00:00Gil, give us some color, if you could, about pricing power and the pricing environment that we're in right now.
00:08Because I imagine the executives at Micron don't want to push companies like Apple to a place where they find
00:16these prices unsustainable or very difficult to deal with and have to raise prices on everything 20 or 30 percent.
00:23That's right. So memory is now so important that Micron gets to dictate the terms.
00:30And what they could have done is maximize short term profits, let prices go to the moon and hurt their
00:35customers by doing that.
00:37They decided, no, what we're going to do is we're going to trade that off, trade off some of the
00:42upside to make sure we have downside protection, to make sure we have visibility for the next five years.
00:48So they went ahead this quarter and signed long term deals with all these companies, five year deals that say,
00:54hey, there's a floor price.
00:55You're going to prepay us that floor price for the next several years to make sure we eliminate all of
01:01our downside.
01:02And in exchange, we're going to cap the prices as well.
01:05So you, our customer, the hyperscaler and Apple have visibility.
01:11This is a different memory market than it's ever been.
01:15The power these companies have now is completely different.
01:18And the reason is that the nature of the memory market has completely changed.
01:24It's gone from three years ago being a commodity storage device to now being part, a key part of how
01:33AI is delivered.
01:34And that's the value these memory companies have.
01:37And now they're realizing that value, cementing it and locking it in for the next five years.
01:43Gil, could demand destruction exist in this industry or does it not matter if Apple sells less products because on
01:49the AI side of things, that demand isn't going anywhere?
01:52So let's divide the market into its two pieces, right?
01:55There's the data center market.
01:57That's where the high value added memory is going to, especially high bandwidth memory.
02:02That's what a lot of what they just locked in.
02:05That is the part of the market where the prices have gone up.
02:08The demand is great because of AI.
02:10AI, that's the key value added market.
02:13Then there's the handset and PC part of the market.
02:16That part is a lot more commoditized.
02:18The prices have gone up there a lot.
02:20But again, they just helped Apple by locking that in for the next five years.
02:24Apple has visibility.
02:26In exchange, they're paying more and raising the prices.
02:30Now, what's important to note about Apple is, yes, there's going to be some demand destructions as prices go up.
02:35I say $100 for a handset or a computer.
02:39But relatively speaking, the price is going to go up a lot more for Apple alternatives because they're at lower
02:46price point.
02:47And the increase is still going to be $100.
02:49So Apple is in a position to actually gain share as prices go up across the board because on a
02:56percentage term, their products are going up by less than the low-end Android devices and the PC market.
03:05So from an Apple perspective, there's two sides to the coin.
03:09Yes, there's going to be some demand destruction as prices go up, but they'll actually be in a position to
03:15gain share because it's going to hurt their competitors more.
03:18Gil, what happens when, I mean, if everybody floods the market with capacity, you know, there's so many high-bandwidth
03:29memory chips, we don't know what to do with them in, say, three, four, five years.
03:34And I've seen this happen with DRAM and Micron specifically in the past, and you have multiple times, I'm sure.
03:43How far off is that?
03:45And does a company like Apple then just find someone else?
03:50That's many years off.
03:52And actually, the memory market is actually, believe it or not, one of the least competitive markets.
03:58It is truly an oligopoly.
04:00DRAM and HVM is really just SK, Hynek, Samsung, and Micron.
04:05And because all these companies make their own chips, there's nobody else coming in.
04:09If there was, we would know two to three years ahead of time.
04:13Now, all three of these companies are expanding capacity.
04:16There will be some capacity coming online in 2028, et cetera.
04:20But demand is growing so fast that that capacity is probably not going to be enough either.
04:25So this ramp could last longer.
04:28But again, going back to my previous point, I really want to emphasize, this is a different memory market than
04:34the one that collapsed in 2023.
04:36Back then, it was entirely invoice-based.
04:39It was a true commodity.
04:41It was a fungible product.
04:42You could buy it from Micron.
04:43You could buy it from SK Hunnitz.
04:45You could buy it from Samsung.
04:46It is no longer the case.
04:48NVIDIA co-designs its GPUs with the memory makers.
04:52So it's buying a specific type of memory for what they're doing.
04:56So it's no longer a commodity.
04:58And what really put an exclamation point on that is they signed these five-year deals now.
05:04It's a completely different market than the one in 2023 that scared everybody away from memory.
05:10We would argue that memory is a better market than CPUs right now.
05:14Not that you could tell from the stock.
05:16AMD and Intel are trading at 40, 50 times and above.
05:19Micron, as we sit here today, is trading at less than 10 times earnings in a better market.
05:23I just want to jump in because I've only got literally 30 seconds here.
05:27But if Trump can order the DOJ to investigate gasoline prices, what's to stop him from investigating this market and
05:34higher prices that are being pushed to consumers?
05:37That's exactly why it makes a lot of sense for Micron to just lock in prices where they are now
05:43and not keep raising them to make sure that they're not challenging their customers.
05:48They're not infuriating the government.
05:51They lock in the prices.
05:52They eliminate the downside.
05:54They're allowing themselves to go to investors and say, it's a different memory market.
05:58Right.
05:59You can pay a much higher multiple for our stock.
06:01This is a little bit longo.
06:01.
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