Micron Technology, Inc. 2024 Q2 Form 10-Q Summary
Business context and reporting period
Micron designs and manufactures DRAM, NAND, and NOR memory and storage products, including HBM, SSDs, managed NAND, and other system solutions. The filing covers the quarter and six months ended February 29, 2024, compared primarily with the quarter and six months ended March 2, 2023.
Financial performance and position
| Metric | Q2 2024 | Q2 2023 | Six months 2024 | Six months 2023 |
|---|---|---|---|---|
| Revenue | $5.824 billion | $3.693 billion | $10.550 billion | $7.778 billion |
| Gross margin | $1.079 billion; 19% | $(1.206) billion; (33%) | $1.044 billion; 10% | $(313) million; (4%) |
| Operating income (loss) | $191 million | $(2.303) billion | $(937) million | $(2.512) billion |
| Net income (loss) | $793 million | $(2.312) billion | $(441) million | $(2.507) billion |
| Diluted EPS | $0.71 | $(2.12) | $(0.40) | $(2.30) |
| Cash flow from operations | Not separately provided | Not separately provided | $2.620 billion | $1.286 billion |
- Q2 revenue increased 58% year over year and 23% sequentially. DRAM revenue was $4.158 billion and NAND revenue was $1.567 billion.
- Gross margin improved sharply due to higher average selling prices, manufacturing cost reductions, and lower costs from selling inventory previously written down. The quarter included a $382 million benefit from such inventory sales.
- The Q2 tax benefit was $622 million, producing an unusually negative effective tax rate of 365.9%. Management attributed the benefit primarily to applying an updated annual effective tax rate to year-to-date results.
- Cash, cash equivalents, and marketable investments totaled $9.633 billion at February 29, 2024, down from $10.438 billion at August 31, 2023. Cash, cash equivalents, and restricted cash were $8.101 billion.
- Total debt carrying value was $13.722 billion, including $344 million current debt and $13.378 billion long-term debt. Micron issued $1.0 billion of 5.30% senior notes due 2031 and repaid the 2024 Term Loan A and part of the 2025 Term Loan A.
- No amounts were drawn under the $2.5 billion revolving credit facility, and the company reported compliance with its net leverage covenant through Q2 2024.
- Six-month capital expenditures were $3.180 billion. Net cash used in investing activities was $2.709 billion, and net cash used in financing activities was $458 million.
Material changes versus prior comparable periods
- Market conditions improved after the severe downturn in 2023. Demand growth, including AI-related demand, mostly normal customer inventories, and industry supply discipline supported pricing and margins.
- Q2 DRAM sales increased 53% year over year, primarily from a high-50% range increase in bit shipments. NAND sales increased 77%, driven mainly by a low-60% range increase in bit shipments and approximately 10% higher average selling prices.
- Compared with Q1 2024, DRAM revenue increased 21% and NAND revenue increased 27%, primarily because of higher pricing.
- The company recorded no inventory NRV write-down in Q2 2024, compared with a $1.430 billion write-down in Q2 2023. Six-month 2024 gross margin also benefited from $987 million of lower costs on sales of previously written-down inventory.
- Operating expenses increased year over year: research and development rose 6% in Q2, and selling, general, and administrative expense rose 21%. The 2023 restructuring plan, which reduced headcount by approximately 15%, was substantially completed in 2023.
- Other operating income included a $200 million patent cross-license agreement gain. This was a material unusual item in Q2 2024.
- Segment revenue improved across all business units sequentially, but Q2 operating results remained mixed: CNBU earned $28 million, MBU lost $9 million, EBU lost $1 million, and SBU lost $217 million.
Guidance, outlook, commentary, and risks
- Management estimated 2024 capital expenditures, net of government incentive proceeds, at $7.5 billion to $8.0 billion. Actual spending may vary with market conditions and project timing.
- Micron expects cash and investments, operating cash flow, and available financing to meet requirements for at least the next 12 months and thereafter for the foreseeable future.
- Construction of the Boise leading-edge DRAM fab began in October 2023, with production targeted for calendar 2025 and first output targeted for early calendar 2026. The company expects construction of the New York fab to begin in calendar 2024, subject to CHIPS Act support and other conditions.
- The company intends to expand its backend facility in Xi’an, China, and has begun construction of an assembly and test facility in Gujarat, India.
- China’s Cyberspace Administration determined in May 2023 that critical information infrastructure operators in China may not purchase Micron products. Management states that the decision has particularly affected domestic data center and networking markets in China and could have further effects.
- Principal risks include volatility in DRAM and NAND pricing, industry oversupply, underutilized fabrication capacity, execution and funding risks for new fabs, dependence on government incentives, international trade restrictions and geopolitics, Taiwan manufacturing concentration, customer concentration, supply-chain constraints, cybersecurity, intellectual-property litigation, and debt and interest-rate exposure.
- Micron cannot reasonably estimate potential losses from several pending intellectual-property matters. The cases involve products representing substantially all of the company’s DRAM, NAND, and other memory and storage revenue.
- On March 20, 2024, the board declared a quarterly dividend of $0.115 per share, payable April 16, 2024. Future dividends remain discretionary.
Most important facts for investors to verify
- Whether improving DRAM and NAND pricing and AI-related demand persist, and whether future supply additions recreate industry oversupply.
- The sustainability of the 19% Q2 gross margin excluding the $382 million inventory-related benefit, $200 million patent cross-license gain, and $622 million tax benefit.
- Progress, total cost, timing, government funding, and expected returns for the Boise, New York, Xi’an, and Gujarat capacity projects.
- Liquidity after planned 2024 capital expenditures of $7.5 billion to $8.0 billion, debt maturities, dividends, and other contractual commitments.
- Additional financial or operational effects from China’s CAC decision, U.S. and international trade restrictions, and geopolitical exposure in Taiwan and China.
- Developments and potential financial impact of pending patent, antitrust, and other legal proceedings.
- Changes in customer concentration, including one distributor representing 11% of six-month 2024 revenue and approximately one-half of total revenue coming from the top ten customers.