Micron Technology, Inc. — Fiscal 2022 Third-Quarter Form 10-Q
Business context and reporting period
Micron designs, develops, and manufactures DRAM, NAND, NOR, SSD, and other memory and storage products for data center, client, mobile, automotive, industrial, graphics, networking, and consumer markets. The filing covers the quarter and nine months ended June 2, 2022, compared with the periods ended June 3, 2021. Fiscal 2022 contains 52 weeks.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Revenue | $8.642 billion | $7.422 billion | $24.115 billion | $19.431 billion |
| Gross profit / margin | $4.035 billion / 47% | $3.126 billion / 42% | $11.276 billion / 47% | $6.511 billion / 34% |
| Operating income / margin | $3.004 billion / 35% | $1.799 billion / 24% | $8.181 billion / 34% | $3.328 billion / 17% |
| Net income | $2.626 billion | $1.735 billion | $7.195 billion | $3.141 billion |
| Diluted EPS | $2.34 | $1.52 | $6.38 | $2.75 |
| Operating cash flow | Not separately provided | Not separately provided | $11.404 billion | $8.584 billion |
Q3 revenue increased 16% year over year and 11% sequentially. DRAM revenue was $6.271 billion and NAND revenue was $2.288 billion. Q3 segment revenue was $3.895 billion for Compute and Networking, $1.967 billion for Mobile, $1.341 billion for Storage, and $1.435 billion for Embedded.
Q3 gross margin was unchanged sequentially at 47%. Manufacturing cost reductions offset slight declines in average selling prices, while a greater NAND mix constrained margins because NAND margins were lower than DRAM margins. Research and development expense was $773 million and SG&A was $264 million.
At June 2, 2022, cash and equivalents were $9.157 billion, short- and long-term marketable investments totaled $2.716 billion, and total cash and investments were $11.873 billion. Total debt, including finance lease obligations, was $6.963 billion, consisting of $107 million current debt and $6.856 billion long-term debt. The $2.5 billion revolving credit facility was undrawn and fully available.
For the first nine months, capital expenditures were $8.454 billion and net cash used in investing activities was $7.761 billion. Financing cash outflows included $2.008 billion of debt repayments, $1.648 billion of share repurchases, and $335 million of dividends, partially offset by $2.0 billion of debt issuance. Cash, cash equivalents, and restricted cash increased by $1.432 billion to $9.261 billion.
Material changes versus comparable periods
- Q3 revenue increased 16% year over year, driven by higher DRAM and NAND bit shipments. DRAM revenue increased 15% and NAND revenue increased 26% year over year.
- Q3 gross margin improved five percentage points year over year, primarily from manufacturing cost reductions and, for the nine-month period, higher average selling prices.
- Q3 net income increased 51% year over year; nine-month net income increased 129%.
- Operating income increased 67% year over year in Q3 and 146% for the first nine months.
- Mobile revenue declined 2% year over year in Q3 because of lower mobile DRAM and NAND average selling prices, although nine-month Mobile revenue increased 8%.
- Storage and Embedded performed strongly: Q3 revenue increased 33% and 30%, respectively, year over year.
- Inventory increased to $5.629 billion from $4.487 billion at September 2, 2021, while receivables increased to $6.229 billion from $5.311 billion.
- Micron repurchased 22.2 million shares for $1.648 billion during the first nine months and had repurchased $5.68 billion under its $10 billion authorization through June 2, 2022.
Guidance, outlook, commentary, risks, and unusual items
- Management estimated 2022 capital expenditures of approximately $12 billion, net of partner contributions, for 176-layer NAND, next-generation NAND and DRAM pilot lines, and EUV lithography infrastructure. Approximately $4.18 billion of property, plant, and equipment purchase obligations remained, including $3.56 billion expected 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 thereafter for the foreseeable future.
- Micron continued ramping 176-layer NAND and 1-alpha DRAM. It introduced the Micron 7450 data-center SSD and achieved initial qualification of 1-alpha LPDDR5 DRAM.
- The company discontinued 3D XPoint development and completed the sale of its Lehi, Utah facility to Texas Instruments. The transaction produced $893 million of cash proceeds and a $23 million loss in fiscal 2022; prior-period charges included a $435 million impairment and a $49 million inventory write-down.
- The Q3 effective tax rate was 12.0%, including a $189 million discrete tax expense from a valuation allowance related to Idaho deferred tax assets. Foreign tax incentives reduced Q3 tax expense by $361 million and benefited diluted EPS by $0.32.
- Tax incentives in jurisdictions including Singapore are conditional and expire at various dates through 2034. Beginning in 2023, required capitalization and amortization of U.S. R&D expenses is expected to increase the effective tax rate by a low-to-mid-single-digit percentage for several years unless the law changes.
- Principal risks include memory and storage price volatility, industry oversupply, intense competition, technology-transition execution, inflation and supply-chain constraints, COVID-19 disruptions, geopolitical and trade restrictions involving China and Taiwan, foreign-exchange exposure, customer concentration, and substantial capital requirements.
- Legal contingencies include patent litigation involving DRAM, NAND, SSD, and memory-module products; Chinese patent proceedings; the Qimonda/Inotera dispute; Canadian and U.S. antitrust matters; and a Chinese antitrust investigation. The filing states that potential losses cannot be reasonably estimated.
- WPG Holdings and Kingston Technology each represented 11% of total revenue during the first nine months of 2022.
Investor verification checklist
- Verify subsequent-quarter pricing, bit shipments, product mix, and gross-margin trends, particularly for DRAM, NAND, and Mobile products.
- Verify actual 2022 capital expenditures against the approximately $12 billion estimate and assess returns from new capacity and technology transitions.
- Review inventory and receivables trends for evidence of customer inventory corrections, demand weakness, or potential write-downs.
- Confirm the effect of tax incentives, Idaho tax changes, future R&D capitalization rules, and any changes to the company’s effective tax rate.
- Monitor debt maturities, interest-rate exposure, share repurchases, dividends, and availability under the revolving credit facility.
- Assess developments in patent, antitrust, Qimonda, trade-restriction, and geopolitical matters because the filing does not provide a clear estimate of potential losses for several proceedings.
- Evaluate customer concentration and exposure to demand from data center, mobile, client, automotive, and industrial markets.