All of this has contributed to a very tight supply situation. And as I noted earlier in my remarks, non-HBM supply is tight. So some of our discussions with customers, particularly with respect to HBM, when we talk about that HBM is sold out, those type of contracts have both pricing as well as volumes as well as other stricter terms baked in as part of our LTAs. And 2024 volume as well as pricing is all locked up. 2025, as I mentioned, the volumes are largely allocated. A vast majority of our production supply is allocated, and some of the pricing is already firmed up. Keep in mind, this has never happened before, right, that we are talking about 2025, and we are sitting in CQ1, and we already have so much discussion around supply and pricing for 2025 getting locked up here as we speak.
And of course, this is then, as I said earlier, impacting our — in a positive way, our discussions with non-HBM part of the market with other customers. And so, I mean, this overall tight supply environment bodes well for our ability to manage the pricing increases as well as keep an eye on demand-supply balance and remain extremely disciplined in driving the growth of our business in revenue and profits while continuing to execute our strategy of maintaining stable bit share. So leading edge is very tight, and we are continuing to work on maximizing our output, which means leading edge is running at full utilization at this point.
Timothy Arcuri: Great, thanks. But I guess that means that there were no prepays this quarter, correct?
Sanjay Mehrotra: Well, we have not commented on that. We have not provided any color on that.
Timothy Arcuri: Okay, okay. Thank you, Sanjay.
Operator: Thank you. One moment for our next question. And our next question comes from the line of Joseph Moore from Morgan Stanley. Your question please.
Joseph Moore: Great, thank you. The 128 gig that you talked about getting qualified, it seems like that’s a pretty important market in AI. And you guys are approaching it monolithically where I know your competitor has used this packed approach. Can you talk about the reception to that, and you spoke of several hundred million. How big do you think that opportunity could be?
Sanjay Mehrotra: As I said, I mean, in my prepared remarks, that this product has very strong customer pull. This really offers significantly improved latency, as well as energy efficiency. And this is simply due to the architecture that we chose to pursue fully focusing on what is ultimately important to our customers. This mono die architecture just gives you — versus a stacked architecture gives you the benefit of more simplified interconnect, which results in power efficiency as well as greater performance advantage. So yes, I mean, we are seeing strong reception to this product. And this will — we have said that this will have a meaningful revenue this fiscal quarter for us and several hundred million dollars of revenue in our fiscal 2024.
So clearly on a strong growth rate. And our goal, again, would be to continue to manage the mix of our business across our portfolio in a prudent fashion so that we continue to shift the mix of our products towards more profitable parts of the business, particularly like data centers, solutions, including these high-capacity DIMMs that we just discussed as — HBM, data center, SSD. So all of this really just shows you that how we are continuing to deliver successfully on strengthening our product portfolio and targeted — targeting it towards increasing the mix of our business towards more profitable parts of the market.
Joseph Moore: Great, thank you.
Operator: Thank you. One moment for our next question. And our next question comes from the line of Brian Chin from Stifel. Your question, please.
Brian Chin: Hi, great. Thanks for taking our questions and congratulations on the results. I guess it is sort of an extrapolation question. But if HBM worth 20% of Micron DRAM revenue, and you have said that, again, at some point next year, you think on a bit basis, it could be equivalent to your market share, that HBM were 20% of Micron DRAM revenue as opposed to a much lower percentage today. Could you maybe help quantify how accretive to gross margins as that richer mix would represent?
Mark Murphy: Yes. Brian, it’s Mark. We won’t break it out specifically, but maybe just to give you a sense of the trajectory of gross margins. The increase from first quarter of 1% to 20% in the second quarter was dominantly price. And obviously, a lot of other things going on, but the dominant feature of that increase was price. Likewise, in the 20% second quarter actuals to the 26.5% guide, price remains the largest contributor. And offsetting part of that is, of course, what CJ mentioned on the benefit of those lower cost inventories fade away. So — but price is still the largest factor. But what begins to come in are both a resumption of cost downs. And then we’re starting to see some favorable mix effects for the products that Sanjay talked about, including HBM.
And then as we move into the fourth quarter, where we would expect a margin increase comparable to the levels that we saw second to third quarter. That becomes more balanced between price effects and product mix effects and cost downs. And most notably, HBM begins to become more material. And that would then proceed into ’25. As we look in ’25, we see continued pricing strength in ’25. We see favorable product mixes — product mix in ’25. And then our cost downs, excluding the HBM effects, we expect to have good cost down, all contributing to margin expansion.
Brian Chin: Okay. Thank you, very helpful.
Operator: Thank you. One moment for our next question. And for our last question for today comes from the line of Chris Danely from Citi. Your question, please.
