en.Wedoany.com Reported - Micron has secured high pricing for its products over the next five years by signing 16 "Strategic Customer Agreements" (SCAs), with a floor price mechanism enabling the company to achieve gross margins above historical cyclical peaks.
Micron CEO, President, and Chairman Sanjay Mehrotra, during the company's third-quarter earnings call, noted that these SCAs primarily cover the period from 2026 to 2030. They require customers to commit to purchasing a certain volume of products and pay within a range that includes a floor price and a ceiling price. The floor price ensures Micron achieves historically high gross margins, while the ceiling price protects customers from further memory price increases.
Mehrotra explained why customers are willing to accept these locked-in deals with high-profit terms. He stated that customers recognize the memory and storage supply shortage will take a long time to improve. Even though industry supply is expected to gradually improve by 2028, it is currently unforeseeable when memory supply will catch up with growing demand.
He pointed out that even massive investments in new chip factories cannot quickly alleviate the supply-demand imbalance. The increasing complexity of new memory types extends factory construction timelines, and when factories come online, they must simultaneously meet the capacity demands for high-bandwidth memory required by artificial intelligence as well as other types of NAND and DRAM, leaving production lines still insufficient. Mehrotra stated that despite the company's full efforts to increase supply, the ability of supply growth to meet industry demand is structurally constrained.
These SCA deals are expected to account for 40% of Micron's revenue. Therefore, the company retains most of its inventory for sale at negotiable prices, rather than locking all products through these agreements.
Mehrotra also revealed positive expectations. He predicted Micron's DRAM output would grow by about 20% to 25% in 2026, slightly higher than previous expectations, and noted that SCAs require customers to pay upfront fees, which helps fund Micron's fab expansion.
Third-quarter financial data showed strong performance. The company's revenue reached $41.5 billion, setting a record for the fifth consecutive quarter, up 346% year-over-year. DRAM revenue hit a record $31.3 billion, up 343% year-over-year; NAND revenue increased 361% year-over-year to $9.9 billion. Net profit was $28.9 billion, with a consolidated gross margin of 84.9%.
Executives forecast further improvement, providing fourth-quarter revenue guidance of $50 billion, with gross margins expected to reach approximately 86%. They also noted that the increasing complexity of memory means future product costs will exceed current products.
However, amid Micron's growth, IT professionals are striving to run workloads with less memory. Mehrotra stated that Micron expects traditional server sales to grow by about 15% in the 2026 calendar year, but average server DRAM capacity growth will moderately slow. He explained that customers are focused on maximizing shipments under very tight memory allocation.
Investors reacted positively to the earnings and outlook. Micron's stock rose 15% in after-hours trading.
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