Micron Technology, Inc. — Fiscal 2022 First-Quarter Form 10-Q
Reporting period: Three months ended December 2, 2021; comparative periods were the three months ended December 3, 2020 and the fourth quarter ended September 2, 2021. Micron designs and manufactures DRAM, NAND, NOR, SSD, managed NAND, and related memory and storage products.
Financial Performance and Liquidity
| Metric | Q1 FY2022 | Q4 FY2021 | Q1 FY2021 |
|---|---|---|---|
| Revenue | $7.687 billion | $8.274 billion | $5.773 billion |
| Gross profit | $3.565 billion | $3.912 billion | $1.736 billion |
| Gross margin | 46% | 47% | 30% |
| Operating income | $2.631 billion | $2.955 billion | $866 million |
| Operating margin | 34% | 36% | 15% |
| Net income | $2.306 billion | $2.720 billion | $803 million |
| Diluted EPS | $2.04 | Not provided in the cited comparison table | $0.71 |
| Operating cash flow | $3.938 billion | Not provided | $1.967 billion |
- Revenue declined 7% sequentially but increased 33% year over year. The sequential decline reflected lower DRAM and NAND sales, pricing pressure, and weaker demand from customers facing shortages of non-memory components.
- DRAM revenue was $5.587 billion, up 38% year over year; NAND revenue was $1.878 billion, up 19%; other revenue was $222 million.
- Net cash provided by operating activities was $3.938 billion. Capital expenditures were $3.265 billion, producing approximate operating cash flow less capital expenditures of $673 million before other investing and financing items.
- Cash, cash equivalents, and marketable investments totaled $11.397 billion at December 2, 2021, including $8.680 billion of cash and equivalents. Cash and investments increased from $10.398 billion at September 2, 2021.
- Total debt was $7.022 billion, including $118 million current debt and $6.904 billion long-term debt. The $2.5 billion revolving credit facility was fully available and undrawn.
- Total assets were $61.246 billion and shareholders’ equity was $45.908 billion at quarter-end. Inventories increased to $4.827 billion from $4.487 billion at fiscal year-end.
Material Changes Versus Comparable Periods
- Year-over-year gross margin expanded to 46% from 30%, primarily because of higher average selling prices and cost reductions. The prior-year margin included approximately 2 percentage points of MTU underutilization costs.
- Operating income increased 204% year over year, while net income increased 187%. The improvement reflected higher pricing, increased bit shipments, manufacturing cost reductions, and lower MTU-related underutilization costs.
- Sequential gross margin declined one percentage point because DRAM and NAND average selling prices decreased, partly offset by advanced-technology cost reductions.
- Segment revenue compared with Q1 FY2021 increased 34% for CNBU, 27% for MBU, 26% for SBU, and 51% for EBU. CNBU generated the largest operating income at $1.524 billion.
- Micron repurchased 3.6 million shares for $259 million during the quarter and paid $112 million of dividends, or $0.10 per share. Approximately $5.703 billion remained under the repurchase authorization at December 2, 2021.
- Micron issued $2.0 billion of unsecured debt, including $1.0 billion of 2032 Green Bonds, and used $1.95 billion to repay debt, primarily the 2023 and 2024 Notes. The transactions extended the maturity profile but generated an $83 million loss on debt repurchases and conversions.
Guidance, Outlook, Commentary, and Unusual Items
- Management estimated fiscal 2022 capital expenditures, net of partner contributions, at $11 billion to $12 billion, weighted toward the first half of the year. Spending supports the 176-layer NAND transition, next-generation NAND and DRAM pilot lines, and EUV lithography infrastructure.
- As of December 2, 2021, Micron had approximately $3.76 billion of property, plant, and equipment purchase obligations, of which approximately $3.57 billion was expected to be paid within one year.
- Management stated that cash, investments, operating cash flow, and available financing should be sufficient to meet requirements for at least the next 12 months and the foreseeable future.
- Micron completed the sale of its Lehi, Utah facility to Texas Instruments on October 22, 2021, receiving $893 million and recognizing a $23 million first-quarter loss included in restructuring and asset impairments. The sale followed the discontinuation of 3D XPoint development.
- COVID-19 restrictions reduced staffing and capacity at Micron’s Xi’an, China facility and a subcontractor facility. Management expected operations to return to normal as conditions improved but could not predict the ultimate financial effect.
- Singapore and other tax incentives reduced the first-quarter tax provision by $290 million and benefited diluted EPS by $0.26. The effective tax rate was 8.7%, compared with 6.1% in the prior-year quarter.
- Revenue concentration remains significant: Kingston Technology represented 10% of first-quarter revenue, and approximately one-half of annual revenue historically came from the top ten customers.
Risks and Contingencies
- Key operating risks include memory and storage price volatility, industry oversupply, intense competition, technology-transition execution, manufacturing yield and utilization, supply-chain constraints, and dependence on advanced equipment and third-party providers.
- COVID-19 disruptions, including the Xi’an restrictions, could affect production, demand, supply chains, staffing, and capital projects.
- International operations expose Micron to geopolitical tensions, particularly involving China and Taiwan, export controls, tariffs, trade restrictions, currency movements, and changing customer ordering patterns.
- Micron reported unresolved patent, antitrust, securities, Qimonda, and Intel arbitration matters. The company stated that it could not predict their outcomes or reasonably estimate potential losses; adverse resolutions could materially affect results or financial condition.
- Government incentives are conditional and may be reduced, terminated, or clawed back if performance obligations are not met. Gross unrecognized tax benefits were $680 million at quarter-end.
- Micron’s debt carrying value was $7.022 billion, and significant future capital expenditures, debt service, dividends, and repurchases depend on continued operating cash generation and access to financing.
Investor Verification Priorities
- Verify subsequent DRAM and NAND pricing, bit shipments, inventory levels, and gross-margin trends, particularly after the sequential Q1 decline.
- Assess whether the planned $11 billion to $12 billion fiscal 2022 capital program and approximately $3.76 billion of equipment commitments are consistent with demand and expected returns.
- Monitor COVID-19, supply-chain, non-memory-component, and equipment constraints affecting Micron’s manufacturing sites and customers.
- Review debt maturities, interest-rate exposure, the availability of the revolving facility, and the effect of continued share repurchases and dividends on liquidity.
- Track developments in the unresolved litigation, antitrust investigations, Intel arbitration, Qimonda matter, Chinese patent proceedings, and tax incentive arrangements.