Micron Technology Inc. 10-Q Summary
Business Context and Reporting Period
Micron Technology, Inc. is a global manufacturer and marketer of semiconductor devices, principally DRAM and NAND Flash memory products. This report covers the quarterly period ended March 4, 2010 (Second Quarter of Fiscal 2010) and the six months ended March 4, 2010. The company operates primarily through its Memory segment, with remaining operations classified as "All Other."
Key Financial Metrics
| Metric (in millions) | Q2 2010 | Q2 2009 | 6 Months 2010 | 6 Months 2009 |
|---|---|---|---|---|
| Net Sales | $1,961 | $993 | $3,701 | $2,395 |
| Gross Margin | $642 (33%) | $(267) (-27%) | $1,085 (29%) | $(716) (-30%) |
| Operating Income | $415 | $(709) | $616 | $(1,381) |
| Net Income Attributable to Micron | $365 | $(763) | $569 | $(1,481) |
| Diluted EPS | $0.39 | $(0.99) | $0.61 | $(1.91) |
| Cash and Equivalents (End of Period) | $1,870 | $932 | $1,870 | $932 |
| Total Debt | $2,719 | $2,803 | $2,719 | $2,803 |
Liquidity: Net cash provided by operating activities for the six months ended March 4, 2010, was $1,130 million. The company held $1,870 million in cash and equivalents as of March 4, 2010, though approximately $334 million of this amount is held in joint ventures (IM Flash and TECH) and may not be available to finance other operations.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 98% year-over-year for the quarter and 55% for the six-month period, driven by a 173% increase in DRAM sales and a 32% increase in NAND Flash sales.
- Margin Recovery: The company returned to profitability, posting a 33% gross margin in Q2 2010 compared to a negative 27% in Q2 2009. This turnaround was driven by a 38% increase in DRAM average selling prices and significant reductions in manufacturing costs per gigabit.
- Restructuring: Restructure charges were minimal in 2010 ($1 million credit for the quarter) compared to $105 million in charges during Q2 2009, as the company completed the shutdown of 200mm manufacturing operations in Boise, Idaho.
- Accounting Changes: The company adopted new accounting standards for noncontrolling interests and convertible debt at the beginning of 2010, resulting in retrospective adjustments to prior period financial statements.
Guidance, Outlook, and Risks
- Numonyx Acquisition: On February 9, 2010, Micron signed a definitive agreement to acquire Numonyx Holdings B.V. for approximately 140 million shares of Micron common stock. The transaction is subject to regulatory approval and is expected to close in the third or fourth quarter of 2010.
- Capital Spending: Management expects capital spending for fiscal 2010 to be approximately $850 million to $950 million.
- Joint Venture Risks: The TECH joint venture shareholder agreement expires in April 2011. HP has indicated it does not intend to extend the agreement, creating uncertainty regarding the future of this facility which accounts for 34% of Micron's DRAM wafer production.
- Legal Contingencies: The company faces significant antitrust litigation regarding alleged price-fixing in the DRAM industry (Rambus and class actions) and patent infringement suits. The company states it cannot estimate the range of possible loss.
- Market Volatility: The semiconductor memory industry remains highly competitive with volatile pricing. Future profitability depends on the company's ability to reduce manufacturing costs faster than average selling prices decline.
Investor Verification Checklist
- Numonyx Closing Conditions: Verify the status of regulatory approvals and the specific stock price thresholds required for the Numonyx acquisition to close.
- TECH Joint Venture Resolution: Monitor negotiations between Micron, HP, and Canon regarding the future of the TECH facility post-April 2011.
- Antitrust Litigation Status: Track developments in the Rambus antitrust case and the consolidated DRAM price-fixing class actions, as outcomes could result in significant liability.
- Inventory Valuation: Review future quarters for potential inventory write-downs if average selling prices decline relative to manufacturing costs.
- Debt Covenants: Confirm continued compliance with debt covenants, particularly for the TECH credit facility where Micron's guarantee increases to 100% in April 2010.