Micron Technology Inc. 10-K Summary
Business Context and Reporting Period
Company: Micron Technology, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: September 2, 2004 (53-week fiscal year)
Business Overview: Micron is a global manufacturer and marketer of Dynamic Random Access Memory (DRAM), Flash memory, and CMOS image sensors. Products are used in personal computers, servers, cell phones, and digital cameras. DRAM products constituted 92% of net sales in 2004. The company operates manufacturing facilities in the U.S., Italy, Japan, Puerto Rico, Scotland, and Singapore.
Key Financial Metrics
| Metric (in millions) | 2004 | 2003 | 2002 |
|---|---|---|---|
| Net Sales | $4,404.2 | $3,091.3 | $2,589.0 |
| Gross Margin | $1,314.7 (29.9%) | $(20.7) (-0.7%) | $(110.6) (-4.3%) |
| Operating Income | $249.7 | $(1,186.5) | $(1,025.3) |
| Net Income | $157.2 | $(1,273.2) | $(907.0) |
| Diluted EPS | $0.24 | $(2.11) | $(1.51) |
| Cash & Short-term Investments | $1,231.0 | $921.8 | $985.7 |
| Total Assets | $7,760.0 | $7,158.2 | $7,555.4 |
| Long-term Debt | $1,027.9 | $997.1 | $360.8 |
| Operating Cash Flow | $1,158.8 | $284.2 | $578.1 |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 42% to $4.4 billion, driven by a 20% increase in megabits sold and a 16% increase in average selling prices due to improved market conditions.
- Profitability Turnaround: The company returned to profitability with a 29.9% gross margin, compared to a negative 0.7% margin in 2003. This was aided by higher selling prices, reduced manufacturing costs (via 110nm process and 6F² technology), and the absence of inventory write-downs that plagued 2002 and 2003.
- Restructuring: In 2004, the company recorded a $22.5 million credit to restructure charges, primarily from gains on the sale of equipment associated with the 2003 shutdown of its 200mm production line in Virginia. This contrasts with $116.3 million in charges in 2003.
- Capital Structure: The company received $450 million from Intel Corporation in exchange for stock rights exchangeable into approximately 33.9 million shares. Long-term debt increased to $1.03 billion, largely due to the issuance of $632.5 million in 2.5% Convertible Subordinated Notes in 2003.
Guidance, Outlook, and Risks
- Product Outlook: Management expects significant growth in DDR2 products, NAND Flash memory, and CMOS image sensors in 2005. The company plans to transition to 95nm line-width process technology in 2005 and expects 512 Meg density devices to become predominant by year-end 2005.
- Capital Spending: Capital spending for 2005 is expected to approximate $1.5 billion. The company is ramping production at its 300mm wafer fabrication facility in Virginia, though it has not yet reached mature yield levels.
- Intel Milestones: The company agreed to achieve specific operational objectives (DDR2 production and 300mm capacity) by May 2005. Failure to meet these milestones, combined with a stock price below $13.29, could obligate Micron to pay Intel up to $135 million.
- Legal Risks:
- Intellectual Property: Ongoing litigation with Rambus, Inc. regarding patent infringement in the U.S. and Europe, and with Motorola/Freescale regarding patent disputes.
- Antitrust: The company is cooperating with a U.S. Department of Justice investigation into possible antitrust violations in the DRAM industry. Numerous class-action lawsuits alleging price-fixing are pending in federal and state courts.
- Market Risks: The semiconductor memory market is highly competitive and cyclical. Prices are subject to significant fluctuations based on supply and demand. The company faces risks related to the transition to 300mm wafers, raw material shortages, and foreign currency exchange rates.
Key Facts for Investor Verification
- Customer Concentration: Sales to Dell Computer Corporation and Hewlett-Packard Company aggregated 27% of net sales in 2004. Approximately 75% of sales were to the computing market.
- Joint Venture Dependency: TECH Semiconductor Singapore Pte. Ltd. supplied approximately 30% of the company's total megabits of memory produced in 2004. Micron has an agreement to purchase all of TECH's output.
- Inventory Valuation: While no inventory write-downs were recorded in 2004, the company maintains a valuation allowance of $1.0 billion against U.S. deferred tax assets due to uncertainties in realizing net operating losses.
- Facility Utilization: The Virginia and Utah manufacturing facilities are only partially utilized. The Virginia facility's 300mm ramp-up is critical for future cost efficiency but currently incurs higher costs due to immature yields.
- Convertible Debt: The company has $632.5 million in convertible notes due in 2010, convertible at approximately $11.79 per share, which could result in significant dilution if converted.