Chip supply to stay constrained 'beyond 2027,' Micron executives say
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Memory chipmaker Micron Technology blew past expectations on revenue and earnings per share in its fiscal third quarter on Wednesday, but analysts were laser-focused on the company's future pricing power during the earnings call. Micron CEO Sanjay Mehrotra fielded multiple questions on the company's near-term and longer-term pricing strategy, which hinges on global supply constraints that have given memory makers tremendous leverage within tech value chains. Executives at Micron did their best to provide color to Wall Street analysts on what the company will be charging for coveted components like DRAM, NAND and high-bandwidth memory without giving away its competitive advantage. MU 1D mountain Micron Technology in the past day Speaking about a spate of newly announced customer contracts, Mehrotra gave a range for anticipated non-GAAP gross margins without giving specific numbers and suggested they might top the 84.9% reached in the third quarter. "We're not going to get into specific pricing discussions, but I just want to note again … that the gross margin – at the floor – will be well beyond the peak that we experienced, the highs that we experienced in the past … well beyond those," he said, responding to a question about DRAM. The global supply shortage of memory is what's giving the industry such pricing power, and Mehrotra said he sees supply limited beyond 2027. This implies that the artificial intelligence investment boom and the attendant surge in semiconductor stocks will continue. "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," Mehrotra said in his remarks. "We expect tight conditions to persist beyond calendar 2027 as a result of AI-driven demand," he added. During the question and answer session, CFO Mark Murphy echoed Mehrotra, saying the company expects "the market to remain tight beyond 2027." The remark was relevant to a question posed on social media by Deepwater managing partner Gene Munster, who asked whether Micron still expects "supply-demand tightness beyond 2026." Micron shares jumped in after-hours trading as a result of the earnings report. The comments on pricing, which pertain to more than a dozen new customer agreements, along with executives' confidence on continuing supply tightness, are likely to bolster sentiment on the chip sector, which saw a major sell-off this week. That rout was due to fears of waning demand for chips coming out of South Korea. "What did the market get troubled by on Tuesday? It got troubled by SK Hynix suggesting that they were beginning to see a little bit of a slowdown," Joseph Terranova, senior managing director at Virtus Investment Partners, told CNBC on Wednesday. Similar jitters regarding demand capacity have been triggered in recent weeks by the slightest of market signals from the chip sector, which many commentators have said is priced to near perfection. These flickers included a merely steady revenue projection from chipmaker Broadcom on its most recent earnings call as well as a construction pause for a data center being built in Wyoming. Mehrotra said on Wednesday that the new customer contracts will be subject to price floors and ceilings and that they will allow for "unprecedented levels of profitability." The ceiling of the range is established at the calendar-year second-quarter price level, which is reflected in the company's fiscal-year third-quarter results and fourth-quarter guidance, he specified.