Micron Technology, Inc. — Fiscal 2020 Form 10-K Summary
Business context and reporting period
Micron designs and manufactures DRAM, NAND, 3D XPoint, NOR, solid-state drives, managed NAND, modules, and related memory and storage solutions. Its end markets include mobile, data center, client, consumer, industrial, graphics, automotive, and networking.
The filing covers the 53-week fiscal year ended September 3, 2020. Fiscal 2020 fourth quarter contained 14 weeks. Results were affected by COVID-19, memory-price volatility, trade restrictions, and the acquisition of Intel’s remaining interest in IM Flash Technologies, now known as MTU.
Financial performance and key metrics
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Revenue | $21.435 billion | $23.406 billion | Down 8% |
| Gross margin | $6.552 billion; 31% | $10.702 billion; 46% | Down 15 percentage points |
| Operating income | $3.003 billion; 14% | $7.376 billion; 32% | Down 59% |
| Net income attributable to Micron | $2.687 billion | $6.313 billion | Down 57% |
| Diluted EPS | $2.37 | $5.51 | Down 57% |
| Operating cash flow | $8.306 billion | $13.189 billion | Down 37% |
| Capital expenditures, net of partner contributions | $7.91 billion | $9.03 billion | Down 12% |
DRAM revenue declined 14% to $14.510 billion, primarily from average selling-price declines in the mid-30% range, partly offset by low-30% bit-shipment growth. NAND revenue increased 14% to $6.131 billion, driven by mid-20% bit-shipment growth, partly offset by high-single-digit pricing declines. Average selling prices declined 34% for DRAM and 9% for NAND.
Business-unit revenue was $9.184 billion for CNBU, $5.702 billion for MBU, $3.765 billion for SBU, and $2.759 billion for EBU. Operating income was $2.010 billion, $1.074 billion, $36 million, and $301 million, respectively.
Fiscal fourth-quarter revenue was $6.056 billion, with gross margin of $2.068 billion, operating income of $1.157 billion, net income attributable to Micron of $988 million, and diluted EPS of $0.87.
Balance sheet, debt, liquidity, and cash flow
- Cash, cash equivalents, and marketable investments totaled $9.190 billion at September 3, 2020, including $7.624 billion of cash and equivalents.
- Operating cash flow was $8.306 billion; investing cash outflow was $7.589 billion; financing cash outflow was $317 million.
- Total debt had a carrying value of $6.643 billion, including $270 million current debt and $6.373 billion long-term debt.
- The company had no borrowings outstanding under its $2.5 billion revolving credit facility at year-end; the full facility was available.
- Total assets were $53.678 billion and total equity was $38.996 billion.
- Fiscal 2021 capital expenditures were estimated at approximately $9 billion, net of partner contributions, focused on technology transitions and product enablement. Approximately $2.95 billion of property, plant, and equipment purchase obligations existed at year-end, including $2.76 billion expected within one year.
- Contractual obligations totaled $15.163 billion, including $5.143 billion due within one year.
Material changes versus the prior comparable period
- Revenue fell 8%, while gross margin declined from 46% to 31%, reflecting lower selling prices and $557 million of MTU underutilization costs.
- Operating income and net income attributable to Micron declined substantially despite manufacturing-cost reductions and higher bit shipments.
- R&D expense increased 7% to $2.600 billion, while SG&A increased 5% to $881 million.
- Micron acquired Intel’s remaining IMFT interest and related member debt for $1.25 billion on October 31, 2019, making MTU wholly owned. MTU capacity remained underutilized.
- Micron purchased 3.6 million shares for $176 million in fiscal 2020 and had repurchased $2.84 billion under its $10 billion authorization through year-end.
- The company issued $1.25 billion of 2023 Notes and drew $1.25 billion under a 2024 Term Loan A. It also repaid or settled significant debt, including the $2.5 billion revolving-facility draw made and repaid during the year.
- Micron extended the estimated useful lives of certain NAND and R&D equipment from five to seven years. The change benefited fiscal 2020 operating income and net income by approximately $510 million and diluted EPS by approximately $0.45.
- Micron adopted ASC 842 lease accounting, recognizing approximately $567 million of operating lease liabilities and right-of-use assets.
Guidance, outlook, commentary, risks, and unusual items
Management stated that cash and investments, operating cash flow, and available financing should be sufficient to meet requirements for at least the next 12 months. Fiscal 2021 capital spending was expected to be approximately $9 billion, although actual spending would depend on market conditions. Management expected MTU underutilization costs to decline gradually through 2021 as equipment was redeployed and capacity was right-sized.
COVID-19 increased demand for data-center infrastructure, notebooks, cloud servers, and gaming, but reduced demand in smartphones, consumer electronics, automotive, desktop PCs, and enterprise markets. All global sites were operating near normal capacity at the filing date, but future closures, production curtailments, supply-chain disruptions, and demand changes remained possible.
U.S. export restrictions effective September 15, 2020 prevented Micron from shipping products to Huawei. Huawei represented approximately 10% of fourth-quarter fiscal 2020 revenue and 12% of fiscal 2019 revenue. The company could not predict the duration of the restrictions or whether lost revenue could be replaced.
- Key industry risk: substantial volatility in DRAM and NAND pricing, global oversupply, and fixed manufacturing costs.
- Key execution risk: successful transition to advanced DRAM nodes, replacement-gate and 128-layer NAND, QLC products, and future technologies.
- Key concentration risk: approximately one-half of revenue came from the top ten customers; Kingston represented 11% of fiscal 2020 revenue.
- Key geographic and trade risk: 88% of revenue was shipped to customer locations outside the United States, and operations and suppliers are concentrated internationally.
- Key legal contingencies: patent litigation in China and the United States, DRAM antitrust litigation and a Chinese regulatory investigation, Qimonda-related litigation, and arbitration with Intel. The filing states that potential losses could not be estimated.
- Key accounting sensitivity: a 5% change in estimated inventory selling prices would have changed estimated inventory net realizable value by approximately $525 million at year-end.
- Unusual fiscal 2020 items included $60 million of restructuring and asset-impairment expense, a $72 million gain from extinguishing IMFT member debt, and $40 million of gains on debt prepayments, repurchases, and conversions.
Most important facts for investors to verify
- Whether DRAM pricing and gross margins stabilize or deteriorate further as supply and demand conditions change.
- Whether the Huawei restrictions persist and whether replacement demand offsets the affected revenue.
- Actual fiscal 2021 capital spending, free cash flow, and the return generated by approximately $9 billion of planned investment.
- The pace at which MTU underutilization costs decline and whether the facility can be profitably redeployed.
- Debt maturities, convertible-note settlement obligations, credit-facility covenants, and liquidity after capital spending.
- Inventory levels, valuation adjustments, and the assumptions supporting the extended equipment useful lives.
- Developments in patent, antitrust, Qimonda, and Intel arbitration matters, for which the filing provides no reliable loss estimate.
- Customer concentration and demand trends across mobile, cloud, data center, automotive, and storage markets.