Micron Technology, Inc. — Fiscal 2023 First-Quarter Form 10-Q
Reporting period: Three months ended December 1, 2022; comparable period ended December 2, 2021. The filing is unaudited and prepared under U.S. GAAP. Micron designs and manufactures DRAM, NAND, NOR, SSDs, managed NAND, and related memory and storage products.
Key Financial Metrics
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Revenue | $4.085 billion | $7.687 billion | Down 47% |
| Gross profit | $893 million | $3.565 billion | Down 75% |
| Gross margin | 22% | 46% | Down 24 percentage points |
| Operating income (loss) | $(209) million | $2.631 billion | Turned to loss |
| Net income (loss) | $(195) million | $2.306 billion | Turned to loss |
| Diluted EPS | $(0.18) | $2.04 | Turned to loss |
| Cash flow from operations | $943 million | $3.938 billion | Down 76% |
| Capital expenditures | $2.449 billion | $3.265 billion | Down 25% |
Revenue by technology was $2.829 billion from DRAM, $1.103 billion from NAND, and $153 million from other products. Research and development expense rose 19% year over year to $849 million, while SG&A was $251 million.
Cash, cash equivalents, and marketable investments totaled $12.007 billion at December 1, 2022. Total debt carrying value was $10.265 billion, including $171 million current debt and $10.094 billion long-term debt. The $2.5 billion revolving credit facility was fully available and undrawn. Inventory increased to $8.359 billion from $6.663 billion at fiscal year-end.
Cash and cash equivalents, cash flows from operations, and available financing were expected by management to be sufficient for at least the next 12 months. Net cash increased by $1.303 billion during the quarter, principally because $3.338 billion of new debt proceeds exceeded capital expenditures, repurchases, dividends, and other uses.
Material Changes Versus Comparable Periods
- Memory industry conditions deteriorated sharply because of macroeconomic challenges, customer inventory corrections, weak end-market demand, and excess supply.
- DRAM revenue declined 49% year over year, driven primarily by a high-30% range decline in average selling prices and a high-teens range decrease in bit shipments.
- NAND revenue declined 41% year over year, driven primarily by a mid-20% range decline in average selling prices and a low-20% range decrease in bit shipments.
- All major business units experienced lower revenue year over year. Mobile revenue fell 66%, Storage fell 41%, Compute and Networking fell 49%, and Embedded fell 18%.
- Operating performance weakened across the business units. Compute and Networking operating income declined to $190 million, Mobile reported a $195 million loss, Embedded operating income was $194 million, and Storage reported a $257 million loss.
- Cash flow from operations fell substantially, while inventory rose 25% from September 1, 2022, increasing the risk of excess or obsolete inventory charges.
- Micron borrowed approximately $2.60 billion under new 2025, 2026, and 2027 Term Loan A tranches and issued $750 million of 6.750% senior notes due 2029. Total debt increased from $6.906 billion at September 1, 2022.
- Micron repurchased 8.6 million shares for $425 million and paid $126 million in dividends during the quarter.
Guidance, Outlook, Commentary, and Risks
- Management expected industry profitability to remain challenged throughout calendar 2023 because of elevated inventories, weak pricing, and a significant supply-demand mismatch.
- Micron planned to reduce wafer starts and capital expenditures. The company estimated that wafer-start reductions would increase 2023 cost of goods sold by approximately $460 million, beginning in the second fiscal quarter, with most of the impact expected in the second half of the year.
- Estimated fiscal 2023 capital expenditures were $7.0 billion to $7.5 billion, net of partner contributions, subject to market conditions. Purchase obligations for property, plant, and equipment totaled approximately $3.56 billion, including $2.73 billion expected within one year.
- A restructuring plan announced December 21, 2022 targeted an approximately 10% workforce reduction during calendar 2023. At least $30 million of restructuring charges were expected in the second quarter of fiscal 2023.
- Micron announced plans for leading-edge DRAM fabs in Boise, Idaho, and Clay, New York. These projects depend partly on government grants and investment tax credits under the CHIPS Act and other incentives.
- Key risks include volatile DRAM and NAND pricing, oversupply and underutilized manufacturing capacity, rising costs, inventory valuation, intense competition, customer concentration, international and Taiwan-related geopolitical exposure, export restrictions, supply-chain constraints, technology execution, cybersecurity, litigation, and the ability to generate sufficient cash to fund capital expenditures and debt service.
- Micron disclosed numerous patent, antitrust, securities, and other legal matters. It could not predict the outcomes or reasonably estimate potential losses; adverse resolutions could materially affect results.
Important Facts for Investors to Verify
- Whether DRAM and NAND pricing and bit-shipment trends stabilize or deteriorate further during calendar 2023.
- Whether inventory levels decline without significant write-downs or additional margin pressure.
- The timing and amount of wafer-start reductions, restructuring charges, and resulting cost savings.
- Whether planned capital expenditures remain within the $7.0 billion to $7.5 billion range and whether government incentives for new U.S. fabs are received.
- Liquidity, leverage, covenant compliance, floating-rate debt exposure, and debt maturities following the $3.35 billion of new debt issued in the quarter.
- Progress on the approximately 10% workforce reduction and any additional restructuring actions.
- Developments in disclosed intellectual-property, antitrust, trade, and geopolitical matters, including potential impacts on products manufactured or sold in China and Taiwan.