Micron Technology Inc. (MU) - 10-K Summary
Business Context and Reporting Period
Period: Fiscal year ended August 31, 1995.
Business: Micron designs, manufactures, and markets semiconductor memory products (DRAMs and SRAMs), personal computers (PCs), and contract manufacturing services. During 1995, the company consolidated operations and merged its PC and contract manufacturing subsidiaries with ZEOS International, Ltd., forming Micron Electronics, Inc. (MEI).
Market Cap: Approximately $11.1 billion (non-affiliate voting stock) as of August 31, 1995.
Key Financial Metrics
| Metric ($ Millions) | Fiscal 1995 | Fiscal 1994 | Fiscal 1993 |
|---|---|---|---|
| Net Sales | $2,952.7 | $1,628.6 | $828.3 |
| Gross Margin | $1,624.0 | $839.2 | $311.1 |
| Gross Margin % | 55.0% | 51.5% | 37.6% |
| Operating Income | $1,296.5 | $620.1 | $165.9 |
| Net Income | $844.1 | $400.5 | $104.1 |
| Diluted EPS | $3.90 | $1.90 | $0.51 |
| Cash & Liquid Investments | $555.8 | $433.0 | N/A |
| Operating Cash Flow | $1,038.8 | $557.5 | $257.3 |
| Long-Term Debt | $129.4 | $124.7 | $54.4 |
| Total Assets | $2,774.9 | $1,529.7 | $965.7 |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 81.3% to $2.95 billion, driven by strong demand for 4 Meg DRAMs and a significant expansion in PC system sales (which grew from 5% to 15% of total sales).
- Profitability: Net income more than doubled to $844 million. Gross margin improved to 55.0% due to stable DRAM pricing and reduced manufacturing costs via yield improvements and product density shifts.
- Product Mix: DRAM sales remained the dominant revenue source (77% of total), while SRAM sales declined as a percentage of total sales to 8% due to a strategic focus on the more profitable 4 Meg DRAM.
- Acquisition: The merger with ZEOS International resulted in a $29.0 million non-recurring pretax gain and expanded the PC product line.
Guidance, Outlook, and Risks
Outlook & Capital Expenditures: The company is undertaking a massive expansion, including a $2.5 billion facility in Lehi, Utah, with initial production targeted for late 1996. Total current expansion projects at Boise and Lehi are estimated at $4.5 billion. Management anticipates R&D expenses will increase in 1996 to support 16 Meg and 64 Meg DRAM development.
Risks & Contingencies:
- Patent Litigation: The company faces potential infringement claims and has accrued liabilities for settlements. Several key technology licenses (including one with IBM) expire in 1995; failure to renew could disrupt operations.
- Market Cyclicality: The semiconductor industry is highly cyclical. Increased global capacity and yield improvements by competitors could lead to downward pricing pressure.
- Manufacturing Transition: Converting fabrication lines from 6-inch to 8-inch wafers carries risks of production interruption and yield volatility.
- Supply Chain: Reliance on single-source suppliers for microprocessors (Intel) and certain notebook components poses supply interruption risks.
Investor Verification Checklist
- Patent License Renewals: Verify the status of expiring technology licenses, specifically the agreement with IBM, and the adequacy of accrued litigation reserves.
- Utah Facility Progress: Monitor the timeline and cost estimates for the $2.5 billion Lehi, Utah fabrication plant to ensure it remains on schedule.
- DRAM Pricing Trends: Assess whether the current stable pricing for 4 Meg DRAMs is sustainable as competitors ramp up 16 Meg DRAM production.
- PC Margin Pressure: Review gross margins for the PC division, which are lower than semiconductor margins and subject to intense price competition.
- Capital Requirements: Evaluate the company's ability to fund the $4.5 billion expansion program through operating cash flows versus the need for external financing.