Micron Technology, Inc. — Fiscal 2022 Second-Quarter Form 10-Q
Reporting period: Quarter and six months ended March 3, 2022, compared with March 4, 2021; balance-sheet amounts are compared with September 2, 2021. Micron designs and manufactures DRAM, NAND, NOR, SSD, and related memory and storage products serving data center, client, mobile, automotive, industrial, and consumer markets.
Key Financial Metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $7.786 billion | $6.236 billion | $15.473 billion | $12.009 billion |
| Gross margin | 47% | 26% | 47% | 28% |
| Operating income | $2.546 billion | $663 million | $5.177 billion | $1.529 billion |
| Operating margin | 33% | 11% | 33% | 13% |
| Net income | $2.263 billion | $603 million | $4.569 billion | $1.406 billion |
| Diluted EPS | $2.00 | $0.53 | $4.04 | $1.23 |
| Net cash from operations | Not separately provided for the quarter | Not separately provided for the quarter | $7.566 billion | $5.024 billion |
- Q2 revenue increased 25% year over year and 1% sequentially. DRAM revenue was $5.719 billion, up 29% year over year; NAND revenue was $1.957 billion, up 19%.
- Q2 net income increased approximately 275% year over year. The effective tax rate was 10.2%, compared with 7.6% in the prior-year quarter; Singapore and other tax incentives reduced Q2 tax expense by $304 million.
- Cash, cash equivalents, and marketable investments totaled $11.839 billion at March 3, 2022, up from $10.398 billion at September 2, 2021.
- Total debt, including finance lease obligations, was $7.076 billion, consisting of $123 million current debt and $6.953 billion long-term debt. The $2.5 billion revolving credit facility was undrawn.
- Capital expenditures were $5.876 billion in the first six months. Inventory increased to $5.383 billion from $4.487 billion at fiscal year-end, primarily reflecting higher work in process and raw materials.
Material Changes Versus Prior Comparable Period
- Profitability improved substantially due to higher average selling prices, increased bit shipments, manufacturing cost reductions, and advanced-technology execution.
- The prior-year second quarter included approximately $293 million of one-time cost-of-goods-sold impacts from the change to FIFO inventory costing and modified cost-absorption processes, as well as a $49 million 3D XPoint inventory write-down and a $128 million patent license charge.
- Research and development expense increased 24% year over year to $792 million in Q2, while selling, general, and administrative expense increased 23% to $263 million.
- Cash from operations increased $2.542 billion for the first six months, while financing activity included $1.981 billion of debt repayments, $667 million of share repurchases, $224 million of dividends, and $2.0 billion of new debt issuance.
- Micron completed the sale of its Lehi, Utah facility to Texas Instruments and received $893 million in the first quarter; the disposition produced a $23 million loss in the first six months.
Business Performance and Management Commentary
- CNBU revenue increased 31% year over year in Q2 and generated $1.562 billion of operating income. EBU revenue increased 37%, and SBU revenue increased 38%; SBU moved from a $59 million operating loss in the prior-year quarter to $178 million of operating income.
- Sequentially, DRAM bit shipments increased in the high-single-digit percentage range, but DRAM average selling prices declined by a mid-single-digit percentage. NAND average selling prices increased by a mid-single-digit percentage.
- Micron highlighted the ramp of 176-layer NAND and 1-alpha DRAM, qualification of 1-alpha LPDDR5, the Micron 7450 data-center SSD, and its positioning for DDR5 transitions.
- Management estimated fiscal 2022 capital expenditures, net of partner contributions, at $11 billion to $12 billion, subject to market conditions. Spending is intended to support 176-layer NAND, next-generation NAND and DRAM pilot lines, and EUV-related infrastructure.
- 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.
Outlook, Risks, Contingencies, and Unusual Items
- Micron expects an approximately $200 million increase in tax expense in the third quarter of fiscal 2022 from a valuation allowance related to Idaho tax credits following a new Idaho tax law. Beginning in 2023, required capitalization and amortization of R&D expenditures is expected to increase the effective tax rate by a low-single-digit percentage for several years.
- Key operating risks include memory and storage price volatility, industry oversupply and intense competition, technology-transition and manufacturing-yield risks, supply-chain and equipment constraints, inflation, COVID-19 disruptions, and geopolitical and trade restrictions involving China, Taiwan, and other international locations.
- Customer concentration is material: WPG Holdings and Kingston Technology each represented 11% of first-six-month revenue, and approximately one-half of annual revenue historically came from the top ten customers.
- Material legal matters include patent litigation, Chinese patent injunction-related proceedings, Qimonda-related litigation, Canadian antitrust cases, and an arbitration with Intel concerning the former IMFT joint venture. The company cannot reasonably estimate potential losses for the disclosed contingencies.
- Through March 3, 2022, Micron had repurchased $4.70 billion under its $10 billion authorization, including $667 million in the first six months. It paid a quarterly dividend of $0.10 per share and declared another $0.10 dividend payable April 26, 2022.
Important Facts for Investors to Verify
- Whether DRAM and NAND average selling prices, bit shipments, and gross margins remain favorable as industry supply and demand conditions change.
- Progress and returns on the planned $11 billion to $12 billion of fiscal 2022 capital expenditures and related technology transitions.
- The expected third-quarter $200 million Idaho tax expense and longer-term effects of R&D tax capitalization.
- Inventory growth, customer concentration, and exposure to changes in PC, mobile, data-center, automotive, and industrial demand.
- Developments in patent, antitrust, Qimonda, Intel arbitration, trade, and geopolitical matters, for which the filing does not provide a clear estimate of potential losses.
- The pace and financial impact of future share repurchases, dividends, debt repayments, and additional borrowing.