Micron Technology, Inc. — Fiscal 2023 Form 10-K
Reporting period: Fiscal year ended August 31, 2023; fiscal 2023 contained 52 weeks. The filing is an annual Form 10-K, not a standalone fourth-quarter filing, although it includes fourth-quarter disclosures. Micron designs and manufactures DRAM, NAND, NOR, SSD, managed NAND, and related memory and storage solutions.
Financial performance and condition
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | $15.54 billion | $30.76 billion | Down 49% |
| Gross margin | $(1.42) billion; negative 9% | $13.90 billion; 45% | Severe deterioration |
| Operating income (loss) | $(5.75) billion | $9.70 billion | Turned to loss |
| Net income (loss) | $(5.83) billion | $8.69 billion | Turned to loss |
| Diluted EPS | $(5.34) | $7.75 | Turned negative |
| Cash flow from operations | $1.56 billion | $15.18 billion | Down sharply |
| Capital expenditures | $7.68 billion | $12.07 billion | Down 36% |
| Cash and marketable investments | $10.44 billion | $10.98 billion | Down modestly |
| Debt carrying value | $13.33 billion | $6.91 billion | Increased substantially |
- DRAM revenue declined 51%, driven primarily by a high-40s-percent decline in average selling prices and a high-single-digit decline in bit shipments.
- NAND revenue declined 46%, primarily due to a low-50s-percent decline in average selling prices, partly offset by high-single-digit bit-shipment growth.
- Inventory write-downs totaled $1.83 billion. Facility underutilization costs were $382 million, and the company recorded a $101 million impairment of all goodwill assigned to the Storage Business Unit.
- Year-end inventories increased to $8.39 billion from $6.66 billion, while receivables declined to $2.44 billion from $5.13 billion.
- Current assets were $21.24 billion versus current liabilities of $4.77 billion. The filing states that cash, operating cash flow, and available financing are expected to cover requirements for at least the next 12 months and thereafter for the foreseeable future.
- The $2.5 billion revolving credit facility was undrawn and fully available at August 31, 2023. Micron amended leverage covenants and complied with the applicable net leverage ratio in fiscal fourth quarter 2023.
- Financing activities provided $4.98 billion, including proceeds from new term loans and senior notes. Debt maturities include $1.66 billion in 2026, $1.78 billion in 2027, and $1.49 billion in 2028, based on the notes payable maturity schedule.
- Micron paid $504 million in dividends and repurchased $425 million of common stock during fiscal 2023. The remaining share-repurchase authorization was $3.11 billion at year-end. The quarterly dividend was $0.115 per share.
Business segments
| Business unit | FY2023 revenue | FY2023 operating income (loss) |
|---|---|---|
| Compute and Networking | $5.71 billion | $(585) million |
| Mobile | $3.63 billion | $(1.75) billion |
| Embedded | $3.64 billion | $382 million |
| Storage | $2.55 billion | $(1.89) billion |
All four major business units experienced revenue declines. Embedded remained profitable, while Mobile and Storage had the largest operating losses as a percentage of revenue.
Material changes versus the prior comparable period
- Industry conditions deteriorated sharply beginning in late fiscal 2022, with weak end-market demand, customer inventory reductions, excess industry supply, and steep price declines.
- Revenue fell by nearly half and gross margin moved from 45% to negative 9%. The company shifted from substantial profitability to a $5.83 billion net loss.
- Operating cash flow decreased from $15.18 billion to $1.56 billion as profitability deteriorated and inventories increased.
- Micron reduced capital expenditures and wafer starts for DRAM and NAND to manage inventory and supply. Wafer starts were expected to remain below peak capacity for the foreseeable future.
- Micron initiated a restructuring plan targeting headcount reductions approaching 15% by the end of calendar 2023. It incurred $171 million of restructuring charges and expects approximately $130 million of quarterly cost savings after fiscal 2023.
- Debt increased materially through $3.20 billion of term loans and multiple senior-note issuances, partly offset by debt repayments, including a $600 million prepayment of the 2024 Term Loan A.
- China’s Cyberspace Administration determined that critical information infrastructure operators in China may not purchase Micron products. Revenue from mainland China- and Hong Kong-headquartered customers represented approximately one-quarter of worldwide revenue, and management estimated that approximately half of that revenue was at risk, equivalent to a low-double-digit percentage of worldwide revenue.
Outlook, management commentary, risks, and unusual items
- Management stated that customer inventory normalization, demand growth, and industry supply discipline had begun to improve pricing trends and could support higher revenue, pricing, and profitability during fiscal 2024. However, management also expected industry profitability to remain challenged into 2024 because of elevated inventories and the supply-demand imbalance.
- Micron expected approximately $200 million of additional facility-underutilization costs in the first quarter of fiscal 2024 due to reduced wafer starts.
- Capital expenditures for fiscal 2024 were estimated at slightly above $7 billion, net of partner contributions, although actual spending could vary with market conditions.
- Micron expects to ramp HBM3E mass production in early calendar 2024 and is positioning its DDR5, HBM, CXL, and advanced NAND products for artificial-intelligence and data-center demand.
- The company broke ground on a leading-edge DRAM fab in Boise, Idaho; production was targeted for calendar 2025 with first output in early calendar 2026. A second fab in Clay, New York was expected to begin construction in calendar 2024, subject to government support and other conditions.
- Government incentives are material to planned expansion. Micron had commitments from government entities of up to $2 billion through 2033, subject to performance conditions, and subsequently finalized an arrangement for additional grants of up to $1.3 billion. Incentives may be reduced, terminated, or clawed back if conditions are not met.
- Key risks include DRAM and NAND pricing volatility, industry oversupply, manufacturing underutilization, technology-transition execution, supply-chain and equipment constraints, dependence on international operations and Taiwan manufacturing, China-related restrictions, export controls, customer concentration, cyberattacks, tax changes, and the ability to finance substantial capital spending.
- Legal matters include patent litigation involving DRAM, NAND, SSD, and HBM products; Canadian class-action allegations regarding DRAM price fixing; a Chinese antitrust investigation; and other claims. The company stated that it cannot predict the outcomes or reasonably estimate potential losses.
- Unusual fiscal 2023 items included the $1.83 billion inventory write-down, $171 million of restructuring charges, $101 million of Storage Business Unit goodwill impairment, a $68 million litigation settlement expense, and $186 million of insurance proceeds recognized in revenue.
- Price assumptions are particularly significant: management disclosed that a 5% decrease in future average selling prices would have reduced the estimated net realizable value of finished goods and work-in-process inventories by approximately $600 million at August 31, 2023.
Important facts for investors to verify
- Whether DRAM and NAND pricing recovery and customer inventory normalization continue, and whether further inventory write-downs are required.
- The magnitude and duration of revenue and margin impacts from the CAC decision in China, including any additional government restrictions.
- Progress toward the restructuring savings target and the effect of reduced wafer starts on future capacity, costs, and customer demand.
- Execution, timing, funding, and government incentives for the Boise and New York fabs, as well as the planned India and China back-end facilities.
- Liquidity, covenant compliance, debt maturities, interest expense, and the ability to fund more than $7 billion of planned fiscal 2024 capital expenditures while operating cash flow remains volatile.
- Actual demand and qualification progress for HBM3E, DDR5, advanced NAND, SSD, and other artificial-intelligence-related products.
- Potential liabilities and business disruption from patent, antitrust, product-liability, tax, and other legal proceedings.