Investment research report for MU

Table of Contents

Executive Summary
Valuation Analysis
Industry and Competitors Analysis
Financial Analysis
Earnings Call Multi-Year Analysis
Financial Statements Multi Year
Insider Trading Analysis
Management Compensation Benchmark Analysis
Proxy Statement Analysis
News Analysis
Technical Indicators Analysis
Financial Statements Annual
Financial Statements Quarterly
Earnings Call Analysis

Executive Summary

Company Description

Micron Technology, Inc. is a leading global manufacturer of semiconductor memory and storage solutions. The company operates in the dynamic random-access memory (DRAM), NAND flash memory, and other memory and storage product markets. Micron’s products are used in a wide range of applications, including data centers, mobile devices, personal computers, and automotive and industrial applications.

Industry and Competitive Landscape

Micron operates in the highly competitive and cyclical semiconductor industry, facing intense competition from major players such as Samsung, SK Hynix, and Western Digital. The industry is characterized by rapid technological advancements, significant capital investments, and fluctuations in supply and demand that can lead to volatile pricing and profitability.

Financial Performance and Outlook

Micron’s financial performance has been volatile, reflecting the cyclical nature of the memory chip industry. The company experienced strong revenue growth and profitability in 2021 and 2022, driven by favorable pricing and demand conditions. However, in 2023, Micron faced a significant downturn, with declining average selling prices and inventory write-downs, resulting in a substantial decline in revenue and profitability. The company has implemented cost-cutting measures and is focused on managing supply and demand dynamics to navigate the current industry downturn.

Strategic Initiatives and Risks

Micron is making significant investments in advanced manufacturing technologies and capacity expansions, including plans for new leading-edge DRAM fabs in the U.S., contingent on government incentives. The company’s ability to execute these investments successfully and maintain technological leadership is crucial for its long-term competitiveness. However, Micron faces risks related to geopolitical tensions, particularly with China, which has imposed restrictions on the company’s products in certain sectors. Additionally, the company’s financial performance is heavily influenced by the cyclical nature of the memory chip industry and the intense competition within the semiconductor market.

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Valuation Analysis

PE Ratio

The PE ratio for the company MU is as follows:

  • Low: -35.03270709897086
  • Base: -1.8516786338776061
  • High: 31.32934983121565

PB Ratio

The PB ratio for the company MU is as follows:

  • Low: 1.2348223916625771
  • Base: 1.6106990689444642
  • High: 1.9865757462263514

Due to the highly unstable financials of this company, we are unable to provide reliable price targets. Therefore, we recommend not holding this stock in your portfolio.

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Industry and Competitors Analysis

Semiconductor Industry and Micron’s Competitors

Based on the information provided, Micron Technology (MU) operates in the semiconductor industry, specifically in the memory and storage products segment. Its main competitors appear to be other major semiconductor companies such as:

  1. NVIDIA (NVDA): A leading company in graphics processing units (GPUs) and artificial intelligence computing solutions.
  2. Intel (INTC): A dominant player in the CPU (central processing unit) market for PCs and servers.
  3. Taiwan Semiconductor Manufacturing Company (TSM): The world’s largest dedicated semiconductor foundry, manufacturing chips for various companies.
  4. Marvell Technology (MRVL): A semiconductor company specializing in storage, networking, and connectivity solutions.
  5. Advanced Micro Devices (AMD): A major competitor to Intel in the CPU market, also offering GPUs.
  6. Broadcom (AVGO): A diversified semiconductor company with products ranging from networking to storage solutions.
  7. QUALCOMM (QCOM): A leading provider of wireless communication technologies and chipsets for mobile devices.

Competitive Positioning

In terms of competitive positioning, Micron appears to be a significant player in the memory and storage segment, competing with the memory and storage product lines of companies like Samsung, SK Hynix, and Western Digital. However, it faces intense competition from these and other semiconductor giants, many of which have broader product portfolios and larger market capitalizations.

Financial Performance

Micron’s financial performance has been volatile, with a significant decline in revenue, profitability, and net income in the most recent year (2023) compared to the previous two years. This could indicate challenges in the memory and storage market or cyclical fluctuations in the semiconductor industry.

Conclusion

Overall, while Micron is a notable player in its specific segment, it operates in a highly competitive and capital-intensive industry dominated by larger, more diversified semiconductor companies.

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Chart of Competitors

"Chart of Competitors"

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Financial Analysis

Financial Strength

Micron has a relatively strong balance sheet with a current ratio consistently above 2, indicating it can meet short-term obligations. However, the current ratio has been declining in recent quarters. The company has a moderate level of debt, with a debt-to-equity ratio around 0.3 in recent years. Interest coverage ratios have been volatile, ranging from negative values during loss-making periods to over 60x when profitable, suggesting the ability to service debt depends heavily on profitability.

Potential for Growth

Revenue growth has been inconsistent, with periods of strong growth followed by declines, reflecting the cyclical nature of the memory chip industry. The analyst estimates suggest expectations of revenue growth over the next few years, but with a wide range of estimates. Operating cash flow growth has been uneven, but the company has generally maintained positive free cash flow, which could support future investments.

Competitive Advantage

As a leading player in the memory chip market, Micron likely benefits from economies of scale and technological expertise. However, the industry is highly competitive and cyclical, which can erode competitive advantages over time.

Quality of Management

Profitability metrics like return on equity and return on assets have been volatile, reflecting the cyclical nature of the business and the challenges in managing through industry cycles. The company’s ability to generate consistent shareholder returns has been limited, as evidenced by the fluctuating earnings and dividend payments.

Shareholder Friendliness

Micron has not paid dividends consistently, and the dividend yield has been low when dividends were paid. Share buybacks or other shareholder-friendly initiatives are not evident from the data provided.

Valuation

Valuation metrics like price-to-earnings and price-to-book ratios have been highly variable, reflecting the cyclical nature of the business and the volatility in earnings. The wide range of analyst estimates for future earnings and revenue suggests uncertainty in the company’s valuation.

Overall, Micron Technology appears to be a financially stable company with the potential for growth, but its performance is heavily influenced by the cyclical nature of the memory chip industry. The company’s competitive advantage and shareholder friendliness are moderate, and its valuation is subject to significant volatility due to the cyclicality of the business.

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Chart of Key Per Share Metrics

"Chart of Key Per Share Metrics"

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Chart of Absolute Metrics

"Chart of Absolute Metrics"

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Earnings Call Multi-Year Analysis

Technology Leadership

Micron consistently highlights its leadership in advanced DRAM and NAND technologies like 1-alpha DRAM, 176-layer NAND, and upcoming transitions to EUV lithography and 3D scaling. This positions the company well to drive cost reductions and performance improvements.

Secular Demand Drivers

The company sees strong long-term demand drivers across data centers, AI, automotive, 5G, and industrial IoT applications. Micron is focused on capitalizing on these secular growth trends with its portfolio.

Supply Discipline

Micron emphasizes taking a disciplined approach to supply growth, aiming to keep bit supply in line with demand growth through prudent capacity investments and capital expenditure management. This supply discipline is key to maintaining a healthy industry environment.

Product Mix Shift

The company is transitioning its portfolio towards higher-value solutions like data center SSDs, mobile managed NAND, DDR5, and high-density server modules. This mix shift enhances profitability and margins.

Customer Engagement

Micron has deepened its engagement with customers through long-term agreements, close collaboration on supply planning, and extending lead times during periods of tightness. This strengthens customer relationships.

Financial Execution

Micron remains focused on delivering strong revenue growth, profitability, and free cash flow generation in line with its long-term financial model. The company is committed to returning capital to shareholders through dividends and share buybacks.

While acknowledging near-term headwinds during industry downturns, Micron consistently expresses confidence in its ability to navigate cycles through cost control, supply management, and a strong balance sheet.

Overall, the key message is that Micron’s technology leadership, focus on secular growth markets, supply discipline, and financial execution position the company well to create long-term value for investors, despite the inherent cyclicality of the memory industry.

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Financial Statements Multi Year

Revenue and Profitability

Revenue and profitability at Micron are highly cyclical and volatile, driven by fluctuations in average selling prices (ASPs) for DRAM and NAND products. Micron experienced strong growth in 2021 and 2022 due to favorable pricing, but saw a sharp decline in 2023 as ASPs fell significantly.

Gross Margins

Gross margins are impacted by ASP volatility, manufacturing costs, inventory write-downs, and capacity underutilization charges. Margins improved in 2021-2022 but turned negative in 2023 due to the pricing downturn.

Capital Investments

Micron is making significant capital investments, including plans for new leading-edge DRAM fabs in the U.S., contingent on government incentives. Executing these investments successfully is crucial for long-term competitiveness.

Competitive and Geopolitical Risks

The company faces intense competition, geopolitical risks (especially in China), and threats from emerging domestic Chinese players. Restrictions on sales to Chinese infrastructure operators pose a major headwind.

Leverage and Liquidity

Micron has a leveraged balance sheet and substantial debt obligations. Generating sufficient cash flows to service debt, fund operations, and capital expenditures is a key risk during industry downturns. Liquidity remains adequate, with billions in cash/investments, but capital allocation for shareholder returns may be constrained during downturns.

Cost Control Measures

Cost control measures like restructuring, headcount reductions, and discretionary spending cuts have been implemented to navigate the current downturn.

Conclusion

In summary, Micron’s financial performance is heavily influenced by cyclical industry factors. Investors should monitor the company’s ability to manage costs, execute capacity investments, mitigate geopolitical risks, and maintain technological leadership through volatile industry cycles.

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Insider Trading Analysis

Long-term Patterns

The CEO, Sanjay Mehrotra, has been consistently granted large amounts of common stock and non-qualified stock options through equity compensation plans over the past few years. This suggests the company is heavily incentivizing him to drive long-term growth.

Mehrotra has also periodically gifted large blocks of his personal shares to undisclosed recipients, totaling over 200,000 shares in the last 2 years. This could indicate estate planning or philanthropic intentions.

Other key executives like the CFO and business unit leaders have also received substantial equity awards, aligning their interests with shareholders.

Short-term Patterns

Mehrotra has frequently exercised his stock options and sold the resulting shares, often in the $70-$80 range. This suggests he is monetizing some of his equity compensation, likely for personal financial reasons.

Other executives like Bokan, Sadana, and Zinsner have also sold shares, typically in the $70-$80 range, potentially taking profits after the stock’s strong recent performance.

The volume of these insider sales, totaling hundreds of thousands of shares, could be a short-term bearish signal for investors if it continues.

Implications

The consistent equity grants to the CEO and other key leaders indicate a focus on long-term value creation, which should be positive for long-term investors.

However, the high volume of insider sales could be a concern in the short-term, as it may signal a lack of confidence in the stock’s near-term upside potential.

Long-term investors should focus on the company’s fundamental business performance and management’s strategic vision. Short-term investors may want to monitor the pace of insider selling and consider it as part of their investment thesis.

Overall, the insider trading patterns show a mix of long-term alignment and short-term monetization by Micron’s leadership team. Investors should evaluate this data in the context of the company’s broader financial and operational performance.

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Management Compensation Benchmark Analysis

Alignment of executive compensation with long-term shareholder value creation

The base salary portion of total compensation for MU executives is relatively low, ranging from around 2% to 12% on average. This suggests that a significant portion of their total compensation is tied to performance-based elements like stock awards and incentive plan compensation. This compensation structure aligns the interests of MU’s executives with those of long-term shareholders, as a large portion of their pay is linked to the company’s long-term stock performance.

Comparison to industry peers

Compared to other semiconductor companies like NVIDIA (NVDA), Intel (INTC), Marvell (MRVL), and Advanced Micro Devices (AMD), MU’s executives have a lower base salary portion of their total compensation. This indicates that MU’s compensation practices are more heavily weighted towards variable, performance-based pay, which is generally considered a best practice for aligning executive incentives with shareholder interests.

Consistency over time

MU’s executive compensation structure has remained relatively consistent over the years, with a low base salary portion and a focus on stock-based awards and incentive plan compensation. This suggests a long-term, disciplined approach to executive pay that is designed to motivate and retain top talent while also aligning their interests with those of shareholders.

In summary, the executive compensation details for MU suggest that the company’s compensation practices are well-aligned with creating long-term shareholder value. The low base salary portion and heavy emphasis on performance-based pay elements indicate that MU’s executives are incentivized to drive the company’s long-term success, which should be appealing to long-term investors.

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Proxy Statement Analysis

Pay-for-Performance Alignment

Micron took significant actions to reduce executive compensation, such as suspending the 2023 bonus program and cutting executive salaries, in response to the industry downturn, demonstrating a commitment to aligning pay with performance. However, the peer groups used by Glass Lewis to assess pay-for-performance alignment may not accurately reflect Micron’s industry dynamics, as they largely consist of companies outside the volatile memory and storage sector.

Peer Group Selection

Micron’s peer group was determined based on relevant factors like revenue, market capitalization, and headcount, with the aim of including companies they compete with for executive talent. The company believes the peer group was a reasonable basis for informing compensation decisions for fiscal 2023.

Performance Goal Disclosure

Micron terminated the 2023 Executive Officer Performance Incentive Plan (EIP) and made no payouts, mitigating concerns over the disclosure of performance goals. The company has committed to providing details on the fiscal 2024 EIP goals and performance in the next proxy statement. For performance-based restricted stock unit (PRSU) awards, Micron has disclosed the goals for the total shareholder return component but omitted details of strategic and operational goals due to competitive concerns.

Overall, Micron appears to be making efforts to align executive compensation with performance, while balancing transparency with the need to protect competitively sensitive information. However, the appropriateness of the peer group selection for assessing pay-for-performance alignment remains a potential concern for long-term investors.

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News Analysis for Micron Technology, Inc.

Positive Factors

  1. Strong demand for memory chips from AI and data center markets is expected to drive Micron’s growth in the long run, offsetting weakness in consumer markets like smartphones and PCs.

  2. Micron is investing heavily ($100 billion+) in expanding manufacturing capacity, especially for advanced chips like HBM and DRAM needed for AI applications. This should position it well for the AI boom.

  3. Memory chip prices seem to have bottomed out recently after a downcycle, with signs of improvement in supply/demand balance. Micron’s profitability is expected to recover as the cycle turns.

  4. Micron is receiving government incentives and subsidies (e.g. from Japan, New York) to build new fabs, which could boost its competitiveness.

Negative Factors

  1. China’s restrictions on Micron products citing cybersecurity risks pose a significant threat to its sales in that key market.

  2. The current downcycle in memory has been severe, with Micron reporting huge losses and having to cut production and workforce.

  3. Inventory corrections are still ongoing and could take time to play out fully before a sustained recovery.

  4. Increasing tensions in the U.S.-China tech war create an uncertain operating environment for Micron.

Overall, while Micron faces near-term cyclical headwinds, analysts seem optimistic about its long-term positioning in AI and data center markets. However, the China situation injects a notable risk factor. Investors with a multi-year horizon may want to consider buying Micron stock, but should be prepared for continued volatility.

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Technical Indicators Analysis

Next week trading

The recent price action and technical indicators suggest a bullish short-term outlook for MU. The 20-day TEMA is above the current price, indicating an upward trend. The 14-day ADX is above 30, signaling a strong trend. The 10-day RSI is in the overbought territory, suggesting the stock may be due for a pullback in the near term. However, the 20-day, 50-day, and 200-day SMAs are all trending upwards, providing support levels for the stock. A next week trader may look to take advantage of any short-term pullbacks to enter long positions, with potential resistance levels around $157 and $160.

Resistance and Support Levels

The key support levels for MU appear to be the 20-day SMA around $133, the 50-day SMA around $124, and the 200-day SMA around $93. The stock has been trading above these moving averages, indicating a bullish trend. The resistance levels to watch are around $157 and $160, which the stock has tested and pulled back from in the recent past.

Short-term investor

The technical indicators suggest a positive short-term outlook for MU. The upward trend in the 20-day TEMA, the strong ADX reading, and the overbought RSI signal that the stock has momentum and could continue to rise in the near term. A short-term investor may look to enter long positions, with a focus on the support levels mentioned above and potential resistance around $157 and $160.

Long-term investor

For a long-term investor, the overall trend in the 50-day and 200-day SMAs is bullish, indicating a positive long-term outlook for MU. The stock has been trading above these key moving averages, suggesting that the upward trend is well-established. A long-term investor may consider building a position in MU, with a focus on the long-term fundamentals and the company’s growth prospects.

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Chart of Valuation History

"Chart of Valuation History"

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Financial Statements Annual

Financial Statements Annual 2024 Q2

Volatility in Average Selling Prices (ASPs)

Volatility in average selling prices (ASPs) for DRAM and NAND products has had a significant adverse impact on Micron’s business, with DRAM ASPs declining in the high-40% range and NAND ASPs declining in the low-50% range in fiscal 2023 compared to 2022. This volatility in ASPs has led to deterioration in gross margins.

Pressure on Gross Margins

Micron’s gross margins have been under pressure due to factors like increasing manufacturing complexity, process technology transitions, and underutilization of manufacturing capacity, which have resulted in higher per-gigabit manufacturing costs. The company recorded $183 billion in inventory write-downs in 2023 due to the decline in ASPs.

Geopolitical and Operational Risks

Micron faces significant geopolitical and operational risks due to its global footprint, with a majority of its DRAM production coming from Taiwan. The Chinese government’s decision to ban Micron products from critical infrastructure operators in China is a major headwind that could impact a significant portion of Micron’s revenue.

Competitive Landscape

The memory and storage industry is highly competitive, and Micron faces threats from aggressive pricing by competitors as well as significant investments by the Chinese government in domestic memory manufacturers. Micron’s ability to develop and produce competitive new products is crucial to its long-term success.

Capital Investments and Funding

Micron has made significant capital investments, including plans to build two new leading-edge DRAM fabs in the U.S., which will require substantial funding and government incentives. The company’s ability to realize expected returns on these investments is critical.

Leveraged Balance Sheet and Debt Obligations

Micron has a highly leveraged balance sheet, with $13.3 billion in net debt as of August 2023. While the company has access to financing, its ability to generate sufficient cash flows to service its debt obligations and fund its operations and capital expenditures is a key risk factor.

Customer Concentration Risks

The company’s reliance on a small number of key customers, particularly international customers, exposes it to concentration risks. The loss of or disruption to these customer relationships could have a material adverse impact.

In summary, Micron faces significant challenges related to volatile pricing, manufacturing costs, geopolitical risks, competitive pressures, and capital-intensive investments, all of which could impact its long-term financial performance and shareholder value.

Financial Statements Annual 2023 Q2

Revenue and Profitability

Total revenue increased 11% year-over-year to $30.76 billion, driven by increases in both DRAM and NAND product sales. Gross margin improved to 45% from 38% in the prior year, primarily due to manufacturing cost reductions. Operating income increased 54% to $9.70 billion, with strong performance across all business units.

Business Segment Performance

The Compute and Networking Business Unit (CNBU) saw a 12% increase in revenue and a 36% increase in operating income, driven by higher bit shipments and manufacturing cost reductions. The Mobile Business Unit (MBU) revenue was relatively flat, with operating income remaining stable. The Embedded Business Unit (EBU) revenue increased 24% and operating income grew 74%, benefiting from strong demand in industrial and automotive markets. The Storage Business Unit (SBU) revenue increased 15% and operating income improved significantly, driven by higher average selling prices and increased SSD shipments.

Liquidity and Capital Structure

Cash and investments totaled $10.98 billion as of September 1, 2022, providing ample liquidity. Micron issued $2 billion in new senior unsecured notes in fiscal 2022 and repaid $2.03 billion in debt. The company has a $250 million revolving credit facility, of which the full amount was available as of the end of the fiscal year. Micron repurchased $2.43 billion of its common stock during the year and declared a quarterly dividend of $0.115 per share.

Operational and Strategic Highlights

Micron ceased development of 3D XPoint technology and sold its Lehi, Utah facility dedicated to 3D XPoint production. The company announced plans to invest in two leading-edge memory manufacturing facilities in the U.S., contingent on government incentives and support. Micron continued to make progress in transitioning to advanced process nodes for both DRAM and NAND, driving improvements in manufacturing costs and product performance.

Overall, Micron delivered strong financial and operational performance in fiscal 2022, demonstrating its ability to capitalize on favorable market conditions and execute on its technology roadmap and strategic initiatives.

Financial Statements Annual 2022 Q2

Revenue and Profitability

Micron’s revenue grew 29% in fiscal 2021 compared to 2020, driven by increases in DRAM and NAND sales. Gross margin improved to 38% in 2021 from 31% in 2020, due to higher DRAM average selling prices and cost reductions. Operating income increased to $6.28 billion in 2021 from $3.00 billion in 2020, reflecting the higher revenue and gross margins.

Segment Performance

The Compute and Networking Business Unit (CNBU) saw a 34% increase in revenue and a 114% increase in operating income in 2021, driven by broad-based increases in bit shipments and higher DRAM prices. The Mobile Business Unit (MBU) revenue grew 26% and operating income increased 102% in 2021, due to higher bit shipments for mobile MCP products. The Storage Business Unit (SBU) revenue grew 6% and operating income increased significantly in 2021, as NAND bit shipment growth offset declines in average selling prices. The Embedded Business Unit (EBU) revenue grew 53% and operating income increased 235% in 2021, driven by strong demand growth and improved pricing in the industrial and consumer markets.

Cash Flows and Liquidity

Micron generated $12.47 billion in operating cash flow in 2021, up from $8.31 billion in 2020. Capital expenditures were $10.03 billion in 2021, up from $8.22 billion in 2020, as the company continued to invest in manufacturing technology and capacity. Micron had $10.40 billion in cash and investments as of September 2, 2021, providing ample liquidity.

Capital Allocation

Micron repurchased $1.29 billion of its common stock in 2021 under its $10 billion share repurchase program. The company initiated a quarterly dividend of $0.10 per share in 2021. Micron expects capital expenditures in fiscal 2022 to be between $11 billion and $12 billion, focused on the transition to 176-layer NAND and enabling next-generation DRAM and NAND technologies.

Overall, Micron delivered strong financial performance in fiscal 2021, driven by favorable market conditions and the company’s execution on technology transitions and cost reductions. The company’s diversified product portfolio, manufacturing capabilities, and healthy financial position position it well for continued success.

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Financial Statements Quarterly

Financial Statements Quarterly 2024 Q2

Revenue and Profitability

Revenue grew 58% year-over-year in Q2 2024, driven by increases in both DRAM and NAND sales. This was due to improvements in average selling prices and bit shipments. Gross margin improved significantly from -33% in Q2 2023 to 19% in Q2 2024, as the company benefited from higher average selling prices and the sale of previously written-down inventory. Operating income margin improved from -62% in Q2 2023 to 3% in Q2 2024, reflecting the recovery in gross margins.

Segment Performance

The CNBU (Compute and Networking Business Unit) and MBU (Mobile Business Unit) segments saw significant improvements in operating income margins, driven by higher average selling prices. The EBU (Embedded Business Unit) segment continued to face pressure, with operating income margin declining due to lower average selling prices. The SBU (Storage Business Unit) segment saw a strong recovery in operating income margin, benefiting from higher NAND average selling prices and bit shipments.

Cash Flows and Liquidity

Cash and investments totaled $9.6 billion as of February 29, 2024, providing ample liquidity. Capital expenditures are expected to be in the range of $7.5 billion to $8.0 billion in fiscal 2024, as the company continues to invest in capacity expansion and technology development. The company has $250 million available under its Revolving Credit Facility, providing additional financial flexibility.

Capital Allocation

The company has a $10 billion share repurchase authorization, of which $3.1 billion remained available as of February 29, 2024. The company declared a quarterly dividend of $0.115 per share, demonstrating its commitment to returning capital to shareholders.

Risks and Challenges

The company faces risks related to the volatile nature of memory and storage pricing, geopolitical tensions, supply chain disruptions, and the highly competitive industry environment. The recent decision by China’s Cyberspace Administration to restrict the use of Micron’s products in China’s critical infrastructure could have a material adverse impact on the company’s business. Successful development and commercialization of new technologies and products remain crucial for Micron to maintain its competitive position.

Overall, Micron’s financial performance has shown a significant recovery in Q2 2024 compared to the challenging conditions in 2023. However, the company continues to face industry-wide risks and must navigate the evolving competitive landscape and geopolitical landscape to sustain its long-term growth and profitability.

Financial Statements Quarterly 2024 Q1

Revenue and Profitability

Revenue increased 18% in Q1 2024 compared to Q4 2023, driven by higher DRAM and NAND sales. However, revenue was down 16% year-over-year due to declines in average selling prices.

Gross margin improved to -1% in Q1 2024 from -11% in Q4 2023, but was down significantly from 22% in Q1 2023 due to lower prices and $165 million in facility underutilization costs.

Operating income declined to a loss of $1.13 billion in Q1 2024 from a profit of $209 million in Q1 2023, reflecting the challenging industry conditions.

Liquidity and Capital Allocation

Micron had $9.77 billion in cash and investments as of November 30, 2023, providing ample liquidity.

Capital expenditures are expected to be $7.5-$8.0 billion in fiscal 2024 as Micron invests in new fabs in the U.S. to support future demand.

Micron has $250 million available under its $25 billion revolving credit facility, providing additional financial flexibility.

The company paid $129 million in dividends in Q1 2024 and has $3.11 billion remaining under its $10 billion share repurchase authorization.

Industry and Competitive Dynamics

The memory and storage industry faced a sharp downturn in 2023 due to weak demand and pricing pressure, leading Micron to reduce wafer starts and incur underutilization charges.

Micron faces intense competition from large global competitors and emerging Chinese players, which could put pressure on pricing and market share.

The Chinese government’s decision to restrict Micron’s products from being sold to critical infrastructure operators in China has impacted Micron’s revenue and could have further negative implications.

Operational and Execution Risks

Micron’s manufacturing operations are subject to disruption risks from supply chain issues, natural disasters, and other events that could impact production.

The company’s ability to develop and produce new competitive memory and storage technologies is critical to its long-term success.

Compliance with responsible sourcing requirements and environmental, social, and governance standards presents operational and financial risks.

Overall, the financial statements highlight the cyclical and competitive nature of Micron’s business, as well as the operational and strategic challenges the company faces. Long-term investors should closely monitor Micron’s ability to navigate the industry downturn, execute on its capacity expansion plans, and maintain its technological leadership to drive sustainable profitability.

Financial Statements Quarterly 2023 Q4

Revenue and Profitability Challenges

Micron’s revenue and profitability have been significantly impacted by the sharp deterioration in the memory and storage industry environment in the last few quarters. This has led to substantial declines in average selling prices and bit shipments for both DRAM and NAND products.

The company has had to take significant inventory write-downs, which have severely impacted gross margins. Gross margin was negative 18% in Q3 2023, down from 47% in the prior year period.

The challenging pricing environment and elevated inventory levels are expected to continue to pressure industry profitability into 2024.

Cost Reduction Initiatives

Micron has initiated a restructuring plan in response to the industry conditions, expecting to reduce headcount by around 15% by the end of 2023. This is expected to generate around $130 million in quarterly cost savings.

The company is also implementing other cost reduction measures including suspension of bonuses, discretionary spending cuts, and executive salary reductions.

Capacity Expansion Plans

Micron has announced plans to expand its DRAM production capacity in the U.S., with new leading-edge fabs expected to come online in the second half of the decade to meet anticipated industry demand.

These capacity expansion projects are dependent on government incentives and grants, including through the CHIPS Act, to help fund the investments.

Geopolitical and Regulatory Risks

Micron faces significant geopolitical risks, particularly related to its operations and sales in China. The recent decision by China’s Cyberspace Administration to ban the use of Micron products by critical infrastructure operators is expected to negatively impact a significant portion of the company’s China-related revenue.

Compliance with responsible sourcing requirements and regulations poses additional operational and cost challenges for Micron.

Liquidity and Capital Allocation

Micron has a strong liquidity position with $11.3 billion in cash and investments as of June 1, 2023. However, the company’s ability to generate sufficient cash flows to fund operations, capital investments, and shareholder returns remains a key concern given the industry headwinds.

Micron’s debt levels have increased with recent financing activities, which could constrain its financial flexibility going forward.

The company’s share repurchase program and dividend payments may be impacted by the need to preserve cash during the current industry downturn.

Overall, Micron faces significant near-term challenges due to the memory industry downturn, which is impacting its revenue, profitability, and cash flows. The company’s ability to navigate these headwinds, execute on its cost reduction and capacity expansion plans, and manage geopolitical risks will be critical for its long-term competitiveness and shareholder value creation.

Financial Statements Quarterly 2023 Q3

Significant Decline in Revenue and Profitability

Micron’s revenue declined 53% year-over-year in Q2 2023, driven by a 40-50% decline in average selling prices for both DRAM and NAND products. Gross margin turned negative 33% in Q2 2023 due to a $1.43 billion inventory write-down, compared to a positive 47% in Q2 2022. Operating income swung to a loss of $2.3 billion in Q2 2023 from a $2.5 billion profit in Q2 2022. The challenging pricing environment and industry oversupply are expected to persist through 2023, putting significant pressure on Micron’s profitability.

Aggressive Cost Reduction Measures

Micron initiated a restructuring plan in 2023 to reduce headcount by around 15% by the end of 2023. The company is also implementing other cost-saving measures, including suspension of bonuses, reduced discretionary spending, and executive salary cuts. These actions are expected to generate $130 million in quarterly cost savings starting in Q4 2023.

Capacity Expansion Plans and Funding

Micron announced plans to build two leading-edge DRAM manufacturing fabs in the U.S., contingent on government incentives and grants. The company issued $1.25 billion in new debt in Q2 2023 to fund these capacity expansion projects and other operations. Micron’s cash and investments totaled $12.03 billion as of March 2, 2023, providing liquidity to fund operations and capital expenditures.

Shareholder Returns

Micron’s Board of Directors declared a quarterly dividend of $0.115 per share, payable in April 2023. The company has a $10 billion share repurchase authorization in place, but did not repurchase any shares in Q2 2023 due to the challenging industry conditions.

Overall, Micron is facing significant near-term headwinds due to the downturn in the memory and storage markets, requiring aggressive cost-cutting measures. However, the company’s long-term growth prospects remain tied to its ability to successfully execute on capacity expansion plans and maintain technological leadership, while managing its capital allocation and shareholder returns appropriately.

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Earnings Call Analysis

Earnings Call Analysis 2024 Q2

Pricing Outlook

Micron expects pricing for both DRAM and NAND to continue strengthening through calendar year 2024 and into 2025, driven by a healthy demand-supply balance. The company sees industry supply growth lagging demand growth, which will tighten the market.

Technology Leadership

Micron is at the forefront of ramping the industry’s most advanced DRAM and NAND technology nodes, with the majority of its bits on leading-edge 1-alpha, 1-beta, 176-layer, and 232-layer nodes. This positions the company well to capitalize on growing demand.

AI Opportunity

Generative AI is emerging as a significant secular driver that will transform data centers, edge devices, and various end markets. Micron is well-positioned with its industry-leading HBM3E, high-capacity server memory, and other solutions to benefit from this AI-driven growth.

Disciplined Capacity Management

Micron is exercising supply and CapEx discipline, aligning with its strategy to maintain long-term bit market share. The company plans to keep bit supply growth well below demand growth in fiscal 2024 to improve the overall industry supply-demand balance.

Financial Outlook

Micron expects a return to profitability and positive free cash flow in the second half of fiscal 2024, driven by pricing improvements and reduced underutilization charges. The company is focused on optimizing pricing, driving productivity, and controlling capital spending.

Overall, Micron appears well-positioned to capitalize on the growing demand for memory and storage, particularly driven by the rise of generative AI, through its technology leadership and disciplined approach to managing the business. The company’s focus on pricing, profitability, and capital allocation should be of interest to long-term investors.

Earnings Call Analysis 2024 Q1

Pricing and Profitability

Pricing has bottomed, and the company expects improved pricing and profitability throughout fiscal 2024, with a recovery in the business financials taking shape in fiscal 2024.

Product Portfolio and Opportunities

Micron is well-positioned to capture opportunities presented by data-centric computing and AI, with a strong portfolio of industry-leading products like HBM3E, DDR5, and data center SSDs.

Demand Fundamentals

The company is seeing improving demand fundamentals, with customer inventory levels normalizing and secular growth drivers remaining intact. Demand growth is expected to exceed long-term CAGR in calendar 2024 for both DRAM and NAND.

Supply-Demand Balance

Micron has taken prudent actions to reduce CapEx and supply to address market imbalances, leading to a structural reduction in wafer capacity across the industry. This, along with the impact of the HBM ramp on DRAM bit supply growth, is expected to tighten the supply-demand balance, particularly in the second half of fiscal 2024.

Market Share and Competitive Position

The company remains committed to maintaining its global market share despite the near-term impact from the CAC decision in China, leveraging its technology leadership, strong customer relationships, and manufacturing capabilities.

Supply Growth Management

Micron is focused on carefully managing overall supply growth, with its fiscal 2024 bit supply growth planned to be well below demand growth for both DRAM and NAND, and a decrease in days of inventory expected.

The analyst questions and company responses suggest that Micron is taking a prudent and disciplined approach to navigating the current industry downturn, while positioning itself to capitalize on the long-term growth opportunities in data-centric computing and AI.

Earnings Call Analysis 2023 Q4

Micron is navigating a challenging industry environment, with lower industry demand growth in DRAM and NAND compared to long-term trends. However, the company is taking decisive actions to align supply with demand, including significant reductions in wafer starts and CapEx.

Uncertainty Surrounding the China CAC Decision

The impact of the China CAC decision remains uncertain, but Micron estimates it could impact up to 15% of its global revenue. The company is working to mitigate this impact over time and expects increased quarter-to-quarter revenue variability.

Maintaining Technology Competitiveness

Micron continues to lead in technology, with industry-leading 1-beta DRAM and 232-layer NAND nodes. The company is investing to maintain its technology competitiveness while managing costs, including plans to bring EUV technology to its Japan fab.

Opportunities in AI and Data-Centric Computing

The growth in AI and data-centric computing is a significant opportunity for Micron, driving demand for higher memory content in servers. Micron is well-positioned with its HBM3, high-density DRAM modules, and low-power DRAM solutions.

Long-Term Financial Outlook

While near-term profitability and cash flow will remain challenged, Micron remains confident in its long-term financial model and ability to deliver profitability, cash flow, and shareholder returns as market conditions improve.

Analyst Focus

Analyst questions suggest a focus on Micron’s customer relationships and inventory management, as well as the potential impact of the China decision on the company’s market share and profitability.

Earnings Call Analysis 2023 Q3

Micron Facing Worst Industry Downturn in 13 Years

Micron is facing the worst industry downturn in 13 years, with exceptionally weak pricing impacting financial performance. The company has taken substantial supply reduction and austerity measures, including a 15% headcount reduction.

Gradual Improvement in Supply-Demand Balance Expected

Micron believes customer inventories are improving, and the supply-demand balance is expected to gradually improve through the year. The company sees potential for industry shortages in 2024 due to the significant CapEx cuts across the industry.

Maintaining Technology Leadership in DRAM and NAND

Micron is maintaining its technology leadership in DRAM and NAND, with strong yields on its leading-edge nodes. The company is well-positioned to capitalize on the growth in AI and data-centric computing, which will drive significant memory and storage demand.

Focused on Managing Supply Growth and Preserving Balance Sheet

Micron is focused on managing its supply growth, with plans to produce fewer DRAM and NAND bits in 2023 compared to 2022. The company is also aggressively managing its operating expenses and preserving its strong balance sheet and liquidity.

Transition to Sequential Revenue Growth and Positive Free Cash Flow Expected

While profitability and free cash flow are expected to remain challenged in the near term, Micron believes it is close to a transition to sequential revenue growth and expects to return to positive quarterly free cash flow within fiscal 2024.

Normalization of Customer Inventory Levels Expected

Micron’s customers, particularly in the data center and cloud markets, are seeing elevated inventory levels, but the company expects these to normalize by the end of 2023, driven by the deployment of new CPUs that require more memory.

Overall, Micron is taking decisive actions to navigate the current industry downturn, while positioning itself to capitalize on the long-term growth opportunities in memory and storage, particularly driven by the rise of AI and data-centric computing.

Earnings Call Analysis 2023 Q2

Micron’s Decisive Actions to Align Supply with Demand

Micron is taking decisive actions to align supply with demand, including:

  • Reducing CapEx by 40% year-over-year in fiscal 2023 and further reductions planned for fiscal 2024
  • Reducing wafer starts for DRAM and NAND by approximately 20%
  • Slowing the cadence of technology node transitions to align with lower long-term demand growth
  • Implementing significant cost-cutting measures, including a 10% headcount reduction

Industry Imbalance and Recovery Outlook

The industry is experiencing the most severe imbalance between supply and demand in DRAM and NAND in the last 13 years. Micron believes negative year-over-year DRAM bit supply growth and flattish NAND bit supply growth in 2023 would accelerate the recovery in profitability.

Micron’s Technology Leadership and Roadmap

Micron remains confident in its technology leadership, with industry-leading DRAM and NAND nodes. The company is managing its technology roadmap and manufacturing plans responsibly to maximize ROI and align supply with demand.

Near-term Challenges and Long-term Outlook

While the near-term environment is challenging, Micron expects revenue and free cash flow to improve in the second half of fiscal 2023 as customer inventory levels normalize and demand recovers, particularly in the data center, mobile, and automotive markets.

Disciplined Approach to Profitability and Growth

Micron is focused on operating and investing in a disciplined manner to achieve profitable growth and free cash flow generation consistent with its long-term model, despite the current downturn.

The key implication is that Micron is taking proactive steps to navigate the industry downturn, while maintaining its technology leadership and positioning itself for long-term growth. Investors should closely monitor the company’s execution on its supply and cost reduction initiatives, as well as the pace of demand recovery in its end markets.

Earnings Call Analysis 2023 Q1

Micron’s Supply Discipline and Long-Term Opportunities

Micron is taking decisive actions to reduce supply growth and align it with weakening demand, including significant cuts to fiscal 2023 CapEx (down over 30% YoY) and reducing utilization in select DRAM and NAND areas. This will have a near-term adverse impact on costs but is necessary to bring supply and inventory closer to industry demand.

Micron expects industry DRAM supply growth to be in the mid-single digit range in 2023, the lowest ever, while NAND supply growth is also expected to fall below demand growth. This supply discipline should help restore a healthier industry supply-demand balance.

Micron is confident in the long-term demand drivers for memory and storage, including AI, cloud computing, EVs and 5G. It is making strategic investments, including $40 billion in leading-edge U.S. manufacturing, to capitalize on these trends.

Micron is transitioning its product portfolio towards higher-value solutions, with the mix of data center, automotive, industrial and networking markets growing from 45% in fiscal 2021 to 52% in fiscal 2022, on track to 62% by fiscal 2025.

Near-Term Challenges and Long-Term Positioning

The near-term environment is very challenging, with Micron expecting a recovery in demand and revenues in the second half of fiscal 2023 as customer inventories improve. However, profitability is expected to remain under pressure in 2023 due to the elevated supplier inventories.

Micron’s strong balance sheet, technology leadership, and focus on supply discipline and portfolio optimization position it well to navigate the downturn and capitalize on long-term growth opportunities.

Earnings Call Analysis 2022 Q4

Secular demand trends remain strong, driven by growth in data centers, AI, cloud computing, EVs, and 5G. Micron is well-positioned to capitalize on these long-term opportunities.

Technology Leadership Provides Competitive Advantage

Micron is leading the industry in DRAM and NAND technology, with its 1-alpha DRAM and 176-layer NAND nodes several quarters ahead of competitors. This technology leadership provides a competitive cost structure.

Managing Near-Term Headwinds

Near-term headwinds are impacting the industry, with weaker demand in consumer markets like PCs and smartphones. Micron is taking actions to reduce supply growth and protect profitability, including managing capacity utilization and using inventory as a buffer.

Long-Term Financial Outlook

While the near-term outlook is uncertain, Micron remains confident in its long-term financial model, targeting high single-digit revenue growth CAGR, ~30% operating margins, and over 10% free cash flow margins.

Shareholder Returns

Micron is committed to returning free cash flow to shareholders through dividends and opportunistic share repurchases, especially at the current attractive stock price levels.

Importance of Supply-Demand Dynamics

Analysts probed for more details on inventory levels and the impact of China’s COVID-19 lockdowns, highlighting the importance of understanding the supply-demand dynamics across Micron’s end markets.

Overall, the key message is that Micron is executing well on the factors within its control, while navigating near-term market headwinds, to position the company for long-term success and shareholder value creation.

Earnings Call Analysis 2022 Q3

Micron Technology Earnings Call Insights for Long-Term Investors

Micron is executing exceptionally well on its technology roadmap, with industry-leading 1-alpha DRAM and 176-layer NAND nodes driving strong cost reductions and revenue ramps. This technology leadership positions Micron well to capitalize on broad demand trends.

Demand remains robust across end markets, with data center, automotive, and industrial segments expected to be the fastest-growing for memory and storage. Micron is well-positioned in these high-growth areas.

Micron is transforming its product portfolio, gaining share in high-value solutions like data center SSDs, mobile managed NAND, and DDR5. This mix shift is driving margin improvements.

While the industry faces some supply chain and inflationary pressures, Micron expects to outpace the industry in cost reductions this year due to its technology leadership. However, these industry-wide cost headwinds may persist for several quarters.

Micron remains committed to returning over 50% of its free cash flow to shareholders through dividends and opportunistic share buybacks, demonstrating confidence in its long-term outlook.

Overall, Micron appears to be executing well, leveraging its technology leadership to drive favorable mix and cost improvements, while navigating industry-wide challenges. The long-term investor should focus on Micron’s ability to capitalize on secular demand trends in high-growth markets.

Earnings Call Analysis 2022 Q2

Broad demand for memory and storage across data centers, 5G mobile, automotive, and industrial/IoT applications. Secular growth drivers include AI, 5G, EV adoption, and the rise of the “Metaverse”. Expect strong demand in the second half of fiscal 2022 as non-memory component shortages ease.

Supply Dynamics

Industry CapEx has been disciplined, leading to a healthy supply-demand balance in calendar 2022. Micron expects DRAM bit supply growth in the mid-to-high teens and NAND bit supply growth around 30% in 2022. Equipment shortages and long lead times are constraining supply, but Micron is working closely with suppliers.

Technology and Product Leadership

Micron is several quarters ahead of the industry in ramping its 1-alpha DRAM and 176-layer NAND products. Planning volume DRAM production on EUV in 2024 with the 1-gamma node to maintain technology leadership. Launching new high-value products like the 7400 data center SSD and industry-leading DDR5 solutions.

Customer Relationships and Agreements

Over 75% of Micron’s revenue now comes from long-term volume-based agreements, up from 10% a few years ago. These agreements provide greater visibility and collaboration with customers on supply planning.

Financial Performance

Expect to deliver record revenue and robust profitability in fiscal 2022, with stronger bit shipment growth in the second half. Investing $11-$12 billion in CapEx in fiscal 2022 to support future growth, with a focus on EUV for DRAM and 3D scaling for NAND. Committed to returning over 50% of free cash flow to shareholders through dividends and share buybacks.

Overall, Micron appears well-positioned to capitalize on the strong secular demand trends in memory and storage, leveraging its technology leadership, customer relationships, and disciplined financial management. The company’s focus on innovation and supply chain resilience should serve it well in the long run.

Earnings Call Analysis 2022 Q1

Demand for Memory and Storage

Demand for memory and storage remains strong across diversified end markets, driven by secular trends like AI, 5G, and cloud computing. Micron is well-positioned to capitalize on these growth opportunities.

Technology Leadership

Micron has established technology leadership in both DRAM and NAND, with its 1-alpha DRAM and 176-layer NAND being the industry’s most advanced nodes in high-volume production. This positions Micron to drive strong growth and profitability.

Near-Term Constraints

While Micron is seeing some near-term constraints from non-memory component shortages impacting PC demand, the company expects this to be short-lived. The underlying demand trends across data center, mobile, automotive, and industrial markets remain robust.

Supply Chain Resilience

Micron is focused on building supply chain resilience and providing business continuity to customers, which has been a competitive advantage during the pandemic. This has led to some near-term cost headwinds but positions the company well long-term.

Fiscal 2022 Outlook

Micron is planning for record revenue and solid profitability in fiscal 2022, driven by prudent industry CapEx, lean supplier inventories, and healthy supply-demand dynamics for both DRAM and NAND.

Dividend Initiation

The company’s initiation of a quarterly dividend reflects confidence in the sustainability of its cash flow generation and commitment to returning capital to shareholders.

Overall, Micron appears well-positioned to capitalize on the secular growth in memory and storage demand, leveraging its technology leadership and diversified customer base. The near-term supply chain challenges seem manageable, and the long-term outlook remains favorable for a long-term investor.

Earnings Call Analysis 2021 Q4

Demand for memory and storage remains strong across end markets like data center, PCs, mobile, automotive, and industrial. Micron expects DRAM and NAND supply to remain tight into 2022.

Process Node Transition

Micron is making progress on advanced process nodes – 1-alpha DRAM and 176-layer NAND are ramping and expected to be majority of production by end of 2021. However, this transition will create some cost headwinds in fiscal 2022.

EUV Technology Adoption

Micron is investing in EUV technology for its DRAM roadmap starting in 2024, which will increase its capital intensity in the near-term but improve competitiveness long-term.

The company is seeing an emerging trend of customers shifting from just-in-time to just-in-case inventory management, which could sustain elevated demand even as supply chain constraints ease.

Product Mix Optimization

Micron is focused on improving its product mix towards higher-value offerings like DDR5, high-density server modules, and SSDs, which may impact near-term costs but enhance profitability.

Lehi Fab Sale

The sale of the Lehi fab is expected to improve Micron’s ongoing profitability by eliminating underload costs, despite a one-time impairment charge.

Capital Allocation

Micron remains committed to returning at least 50% of free cash flow to shareholders through share buybacks, even as it increases capital intensity for EUV adoption.

Overall, the key message is that Micron is well-positioned to capitalize on strong demand trends, though near-term cost headwinds from product mix and supply chain actions may impact margins. The long-term outlook remains positive given Micron’s technology leadership and focus on high-value solutions.

Earnings Call Analysis 2021 Q3

Demand is strong across multiple end markets

Demand is strong across multiple end markets – data center, enterprise, cloud, mobile, automotive, and industrial. This broad-based demand is driving a severe shortage in the DRAM market and stabilization in the NAND market.

Micron’s technology leadership

Micron is well-positioned to capitalize on this strong demand environment due to its technology leadership. It has introduced industry-leading 1-alpha DRAM and 176-layer NAND nodes, which will be the “workhorse” technologies fueling its bit growth and cost reductions.

Disciplined approach to capital expenditures

Micron is taking a disciplined approach to capital expenditures, targeting long-term supply growth in line with industry demand growth. While there may be quarterly variability, this disciplined CapEx strategy is aimed at maintaining a stable market share.

Aligning supply with customer demand

The company is focused on aligning its supply with customer demand through close collaboration. This includes extending lead times and reducing flexibility for customers to switch between product types given the tight supply environment.

Continued strong demand drivers in 2022

Micron sees continued strong demand drivers in 2022 as the global economy recovers from the pandemic. It believes its technology leadership and execution will allow it to deliver stellar financial results over the next several quarters.

In summary, Micron appears well-positioned to capitalize on the strong demand environment, leveraging its technology leadership and disciplined operational execution. The key will be managing the supply-demand dynamics and aligning its investments to maintain its competitive position.

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The information provided on this blog is for informational purposes only and should not be considered as financial advice. You should consult with a qualified financial professional before making any investment decisions. Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal.