Micron Technology, Inc. — Fiscal 2022 Form 10-K Summary
Business context and reporting period
Micron designs and manufactures DRAM, NAND, NOR, SSD, managed NAND, and related memory and storage solutions for data center, client, mobile, automotive, industrial, and consumer markets. The filing covers the 52-week fiscal year ended September 1, 2022; fiscal 2021 also contained 52 weeks. The filing is a fiscal-year 10-K, not a standalone quarterly filing, but it includes fourth-quarter 2022 operating commentary.
Reportable business units were Compute and Networking (CNBU), Mobile (MBU), Embedded (EBU), and Storage (SBU). Approximately one-half of annual revenue came from the ten largest customers, and more than 80% of 2022 revenue was shipped to locations outside the United States.
Key financial metrics
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $30.758 billion | $27.705 billion | +11% |
| Gross margin | $13.898 billion; 45% | $10.423 billion; 38% | Margin +7 percentage points |
| Operating income | $9.702 billion; 32% of revenue | $6.283 billion; 23% | +54% |
| Net income attributable to Micron | $8.687 billion | $5.861 billion | +48% |
| Diluted EPS | $7.75 | $5.14 | +51% |
| Cash flow from operations | $15.181 billion | $12.468 billion | +22% |
| Capital expenditures | $12.067 billion | $10.030 billion | +20% |
| Cash and marketable investments | $10.978 billion | $10.398 billion | +6% |
| Total debt carrying value | $6.906 billion | $6.776 billion | +2% |
Annual revenue growth was driven by DRAM revenue of $22.386 billion, up 12%, and NAND revenue of $7.811 billion, up 11%. DRAM bit shipments increased slightly above 10%; NAND bit shipments increased in the high-single-digit percentage range, with a low-single-digit increase in average selling prices.
- CNBU revenue was $13.693 billion, up 12%; operating income was $5.844 billion.
- MBU revenue was $7.260 billion, broadly unchanged; operating income was $2.160 billion.
- EBU revenue was $5.235 billion, up 24%; operating income was $1.752 billion.
- SBU revenue was $4.553 billion, up 15%; operating income was $513 million.
Operating performance benefited primarily from manufacturing-cost reductions and ramps of 1-alpha DRAM and 176-layer NAND. Research and development expense increased 17% to $3.116 billion, while selling, general, and administrative expense increased 19% to $1.066 billion.
Operating cash flow exceeded capital expenditures by approximately $3.1 billion before other investing and financing activity. Investing cash outflow was $11.585 billion, including $12.067 billion of property, plant, and equipment spending and $888 million of net proceeds from the Lehi, Utah fab sale. Financing cash outflow was $2.980 billion, including $2.432 billion of share repurchases, $2.032 billion of debt repayments, and $461 million of dividends, partly offset by $2.000 billion of new debt issuance.
Inventories increased to $6.663 billion from $4.487 billion, including finished goods of $1.028 billion and work in process of $4.830 billion. Inventory valuation was identified as the critical audit matter; a 5% change in estimated selling prices would have changed estimated inventory net realizable value by approximately $337 million.
Material changes versus the prior comparable period
- Revenue increased 11%, while gross margin expanded from 38% to 45%, primarily from lower manufacturing costs and advanced-node execution.
- Operating income increased from $6.283 billion to $9.702 billion and net income attributable to Micron increased from $5.861 billion to $8.687 billion.
- Cash from operations increased by $2.713 billion, but inventory growth absorbed $2.179 billion of cash.
- Capital expenditures rose to $12.067 billion from $10.030 billion as Micron expanded manufacturing capacity and technology investments.
- Share repurchases increased to $2.432 billion from $1.200 billion. Through September 1, 2022, Micron had repurchased $6.47 billion under its $10 billion authorization.
- Micron issued $2.0 billion of long-term notes in November 2021 and repaid the 2023 Notes and 2024 Notes. Debt carrying value increased modestly, while the $2.5 billion revolving credit facility remained undrawn.
- Micron completed the sale of its Lehi, Utah facility to Texas Instruments. The transaction generated $888 million of net investing cash inflow and a $23 million 2022 loss; 3D XPoint development was discontinued.
- The effective tax rate increased to 9.3% from 6.3%, partly due to the geographic mix of earnings and a $189 million valuation allowance against Idaho deferred tax assets. Foreign tax incentives reduced 2022 tax expense by $1.12 billion.
Fourth-quarter performance, outlook, and management commentary
The industry environment deteriorated sharply in the fourth quarter of fiscal 2022. Customer inventory adjustments and global macroeconomic challenges reduced DRAM and NAND bit shipments and average selling prices. Fourth-quarter revenue declined 23% sequentially, and consolidated gross margin declined to 39% from 47% in the third quarter.
Management expected further declines in DRAM and NAND bit shipments, pricing, and gross margin in the first quarter of fiscal 2023. Micron planned selective reductions in DRAM and NAND facility utilization to address elevated inventories and reduce supply growth. Inflationary pressure was expected to remain a cost headwind.
Micron estimated fiscal 2023 capital expenditures for property, plant, and equipment, net of partner contributions, at approximately $8 billion, subject to market conditions. Management also estimated at least $300 million of fiscal 2023 tax expense because of required capitalization and amortization of U.S. research and development expenditures, with actual expense dependent on operating income.
Management stated that cash, operating cash flow, and available financing were expected to be sufficient to meet requirements for at least the next 12 months and thereafter for the foreseeable future. The company planned approximately $4 billion of additional property, plant, and equipment purchases, of which approximately $2.97 billion was expected to be paid within one year.
Micron broke ground on a leading-edge DRAM fab in Boise, Idaho, with construction expected to begin in calendar 2023 and production targeted for calendar 2025, subject to CHIPS Act support. It also announced plans for a second DRAM fab in Clay, New York, with production expected to ramp in the latter half of the decade.
Risks, contingencies, and unusual items
- Memory and storage markets are highly cyclical, with substantial volatility in average selling prices, demand, inventory levels, utilization, and gross margins.
- Customer inventory corrections, macroeconomic weakness, inflation, rising interest rates, and industry oversupply could pressure revenue and profitability.
- Manufacturing and supply-chain risks include shortages of materials, components, utilities, equipment, and third-party services, as well as sole-source dependencies.
- Geopolitical, trade, export-control, and Taiwan-related risks are significant; a majority of DRAM production output in 2022 came from Taiwan facilities.
- Capacity expansions require substantial capital and depend on construction execution, equipment availability, customer demand, workforce availability, and government grants or tax incentives.
- Legal proceedings include patent litigation involving DRAM, NAND, SSD, memory-module, HBM, and controller products; Micron stated that it could not estimate potential losses or ranges of loss.
- Tax uncertainty includes audits, unrecognized tax benefits of $731 million, potential changes in tax law, and the future U.S. book minimum tax.
- Cash dividends remain discretionary. The board declared a quarterly dividend of $0.115 per share payable October 26, 2022.
- Price protection and returns payable to customers were estimated at $1.26 billion at September 1, 2022, compared with $846 million the prior year.
Most important facts for an investor to verify
- Whether the sharp fourth-quarter decline in demand, pricing, and gross margin continued or stabilized after fiscal year-end.
- Inventory levels, utilization rates, inventory write-downs, and the effect of further DRAM and NAND production reductions.
- Actual fiscal 2023 capital expenditures versus the approximately $8 billion estimate and the resulting free cash flow.
- Progress, funding, government incentives, construction timing, and expected returns for the Boise and New York DRAM fabs.
- Exposure to Taiwan, China, export controls, sanctions, and other geopolitical or supply-chain disruptions.
- Changes in customer concentration, particularly the contribution from Kingston, WPG, and the top ten customers.
- The effect of U.S. R&D capitalization rules, tax incentives, audits, and the potential 15% book minimum tax on future cash taxes.
- Developments in patent, antitrust, Qimonda, and other legal proceedings, for which the filing does not provide a clear estimated loss range.