with every new node. Technology transitions are driving slower bit growth over time. Wafer growth needs are significantly increasing cleanroom space and greenfield fab requirements, and HBM's growth and increasing trade ratio with every new generation further pressures non-HBM supply. In NAND, industry suppliers redirecting cleanroom space from NAND to DRAM and overall limited cleanroom space constrains NAND bit supply growth. These factors taken together mean supply is structurally constrained in its growth and ability to meet industry demand despite our comprehensive efforts to increase supply. AI systems are powered by ASIC and CPU designs from an increasingly broad set of suppliers. However, they all share one important characteristic: AI system performance is architecturally dependent on memory subsystem performance and capacity. This has given rise to a more complex memory hierarchy that is providing greater differentiation opportunities for Micron than at any time in our history. It has also elevated the role of memory in the AI world to a strategic asset. Strong long-term demand growth, structurally constrained supply growth, and memory's strategic importance have caused customers to recognize that their product road maps rely on access to advanced memory technology and dependable, committed long-term memory supply. Micron has been a pioneer in our industry in creating a new class of strategic customer agreements, or SCAs, with very robust terms. We are pleased to announce that we have completed 16 SCAs with customers across the data center and auto market segments. These SCAs accelerate the transformation of our business model, enhance partnership in technology and innovation, and provide customers with contracted supply assurance. Typically, these agreements have a five-year term from calendar 2026 through the end of calendar 2030. Automotive agreements generally have a three-year term. The 16 signed agreements represent roughly 20% of our DRAM volume and a third of our NAND volume over this period. These SCAs include four very large customers and three medium-sized customers. The remaining agreements relate to smaller customers from the automotive industry and represent our commitment to that important sector. When completed, we expect approximately half or more of our company revenue to be under these SCAs with customers across end markets. Our customers value our U.S. supply plans, and this is reflected in our SCAs. These SCAs are structured as take-or-pay agreements with binding commitments to purchase specific volumes over this multiyear term. The largest agreements generally have a ceiling price for existing products at the current CQ2 market price and a floor price through the term of the agreement. Several SCAs, which account for a modest portion of the SCA-related revenue, include either fixed prices or have no price band associated with them, where pricing will be subject to market conditions. When all planned SCAs are executed, agreements with either fixed prices or price ceilings at or close to current CQ2 market prices are expected to be approximately 40% of our revenue. For SCAs that do contain such price bands, pricing is designed to stay within this floor-to-ceiling level through the course of the term. This pricing visibility will help our SCA customers across market segments to better manage their business and grow their demand. For our SCA price floors, the floor price enables a very robust gross margin for Micron, well above our peak quarterly margins in any past cycle. Fourteen of the 16 SCAs we have signed have cumulative revenue at the minimum price per our contracts of approximately $100 billion over the remaining agreement term. They also strengthen our long-term financial performance, margins, and free cash flow expectations with higher visibility and improved stability in our business performance. Under the SCAs we have signed so far, we project to receive cash deposits and related financial commitments of $22 billion. This further demonstrates customer commitment to this new business model. Mark will provide additional details. Our SCAs with customers across data center to consumer devices to auto and industrial applications create a new paradigm for us to strengthen our customer relationships. They provide committed DRAM, including HBM as appropriate, and NAND supply to our customers over a multiyear time horizon. In a period of significant shortage, this supply visibility is extremely beneficial to our customers. The visibility enables our customers to make progress on their strategic plans, drive growth, and enable their end consumers to benefit from their products and services. We are appreciative of our customers who have worked with us through this period of tight supply with a strong collaborative spirit to create win-win outcomes for the long term for the entire ecosystem and end consumers. AI's insatiable demand for memory bandwidth and capacity, with low latency and low power, is driving memory architectural choices, memory product mix shifts, and manufacturing process technology decisions, all of which increase the complexity of the memory and storage roadmap that Micron is building on its technology leadership. Our 1-gamma DRAM node and G9 NAND node are both ramping well and on track to become the highest-volume nodes in Micron's history. Development of our next-generation DRAM and NAND nodes is also progressing well and is on track to begin volume production in the second half of calendar 2027. We are leveraging our leading DRAM and NAND nodes across our product portfolio. HBM4 12-high volume ramp is tracking twice as fast as HBM3E 12-high, and we have already shipped over $1 billion in HBM4 revenue. We expect to reach mature yields on HBM4 12-high significantly faster than HBM3E 12-high. Please see our earnings press release for other highlights across our HBM, high-capacity DDR, and LP server DRAM, data center SSD, PC, smartphone, and automotive product portfolios. We expect future memory demand will continue to skew towards higher-performance and higher-value products whose complexity carries higher cost per bit. Transitions like LP5 to LP6, DR5 to DR6, and newer generations of HBM all come with rising bit cost. This trend, along with the ramp of significant greenfield capacity in the years ahead, is projected to cause the blended DRAM cost per bit to rise from current levels. Our customer SCAs provide for appropriate price premiums for such new products to be negotiated in the future. Turning to our end markets: AI is driving unprecedented growth in data centers, with industry data center DRAM and NAND bit shipments in calendar 2026 expected to more than double from two years ago. Agent AI is structurally reshaping data center infrastructure, extending beyond accelerator-only to include CPU racks for the agent control plane and program execution and storage racks for rapidly expanding context stores. We now expect calendar 2026 industry server units to grow in the high teens percent above our prior expectations of low double-digits, driven by mid-teens growth in traditional servers and even stronger growth in servers with AI accelerators. We estimate that this increase in our server unit growth expectation is enabled by a modest reduction in average server DRAM content growth as customers focus on maximizing unit shipments amid a very tight allocation of memory. In NAND, AI context memory, storage, and HDD displacement opportunities are expanding the addressable market for SSDs. PC and smartphone industry revenue is expected to grow despite unit volume declines, reflecting resilient demand for high-end devices at higher prices across end device categories. Agent AI platforms such as OpenClaw and NemoClaw elevate the value of edge devices, enabling improved tokenomics, greater privacy and lower latency, and more efficient orchestration of AI between the cloud and edge. Over time, we expect the value of on-device AI combined with end-of-life replacement demands to drive memory demand growth in PCs and smartphones. In automotive, ADAS remains a powerful driver of content growth. L2+ and above vehicles, which feature progressively increasing levels of autonomy, have over five times the memory and storage content of an average vehicle. The mix of L2+ and above vehicles is more than doubling this year to over 20% and is expected to exceed 40% by 2030. Average auto memory and storage content is expected to further increase as mix shifts towards higher levels of autonomy with progressively higher levels of content. In robotics, continued advances in simulation, foundation models, and integrated hardware and software stacks are accelerating physical AI. This creates a growing content-rich opportunity for high-bandwidth, low-power memory and storage that powers real-time perception, inference, and control. Humanoid robots carry ten times the amount of memory as an average L2+ vehicle. We expect a sustained substantial multi-decade memory demand cycle to begin in the latter part of this decade. Now turning to our market outlook: we expect supply-demand conditions for both DRAM and NAND to remain tight beyond calendar 2027. In DRAM, we expect industry DRAM bit shipments in calendar 2026 to grow in the low-to-mid twenties percentage range, slightly above our prior outlook. In NAND, we expect industry NAND bit shipments in calendar 2026 to grow approximately 20%, unchanged from prior expectations. We expect Micron DRAM supply to grow approximately in line with industry supply growth, while Micron NAND supply grows somewhat less than industry supply growth in calendar 2026. Our SCAs provide enhanced visibility on long-term demand and give us greater confidence on our CapEx and R&D investments. We are focused on maximizing output from our fabs, including collaboration with our suppliers to accelerate tool acquisition, fab tool installation and ramp, and tool replacements and upgrades to improve productivity. Recently, we concluded a multiyear EUV supply agreement with ASML supporting our increased adoption of EUV at the 1-delta node and future generations. We are also making good progress on expanding our global manufacturing footprint to increase supply over time. This includes our significant investments in U.S. leading-edge DRAM manufacturing with our ID1 and ID2 fabs in Idaho, whose construction is well underway, as well as the first of our New York fab cluster where we broke ground in January this year. ID1 is on track for first wafer output in mid-calendar 2027 and ID2 in late-calendar 2028. We recently launched first production start of our 1-alpha DDR4 technology in our Manassas, Virginia, fab, which adds to our capability to support the legacy product needs of our customers in auto, industrial, medical, aerospace, and defense markets. In our newly acquired Tongluo site in Taiwan, we expect to support meaningful product shipments from the existing 300,000-square-foot fab in mid-calendar 2027, about a quarter earlier than our prior expectations. Adding to the existing fab, we have begun construction of a similar-size second cleanroom at this site. This cleanroom will support EUV equipment. Our construction activities and timelines are on track for our other facilities in Japan and Singapore. Complementing our advanced packaging capabilities in Taiwan, our Singapore site will become another center of excellence for advanced packaging. We expect this facility will contribute meaningfully to Micron's HBM packaging capacity beginning in the first half of calendar 2027. As we make these investments, we will remain disciplined in our approach and will be responsive to the market environment to appropriately align our supply plan. I will now turn it over to Mark for our fiscal Q3 financial results and outlook.
Thank you, Sanjay, and good afternoon, everyone. Micron delivered exceptional fiscal Q3 results, with revenue, gross margin, and EPS exceeding the high end of our guidance. Our results and today's outlook underscore the increasing value of memory in the AI era and the structural strength of our business. As mentioned, we have entered into 16 strategic customer agreements. For SCAs with defined price, either fixed or subject to floor and ceiling pricing, in accordance with the revenue accounting standard, we are disclosing remaining performance obligations, or RPO, starting this May quarter. RPO at the end of fiscal Q3 was over $5 billion. For the SCAs that we have entered into so far, including ones executed after the end of fiscal Q3, RPO is approximately $100 billion. RPO is determined based on minimum committed volumes and minimum pricing and reflects inherently conservative estimates. RPO is not indicative of the total revenue we expect to recognize in future periods. As such, we expect revenue to well exceed associated RPOs over the term of the agreements. As Sanjay mentioned, we project to receive cash deposits and related financial commitments of $22 billion under the SCAs we have signed so far. The overwhelming majority of these commitments, approximately $18 billion, will be in the form of cash deposits. When all targeted SCAs are completed, we expect to have substantially higher levels of SCA customer deposits and related commitments. These customer deposits will show up on our balance sheet more in fiscal Q4. The cash flows associated with customer deposits appear in financing-related cash flows and will not affect our free cash flow. This cash will be returned to customers over time toward the latter half of the agreement term. We are excited with our progress in signing these SCAs, which will strengthen our long-term financial performance and drive enduring robust ROI for the company over time. Total fiscal Q3 revenue was $41.5 billion, up 74% sequentially and up 346% year over year, representing our fifth consecutive quarterly revenue record. A $17.6 billion sequential increase is the largest in our history, eclipsing last quarter's $10.2 billion record. Fiscal Q3 DRAM revenue was a record $31.3 billion, up 343% year over year, and represented 76% of total revenue. Sequentially, DRAM revenue increased 67%. Bit shipments were up in the low-single-digit percentage range. Prices increased in the low 60s percentage range, driven by tight industry conditions and a favorable mix. Fiscal Q3 NAND revenue was a record $9.9 billion, up 361% year over year, and represented 24% of total revenue. Sequentially, NAND revenue increased 99%. Bit shipments increased in the mid-single-digit percentage range. Prices increased in the mid-80s percentage range, driven by tight NAND industry conditions and a favorable mix. The consolidated gross margin for fiscal Q3 was 84.9%, up 10 percentage points sequentially. This improvement was driven primarily by higher pricing and also benefited from continuing strong execution and favorable mix. Fiscal Q3 gross margin more than doubled from a year ago and was a new company record. Now turning to quarterly financial performance by business: Cloud Memory Business Unit revenue was a record $13.8 billion and represented 33% of total company revenue. CMBU revenue was up 78% sequentially, driven by higher pricing and higher bit shipments. CMBU gross margins were 83%, up 9 percentage points sequentially, driven by higher pricing. Core Data Center Business Unit revenue was a record $11.5 billion and represented 28% of total company revenue. CDBU revenue was up 103% sequentially, driven by higher pricing and a favorable mix. CDBU gross margins were 87%, up 12 percentage points sequentially, driven by higher pricing. Mobile and Client Business Unit revenue was a record $11.5 billion and represented 28% of total company revenue. MCBU revenue was up 49% sequentially, driven by higher pricing partially offset by lower bit shipments. MCBU gross margins were 87%, up 9 percentage points sequentially, driven primarily by higher pricing and helped by favorable mix. Automotive and Embedded Business Unit revenue was a record $4.6 billion and represented 11% of total company revenue. AEBU revenue was up 71% sequentially, driven by higher pricing and higher bit shipments. AEBU gross margins were 79%, up 11 percentage points sequentially, driven by higher pricing and favorable mix. Operating expenses in fiscal Q3 were $1.5 billion, up $97 million quarter over quarter. The sequential increase was due to higher variable compensation expense from the strong performance of the business. We generated operating income of $33.7 billion in fiscal Q3, resulting in an operating margin of 81.2%, up 12 percentage points sequentially and 54 percentage points year over year. Fiscal Q3 taxes were $5.1 billion on an effective tax rate of 14.9%. Non-GAAP diluted earnings per share in fiscal Q3 was $25.11, up 106% sequentially. Turning to cash flow and capital expenditures: in fiscal Q3, operating cash flows were $25.4 billion. Capital expenditures were $7.1 billion, resulting in free cash flow of $18.3 billion. Fiscal Q3 free cash flow was a quarterly record for the company. Ending inventory for fiscal Q3 was $8.6 billion with days of inventory at 120. DRAM inventories are very tight and below 120 days. We reached record levels of cash and investments of $30.2 billion at quarter end. During fiscal Q3, we reduced debt by $4.4 billion, including a cash tender offer that reduced senior notes by $4.3 billion. The weighted average maturity on our outstanding debt is April 2035. We closed the quarter with $5.7 billion of debt and a net cash balance of $24.4 billion. This fiscal year, we received upgrades from all three major credit rating agencies, including an upgrade to BBB+ on the strength of our technology and product position, financial outlook, and strong balance sheet. Our balance sheet has never been stronger, and we project it to strengthen further even as we increase investment in technology and needed capacity. Now turning to guidance: we expect fiscal Q4 revenue to be a record $50 billion, plus or minus $1 billion; gross margin to be approximately 86%; and operating expenses to be approximately $1.65 billion. Based on a share count of approximately 1.15 billion diluted shares, we expect EPS to be a record $31 per share, plus or minus $1. Our fiscal Q4 gross margin outlook reflects a meaningful moderation in the rate of price increases. We project operating expenses to increase by $1 billion in fiscal 2027 as we expand R&D to support an unprecedented set of opportunities in memory and storage. We expect operating expense increases to be weighted to the second half. We expect the fiscal Q4 and fiscal 2026 tax rate of around 15%. Micron continues to invest in a disciplined manner across our global footprint to address customer demand. As a reminder, our CapEx is net of anticipated government incentives. In fiscal Q4, we project CapEx of around $10 billion, bringing full year fiscal 2026 capital spending to approximately $27 billion. We expect quarterly CapEx in fiscal 2027 to be above fiscal Q4 levels, with more than half the increase year over year in fiscal 2027 from construction CapEx as we pull in cleanroom capacity required to address long-term demand. We forecast free cash flow to increase substantially again in fiscal Q4. From 12/09/2026, the second anniversary of the signature of our definitive CHIPS agreements, we intend to increase our capital return. Over time, we expect to return 100% of our excess cash to shareholders. Any impacts that may occur due to trade or developments are not included in our guidance. I will now turn it over to Sanjay to close.
Thank you, Mark. AI has elevated the value of memory. Micron is collaborating closely with our customers and suppliers across technology, product, manufacturing, and commercial teams in this tight industry environment. Strategic customer agreements are ushering in an exciting era for Micron. We expect these SCAs to significantly enhance the durability and predictability of Micron's strong financial performance, accelerating the transformation of our business model. I am thankful to Micron's team members worldwide whose relentless focus on execution on all fronts has positioned Micron as a leader in this new AI era. As we continue to advance our mission to accelerate intelligence to enrich life for all, we will now open for questions.
Questions and answers
We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. Your first question comes from the line of Timothy Michael Arcuri with UBS. Your line is open. Please go ahead.
Sanjay, I think we are all trying to figure out how much is locked in kind of a floor-price scenario over the next five years. There were two things you said. You said that 14 of the 16 SCAs have $100 billion in cumulative revenue. That suggests about $20 billion a year at a floor price, which is well below the run rate you just guided. That suggests not that much would be covered at a floor price, but then you also said that 40% of revenue will be moving inside of these SCAs. Can you double click on that and help us think about how much revenue per year would be guaranteed under a floor-price scenario?
As we indicated, under the SCAs that have been completed so far, at the floor price the projected revenue is $100 billion. But, as Mark noted in his remarks, we expect revenue to be much higher than that. Note that at the floor price our profitability levels, the gross margins at the floor prices are higher than peak margins at any time in the past. Overall, about 20% of DRAM and about 30% of our NAND volume is covered in these SCAs so far. That translates to about 25% of our revenue that you can project over the term of these agreements. RPO at the floor price is reported as an accounting measure, but we fully expect that actual revenue will be much higher than that.
And with respect to how these layer in, Mark, how much of the August quarter revenue, for example, will be flowing under an SCA? I'm trying to figure out when you get to a full run rate—by next fiscal Q4, will you be at a full run rate of what is being covered by these SCAs? Can you help us feather that in?
Timothy, you will see a disclosure in the 10-Q, which will disclose the next 12-month revenue associated with each set of agreements that have an RPO. For example, for those that closed within Q3, you will see an RPO of over $5 billion and you will see a next 12 months associated with that of about $1.8 billion; those are some of the smaller agreements, such as automotive agreements. In the fourth quarter, as Sanjay mentioned, you will see an RPO reported on 14 of the 16 agreements that will be about $100 billion. There will be an associated next-12-months disclosure with those that will be in the 10-K, so you will be able to see roughly how these are feathering in. Keep in mind this RPO number is a minimally contractually enforceable amount for the intersection of volume and price. It is a minimum number and does not reflect what we think will happen. Each quarter the RPO number will change based on contracts that are added, additional volume commitments, and shipments as performance obligations are met. You will be getting a lot of additional reporting under ASC 606. As Sanjay mentioned, even at the floor price, and eventually we anticipate about 40% of our revenue being under these RPO-related commitments, even under the floor price we expect the margins to be significantly above prior peak margins.
Okay. Thank you both.
Your next question comes from the line of Joseph Moore with Morgan Stanley. Your line is open. Please go ahead.
I wanted to ask about the LTAs. Can you talk about the role of the cash deposit? Should we think of that as sort of an escrow or collateral account where, if customers cancel, you would have access to the cash? If it is not revenue, what is the point of the deposit and what is its relationship with the RPO, if there is one?
Joe, on the deposits: we mentioned that we have $22 billion of deposits and financial commitments associated with the agreements signed to date as of this call. Approximately $18 billion of that is cash deposits. We received about $500 million to $1 billion in the third quarter. We expect to receive about another $10 billion in the fourth quarter. These will be seen in financing cash flows and will not affect free cash flow. They are held by us during the performance commitments of the agreements and, as those agreements are satisfied, those deposits will be returned over time, heavily weighted to the back half of the agreements. The remainder is letters of credit. They are not prepayments; they are a separate commitment by the customers and a reflection of the fact that we have binding take-or-pay agreements. They reflect our shared commitment to perform under these agreements. This is good for Micron because we get visibility on committed volume that gives us confidence to make large capital investments. It is good for customers because they have supply assurance and leading technology. In our view, it is a win for both sides.
But what happens to that cash? It seems like they put a deposit and then get it back. Why would they commit that cash? Is the cash related to a take-or-pay? It is not a prepayment. Can you help us understand?
It is not a prepayment; it is a separate commitment. It reflects that we have binding take-or-pay agreements. We hold the cash, and it reflects the shared commitment of the customers and Micron to perform under these agreements. We will return the deposits as contracts are satisfied, largely in the latter half of the agreement terms. This provides us demand visibility and supports our investment decisions.
Very helpful. Thanks.
Your next question comes from the line of CJ Muse with Cantor Fitzgerald. Your line is open. Please go ahead.
Good afternoon. Thanks for taking the question. Following up on Joe's question: when you think about these cash deposits, do you view that as fungible cash to be used for CapEx? And when you contemplate capital returns, particularly after December 9, will you include that cash in your gross cash thoughts and your thoughts around capital returns, or does the fact that you will have to return it eventually cause you to hold more gross cash?
CJ, the deposits are unrestricted cash. Does it change our thoughts around gross cash that we feel comfortable holding? Not in the near term. We will maintain adequate liquidity to support operations, which includes returning the deposits as customers and Micron perform under the contracts. We will also hold liquidity to satisfy investments we believe are important for the business. We have large projects underway to provide supply and R&D programs. Again, deposits will be returned to customers in the latter half of the agreements.
Perfect. As a follow-up on HBM revenues, can you share how you are thinking about both your market share and total revenues into calendar 2026? And is there an expectation into calendar 2027 that you can bridge margins closer to what you are getting on DRAM? Or will HBM margins remain below that DRAM level?
Regarding HBM: we are very pleased with our HBM4 product and have already shipped over $1 billion in HBM4 revenue. Strategically, we are choosing HBM share to be close to our DRAM share. This matters because HBM consumes a significant amount of wafers and puts pressure on non-HBM supply. Targeting HBM share close to our DRAM share enables us to supply our diversified end-market customers across data center, consumer, automotive, and industrial markets. On pricing for next year, we are not commenting on specific pricing. HBM is a higher-price product compared to non-HBM on a per-bit basis and is critically important for the AI ecosystem from data center to edge. We have a strong leadership position in HBM and a roadmap ahead. It provides strong ROI.
Your next question comes from the line of Vivek Arya with Bank of America Securities. Your line is open. Please go ahead.
Thanks for taking my question. Sanjay, you mentioned four large and three medium-sized customer agreements. How many of them are related to data center? Should we expect more data center-related announcements? The $100 billion, does that align with large and medium-size agreements, or does it align with the smaller agreements? I'm trying to understand the typical SCA with a data center customer and whether you've given enough breadcrumbs to figure out what a data center SCA looks like over the next few years.
Our large and medium customers include data center customers, and the agreements span data center, consumer, and automotive markets. The large agreements generally have ceiling prices and price bands with a floor and a ceiling, and the ceiling is established at CQ2 price levels. Those CQ2 levels are reflected in our FQ3 results and FQ4 guidance and provide for unprecedented levels of profitability. The floor prices in those bands produce gross margins well above past cycle peaks. The large agreements are multiyear and provide us tremendous visibility to demand, customer commitments, and financial commitments including cash deposits.
And as a follow-up to Mark on gross margins: you guided roughly 86% for fiscal Q4. Does that level hang out for a while? Is there a ceiling? As SCAs start to kick in, should models normalize to a range between the current mid-80s and prior peaks in the low 60s? For 2027 and 2028, should investors assume a normalized gross margin range perhaps in the mid-70s or some other level? How should we think about gross margins beyond this 86% near term?
Vivek, we are not providing guidance beyond the fourth quarter. We are at margin levels where incremental price yields less gross margin expansion, so that dynamic matters. We updated our view that the market will remain tight beyond 2027. Memory's strategic value and the continued demand for higher-performance memory are supportive. As price growth moderates, we will optimize placement of bits with customers, including those with SCAs. We will have additional volume starting materially midyear 2027, growing into 2028. There will be some startup costs, but we will get operating leverage as those ramps occur. We feel great about the trajectory of the business, Micron's technology position, world-class product portfolio, and our ability to deliver strong financial performance over time.
Your final question comes from the line of Krish Sankar with TD Cowen. Your line is open. Please go ahead.
Thanks for taking my question and congrats on the great results. On floor pricing for the LTAs, you said prior peak gross margin was in the low 60s. If I try to think about a 64GB server DRAM getting $700 versus $1,500 today, that puts a floor around $10–$12 per gigabyte and a current price in the mid-$20s per gigabyte. Is that the right range to think about for LTAs, from low teens to mid-$20s per gigabyte?
Krish, we are not going to get into specific pricing discussions. I will reiterate that gross margins at the floor will be well beyond the peaks we experienced in prior cycles. We are not providing specific per-gigabyte price guidance, but the key point is that these SCAs help provide visibility, strength, and durability of demand and fundamentally accelerate our financial performance and business transformation.
Very helpful. As a quick follow-up: you mentioned DRAM bit growth should be in the low-to-mid twenties and NAND around 20% this year, and we are clearly undersupplied on both. Is there a way to quantify what happens in 2027? Will the undersupply be larger in 2027 relative to this year, or how should we think about the supply-demand imbalance in 2027?
We see 2027 overall as tight. We expect tightness continuing beyond 2027. It takes a long time to bring up additional capacity to support customer demand. We have shared that the additional wafer capacity and technology transitions provide less bit gain per node, and HBM trade ratios put pressure on non-HBM supply. Even in 2028, when supply begins to improve gradually, we see demand continuing on a robust trajectory because AI trends are long term and AI is still in the early innings. System performance is limited by memory capacity, bandwidth, and performance. As compute demand grows and customers transform their infrastructure, they will continue to invest aggressively to build that infrastructure. Access to memory supply is a critical priority, as evidenced by the multiyear agreements customers have concluded with us. We are working hard to bring up supply, but we see tightness persisting beyond 2027.
This concludes today's call. Thank you for attending. You may now disconnect.