The storage sector's big three report earnings next week! Can their high momentum continue?
美光科技2026财年Q3業績直播
Key Takeaways (AI-Generated)
Financial Performance
- Record Q3 revenue of $41.5 billion, up 74% sequentially and 346% year-over-year
- Record gross margin of 84.9%, up 10 percentage points sequentially
- Record non-GAAP diluted EPS of $25.11, up 106% sequentially
- Record free cash flow of $18.3 billion in Q3
Business Highlights
- Signed 16 strategic customer agreements representing $100 billion cumulative revenue with $22 billion deposits
- HBM4 12-high volume ramp tracking twice as fast as HBM3E 12-high
- Concluded multi-year EUV supply agreement with ASML for advanced manufacturing
- ID1 fab on track for first wafer output mid-2027, ID2 late 2028
Financial Guidance
- Q4 revenue guidance: record $50 billion ± $1 billion
- Q4 gross margin guidance: approximately 86%
- Q4 EPS guidance: record $31 per share ± $1
- Full year fiscal 2026 CapEx: approximately $27 billion
Opportunities
- AI driving unprecedented data center growth with high teens server unit growth in 2026
- Next generation DRAM and NAND nodes on track for volume production H2 2027
- Strategic customer agreements providing supply assurance and technology collaboration opportunities
- Agentic AI platforms and humanoid robots creating new memory demand segments
Risks
- Supply growth structurally constrained by long fab construction lead times and skilled worker shortages
- Memory process technology complexity increasing with every new node, driving slower bit growth
- Complex regulations including permitting and enhanced energy infrastructure needs constraining expansion
- Tight market conditions expected to persist beyond calendar 2027 due to supply constraints
Full Transcript (AI-Generated)
Operator
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.
Satya Kumar
Thank you and welcome to Micron Technologies fiscal third quarter 2026 financial conference call. On the call with me today are Sanjay Mehrotra, our Chairman, President and CEO and Mark Murphy, our CFO. 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 10K, Forms 10 Q and other other filings with the SEC For more information on the lists 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'll now turn the call over to Sanjay.
Sanjay Mehrotra
Thank you, Satya. Micron delivered an exceptional fiscal Q3. The significant records in revenue, 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 SSD 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 SC as 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 28. 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 fabrics expansions. These green feed projects are large, complex and time consuming. Further, the pace is constrained by several factors, including long lead time for fab construction across the world, shortage of workers with critical trade skills, complex regulations including permitting, and the need for enhanced energy infrastructure.
Meanwhile, memory process technology, which is among the most advanced to develop and manufacture in semiconductors, is getting more complex with every new node. Technology transitions are driving slower bit growth over time. Paper growth needs are significantly increasing clean room space and Greenfield fab requirements and HBMS growth and increasing trade ratio with every new generation further pressures non HBM supply in NAND industry suppliers redirecting clean room space from NAND to DRAM and overall limited clean room space constrained NAND bit supply group.
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 GPU, 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 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 memories strategic importance have caused customers to recognize that their product Rd maps rely on access to advanced memory technology and dependable and committed long term memory supply.
Micron has been a pioneer in our industry in creating a new class of strategic customer agreements or SC AS with very robust terms. We are pleased to announce that we have completed 16 SC AS with customers across the data center, consumer and auto market segments. These SC AS 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 land volume over this. 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 the important sector.
When completed, we expect approximately half or more of our company revenue to be under these SC As with customers across end markets, our customer value are US supply plants and this is reflected in our SC AS. These SC As are structured as take or pay agreements with binding commitments to purchase specific volumes over this multi year term. The largest agreements generally have a ceiling price for existing products at the current CQ 2 market price and a floor price through the term of this agreement.
Several FC As which account for a modest portion of the FCA related revenue include either fixed prices or have no price bands associated with them where pricing will be subject to market conditions When all planned FC As are executed agreements with either fixed prices or price ceilings at or close to currency. Q2 market prices are expected to be approximately 40% of our revenue for SC AS which 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 with price bands. The floor price enables a very robust gross margin for Micron well above our peak quarterly margins in any past cycle. 14 of the 16 SC as that we have signed have a cumulative revenue at minimum price per hour 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 SC as 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 SCA's with customers across data center to consumer devices to auto and industrial applications create a new paradigm for us to strengthen our customer relationships. Paperwhite committed DRAM including HPM as appropriate and then supply to our customers over a multi year time horizon. In a period of significant shortage. This supply visibility is extremely beneficial to our customers.
The visibility enables our customers to leverage SCS supply to make progress on their strategic plans, drive growth and enable their end consumers to benefit from their products and services. We are very appreciative of our customers who have worked with us through this period of time, supplies with a strong collaborative spirit to create win win outcomes for the long term for the entire ecosystem and then consumers.
AI is insatiable appetite for memory bandwidth and capacity with low latency and low power is driving memory architectural choices, memory product makeshift and manufacturing process technology decisions, all of which increase the complexity of memory and storage road map for the industry. Micron is building on its technology leadership. Our one 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 are also progressing well and are on track to begin volume production in the second-half of calendar 2027. We are leveraging our leadership DRAM and NAND nodes across our product portfolio. HBM 412 high volume ramp is tracking twice as fast as HPM 3 E 12 high and we have already shipped over $1 billion in HBM 4 revenue. We expect to reach mature yields on HBM 412 high, significantly faster than HPM 3 E 12 high.
We see our earnings press release for other highlights across our HBM high capacity DDR and LP server, DRAM data center, SSDPC 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 LP-5 to LP6DDR5 to DDR6 and newer generations of HVM all come with rising bid cost.
This trend, along with the ramp of significant Greenfield capacity in the years ahead is projected to cause the blended DRAM cost per bid to rise from current levels. Our customer seas provide for appropriate price premiums for such new products to be negotiated in the future. Turning to our end market, AI is driving unprecedented growth in data centers with industry data center DRAM and NAND shipments in calendar 2026 expected to more than double from two years ago.
Agentic AI is a structurally reshaping data centre infrastructure, extending beyond accelerator only racks to include CPU racks for the agent control plane and program execution and storage racks for rapidly expanding context store. We now expect Calendar 2026 industry server units to grow 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 shipment emit 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.
Agentic AI platforms such as Open Claw and Nimo Claw elevate the value of edge devices, enabling improved tokenomics, greater privacy and latency, and more efficient orchestration of AI between the cloud and edge. Over time, we expect the value of on device AI combined with tent up unit replacement demands to drive memory demand growth in PCs and smartphones in automotive ADAS remains a powerful driver of content growth.
L2 plus 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 plus 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 mixed shift towards higher levels of autonomy with progressively higher levels of content in robotics.
Continued advancement, 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 10 times the amount of memory as an average L2 plus vehicle and 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 now expect supply demand conditions for both DRAM and NAND to remain tight beyond calendar 2027. In DRAM, we expect industry DRAM bed shipments in calendar 2026 to grow in the low to mid 20s 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 the industry supply growth. While Micron NAND supply grows somewhat less than the industry supply growth in calendar 2026, our FDA's provide enhanced visibility on our long term demand and provide 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 RAM and tool replacements and upgrades to improve productivity.
Recently, we concluded a multi year EUV supply agreement with ASML supporting our increased adoption of EUV at the 1D node and future generations. We are also making good progress on expanding our global manufacturing footprint to increase supply overtime. This includes our significant investment in US leading edge DRAM manufacturing without ID 1 and ID 2 fabs in Idaho, whose construction is well underway as well as the first of our New York fab cluster where we broke down in January this year.
ID 1 is on track for first wafer output in mid calendar 20/20/27 and ID 2IN late calendar 2028. We recently launched first production start of our One Alpha DDR4 technology in our Manassas, VA fab, which will add to our capability to support the legacy product needs of our customers in auto, industrial, medical, aerospace and defense markets.
In our newly acquired Fondue site in Taiwan, we expect to support meaningful product shipments from the existing 300,000 square feet fab in mid calendar 2027, about 1/4 earlier than our prior expectations. Adding to the existing fab, we have begun construction of a similar size second clean room at this site. This clean room 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 year 2027.
As we made these investments, we will remain disciplined in our approach and will be responsive to the market environment to appropriately align our supply plans. I will now turn it over to Mark for our fiscal Q3 financial results and outlook.
Mark Murphy
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_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 SCA's with the fine price either fixed or subject to floor and ceiling pricing.
In accordance with the revenue accounting standard, we are disclosing remaining performance obligations RPO starting this May quarter. RPO at the end of fiscal Q3 was over $5 billion. For the SCA's that we have entered into so far, including ones executed after the end of fiscal Q3, RPO is approximately only $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 RPO's over the term of the agreements. As Sanjay mentioned, we project to receive cash deposits and related financial commitments of $22 billion under the SD as 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 SCA's 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 towards the latter half of the agreement term.
We are excited with our progress in signing these SCA's 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. The $17.6 billion sequential increase is a large. Just in our history eclipsing last quarters $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 low single digit percentage range. Prices increased in the low 60s percentage range driven by tight industry conditions and 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 unit.
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 bid shipments. CMBU gross margins were 83%, up 9 percentage points sequentially, driven by higher pricing. Core Data Center business unit revenue is 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 position of 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. Abu 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% of 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 the net cash balance of $24.4 billion.
This fiscal year, we received upgrades from all three major credit rating agencies, including an upgrade to Triple B Plus on the strength of our technology and product position, financial outlook and strong balance sheet. Our balance sheet has never been stronger and we projected 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 ± 1 billion dollars, 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 shares, we expect EPS to be a record $31 per share, plus or minus a dollar. Our fiscal Q4 gross margin outlook reflects A meaningful moderation in the rate of price increases.
We project operating expenses to increase by approximately $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 not 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 clean room capacity required to address long term demand.
We forecast free cash flow to increase substantially again in fiscal Q4 from December 9th, 2026, the 2nd 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 geopolitical developments are not included in our guidance. I'll now turn it over to Sanjay to close.
Sanjay Mehrotra
Thank you, Mark. AI has elevated the value of memory. Micron is collaborating closely with our customers and suppliers across technology, products, manufacturing and commercial teams. In this tight industry environment, strategic customer agreements are ushering in an exciting era for Micron. We expect these SC as to significantly enhance the durability and predictability of Micron's strong financial performance, accelerating the transformation of our business model.
I'm 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.
Operator
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 *1 to raise your hand to withdraw your question, press *1 again. Your first question comes from the line of Timothy Arcuri with UBS. Your line is open. Please go ahead.
Timothy Arcuri
Sanjay, I, I'm, so I think we're all trying to figure out how much is locked in, in kind of a floor price scenario over the next five years. And there were two things you said. You said that 14 of the 16 SCA's have $100 billion in cumulative revenue. So that sort of says like $20 billion a year at like a floor price, which is way below the, you know, run rate that you just guided.
So that says that not that much would be covered at a, you know, floor price. But then you also said that 40% of revenue will be moving inside of these SCA. So can you maybe you know, double click on all that and sort of help us in a in like a floor price scenario, you know, can you help us think about how much of you know revenue per year would be guaranteed
Sanjay Mehrotra
says we indicated that under these SC as that have been completed so far at the floor price, the you know, revenue is projected to be $100 billion. But again, as Mark noted in his remarks, I mean we expect revenue to be much higher than that. Note that at the floor price. That our profitability levels and. The ghost margins that the floor prices are higher than peak margins at any time in the past.
And so overall about 20% of DRAM and about 30% of our NAND volume is covered in these SEA so far. So that up close to about 25% of our revenue that you can project over the term of these agreements. So again, you know RPO at the floor price is to be reported as an accounting measure, but we fully expect that the revenue will be much higher than that.
Timothy Arcuri
Got it. And then and then with respect to just how these layer in Mark, like how much of the August quarter revenue, for example, will be flowing under an essay? I'm just trying to figure out how to like layer that into the model. And when you get to like a full run rate, where like by next fiscal Q4 will you be at sort of a full run rate, You know, what's being covered, you know, under these essays. Can you help us sort of like fetter that in?
Mark Murphy
Yeah. And so you'll you'll see a disclosure in the in the queue which will disclose the next 12 months revenue associated with each set of agreements that have an RPO. So for example, for those that closed within Q3, you'll see an RPO of of 5 billion / 5 billion and you'll see a next 12 months associated with that of about 1.8 billion.
And yeah, that is, that is because those are some of the smaller agreements that Sanjay mentioned, you know automotive agreements. Now in the fourth quarter as as Sanjay mentioned, you will see an RPO reported on you know on the 16 or on 14 of the 16 agreements. That is going to be about 100 billion and there will be an associated next 12 months associated with those that will be disclosed in the K.
So you will, you will be able to see, you know roughly how these are feathering in and you know, keep in mind this RPO number, you know, it is a minimally contractually enforceable amount for the intersection of volume and price. So you're looking Tim, at A at a minimum number and that's important to keep in mind. And we were clear that it doesn't reflect what we think will happen.
And then also each quarter you know this RPO number will change. It will change based on contracts that are added in. It may change on additional volume commitments with with the determined price. It will change based on shipments and how that RPO is, is declines after that performance obligations met. So, so you'll be getting a lot of additional reporting. This is all under ASC six O 6.
I know it's something that we you know, it's not a heavy standard typically in some of our reporting, but this this feature of of RPO you will see. I also want to emphasize as as Sanjay mentioned that even at the floor price and eventually we anticipate about 40% of our revenue being being under this sort of RPO related commitments that even under the floor, on the floor price, we expect the margins to be significantly above prior peak margins.
Timothy Arcuri
OK. Thank you both.
Operator
Your next question comes from the line of Joseph Moore with Morgan Stanley. Your line is open. Please go ahead.
Joseph Moore
I also wanted to ask about the Ldas. Can you talk about the, the role of the cash deposit? Should we think of that as being sort of a an escrow collateral account where if people cancel you would have access to cash? Like if it's not revenue like sort of what is the point of the deposit and and what is the relationship of those deposits with the RPO, if there is one?
Mark Murphy
Yeah, Joe, on the on the deposits, so. Yeah, we mentioned that. Yeah, that we that we have. 22 billion of deposits and financial commitments associated with the agreement signed to date as of this call, 18 billion approximately of that is cash deposits. We'll receive those deposits, you know, we received, you know about 500,000,400 + 1,000,000 in the third quarter will receive about another 10 billion in the fourth quarter.
And you will, you know these will, these will be seen cash deposits, they'll be seen in financing cash flows. They will not affect free cash flow. They will be, 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, but heavily weighted to the back half of the agreements. The difference between the, you know, 22 billion and the 18th, so roughly the four billion, 4 billion of others is matters credit.
Joseph Moore
OK, but what what is the role? I mean, what, what happens to that cash? You know, it seems like they're putting a deposit and then they get the deposit back, you know is, is what is the reason for them to commit that cash? Is that something where there's a take or pay that that cash is related to? You know, it's not a prepayment. Just can you help us understand that?
Mark Murphy
Yeah, thanks Joe. It's it's not a prepayment, it's a separate commitment by the customers and A and A and a reflection of the fact that we have a binding agreement and these are take or pay agreements and and you know, we hold the cash and and it's a reflection of our shared commitment to, you know, perform on under these agreements now.
Yeah, this is this is good for Micron, of course these agreements and that we get visibility on our demand. It's committed volume that we can be confident about making our investments, large capital investments, closer technology relationship. It's good for the customers because they have supply assurance, they have leading technology. So in our view it's a win, win and you know very, very happy with the nature of the agreements and the impact they have on the business and indication of of a transformed business model. Micron very helpful.
Joseph Moore
Thanks for all the disclosure on this. It's really helps a lot. Thanks.
Operator
Your next question comes from the line of CJ Muse with Cantor Fitzgerald. Your line is open. Please go ahead.
CJ Muse
Good afternoon. Thank you for taking the question. Maybe I'll just follow up on Joe's? You know, when you think about these cash deposits, do you, do you view that as fungible cash and, and use for, for CapEx? And, and I guess as part of that, when you contemplate capital returns, particularly, you know, after December 14th kind of chips act end day, Do you, will you include kind of that cash that you received in your gross cash thoughts and, and your thoughts around capital returns or is that something given that you will have to return it eventually that would cause you to, to think steady state, you'll need to hold more gross cash.
All those sequel CJ it's unrestricted, but does it change your thoughts around gross cash that you need that you feel comfortable holding, you know, on your books?
Mark Murphy
Not not in the near term. I I think we, you know, we of course are going to have what we do is adequate liquidity to support the operation of the business that that would include over time returning the deposits as customers and and Micron perform on the contracts. And so that of course is important, but you know, and then we would hold liquidity to satisfy what investments we believe are important for the business.
You know, we've got a lot of, you know, we've got large projects underway to provide supply and also you know R&D programs. So and. You know, and again, I'll emphasize that, you know, the customers, you know, as I mentioned earlier, they will get this return deposit back in the latter half, latter half of the agreement.
CJ Muse
Perfect. And then maybe as a follow up on, on HBM revenues, could, could you kind of share how you're thinking about both your market share and perhaps total revenues into calendar 26? And you know, is there an expectation into calendar 27 that you can bridge margins that are closer to what you're getting on D5? Or is that a place that that will be, you know, permanently below, you know, that D5 level? Thanks so much.
Sanjay Mehrotra
So with respect to HBM, first of all, very, very pleased with our HBM 4 product and Microns shipments already of HBM 4 of over $1 billion HPM market share. We strategically are choosing it to be close to our DRAM share. And this is important because of the trade ratio of HPM. It consumes as you know significant amount of wafers and puts pressure on non HPM supply in the industry.
So targeting our HPM share close to our DRAM shares strategically enables us to by our diversified end markets, customers across all end markets, data center, consumer, automotive, industrial, the markets that need non HBM supplies. Regarding your question on pricing for next year, we are really not commenting on pricing, but certainly HBM is a product where Micron has a strong leadership position and we have demonstrated tremendous success now with HBM 3 E 8 high, HBM 3 E 12 high and now with HBM 4 and a strong road map ahead of you know strong confidence in our ability to execute to that and it will.
It is a higher price product you know compared to non HPM on a per bit basis and it is a product that is critically important for the entire AI ecosystem from data center to edge. So strategically it has a very important product for us and it is a product that does provide strong ROI as well.
CJ Muse
Thank you.
Operator
Your next question comes from the line of Vivek Arya with Bank of America Securities. Your line is open. Please go ahead.
Vivek Arya
Thanks for taking my question. For the first one, Sandy, you mentioned I think 4 large and three medium sized customer agreements and I'm curious how many of them are related to the data center. Should be expect more data center related announcements and the $100 billion, does that align with the large and medium size or does it align with the smaller size customers? I guess I'm still trying to figure out what is the typical SCA with the data center customer like is have you given enough bread crumbs for us to figure out what a data center SCA looks like over the next few years?
Sanjay Mehrotra
So our large customers include data center and the large and medium customers that you mentioned and of course including our smaller customers, they do go across data center, consumer and automotive markets and we have. Provided you color on the large agreement. Have of course you know generally have ceiling price and have a price band which has a floor as well as a ceiling and the ceiling is established at the CQ2 price levels.
And of course that you know that CQ2 price levels are reflected in our FQ 3 results as well as FQ 4 guidance and they provide for unprecedented. Levels of profitability and those price bands also provide for floor prices, which. That the gross margins are well above the peaks at any past cycle in company's history and the large agreements that we mentioned, you know these are you know multi year agreements and they provide us tremendous visibility to demand customer commitments and they of course come with the financial commitments including cash deposits that. Mark elaborated on further earlier.
Vivek Arya
Thanks. And from when I follow up Mark on on gross margins, you know 86%, does it kind of hang out here for a while? Is there a ceiling? And then as these SC as start to kick in, should we assume some kind of normalization to between you know the mid 80s where you are now versus I think the the prior peak was in the low 60s. So as, as you know, as your long term investors build their models for 2728 etcetera, should they be assuming the normal gross margin range somewhere in in the mid 70s, right, kind of the range between where you are today versus the prior peaks? If if you could just you know, hold our hands on how to think about gross margins beyond this 86% of the near term and then longer term, what is the right way to think about how these gross margins unfold? Thank you.
Mark Murphy
Yeah. So Vivek, we're, we're not, we're not providing. Guiding guidance beyond the fourth quarter, but we we are at margin levels that you know, as we've talked about before, incremental price yields less in gross margin expansion. So, so while the you know, but having said that we do, we do see as we mentioned. And we updated our view on market conditions that we. We expect the market to remain tight beyond 2027.
You know, we also have, you know, we're at a point where memory is very much appreciated for the strategic asset that it is, the value that it brings to improving AI intelligence and you know, more and higher performance memory is needed. And so you know our continued deployment of bits to you know data center and edge device higher performance applications is going to be helpful as price moderates and price growth moderates.
And we move to you know optimize the placement of our bits with customers including those that we do these have done these SC as with. And then also as we've talked about we will get additional volume starting mid year materially beginning mid year 27 that will grow into into 28. And yeah we will yeah, we will have some start up costs there, but we will get you know absorption is that as those ramps occur.
And so over time, you know we'll get that operating leverage. Yeah. So I, I think we feel great about the trajectory of the business, Micron's technology position, world class product portfolio and you can see we're operating very well and all those are supportive of you know continuing to deliver a strong financial performance.
Operator
Your final question comes from the line of Krish Sankar with TD Cowan. Your line is open. Please go ahead.
Krish Sankar
Yeah, hi, thanks for taking my question. I told them, Sanjay or Mark, Congrats on the great results on the floor pricing for the Lt. As you said about the prior peak, you know your prior peak gross margin or somewhere in the low 6062% range. If I try to plug in what a 64 gigabyte server Diram is, you know, I can get like a $700.00 price for it compared to 1500 today, which kind of puts you at like 10 to $12.00 a GB as the floor and a mid $20 a GB for the current price. Is that the range we should think about for this LTASI load teams to mid 20s dollars a GB? It's kind of like the range of Lt. As for the pricing,
Sanjay Mehrotra
So Chris, we're not going to get into specific pricing discussions, but I just want to note again that I said that the gross margins at the. Floor will be well beyond the peak. That we experienced the highs that we experienced in the past cycle so well beyond those, right. But we are not going to obviously get into the specifics related to the pricing. Bottom line is you know these Scas really help provide visibility, strength and durability of demand for us and they absolutely fundamentally accelerate our financial performance and financial the business transformation here.
Krish Sankar
Got it. Very helpful Sanjay. And just a quick follow up, you kind of mentioned how DRAM bits should grow low to mid 20s non probably in the 20% range this year and clearly we are under supplied on both. Is there a way to quantify what happens in 2027? Is there a way to say is the under supplied going to be double what it is this year in 2027 or how to think about the supply demand imbalance in 2027?
Sanjay Mehrotra
You know we see 2027 overall tight. We have said we see tightness continuing beyond 2027, you know, working hard to bring up a supply, but we have shared with you that it takes a long time to bring up the additional capacity that is needed. To support the customer demands the additional wafer capacity and of course. Technology transitions and the less bit gain that they give per node as well as the HPM trade ratio put tremendous pressure on the overall supply growth as well.
So supply and even in 2020. 28 When supply begins to improve gradually, we see that the demands will continue. You are to be on a robust trajectory as well because these AI trends are very long term trends. AI is still in very very early. The whole token economics needs. More memory here. System AI, system performance is really very much limited by memory capacity and memory performance, memory bandwidth.
So you know, the demand for memory is, you know, as the compute demand grows and our customers look at tremendous transformation opportunity that is ahead of them this you know and continue to make investments like they have never made before to build this infrastructure. The demand trajectory is extremely strong. Memory is at the center of it and this is a strategic asset and access to memory supply is obviously a critical priority.
As you can see in the multi year agreements that our customers have concluded with us. I mean those agreements reflect the confidence in the growth of the demand. So we are working hard to bring up supply, but we see tightness persisting beyond 2027.
Krish Sankar
Thanks a lot, really appreciate it.
Operator
This concludes today's call. Thank you for attending. You may now disconnect.
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