Micron Technology Inc. 10-Q Summary
Business Context and Reporting Period
This filing is a Quarterly Report (Form 10-Q) for Micron Technology, Inc., covering the fiscal quarter ended December 1, 1994. The company is a manufacturer of semiconductor memory products, primarily DRAMs, based in Boise, Idaho. The report compares the current quarter to the same period in the prior fiscal year (ended December 2, 1993).
Key Financial Metrics
| Metric | Q1 1995 (Dec 1, 1994) | Q1 1994 (Dec 2, 1993) |
|---|---|---|
| Net Sales | $535.0 million | $320.1 million |
| Net Income | $159.3 million | $67.5 million |
| Earnings Per Share (Diluted) | $1.51 | $0.65 |
| Gross Margin | 58.0% | 48.0% |
| Operating Income | $245.3 million | $105.1 million |
| Cash from Operations | $236.0 million | $136.9 million |
| Cash & Equivalents | $138.5 million | $51.8 million |
| Total Debt (Current + Long-term) | $178.2 million | $154.5 million |
Liquidity: Total cash and liquid investments stood at $559.8 million ($138.5 million cash + $421.3 million liquid investments) as of December 1, 1994.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 67.2% year-over-year, driven by improved productivity, increased fab capacity, and favorable market conditions for 4 Meg DRAMs.
- Profitability: Net income more than doubled (136% increase). Gross margin expanded by 10 percentage points due to reduced cost per unit from product "shrinks" and yield improvements, despite stable selling prices.
- Expense Trends:
- R&D: Increased 88.8% to $27.0 million, reflecting focus on 64 Meg DRAM and 16 Meg DRAM development.
- SG&A: Increased 12.0% to $38.2 million, primarily due to profit-sharing programs, though it decreased as a percentage of sales (7.1% vs 10.7%).
- Balance Sheet: Total assets grew from $1.53 billion to $1.81 billion. Inventory increased to $122.7 million, and property, plant, and equipment (net) rose to $742.3 million.
Outlook, Risks, and Management Commentary
- Capital Expenditures: The company expects a significant reduction in cash and liquid investments for the remainder of the fiscal year as capital expenditures exceed operating cash flows. Commitments include approximately $303 million for equipment and $71 million for construction over the next 1.5 years.
- Expansion Plans: Micron has begun site selection for a new semiconductor memory manufacturing complex with expected costs exceeding $1 billion, potentially taking 3-4 years to complete.
- Product Transition Risks: Management notes that the transition from 4 Meg DRAM to 16 Meg DRAM may erode gross margins as capacity shifts to newer, more complex devices. The 1 Meg x 16 configuration is currently costly to produce.
- Industry Volatility: The semiconductor industry is highly cyclical. Risks include excess supply from competitors moving to 8-inch wafers, yield volatility during new product ramps, and currency fluctuations (specifically a strengthening dollar against the yen).
- Legal Contingencies: The company faces potential patent infringement claims. While liabilities have been accrued, management cannot estimate the range of additional possible losses, which could materially affect financial position.
- Dividends: A cash dividend of $0.05 per share was declared, payable February 3, 1995.
Investor Verification Checklist
- Product Mix Shift: Verify the rate of transition from 4 Meg to 16 Meg DRAMs and its impact on future gross margins.
- Capital Funding: Assess the company's ability to fund the proposed $1 billion+ manufacturing complex and ongoing capex without diluting shareholders or taking on excessive debt.
- Competitive Yield: Monitor competitor yields on 16 Meg DRAMs and the shift to 8-inch wafer processing, which could lead to supply gluts and price erosion.
- Patent Litigation: Review the adequacy of accrued liabilities for patent infringement claims and the status of expiring technology licenses.
- PC Market Dependency: Evaluate the risk associated with increasing sales of personal computer systems, which may pressure margins as the market matures.