Micron Technology, Inc. — Fiscal 2023 Q3 Form 10-Q Summary
Business context and reporting period
Micron designs and manufactures DRAM, NAND, NOR, managed NAND, SSDs, modules, and related memory and storage solutions sold through Micron and Crucial brands. The filing covers the quarter and nine months ended June 1, 2023, compared with the periods ended June 2, 2022. Micron operates on a fiscal year ending on the Thursday closest to August 31.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Revenue | $3.752 billion | $8.642 billion | $11.530 billion | $24.115 billion |
| Gross margin | $(668) million; (18)% | $4.035 billion; 47% | $(981) million; (9)% | $11.276 billion; 47% |
| Operating income (loss) | $(1.761) billion | $3.004 billion | $(4.273) billion | $8.181 billion |
| Net income (loss) | $(1.896) billion | $2.626 billion | $(4.403) billion | $7.195 billion |
| Diluted EPS | $(1.73) | $2.34 | $(4.03) | $6.38 |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $1.310 billion | $11.404 billion |
- Q3 revenue increased 2% sequentially from $3.693 billion in Q2 2023 but declined 57% year over year. Nine-month revenue declined 52% year over year.
- Q3 DRAM revenue was $2.672 billion and NAND revenue was $1.013 billion. Compared with Q2, DRAM average selling prices declined approximately 10% while bit shipments increased in the 10% range; NAND bit shipments increased in the upper-30% range while average selling prices declined in the mid-teens range.
- Q3 operating results included a $401 million inventory net realizable value write-down, partially offset by $281 million of lower costs from selling inventory written down in prior periods. The net gross-margin impact was $120 million.
- Q3 facility underutilization costs were $132 million. Micron estimated approximately $200 million of additional underutilization costs for Q4 2023.
- Cash, short-term investments, and long-term marketable investments totaled $11.325 billion at June 1, 2023. Cash and equivalents were $9.298 billion.
- At June 1, 2023, total debt had a carrying value of $13.245 billion, including $259 million current debt and $12.986 billion long-term debt. The $2.5 billion revolving credit facility was undrawn and fully available.
- Net cash used in investing activities for the first nine months was $5.361 billion, including $6.215 billion of capital expenditures. Net cash provided by financing activities was $5.095 billion, primarily from new term loans and senior notes.
- Inventory increased to $8.238 billion from $6.663 billion at September 1, 2022, despite the inventory write-downs.
Material changes versus the prior comparable period
- Revenue fell 57% in Q3 and 52% for the first nine months, primarily because of sharply lower DRAM and NAND average selling prices and lower bit shipments.
- Gross margin deteriorated from 47% in both comparable 2022 periods to negative 18% in Q3 2023 and negative 9% for the first nine months.
- Micron shifted from substantial profitability to losses, with nine-month net income declining from $7.195 billion to a $4.403 billion loss.
- Operating cash flow declined to $1.310 billion from $11.404 billion, reflecting losses, higher inventories, and lower accounts payable and accrued expenses.
- Debt increased materially, with carrying value rising from $6.906 billion at September 1, 2022 to $13.245 billion at June 1, 2023. Micron issued new term loans and senior notes and prepaid $600 million of its 2024 Term Loan A.
- Micron initiated a restructuring plan targeting headcount reduction approaching 15% by the end of calendar 2023. It recorded $167 million of restructuring charges in the first nine months, with approximately $170 million expected in total and the plan substantially completed by Q3.
Guidance, outlook, management commentary, and risks
- Management stated that customer inventory improvement, memory-content growth, and industry production cuts were supporting higher demand in the second half of calendar 2023 and that pricing trends had begun to improve. However, profitability was expected to remain challenged into 2024 because of elevated supplier and customer inventories and a continuing supply-demand mismatch.
- Micron planned to reduce wafer starts to approximately 30% below peak capacity for both DRAM and NAND, with reductions expected to continue well into 2024 to control supply and inventories.
- The restructuring plan was expected to generate approximately $130 million of quarterly cost savings beginning in Q4 2023.
- China’s Cyberspace Administration determined that critical information infrastructure operators in China could not purchase Micron products. Companies headquartered in mainland China and Hong Kong represented approximately one-quarter of worldwide revenue; Micron estimated that approximately half of that revenue, or a low-double-digit percentage of worldwide revenue, was at risk.
- Micron estimated 2023 capital expenditures, net of partner contributions, at approximately $7.0 billion. Major U.S. DRAM fab projects in Idaho and New York remained contingent in part on CHIPS Act grants and investment tax credits.
- Management expected cash, investments, operating cash flow, and available financing to meet requirements for at least the next 12 months and thereafter for the foreseeable future, although cash generation is highly sensitive to memory pricing and demand.
- Material risks include pricing volatility, excess inventory and further write-downs, fab underutilization, competitive supply increases, China-related restrictions, geopolitical exposure in Taiwan and other international locations, supply-chain constraints, technology execution, debt covenants and interest rates, government-incentive conditions, and intellectual-property and antitrust litigation.
- Micron reached an agreement in principle to dismiss the long-running Qimonda litigation in exchange for a one-time payment described as not material. The agreement was expected to be formally entered by the German Appeals Court in July 2023.
- Except for the Qimonda payment, Micron stated that it could not reasonably estimate potential losses from the disclosed legal matters. A $68 million litigation contingency accrual was recorded in Q3.
Most important facts for investors to verify
- Whether DRAM and NAND pricing and bit-shipment trends improved as projected in the second half of calendar 2023.
- The magnitude and timing of any additional inventory write-downs, underutilization charges, or adverse changes in average selling prices.
- The realized revenue impact of China’s CAC decision and Micron’s ability to redirect affected demand without materially lower pricing or margins.
- Progress toward the targeted $130 million of quarterly restructuring savings and any additional restructuring costs.
- Liquidity and covenant compliance as operating cash flow remains weak while capital spending and debt service continue.
- Receipt and conditions of CHIPS Act support and other government incentives for planned U.S. manufacturing expansions.
- Resolution and financial exposure from Netlist, Sonrai, Besang, Chinese patent matters, Canadian antitrust cases, and other litigation.