Micron reported earnings that exceeded expectations. Revenue reached $54.23 billion; the midpoint of the revenue guidance for the upcoming quarter is $61.5 billion. Growth remains evident even when adjusting for the number of weeks. Pricing is strong, and free cash flow—excluding customer deposits—stands at $33.20 billion. These factors provide stronger grounds to believe that high profitability could persist in the near term.

However, costs are rising, days of inventory are increasing, and investment requirements are growing. While the gross margin is expected to contract in Q1, the timeline for converting the remaining performance obligation—announced by management at approximately $150 billion—into revenue remains unclear. The specific profitability of new products, tax payments, and the amount of cash to be returned to shareholders are outstanding questions. My assessment is that the near-term outlook has strengthened, though one must continue to monitor these same issues regarding long-term sustainability.

I am now revisiting, in the same order, the questions I posed prior to the earnings release.

What did growth look like after adjusting for the calendar effect?

In my pre-earnings analysis, I had adjusted the $50 billion revenue expectation to a 13-week basis. I am now updating that calculation using the actual revenue figures:

$54.229 billion × 13/14 = $50.36 billion.

Compared to the previous quarter's $41.46 billion, total revenue increased by 30.8%, while the increase in the weekly average was 21.5%. Significant growth is evident even after accounting for the calendar difference.

The midpoint of the revenue guidance for Q1 FY27 is $61.5 billion. This represents a total increase of 13.4% compared to Q4. If we treat Q1 as a 13-week quarter, the increase in the weekly average rises to 22.1%.

The same constraint applies here: I am using the 13-week assumption for Q1. This calculation simply normalizes the number of weeks; it does not measure seasonality, shipment timing, or the actual contribution of the extra week.

Expectations were exceeded. What drove the growth?

Revenue of $54.23 billion surpassed the upper end of the company’s $49–$51 billion guidance range by 6.3%. Compared to the consensus estimate of $50.92 billion prior to the earnings release, the difference is 6.5%.

According to the company’s statement, DRAM bit shipments increased in the mid-single-digit range, while prices rose in the high-single-digit range. For NAND, bit shipments rose by approximately 10%, and prices increased by about 30%.

The impact of pricing is evident. This is demonstrated by the fact that revenue increased even as bit shipments declined in the mobile and client units. However, while these are components of quarterly growth, the specific breakdown of how much price, volume, and product mix contributed to the revenue exceeding expectations was not quantified.

During the analyst call, management noted that the Q1 outlook had anticipated single-digit quarterly bit growth for both DRAM and NAND. However, we cannot calculate the specific contributions of price and product mix using distinct, explicit figures.

How did the cost of sales behave while revenue grew?

GAAP cost of sales rose from $6.40 billion to $7.18 billion. This is an increase of 12.2%, whereas revenue grew by 30.8% during the same period. In the previous article, the cost—scaled solely by the number of weeks—was $6.89 billion. The actual figure came in approximately $290 million above that level, representing a 4.2% increase in the weekly average cost.

Revenue continues to grow faster than costs. However, costs are no longer as flat as they were in previous quarters. There is insufficient data to attribute this variance to production inefficiency; the specific contributions of shipments, product mix, production expenses, and depreciation have not been broken down in a separate variance analysis.

Does the price premium of the new product cover its cost?

The non-GAAP gross margin for Q4 was 87.0%, exceeding the expectation of approximately 86%. The forecast for Q1 FY27 is 86.25%; while revenue growth is anticipated, a margin contraction of roughly 0.8 percentage points is projected.

Management explained a key reason for this: a significant portion of the employee bonuses increased in Q4—specifically the production-related component—was capitalized into inventory costs. Consequently, the sale of this inventory means the cost will largely be reflected in the income statement during Q1. Management also notes that the benefits from the easing of this burden in Q2 will be offset by higher bonus costs later in FY27. I do not consider the entire cost pressure to be temporary.

The company expects Q1 to have the lowest gross margin of FY27, with margins subsequently expanding alongside more moderate price increases. I am noting this as a management expectation to monitor, rather than as a realized result.

The question of the extent to which the price premium on next-generation products offsets the additional costs remains unresolved. HBM is a prime example of this: agreements incorporating significant annual price increases for the bulk of the 2027 supply have already been finalized. Despite this, HBM’s specific profit margin was not disclosed. The rising share of HBM offset the margin contribution from price increases in the cloud memory unit, leaving the gross margin at 83%.

Therefore, I do not assume that a higher HBM share will automatically boost the overall margin.

How much of the cash inflow came from operations?

Cash generated from operations in Q4 was $43.97 billion. After deducting $10.77 billion in net capital expenditures, the free cash flow reported by the company stands at $33.20 billion.

The $12.3 billion in customer deposits collected during the quarter is reflected in financing cash flows. This amount is not included in the $33.20 billion free cash flow figure. I have thus received the answer to the specific point I wanted to clarify before examining the balance sheet.

At the end of the quarter, the customer deposit balance stood at $12.7 billion. Management states that, provided minimum purchase requirements are met, these funds will be refunded over time towards the second half of the contract terms.

Long-term customer contract obligations on the balance sheet amount to $12.895 billion. I will look for a full reconciliation of the reported deposit balance against this item, as well as a detailed refund schedule, in the 10-K footnotes.

My question regarding taxes is straightforward: the contribution of unpaid taxes to quarterly cash flow and the payment schedule are not presented as a separate calculation in these disclosures. The fact that deposits are excluded does not justify treating the entire operating cash flow as recurring.

When will the $100 billion contract convert into revenue?

Management reported that the remaining performance obligation has risen to approximately $150 billion. This figure represents the value of products to be delivered in the future, calculated based on committed volumes and minimum price frameworks established in the contracts.

The number of strategic customer agreements has reached 26. The company estimates that these will account for more than 35% of its revenue through 2030. Three-quarters of the expected revenue from these contracts is subject to established price frameworks, most of which include floor and ceiling prices. For the remaining quarter, pricing is negotiated periodically based on market conditions.

The scope of the contracts has expanded. However, it remains unclear how much of that $150 billion will convert to revenue over the next 12 months, what the specific floor price levels are, and to what extent premiums on new products will cover costs. Details from the 10-K filing are also required to reconcile the approximately $5 billion figure from the May 28 10-Q with the contract amounts announced subsequently, ensuring they align in terms of date and scope. I am not closing this topic simply because the total amount has increased.

What portion of the investment is allocated to construction versus equipment?

Net capital expenditure for FY26 totaled $27.37 billion. Gross expenditure in Q4 was $11.11 billion; after deducting $327 million in government incentives and $9 million from asset sales, the net figure stands at $10.77 billion.

The new outlook projects net capital investment of approximately $11.5 billion for Q1 FY27 and around $25 billion for the first half of the year. Management indicates that spending will be higher in the second half. Arithmetically, this points to an annual total exceeding $50 billion, though the company has not yet announced a definitive full-year figure.

Compared to the previous investment plan, the bulk of the increase is directed toward construction. A significant portion of this is intended to accelerate the readiness of cleanroom spaces scheduled for use in late 2028 and beyond. Separate budget figures for construction and equipment were not provided.

There is a disparity between the timing of cash outflows and the contribution to production. Facility readiness, equipment installation, and reaching meaningful production volumes are distinct stages. I will continue to monitor incentives, facility ramp-ups, and depreciation impacts in tandem.

What has changed regarding other areas of focus?

Inventory: Days of inventory increased from 120 to 129. Management attributes this rise to advance manufacturing for production technologies nearing the end of their lifecycle and to the inclusion of employee bonuses in inventory costs; ...expects a decline in the coming quarters. This statement alone does not prove that inventory is not accumulating among customers. I will monitor whether "days of inventory" decreases in subsequent quarters.

HBM: It was announced that HBM revenue is growing faster than the company's total revenue. Specific figures for revenue, shipment volume, and profit margins were not provided. The question of quantifying its contribution to total profit remains open.

Capital return: The intention to increase returns starting December 9 remains in place. Management aims to return all excess cash to shareholders over time; however, the specific amount and a detailed timeline have not been clarified. I will evaluate this alongside rising capital expenditures and future deposit refunds.

Management: Manish Bhatia’s responsibility for managing both supply and demand was re-emphasized. The company cites long-term customer agreements as the basis for its capacity investments. I will track the results of this approach by monitoring the price-volume balance and the timely conversion of investments into production.

A point noted in the footnotes: There is a $500 million patent licensing expense excluded from the non-GAAP profit calculation. Its nature and the counterparty involved are not disclosed. I will track this in the 10-K filing without assuming a connection to any specific lawsuit.

Not investment advice.