MU

Micron Technology, Inc. - 10-Q Summary

Business Context and Reporting Period

Company: Micron Technology, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 3, 2004 (Third Quarter of Fiscal 2004)
Business Overview: Global manufacturer and marketer of DRAM, CMOS image sensors, Flash memory, and other semiconductor components. The company operates a single reportable segment: Semiconductor Operations.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 52% year-over-year (Q3 2004 vs. Q3 2003) and 13% sequentially. Growth was driven by a 44% increase in average selling prices (ASP) per megabit and a 6% increase in megabit production.
• Profitability Turnaround: The company returned to profitability with a net income of $90.9 million in Q3 2004, compared to a net loss of $214.9 million in the same period in 2003. Gross margin improved significantly to 34.7% from 9.7%.
• Inventory Write-downs: Unlike previous periods, no inventory write-downs were recorded in the first three quarters of 2004. This contrasts with significant write-downs in 2003, which had previously depressed margins.
• Restructuring: The company recorded a credit of $21.9 million for the nine months ended June 3, 2004, primarily due to gains on the sale of equipment associated with prior restructuring efforts. This compares to $102.5 million in charges during the same period in 2003.

Guidance, Outlook, and Risks

• Outlook: Management expects DDR2 production to increase significantly over the next several quarters. Capital spending for 2004 is expected to approximate $1.5 billion, with 2005 spending expected to exceed $1.5 billion.
• Cost Pressures: Per megabit cost reductions in the near term may be limited by the transition to DDR2 products (larger die size) and higher costs associated with limited volumes at the 300 mm facility in Virginia. Costs for products purchased from the TECH joint venture are expected to be higher in Q4 2004.
• Intel Stock Rights: The company received $450 million from Intel for stock rights. If the company fails to achieve certain 2005 milestones (DDR2 production, 300 mm capacity) and the stock price is below $13.29, it could be obligated to pay Intel up to $135 million.
• Legal Contingencies:
  • Intellectual Property: Ongoing litigation with Rambus (global) and Motorola/Freescale (US) regarding patent infringement on SDRAM and DDR DRAM products.
  • Antitrust: DOJ investigation into DRAM industry pricing and multiple class-action lawsuits alleging price-fixing.
  • Rambus Antitrust: New complaint filed by Rambus alleging conspiracy to restrict output and fix prices on RDRAM.

Investor Verification Checklist

• Inventory Valuation: Verify the absence of inventory write-downs in Q3 2004 and the remaining balance of previous write-downs in ending inventory.
• TECH Joint Venture: Review the dependency on TECH (approx. 25-30% of megabit supply) and the $100 million cash collateral pledged for TECH's credit facility.
• Intel Milestones: Assess the feasibility of meeting the 2005 operational milestones (DDR2 production, 300 mm capacity) required to avoid the potential $135 million payment to Intel.
• Legal Exposure: Monitor the status of the DOJ antitrust investigation and the Rambus/Motorola patent litigations, as adverse outcomes could result in significant liability.
• Capital Expenditures: Confirm the company's ability to fund the projected $1.5 billion+ capital spending in 2004 and 2005 given the volatility of semiconductor pricing.