We have accrued a liability and charged operations for the estimated costs of adjudication or settlement of various asserted and unasserted claims existing as of the balance sheet date, including those described below. We are currently a party to other legal actions arising from the normal course of business, none of which is expected to have a material adverse effect on our business, results of operations, or financial condition.
As is typical in the semiconductor and other high-tech industries, from time to time, others have asserted, and may in the future assert, that our products or manufacturing processes infringe upon their intellectual property rights.
On December 15, 2014, Innovative Memory Solutions, Inc. ("IMS"(“IMS”) filed a patent infringement action against Micron in the U.S. District Court for the District of Delaware. The complaint alleges that a variety of our NAND products infringe eight8 U.S. patents and seeks damages, attorneys'attorneys’ fees, and costs. On July 23, 2018, IMS served a patent infringement complaint on Micron Semiconductor (Deutschland) GmbH and Micron Europe Limited in the Regional Court, Mannheim, Germany alleging that products including our SSDs infringe a European patent. The complaint seeks unspecified damages and an order forbidding Micron Semiconductor (Deutschland) GmbH and Micron Europe Limited from offering to sell, using, and importing the accused products. On June 7, 2019, the Regional Court found no infringement and dismissed the case. On August 31, 2018, Micron was served with a complaint filed by IMS in Shenzhen Intermediate People'sPeople’s Court in Guangdong Province, China. On November 12, 2019 , IMS filed an amended complaint in the same court. The amended complaint alleges that certain of our NAND flash products infringe a Chinese patent. The complaint seeks an order requiring Micron to stop manufacturing, using, selling, and offering for sale the accused products in China, and to pay damages and costs of 121 million Chinese yuan plus expenses.yuan.
On March 19, 2018, Micron Semiconductor (Xi’an) Co., Ltd. ("MXA"(“MXA”) was served with a patent infringement complaint filed by Fujian Jinhua Integrated Circuit Co., Ltd. ("Jinhua"(“Jinhua”) in the Fuzhou Intermediate People’s Court in Fujian Province, China (the "Fuzhou Court"“Fuzhou Court”). On April 3, 2018, Micron Semiconductor (Shanghai) Co. Ltd. ("MSS"(“MSS”) was served with the same complaint. The complaint alleges that MXA and MSS infringe a Chinese patent by manufacturing and selling certain Crucial
DDR4 DRAM modules. The complaint seeks an order requiring MXA and MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China,China; to stop manufacturing, using, selling, and offering for sale the accused products in China,China; and to pay damages of 98 million Chinese yuan plus court fees incurred.
On March 21, 2018, MXA was served with a patent infringement complaint filed by United Microelectronics Corporation ("UMC"(“UMC”) in the Fuzhou Court. On April 3, 2018, MSS was served with the same complaint. The complaint alleges that MXA and MSS infringe a Chinese patent by manufacturing and selling certain Crucial DDR4 DRAM modules. The complaint seeks an order requiring MXA and MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China,China; to stop manufacturing, using, selling, and offering for sale the accused products in China,China; and to pay damages of 90 million Chinese yuan plus court fees incurred.
On April 3, 2018, MSS was served with another patent infringement complaint filed by Jinhua and two additional complaints filed by UMC in the Fuzhou Court. The three additional complaints allege that MSS infringes three Chinese patents by manufacturing and selling certain Crucial MX300 SSDs and certain GDDR5 memory chips. The two complaints filed by UMC each seek an order requiring MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China, to stop manufacturing, using, selling, and offering for sale the accused products in China, and to pay damages for each complaint of 90 million Chinese yuan plus court fees incurred. The complaint filed by Jinhua seeks an order requiring MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China,China; to stop manufacturing, using, selling, and offering for sale the accused products in China,China; and to pay damages of 98 million Chinese yuan plus court fees incurred. On October 9, 2018, UMC withdrew its complaint that alleged MSS infringed a Chinese patent by manufacturing and selling certain GDDR5 memory chips.
On July 5, 2018, MXA and MSS were notified that the Fuzhou Court granted a preliminary injunction against those entities that enjoins them from manufacturing, selling, or importing certain Crucial and Ballistic-branded DRAM modules and solid-state drives in China. The affected products make up slightly more than 1% of our annualized revenues. We are complying with the ruling and have requested the Fuzhou Court to reconsider or stay its decision.
Among other things, the above lawsuits pertain to substantially all of our DRAM, NAND, and other memory and storage products we manufacture, which account for a significant portion of our revenue.
On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda'sQimonda’s insolvency proceedings, filed suit against Micron and Micron Semiconductor B.V., our Netherlands subsidiary ("(“Micron B.V."”), in the District Court of Munich, Civil Chamber. The complaint seeks to void, under Section 133 of the German Insolvency Act, a share purchase agreement between Micron B.V. and Qimonda signed in fall 2008, pursuant to which Micron B.V. purchased substantially all of Qimonda'sQimonda’s shares of Inotera (the "Inotera Shares"“Inotera Shares”), representing approximately 18% of Inotera'sInotera’s outstanding shares as of November 29, 2018,at that time, and seeks an order requiring us to re-transfer those shares to the Qimonda estate. The complaint also seeks, among other things, to recover damages for the alleged value of the joint venture relationship with Inotera and to terminate, under Sections 103 or 133 of the German Insolvency Code, a patent cross-license between us and Qimonda entered into at the same time as the share purchase agreement.
Following a series of hearings with pleadings, arguments, and witnesses on behalf of the Qimonda estate, on March 13, 2014, the court issued judgments: (1) ordering Micron B.V. to pay approximately $1 million in respect of certain Inotera Shares sold in connection with the original share purchase; (2) ordering Micron B.V. to disclose certain information with respect to any Inotera Shares sold by it to third parties; (3) ordering Micron B.V. to disclose the benefits derived by it from ownership of the Inotera Shares, including in particular, any profits distributed on the Inotera Shares and all other benefits; (4) denying Qimonda'sQimonda’s claims against Micron for any damages relating to the joint venture relationship with Inotera; and (5) determining that Qimonda'sQimonda’s obligations under the patent cross-license agreement are canceled. In addition, the court issued interlocutory judgments ordering, among other things: (1) that Micron B.V. transfer to the Qimonda estate the Inotera Shares still owned by Micron B.V. and pay to the Qimonda estate compensation in an amount to be specified for any Inotera Shares sold to third parties; and (2) that Micron B.V. pay the Qimonda estate as compensation an amount to be specified for benefits derived by
Micron B.V. from ownership of the Inotera Shares. The interlocutory judgments have no immediate, enforceable effect on us, and, accordingly, we expect to be able to continue to operate with full control of the Inotera Shares subject to further developments in the case. We haveOn April 17, 2014, Micron and Micron B.V. filed a notice of appeal with the German Appeals Court challenging the District Court’s decision. After opening briefs, the Appeals Court held a hearing on the matter on July 9, 2015, and thereafter appointed two independent experts to perform an evaluation of Dr. Jaffé’s claims that the parties have submitted briefsamount Micron paid for Qimonda was less than fair market value. On January 25, 2018, the court-appointed experts issued their report concluding that the amount paid by Micron was within an acceptable fair-value range. The Appeals Court held a subsequent hearing on April 30, 2019, and on May 28, 2019, the Appeals Court remanded the case to the appeals court.experts for supplemental expert opinion.
On December 5, 2017, Micron filed a complaint against UMC and Jinhua in the U.S. District Court for the Northern District of California. The complaint alleges that UMC and Jinhua violated the Defend Trade Secrets Act, the civil provisions of the Racketeer Influenced and Corrupt Organizations Act, and California'sCalifornia’s Uniform Trade Secrets Act by misappropriating Micron'sMicron’s trade secrets and other misconduct. Micron'sMicron’s complaint seeks damages, restitution, disgorgement of profits, injunctive relief, and other appropriate relief.
In the normal course of business, we are a party to a variety of agreements pursuant to which we may be obligated to indemnify the other party. It is not possible to predict the maximum potential amount of future payments under these types of agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement. Historically, our payments under these types of agreements have not had a material adverse effect on our business, results of operations, or financial condition.
Derivative Instruments
| | | | | | | | | | | | | |
| Gross Notional Amount | | Fair Value of | | | | |
| | Current Assets (1) | Current Liabilities (2) | | |
| | | | | |
| As of November 28, 2019 | | | | | |
| Derivative instruments with hedge accounting designation | | | | | |
| Cash flow currency hedges | $ | 553 | | $ | 4 | | $ | (2) | | | |
| | | | | |
| Derivative instruments without hedge accounting designation | | | | | |
| Non-designated currency hedges | 1,864 | | 2 | | (3) | | | |
Convertible notes settlement obligation (3) | | — | | (2) | | | |
| | 2 | | (5) | | | |
| | | | | |
| | $ | 6 | | $ | (7) | | | |
| | | | | |
| As of August 29, 2019 | | | | | |
| Derivative instruments with hedge accounting designation | | | | | |
| Cash flow currency hedges | $ | 146 | | $ | 1 | | $ | — | | | |
| | | | | |
| Derivative instruments without hedge accounting designation | | | | | |
| Non-designated currency hedges | 1,871 | | 1 | | (9) | | | |
Convertible notes settlement obligation (3) | | — | | (179) | | | |
| | 1 | | (188) | | | |
| | | | | |
| | $ | 2 | | $ | (188) | | | |
(1)Included in receivables – other. |
| | | | | | | | | | | | |
| | | Gross Notional Amount(1) | | Fair Value of |
Current Assets(2) | | Current Liabilities(3) |
| As of November 29, 2018 | | | | | | |
| Derivative instruments with hedge accounting designation | | | | | | |
| Cash flow currency hedges | | $ | 417 |
| | $ | — |
| | $ | (10 | ) |
| | | | | | | |
| Derivative instruments without hedge accounting designation | | | | | | |
| Non-designated currency hedges | | 2,555 |
| | 12 |
| | (17 | ) |
Convertible notes settlement obligation(4) | | | | — |
| | (37 | ) |
| | | | | 12 |
| | (54 | ) |
| | | | | | | |
| | | | | $ | 12 |
| | $ | (64 | ) |
| | | | | | | |
| As of August 30, 2018 | | | | | | |
| Derivative instruments with hedge accounting designation | | | | | | |
| Cash flow currency hedges | | $ | 538 |
| | $ | — |
| | $ | (13 | ) |
| | | | | | | |
| Derivative instruments without hedge accounting designation | | | | | | |
| Non-designated currency hedges | | 1,919 |
| | 14 |
| | (10 | ) |
Convertible notes settlement obligation(4) | | | | — |
| | (167 | ) |
| | |
|
| | 14 |
| | (177 | ) |
| | | | | | | |
| | | | | $ | 14 |
| | $ | (190 | ) |
| |
(1)
| Notional amounts of currency hedge contracts in U.S. dollars. |
| |
(2)
| Included in receivables – other. |
| |
(3)
| Included in accounts payable and accrued expenses – other for forward contracts and in current debt for convertible notes settlement obligations. |
| |
(4)
| Notional amounts of convertible notes settlement obligations as of November 29, 2018 and August 30, 2018 were 1 million and 3 million shares of our common stock, respectively. |
(3)Notional amounts of convertible notes settlement obligations were not significant as of November 28, 2019 and were 4 million shares of our common stock as of August 29, 2019.
Derivative Instruments with Hedge Accounting Designation
We utilize currency forward contracts that generally mature within 1213 months to hedge our exposure to changes in currency exchange rates. Currency forward contracts are measured at fair value based on market-based observable inputs including currency exchange spot and forward rates, interest rates, and credit-risk spreads (Level 2). We do not use derivative instruments for speculative purposes.
Cash Flow Hedges: We utilize cash flow hedges for our exposure from changes in currency exchange rates for certain capital expenditures. For derivative instruments designated as cash flow hedges, the effective portionexpenditures and manufacturing costs. We recognized gains of the realized$3 million and unrealized gains or losses on derivatives is included as a component of accumulated other comprehensive income. Amounts in accumulated other comprehensive income are reclassified into earnings in the same line items and in the same periods in which the underlying transactions affect earnings. For the periods presented prior to the second quarter of 2018, the ineffective and excluded portion of the realized and unrealized gain or loss was included in other non-operating income (expense). As a result of adopting ASU 2017-12, beginning in the second quarter of 2018, the excluded portion of such amounts is included in the same line item in which the underlying transactions affect earnings and the ineffective portion of the realized and unrealized gains or losses on derivatives is included as a component of accumulated other comprehensive income.
We recognized losses of $13 million and $4 million for the first quarters of 20192020 and 2018,2019, respectively, in accumulated other comprehensive income from the effective portion of cash flow hedges. Neither the amount excluded from hedge effectiveness nor the reclassifications from accumulated other comprehensive income to earnings were material in the first
quarters of 20192020 or 2018.2019. The amounts from cash flow hedges included in accumulated other comprehensive income that are expected to be reclassified into earnings in the next 12 months were also not material.significant.
Derivative Instruments without Hedge Accounting Designation
Currency Derivatives:We generally utilize a rolling hedge strategy with currency forward contracts that mature within three months to hedge our exposures of monetary assets and liabilities from changes in currency exchange rates. At the end of each reporting period, monetary assets and liabilities denominated in currencies other than the U.S. dollar are remeasured into U.S. dollars and the associated outstanding forward contracts are marked to market. Currency forward contracts are valued at fair values based on the middle of bid and ask prices of dealers or exchange quotations (Level 2). Realized and unrealized gains and losses on derivative instruments without hedge accounting designation as well as the changes in the underlying monetary assets and liabilities from changes in currency exchange rates are included in other non-operating income (expense). For derivative instruments without hedge accounting designation, we recognized gains of $5 million and losses of $11 million in the first quarterquarters of 2020 and 2019, and amounts recognized were not material in the first quarter 2018.respectively.
Convertible Notes Settlement Obligations:For settlement obligations associated with our convertible notes subject to mark-to-market accounting treatment, the fair values of the underlying derivative settlement obligations were initially determined using the Black-Scholes option valuation model (Level 2), which requires inputs of stock price, expected stock-price volatility, estimated option life, risk-free interest rate, and dividend rate. The subsequent measurement amounts were based on the volume-weighted-average trading price of our common stock (Level 2). (See "Debt"“Debt” note.) We recognized losses of $12 million and gains of $16 million infor the first quarterquarters of 2020 and 2019, and amounts recognized were not material in the first quarter of 2018respectively, in other non-operating income (expense), net for the changes in fair value of the derivative settlement obligations.
Equity Plans
As of November 29, 2018, 11528, 2019, 94 million shares of our common stock were available for future awards under our equity plans.
Stock Options
Stock options granted and assumptions used in the Black-Scholes option valuation model were as follows:
|
| | | | | | | | |
| Quarter ended | | November 29,
2018 | | November 30,
2017 |
| Stock options granted | | — |
| | 1 |
|
| Weighted-average grant-date fair value per share | | $ | 19.50 |
| | $ | 17.67 |
|
| Average expected life in years | | 5.4 |
| | 5.6 |
|
| Weighted-average expected volatility | | 44 | % | | 44 | % |
| Weighted-average risk-free interest rate | | 2.9 | % | | 2.1 | % |
| Expected dividend yield | | 0.0 | % | | 0.0 | % |
Restricted Stock and Restricted Stock Units ("(“Restricted Stock Awards"Awards”)
Restricted Stock Awards activity is summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | November 28,
2019 | | | | November 29,
2018 | | | |
| | | | | | | | |
| Restricted stock award shares granted | 8 | | | | 6 | | | |
| Weighted-average grant-date fair value per share | $ | 46.16 | | | | | $ | 39.02 | | | | |
|
| | | | | | | | |
| Quarter ended | | November 29,
2018 | | November 30,
2017 |
| Restricted stock award shares granted | | 6 |
| | 2 |
|
| Weighted-average grant-date fair value per share | | $ | 39.02 |
| | $ | 39.01 |
|
Stock-based Compensation Expense
| | | | | | | | |
| Three months ended | November 28,
2019 | November 29,
2018 |
| | |
| Stock-based compensation expense by caption | | |
| Cost of goods sold | $ | 31 | | $ | 26 | |
| Selling, general, and administrative | 22 | | 19 | |
| Research and development | 19 | | 16 | |
| $ | 72 | | $ | 61 | |
| | |
| Stock-based compensation expense by type of award | | |
| Restricted stock awards | $ | 57 | | $ | 41 | |
| ESPP | 8 | | 8 | |
| Stock options | 7 | | 12 | |
| $ | 72 | | $ | 61 | |
21
|
| | | | | | | | |
| Quarter ended | | November 29,
2018 | | November 30,
2017 |
| Stock-based compensation expense by caption | | | | |
| Cost of goods sold | | $ | 26 |
| | $ | 20 |
|
| Selling, general, and administrative | | 19 |
| | 18 |
|
| Research and development | | 16 |
| | 13 |
|
| | | $ | 61 |
| | $ | 51 |
|
| | | | | |
| Stock-based compensation expense by type of award | | | | |
| Restricted stock awards | | $ | 41 |
| | $ | 34 |
|
| Stock options | | 12 |
| | 17 |
|
| Employee Stock Purchase Plan | | 8 |
| | — |
|
| | | $ | 61 |
| | $ | 51 |
|
IncomeThe income tax benefits related to share-based payment arrangementscompensation were $23$26 million and $57$23 million for the first quarters of 2020 and 2019, and 2018, respectively. Income tax benefits related to share-based compensation for the first quarter of 2018 were offset by an increase in the U.S. valuation allowance. As of November 29, 2018, $49828, 2019, $719 million of total unrecognized compensation costs for unvested awards, before the effect of any future forfeitures, was expected to be recognized through the first quarter of 2023,2024, resulting in a weighted-average period of 1.41.5 years.
Revenue and Contract Liabilities
Our revenues are primarily recognized at a pointRevenue by technology is presented in time, when control of the promised goods is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods. Contracts with our customers are generally short-term in duration at fixed, negotiated prices with payment generally due shortly after delivery. We estimate a liability for returns using the expected value method based on historical rates of return. In addition, we generally offer price protection to our distributors, which is a form of variable consideration that decreases the transaction price. We estimate the amount of consideration we expect to be entitled to from sales to distributors, using the expected value method, based on historical price adjustments and current pricing trends. Differences between the estimated and actual amounts are recognized as adjustments to revenue.table below. (See "Segment and Other Information" note for disclosure of disaggregated revenue.revenue by market segments.)
| | | | | | | | |
| Three months ended | November 28,
2019 | November 29,
2018 |
| | |
| DRAM | $ | 3,469 | | $ | 5,893 | |
| NAND | 1,422 | | 1,660 | |
| Other (primarily 3D XPoint memory and NOR) | 253 | | 360 | |
| $ | 5,144 | | $ | 7,913 | |
Contract LiabilitiesRevenue for MCPs and SSDs, which contain both DRAM and NAND, are disaggregated into DRAM and NAND in the table above based on the relative values of each component. The three months ended November 29, 2018 have been conformed to current period presentation.
|
| | | | | | | | |
| As of | | November 29,
2018 | | Opening Balance as of August 31, 2018 |
| Contract liabilities from customer advances | | $ | 183 |
| | $ | 235 |
|
| Other contract liabilities | | 115 |
| | 113 |
|
| | | $ | 298 |
| | $ | 348 |
|
Our contract liabilities from customer advances are for advance payments received from customers to secure product in future periods and for other arrangements where we haveperiods. Other contract liabilities consist of amounts received amounts in advance of satisfying performance obligations andobligations. These balances are reported in the accompanying consolidated balance sheets within other current liabilities and other noncurrent liabilities. Revenue and interest expense associated with contract liabilities for the time value of advance payments was not materialsignificant in any period presented. As of November 29, 2018,28, 2019, our future performance obligations beyond one year were not material.
Changes in contractsignificant. Contract liabilities were as follows:
| | | | | | | | |
| As of | November 28,
2019 | August 29,
2019 |
| | |
| Contract liabilities from customer advances | $ | 39 | | $ | 61 | |
| Other contract liabilities | 49 | | 69 | |
| $ | 88 | | $ | 130 | |
|
| | | |
| Contract liabilities balance as of August 31, 2018 | $ | 348 |
|
| Revenue recognized from beginning balance | (117 | ) |
| Additions and other activity | 67 |
|
| Contract liabilities balance as of November 29, 2018 | $ | 298 |
|
Contract liabilities increase as a result of receiving new advance payments from customers and decrease as revenue is recognized from customers purchasing product under advance payment arrangements. Additions and other activity included new customer advances, payments received from license and other arrangements in advance of performance, and interest accrued for financing components on advance payments. Revenue recognized induring the first quarter of 2020 from the beginning balance as of August 29, 2019 included $112$24 million from meeting performance obligations of other contract liabilities and shipments against customer advances. Contract liabilities from customer advances and $5also decreased $22 million in revenue recognizeddue to the return of unutilized customer advances upon meeting other performance obligations.expiration of the contract.
Consideration Payable to Customers
As of November 29, 2018,28, 2019, other current liabilities included $332$363 million for estimates of consideration payable to customers, including estimates for pricing adjustments and returns.
Research and Development
We share the cost of certain product and process development activities with development partners. Our R&D expenses were reduced by $30 million and $56 million, for the first quarters of 2019 and 2018, respectively, pursuant to reimbursements under these arrangements.
We have agreements to jointly develop NAND and 3D XPoint technologies with Intel. We continue to jointly develop NAND technologies with Intel through the third generation of 3D NAND, which is expected to be completed in the second half of 2019. In the second quarter of 2018, we and Intel agreed to independently develop subsequent generations of 3D NAND in order to better optimize the technology and products for our respective business needs. We continue to jointly develop 3D XPoint technologies with Intel through the second generation of 3D XPoint technology, which is expected to be completed in the second half of 2019. To better optimize 3D XPoint technology for our product roadmap and maximize the benefits for our customers and shareholders, in the fourth quarter of 2018, we announced that we will no longer jointly develop with Intel subsequent generations of 3D XPoint technology.
Other Operating (Income) Expense, Net
| | | | | | | | |
| Three months ended | November 28,
2019 | November 29,
2018 |
| | |
| Restructure and asset impairments | $ | (4) | | $ | 33 | |
| Other | 1 | | 3 | |
| $ | (3) | | $ | 36 | |
|
| | | | | | | | |
| Quarter ended | | November 29,
2018 | | November 30,
2017 |
| Restructure and asset impairments | | $ | 33 |
| | $ | 6 |
|
| Other | | 3 |
| | 5 |
|
| | | $ | 36 |
| | $ | 11 |
|
Restructure and asset impairments in the first quarter of 2019 included cost of $16 million primarily as a result of our continued emphasis to centralize certain key functions and impairment losses of $16 million to write-off the carrying value of certain property, plant, and equipment.
Other Non-Operating Income (Expense), Net
| | | | | | | | |
| Three months ended | November 28,
2019 | November 29,
2018 |
| | |
| Gain on debt prepayments, repurchases, and conversions | $ | 42 | | $ | 14 | |
| Loss from changes in currency exchange rates | (2) | | (5) | |
| Other | 6 | | — | |
| $ | 46 | | $ | 9 | |
Income Taxes
|
| | | | | | | | |
| Quarter ended | | November 29, 2018 | | November 30, 2017 |
| Gain (loss) on debt prepayments, repurchases, and conversions | | $ | 14 |
| | $ | (195 | ) |
| Loss from changes in currency exchange rates | | (5 | ) | | (9 | ) |
| | | $ | 9 |
| | $ | (204 | ) |
Our income tax (provision) benefit consisted of the following:
| | | | | | | | |
| Three months ended | November 28,
2019 | November 29,
2018 |
| | |
| Income tax provision, excluding items below | $ | (31) | | $ | (378) | |
| Utilization of and other changes in net deferred tax assets of MMJ, MMT, and MTTW | (24) | | (52) | |
| Repatriation tax, net of adjustments related to uncertain tax positions | — | | (47) | |
| $ | (55) | | $ | (477) | |
ForThe decrease in our income tax provision in the first quarter of 2018, loss on debt prepayments, repurchases,2020 was due primarily to reductions in profit before tax and conversions was primarily due to losses recognized in connection with the repurchase of our 2023 Secured Notes and our 2023 Notes.foreign minimum tax.
Income Taxes
On December 22, 2017, the United States enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act") which imposed a one-time transition tax in 2018 (the "Repatriation Tax") and, beginning in 2019, created a new minimum tax on certain foreign earnings (the "Foreign Minimum Tax"). SEC Staff Accounting Bulletin No. 118 ("SAB 118") allows the use of provisional amounts (reasonable estimates) if the analyses of the impacts of the Tax Act have not been completed when financial statements are issued. During the first quarter of 2019, we finalized the computations of the income tax effects of the Tax Act. As such, in accordance with SAB 118, our accounting for the effects of the Tax Act is complete.
Our income tax provision consisted of the following:
|
| | | | | | | | |
| Quarter ended | | November 29,
2018 | | November 30,
2017 |
| Income tax provision, excluding items below | | $ | (378 | ) | | $ | (88 | ) |
| Utilization of and other changes in net deferred tax assets of MMJ, MMT, and MTTW | | (52 | ) | | (26 | ) |
| Repatriation Tax, net of adjustments related to uncertain tax positions | | (47 | ) | | — |
|
| | | $ | (477 | ) | | $ | (114 | ) |
As of November 29, 2018, we had28, 2019, gross unrecognized income tax benefits of $268were $385 million, substantially all of which would affect our effective tax rate in the future, if recognized. The amount accrued for interest and penalties related to uncertain tax positions was not materialsignificant for any period presented.
We operate in a number of tax jurisdictions outside the United States, including Singapore, where we have tax incentive arrangements, which expire in whole or in part at various dates through 2031,2034, that are conditional, in part, upon meeting certain business operations and employment thresholds. The effect of tax incentive arrangements were not significant to our tax provision for the first quarter of 2020. These arrangements reduced our tax provision for the first quarter of 2019 by $427 million (benefiting our diluted earnings per share by $0.36) for the first quarter of 2019 and by $391 million ($0.32 per diluted share) for the first quarter of 2018..
Earnings Per Share
| | | | | | | | |
| Three months ended | November 28,
2019 | November 29,
2018 |
| | |
| Net income attributable to Micron – Basic | $ | 491 | | $ | 3,293 | |
| Assumed conversion of debt | (4) | | — | |
| Net income attributable to Micron – Diluted | $ | 487 | | $ | 3,293 | |
| | |
| Weighted-average common shares outstanding – Basic | 1,107 | | 1,133 | |
| Dilutive effect of equity plans and convertible notes | 22 | | 41 | |
| Weighted-average common shares outstanding – Diluted | 1,129 | | 1,174 | |
| | |
| Earnings per share | | |
| Basic | $ | 0.44 | | $ | 2.91 | |
| Diluted | 0.43 | | 2.81 | |
23
|
| | | | | | | | |
| Quarter ended | | November 29,
2018 | | November 30,
2017 |
| Net income attributable to Micron – Basic and Diluted | | $ | 3,293 |
| | $ | 2,678 |
|
| | | | | |
| Weighted-average common shares outstanding – Basic | | 1,133 |
| | 1,134 |
|
| Dilutive effect of equity plans and convertible notes | | 41 |
| | 91 |
|
| Weighted-average common shares outstanding – Diluted | | 1,174 |
| | 1,225 |
|
| | | | | |
| Earnings per share | | | | |
| Basic | | $ | 2.91 |
| | $ | 2.36 |
|
| Diluted | | 2.81 |
| | 2.19 |
|
Antidilutive potential common stock shares that could dilute basic earnings per share in the future were 6 million and 2 million for the first quarters of 20192020 and 2018, respectively.2019.
Segment and Other Information
Segment information reported herein is consistent with how it is reviewed and evaluated by our chief operating decision maker. We have the following four business units, which are our reportable segments:
Compute and Networking Business Unit ("CNBU"(“CNBU”):Includes memory products sold into client, cloud server, enterprise, client, graphics, and networking markets.markets and sales of certain 3D XPoint products.
Mobile Business Unit ("MBU"(“MBU”):Includes memory products sold into smartphone and other mobile-device markets.
Storage Business Unit ("SBU"(“SBU”):Includes SSDs and other storage products, including component-level solutions sold into enterprise and cloud, client, and consumer SSDstorage markets, other discrete storage products sold in component and wafer formsform to the removable storage markets,market, and sales of certain 3D XPoint memory.products.
Embedded Business Unit ("EBU"(“EBU”):Includes memory and storage products sold into automotive, industrial, medical, and consumer markets.
Certain operating expenses directly associated with the activities of a specific segment are charged to that segment. Other indirect operating income and expenses are generally allocated to segments based on their respective percentage of cost of goods sold or forecasted wafer production. We do not identify or report internally our assets (other than goodwill) or capital expenditures by segment, nor do we allocate gains and losses from equity method investments, interest, other non-operating income or expense items, or taxes to segments.
| | | | | | | | |
| Three months ended | November 28,
2019 | November 29,
2018 |
| | |
| Revenue | | |
| CNBU | $ | 1,979 | | $ | 3,604 | |
| MBU | 1,457 | | 2,212 | |
| SBU | 968 | | 1,143 | |
| EBU | 734 | | 933 | |
| All Other | 6 | | 21 | |
| $ | 5,144 | | $ | 7,913 | |
| | |
| Operating income (loss) | | |
| CNBU | $ | 401 | | $ | 2,211 | |
| MBU | 295 | | 1,203 | |
| SBU | (217) | | 80 | |
| EBU | 113 | | 387 | |
| All Other | 2 | | 6 | |
| 594 | | 3,887 | |
| | |
| Unallocated | | |
| Stock-based compensation | (72) | | (61) | |
| Employee severance | (1) | | (20) | |
| Restructure and asset impairments | 4 | | (30) | |
| Other | (7) | | (17) | |
| (76) | | (128) | |
| | |
| Operating income | $ | 518 | | $ | 3,759 | |
|
| | | | | | | | |
| Quarter ended | | November 29,
2018 | | November 30,
2017 |
| Revenue | | | | |
| CNBU | | $ | 3,604 |
| | $ | 3,212 |
|
| MBU | | 2,212 |
| | 1,365 |
|
| SBU | | 1,143 |
| | 1,383 |
|
| EBU | | 933 |
| | 830 |
|
| All Other | | 21 |
| | 13 |
|
| | | $ | 7,913 |
| | $ | 6,803 |
|
| | | | | |
| Operating income (loss) | | | | |
| CNBU | | $ | 2,211 |
| | $ | 1,914 |
|
| MBU | | 1,203 |
| | 505 |
|
| SBU | | 80 |
| | 400 |
|
| EBU | | 387 |
| | 342 |
|
| All Other | | 6 |
| | (4 | ) |
| | | 3,887 |
| | 3,157 |
|
| | | | | |
| Unallocated | | | | |
| Stock-based compensation | | (61 | ) | | (51 | ) |
| Restructure and asset impairments | | (30 | ) | | (6 | ) |
| Employee severance, start-up costs, and other | | (37 | ) | | (3 | ) |
| | | (128 | ) | | $ | (60 | ) |
| | | | | |
| Operating income | | $ | 3,759 |
|
| $ | 3,097 |
|
Revenue by product typefrom Kingston Technology Company, Inc. was as follows:
|
| | | | | | | | |
| Quarter ended | | November 29,
2018 | | November 30,
2017 |
| DRAM | | $ | 5,373 |
| | $ | 4,562 |
|
| NAND | | 2,179 |
| | 1,898 |
|
| Other (primarily 3D XPoint memory and NOR) | | 361 |
| | 343 |
|
| | | $ | 7,913 |
| | $ | 6,803 |
|
Customer Concentrations:Revenue from Huawei Technologies Co., Ltd. was 13%11% of total revenue for the first quarter of 2019 and no2020. No other customer exceeded 10%. of our total revenue for the first quarter of 2020.
ITEM 2. MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended August 30, 2018.29, 2019. All period references are to our fiscal periods unless otherwise indicated. Our fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. OurFiscal year 2020 contains 53 weeks and the fourth quarter of 2020 will contain 14 weeks. The first quarters of fiscal 2020 and 2019 and 2018 each contain 52contained 13 weeks. All production data includes the production of IMFT. All tabular dollar amounts are in millions, except per share amounts.
Overview
Micron Technology, Inc., including its consolidated subsidiaries, is an industry leader in innovative memory and storage solutions. Through our global brands -— Micron,®, Crucial,®, and Ballistix® – — our broad portfolio of high-performance memory and storage technologies, including DRAM, NAND, NOR Flash,3D XPointmemory, and 3D XPoint memory,NOR, is transforming how the world uses information to enrich life. Backed by 40 years of technology leadership, our memory and storage solutions enable disruptive trends, including artificial intelligence, 5G, machine learning, and autonomous vehicles, in key market segments like cloud,mobile, data center, networking, mobile,client, consumer, industrial, graphics, automotive, and automotive.networking.
We manufacture our products at our worldwide, wholly-owned facilities and joint venture facilities.also utilize subcontractors to perform certain manufacturing processes. In recent years, we have increased our manufacturing scale and product diversity through strategic acquisitions, expansion, and various partnering arrangements. On October 31, 2019, we purchased Intel’s noncontrolling interest in IMFT and IMFT Member Debt for $1.25 billion, at which time IMFT, now known as MTU, became a wholly-owned subsidiary.
We make significant investments to develop proprietary product and process technology, which are implemented in our manufacturing facilities. We generally increase the density per wafer and reduce manufacturing costs of each generation of product through advancements in product and process technology, such as our leading-edge line-width process technology and 3D NAND architecture. We continue to introduce new generations of products that offer improved performance characteristics, including higher data transfer rates, reduced package size,advanced packaging solutions to meet industry standards, lower power consumption, improved read/write reliability, and increased memory density. StorageOur managed NAND and SSD storage products, incorporatingwhich incorporate NAND, a controller, and firmware, constitute a significant and increasing portion of our revenues. We generally develophave developed proprietary firmware and controllers, which are included in the first quartercertain of 2019, introduced proprietary controllers into our SSDs. Development of advanced technologies enables us to diversify our product portfolio toward a richer mix of differentiated, high-value solutions and to target high-growth markets.
We market our products through our internal sales force, independent sales representatives, distributors, and e-tailers,distributors primarily to original equipment manufacturers and retailers located around the world. We face intense competition in the semiconductor memory and storage markets and, in order to remain competitive, we must continuously develop and implement new products and technologies and decrease manufacturing costs. Our success is largely dependent on obtaining returns on our R&D investments, efficient utilization of our manufacturing infrastructure, development and integration of advanced product and process technologies, market acceptance of our diversified portfolio of semiconductor-based memory and storage solutions, efficient utilization of our manufacturing infrastructure, successful ongoing development and integration of advanced product and process technology, return-driven capital spending, and successful R&D investments.spending.
25
Results of Operations
Consolidated Results
| | | | | | | | | | | | | | | | | | | | |
| First Quarter | | Fourth Quarter | | First Quarter | |
| 2020 | | 2019 | | 2019 | |
| | | | | | |
| Revenue | $ | 5,144 | | 100 | % | $ | 4,870 | | 100 | % | $ | 7,913 | | 100 | % |
| Cost of goods sold | 3,778 | | 73 | % | 3,475 | | 71 | % | 3,298 | | 42 | % |
| Gross margin | 1,366 | | 27 | % | 1,395 | | 29 | % | 4,615 | | 58 | % |
| | | | | | |
| Selling, general, and administrative | 211 | | 4 | % | 212 | | 4 | % | 209 | | 3 | % |
| Research and development | 640 | | 12 | % | 623 | | 13 | % | 611 | | 8 | % |
| Other operating (income) expense, net | (3) | | — | % | (90) | | (2) | % | 36 | | — | % |
| Operating income | 518 | | 10 | % | 650 | | 13 | % | 3,759 | | 48 | % |
| | | | | | |
| Interest income (expense), net | (3) | | — | % | 18 | | — | % | 5 | | — | % |
| Other non-operating income (expense), net | 46 | | 1 | % | (13) | | — | % | 9 | | — | % |
| Income tax (provision) benefit | (55) | | (1) | % | (71) | | (1) | % | (477) | | (6) | % |
| Equity in net income (loss) of equity method investees | 2 | | — | % | 2 | | — | % | — | | — | % |
| Net income attributable to noncontrolling interests | (17) | | — | % | (25) | | (1) | % | (3) | | — | % |
| Net income attributable to Micron | $ | 491 | | 10 | % | $ | 561 | | 12 | % | $ | 3,293 | | 42 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | First Quarter | | Fourth Quarter | | First Quarter |
| | | 2019 | | 2018 | | 2018 |
| Revenue | | $ | 7,913 |
| | 100 | % | | $ | 8,440 |
| | 100 | % | | $ | 6,803 |
| | 100 | % |
| Cost of goods sold | | 3,298 |
| | 42 | % | | 3,289 |
| | 39 | % | | 3,056 |
| | 45 | % |
| Gross margin | | 4,615 |
| | 58 | % | | 5,151 |
| | 61 | % | | 3,747 |
| | 55 | % |
| | | | | | | | | | | | | |
| Selling, general, and administrative | | 209 |
| | 3 | % | | 215 |
| | 3 | % | | 191 |
| | 3 | % |
| Research and development | | 611 |
| | 8 | % | | 567 |
| | 7 | % | | 448 |
| | 7 | % |
| Other operating (income) expense, net | | 36 |
| | — | % | | (8 | ) | | — | % | | 11 |
| | — | % |
| Operating income | | 3,759 |
| | 48 | % | | 4,377 |
| | 52 | % | | 3,097 |
| | 46 | % |
| | | | |
|
| | | | | | | | |
| Interest income (expense), net | | 5 |
| | — | % | | (16 | ) | | — | % | | (101 | ) | | (1 | )% |
| Other non-operating income (expense), net | | 9 |
| | — | % | | (15 | ) | | — | % | | (204 | ) | | (3 | )% |
| Income tax provision | | (477 | ) | | (6 | )% | | (20 | ) | | — | % | | (114 | ) | | (2 | )% |
| Net income attributable to noncontrolling interests | | (3 | ) | | — | % | | (1 | ) | | — | % | | — |
| | — | % |
| Net income attributable to Micron | | $ | 3,293 |
| | 42 | % | | $ | 4,325 |
| | 51 | % | | $ | 2,678 |
| | 39 | % |
Total Revenue
: Total revenue for the first quarter of 2019 decreased2020 increased 6% as compared to the fourth quarter of 2018 due to less favorable market conditions2019 as a result of customer inventory correctionsincreases in sales of both DRAM and CPU shortages and to a manufacturing issue at one of our suppliers.NAND products. Sales of DRAM products for the first quarter of 2019 decreased 9%2020 increased 2% from the fourth quarter of 2018 reflecting decreases2019 primarily due to an approximate 10% increase in bit shipments, partially offset by an upper-single-digit percentage decline in average selling prices from challenging market conditions, particularly in enterprise and cloud server markets and graphics markets, partially offset by increases in sales of mobile products driven by continued execution in delivering new LPDRAM products.prices. Sales of NAND products for the first quarter of 2019 decreased 3%2020 increased 18% from the fourth quarter of 20182019 primarily due to declinesa mid-teen percentage increase in bit shipments driven by increases in sales of high-value SSD storage products as a result of pricing decreases, partially offset by higher shipment volumes ofand mobile managed NAND products into mobile markets, which increased more than 50% dueenabled by strong market demand and our transition to our execution in delivering products featuring advanced 3DNVMe SSDs. NAND technologies combined with strong customer acceptance. Sales volumes of NAND productsaverage selling prices for the first quarter of 20192020 increased by a low to mid-teen percent as compared toin the low-single digits from the fourth quarter of 2018, which mitigated a similar decline in average selling prices.2019.
Total revenue for the first quarter of 2019 increased 16%2020 decreased 35% as compared to the first quarter of 2018. Higher revenue in2019 primarily due to price declines resulting from imbalances between supply and market demand over the first quarter of 2019 for both DRAM and NAND products as compared to the first quarter of 2018 was driven by strong execution in delivering high-value products featuring our 1Xnm DRAM and 64-layer TLC 3D NAND technologies combined with demand growth across our primary markets.last several quarters. Sales of DRAM products for the first quarter of 2019 increased 18% from2020 decreased 41% as compared to the first quarter of 20182019 primarily due to moderate increasesdeclines in both sales volumes and average selling prices as a result of strong marketin the low-50-percent range, partially offset by growth particularly for cloud, enterprise, mobile, and graphics markets, combined with increased sales into high-value markets.in bit shipments in the mid-20-percent range. Sales of NAND products for the first quarter of 2019 increased 15% from2020 decreased 14% as compared to the first quarter of 20182019 primarily due to an approximate 70% increase in sales volumes driven by increases in sales of high-value mobile managed NAND products enabled by strong demand and our transition to products featuring 64-layer TLC 3D NAND, partially offset by decreasesdeclines in average selling prices of approximately 30%.in the mid-30-percent range, partially offset by increases in bit shipments in the mid-30-percent range.
Overall Gross Margin: Our overall gross margin percentage decreased to 27% for the first quarter of 2020 from 29% for the fourth quarter of 2019 primarily due to decreases in DRAM margins as a result of declines in selling prices, partially offset by higher NAND margins from increases in selling prices. Gross margin for the first quarter of 2020 included an impact of approximately $125 million due to underutilization costs at MTU. MTU underutilization costs are expected to ramp higher in the second quarter of 2020 as production volumes decline. We expect these charges to average $150 million per quarter in the first half of fiscal 2020.
We periodically assess the estimated useful lives of our property, plant, and equipment. Based on our assessment of planned technology node transitions, capital spending, and re-use rates, we revised the estimated useful lives of equipment in our NAND wafer fabrication facilities from five years to seven years as of the beginning of the first quarter of 2020. This change reduced our NAND manufacturing non-cash depreciation expense for the first quarter of 2020 by approximately $150 million, which resulted in reductions of approximately $40 million in cost of goods sold and approximately $110 million in the cost of our inventories at the end of the first quarter of 2020.
Our overall gross margin percentage decreased to 27% for the first quarter of 2020 from 58% for the first quarter of 2019 from 61% for the fourth quarter of 2018 primarily due to declines in market pricingaverage selling prices, partially offset by manufacturingthe effect of a decrease in non-cash depreciation expense from the revision in estimated useful lives of equipment in our NAND wafer fabrication facilities, cost reductions for NAND products enabled by strong execution in delivering products featuring advanced 3D NAND technologies. For the first quarter of 2019 as compared to the fourth quarter of 2018, margins for DRAM products decreased due to the declines in averages selling prices and margins for NAND products decreased as declines in average selling prices outpaced manufacturing cost reductions.
Our overall gross margin percentage of 58% for the first quarter of 2019 increasedresulting from 55% for the first quarter of 2018 primarily due to strong execution in delivering products featuring advanced technologies, including 1Xnm DRAM and 64-layer 3D NAND, enabling manufacturing cost reductions. Forcontinuous improvement initiatives to reduce production costs.
Revenue by Business Unit
| | | | | | | | | | | | | | | | | | | | |
| First Quarter | | | Fourth Quarter | | | First Quarter | | |
| 2020 | | | 2019 | | | 2019 | | |
| | | | | | |
| CNBU | $ | 1,979 | | 38 | % | $ | 1,903 | | 39 | % | $ | 3,604 | | 46 | % |
| MBU | 1,457 | | 28 | % | 1,406 | | 29 | % | 2,212 | | 28 | % |
| SBU | 968 | | 19 | % | 848 | | 17 | % | 1,143 | | 14 | % |
| EBU | 734 | | 14 | % | 705 | | 14 | % | 933 | | 12 | % |
| All Other | 6 | | — | % | 8 | | — | % | 21 | | — | % |
| | $ | 5,144 | | | $ | 4,870 | | | $ | 7,913 | | |
Percentages of total revenue may not total 100% due to rounding.
Changes in revenue for each business unit for the first quarter of 2020 as compared to the fourth quarter of 2019 were as follows:
•CNBU revenue increased 4% as bit demand growth drove higher sales volumes offset by price declines.
•MBU revenue increased 4% primarily due to strong bit sales growth driven by high-value managed NAND products, partially offset by price declines.
•SBU revenue increased 14% primarily due to significant growth in SSD shipment volumes, enabled by our continuing transition to NVMe SSD products, and improved pricing.
•EBU revenue increased 4% primarily due to strong shipment growth in automotive and consumer markets.
Changes in revenue for each business unit for the first quarter of 2020 as compared to the first quarter of 2018, pricing for DRAM products increased while manufacturing costs declined and for NAND products, declines in average selling prices slightly outpaced manufacturing cost reductions.2019 were as follows:
Revenue by Business Unit
|
| | | | | | | | | | | | | | | | | | | | | |
| | | First Quarter | | Fourth Quarter | | First Quarter |
| | | 2019 | | 2018 | | 2018 |
| CNBU | | $ | 3,604 |
| | 46 | % | | $ | 4,361 |
| | 52 | % | | $ | 3,212 |
| | 47 | % |
| MBU | | 2,212 |
| | 28 | % | | 1,895 |
| | 22 | % | | 1,365 |
| | 20 | % |
| SBU | | 1,143 |
| | 14 | % | | 1,242 |
| | 15 | % | | 1,383 |
| | 20 | % |
| EBU | | 933 |
| | 12 | % | | 923 |
| | 11 | % | | 830 |
| | 12 | % |
| All Other | | 21 |
| | — | % | | 19 |
| | — | % | | 13 |
| | — | % |
| | | $ | 7,913 |
| |
| | $ | 8,440 |
| |
|
| | $ | 6,803 |
| |
|
|
Percentages are of total revenue but may not total 100% due to rounding.
•CNBU revenue for the first quarter of 2019 decreased 17% as compared to the fourth quarter of 2018 due to customer inventory corrections and CPU shortages, particularly in enterprise server, cloud server, and graphics markets. MBU revenue for the first quarter of 2019, which was comprised primarily of mobile LPDRAM and managed NAND products, increased 17% as compared to the fourth quarter of 2018. The increase was45% primarily due to an approximate 50% increase in sales volumes of managed NANDprice declines driven by strong customerimbalances in supply and demand, and higher market share as well as higherpartially offset by bit sales of our LPDRAM products driven by customer demand. SBUgrowth.
•MBU revenue for the first quarter of 2019 decreased 8% as compared to the fourth quarter of 201834% primarily due to lower demand for NAND storage products resulting from customer inventory corrections in enterprise and cloud storage markets as well as a strategic allocation from storage products to mobile managed NAND products. EBU revenue for the first quarter of 2019 increased slightly from the fourth quarter of 2018 due to continuing strength in industrial and automotive markets. EBU revenue was comprised of products incorporating DRAM, NAND, and NOR Flash in decreasing order of revenue.
CNBU revenue for the first quarter of 2019 increased 12% as compared to the first quarter of 2018 due to demandprice declines, partially offset by bit sales growth across key markets which drove increases in pricing and sales volumes. MBU revenue for the first quarter of 2019 increased 62% as compared to the first quarter of 2018 primarily due to strongdriven by execution in developing and qualifying mobile managed NAND products as bit shipment volumes were more than six times the level in the prior year. MBU sales of LPDRAM products also increased for the first quarter of 2019 as compared to the first quarter of 2018 due to strong customer demand. products.
•SBU revenue from sales of NAND products for the first quarter of 2019 decreased by a low twenties percentage as compared to the first quarter of 201815% primarily due to price declines, in SBU NAND component sales from a strategic reallocation of supply from component sales to mobile managed NAND products. Increases in SBU sales volumes of SSDs for the first quarter of 2019 as compared to the first quarter of 2018 werepartially offset by declines in pricing. bit sales growth.
•EBU revenue for the first quarter of 2019 increased 12% as compared to the first quarter of 2018decreased 21% primarily due to strong demand across EBU's primary markets includinglower sales to consumer and industrial multimarkets, and automotive.multi-markets.
Operating Income (Loss) by Business Unit
| | | | | | | | | | | | | | | | First Quarter | | | Fourth Quarter | | | First Quarter | | |
| | | First Quarter | | Fourth Quarter | | First Quarter | | 2020 | | | 2019 | | | 2019 | | |
| | | 2019 | | 2018 | | 2018 | |
| CNBU | | $ | 2,211 |
| | 61 | % | | $ | 2,915 |
| | 67 | % | | $ | 1,914 |
| | 60 | % | CNBU | $ | 401 | | 20 | % | $ | 474 | | 25 | % | $ | 2,211 | | 61 | % |
| MBU | | 1,203 |
| | 54 | % | | 979 |
| | 52 | % | | 505 |
| | 37 | % | MBU | 295 | | 20 | % | 365 | | 26 | % | 1,203 | | 54 | % |
| SBU | | 80 |
| | 7 | % | | 157 |
| | 13 | % | | 400 |
| | 29 | % | SBU | (217) | | (22) | % | (248) | | (29) | % | 80 | | 7 | % |
| EBU | | 387 |
| | 41 | % | | 382 |
| | 41 | % | | 342 |
| | 41 | % | EBU | 113 | | 15 | % | 101 | | 14 | % | 387 | | 41 | % |
| All Other | | 6 |
| | 29 | % | | 6 |
| | 32 | % | | (4 | ) | | (31 | )% | All Other | 2 | | 33 | % | 2 | | 25 | % | 6 | | 29 | % |
| | | $ | 3,887 |
| | | | $ | 4,439 |
| | | | $ | 3,157 |
| | | | $ | 594 | | | $ | 694 | | | $ | 3,887 | | |
Percentages reflect operating income (loss) as a percentage of revenue for each business unit.
CNBUChanges in operating income or loss for each business unit for the first quarter of 2019 decreased from2020 as compared to the fourth quarter of 20182019 were as follows:
•CNBU operating income decreased primarily due to declines in DRAM pricing.
•MBU operating income decreased primarily due to declines in low-power DRAM pricing.
27
•SBU operating margin improved primarily due to increases in NAND pricing and sales volumes resulting from the effects of customer inventory corrections and CPU shortages. MBUvolumes. SBU operating incomeresults for the first quarter of 2019 improved from the fourth quarter2020 were adversely impacted by an increase in underutilization costs at MTU.
•EBU operating income increased primarily as a result of 2018 primarily due toa reduction in product write-downs and increases in managed NAND and LPDRAM sales volumes and manufacturing cost reductions, which outpaced pricing declines. SBUvolumes.
Changes in operating income or loss for each business unit for the first quarter of 2019 decreased from the fourth quarter of 2018 primarily due to price declines, which were partially offset by manufacturing cost reductions enabled by our execution in transitioning to 64-layer TLC 3D NAND products. EBU operating income for the first quarter of 2019 was relatively unchanged from the fourth quarter of 2018.
CNBU operating income for the first quarter of 2019 increased from the first quarter of 2018 primarily due to improved pricing and higher sales volumes resulting from growth in demand for our products combined with manufacturing cost reductions. MBU operating income for the first quarter of 2019 increased from the first quarter of 2018 primarily due to increases in pricing and sales volumes for LPDRAM products, higher sales of managed NAND products, and manufacturing cost reductions. SBU operating income for the first quarter of 2019 decreased from the first quarter of 2018 primarily due to price declines, which were partially offset by manufacturing cost reductions. SBU operating income for the first quarter of 2019 was adversely impacted by fixed costs associated with underutilization of our share of IMFT's capacity. EBU operating income for the first quarter of 2019 increased2020 as compared to the first quarter of 20182019 were as follows:
•CNBU operating income decreased primarily due to declines in DRAM pricing, partially offset by cost reductions.
•MBU operating income decreased primarily due to declines in low-power DRAM and NAND pricing, partially offset by increases in sales of high-value managed NAND products and manufacturing cost reductions.
•SBU operating margin declined primarily due to declines in NAND pricing, partially offset by manufacturing cost reductions and increases in sales volumes.
•EBU operating income decreased as a result of increased demand for DRAM products across primary markets that drove higher sales volumes and selling prices,declines in pricing, partially offset by higher R&D costs.increases in sales volumes.
Operating Expenses and Other
Selling, General, and Administrative
:SG&A expenses for the first quarter of 20192020 were relatively unchanged fromas compared to the fourth quarter of 2018. SG&A expenses for2019 and the first quarter of 2019 were 9% higher than the first quarter of 2018 primarily due to increases in consulting fees.2019.
Research and Development
:R&D expenses vary primarily with the number of development and pre-qualification wafers processed, amounts reimbursed under R&D cost-sharing agreements, the cost of advanced equipment dedicated to new product and process development, and personnel costs. Because of the lead times necessary to manufacture our products, we typically begin to process wafers before completion of performance and reliability testing. Development of a product is deemed complete when it is qualified through reviews and tests for performance and reliability. R&D expenses can vary significantly depending on the timing of product qualification.
R&D expenses for the first quarter of 20192020 were 8%3% higher than the fourth quarter of 20182019 primarily due to increases in volumes of development and pre-qualification wafers, partially offset by a $33 million reduction in non-cash depreciation expense from the revision of the estimated useful lives of equipment in our R&D facilities and employee labor and benefit costs. our NAND wafer fabrication facilities from five years to seven years in the first quarter of 2020.
R&D expenses for the first quarter of 20192020 were 36%5% higher than the first quarter of 20182019 primarily due to a reduction of R&D reimbursements from our partners and increases in volumes of development and pre-qualification wafers, employee labor and benefit costs, andpartially offset by lower depreciation expense as a resultfrom the revision of increases in capital spending.
We share the costestimated useful lives of certain product and process development activities under development agreements with partners, including agreements to jointly develop NAND and 3D XPoint technologies with Intel. Ourequipment. R&D expenses were reduced by reimbursements under these development partner arrangements of $30 million and $56 million in the first quarters of 2019 and 2018, respectively, and by $34 million in the fourth quarter of 2018. The decrease in R&D reimbursements in the first quarter of 2019 was primarily due to reductions inreimbursements, primarily from our joint development activities with Intel for 3D NAND and 3D XPoint technologies, which we expect to bewere substantially completed in the second half of 2019. We also expect to complete our joint development activities with Intel for NAND technologies in the second halfthird quarter of 2019 which will further decrease R&D reimbursements.and first quarter of 2020, respectively.
Income Taxes
: Our income tax provision(provision) benefit consisted of the following:
| | | | | | | | | | | |
| First Quarter | | Fourth Quarter | | First Quarter | |
| 2020 | | 2019 | | 2019 | |
| | | |
| Income tax (provision) benefit, excluding items below | $ | (31) | | $ | (61) | | $ | (378) | |
| Utilization of and other changes in net deferred tax assets of MMJ, MMT, and MTTW | (24) | | (11) | | (52) | |
| Repatriation tax, net of adjustments related to uncertain tax positions | — | | 1 | | (47) | |
| $ | (55) | | $ | (71) | | $ | (477) | |
| | | |
| Effective tax rate | 9.8 | % | 10.8 | % | 12.6 | % |
|
| | | | | | | | | | | | |
| | | First Quarter | | Fourth Quarter | | First Quarter |
| | | 2019 | | 2018 | | 2018 |
| Income tax provision, excluding items below | | $ | (378 | ) | | $ | (113 | ) | | $ | (88 | ) |
| Utilization of and other changes in net deferred tax assets of MMJ, MMT, and MTTW | | (52 | ) | | 10 |
| | (26 | ) |
| Repatriation Tax, net of adjustments related to uncertain tax positions | | (47 | ) | | 83 |
| | — |
|
| | | $ | (477 | ) | | $ | (20 | ) | | $ | (114 | ) |
| | | | | | | |
| Effective tax rate | | 12.6 | % | | 0.5 | % | | 4.1 | % |
Our effectiveThe decrease in our income tax rate increasedprovision in the first quarter of 2020 as compared to the fourth and first quarters of 2019 was due primarily as a resultto reductions in our profit before tax and the foreign minimum tax. Our income taxes include
the effect of operations outside the Foreign Minimum Tax. United States, including Singapore, where we have tax incentive arrangements that further decrease our effective tax rates.
We operate in a number of tax jurisdictions outside the UnitesUnited States, including Singapore, where we have tax incentive arrangements, which expire in whole or in part at various dates through 2031,2034, that are conditional, in part, upon meeting certain business operations and employment thresholds. The effecteffects of tax incentive arrangements were not significant to our tax provision for the first quarter of 2020 or the fourth quarter of 2019. These arrangements reduced our tax provision for the first quarter of 2019 by $427 million (benefiting our diluted earnings per share by $0.36).
Other:Interest expense for the first quarter of 2019, $603 million ($0.49 per diluted share) for2020 increased 21% as compared to the fourth quarter of 2018,2019 primarily due to debt issuances in the first quarter of 2020 and $391 million ($0.32 per diluted share)fourth quarter of 2019. Interest income for the first quarter of 2018.2020 decreased 23% as compared to the fourth quarter of 2019 primarily due to decreases in interest rates and our cash and investment balances.
Other
Interest expense for the first quarter of 2019 declined 34% and 73%2020 increased 42% as compared to the fourth and first quartersquarter of 2018, respectively,2020 primarily due to decreasesincreases in debt obligations and increases in capitalized interest from higher levels of capital spending.obligations. Interest income for the first quarter of 20192020 increased 12% and 65%16% as compared to the fourth and first quartersquarter of 2018, respectively, primarily due to2019 as a result of increases in our cash generated from operations that was invested in short-term and long-term investments.investment balances.
Further discussion of other operating and non-operating income and expenses can be found in the following notes contained in "Item“Item 1. Financial Statements – Notes to Consolidated Financial Statements – Equity Plans, Other Operating Income (Expense), Net, and Other Non-Operating Income (Expense), Net"Net” notes.
Liquidity and Capital Resources
Our primary sources of liquidity are cash generated from operations and financing obtained from capital markets and financial institutions. Cash generated from operations is highly dependent on selling prices for our products, which can vary significantly from period to period. We are continuously evaluating alternatives for efficiently funding our capital expenditures and ongoing operations. We expect, from time to time, to engage in a variety of financing transactions for such purposes, including the issuance of securities. We haveAs of November 28, 2019, we had an undrawn revolving credit facility that expires in July 2023 and provides for borrowings of up to $2.50 billion.billion and matures in July 2023. We expect that our cash and investments, cash flows from operations, and available financing will be sufficient to meet our requirements at least through the next 12 months.
To develop new product and process technology, support future growth, achieve operating efficiencies, and maintain product quality, we must continue to invest in manufacturing technologies, facilities and equipment, and R&D. We estimate that capital expenditures in 20192020 for property, plant, and equipment, net of partner contributions, to be $9$7 billion to $9.5$8 billion, focused on technology transitions and product enablement. The actual amounts for 20192020 will vary depending on market conditions. As of November 29, 2018,28, 2019, we had commitments of approximately $2.8$3.1 billionfor the acquisition of property, plant, and equipment, substantially all of which approximately$2.5 billion is expected to be paid within one year.
Our Board of Directors has authorized the discretionary repurchase of up to $10 billion of our outstanding common stock beginning in our fiscal 2019, which we may purchase on a discretionary basis through open-market purchases, block trades, privately-negotiated transactions, derivative transactions, and/or pursuant to Rule 10b5-1 trading plans,plans. The repurchase authorization does not obligate us to acquire any common stock and is subject to market conditions and our ongoing determination of the best use of available cash. The repurchase authorization does not obligate us to
acquire any common stock. In the first quarter ofThrough November 28, 2019, we had repurchased an aggregate of 42 million shares of our common stock for $1.80$2.71 billion under an accelerated share repurchase agreement, a Rule 10b5-1 plan, and through open market repurchases.
At any time through December 2018, Intel can exercise its option to require us to purchase, and from January 2019 through December 2021, we can exercise our option to purchase from Intel, Intel's interest in IMFT. On October 18, 2018, we announced our intent to exercise our option to acquire Intel's interest in IMFT. Upon such exercise, Intel can elect to set the closing date of the transactionauthorized amount. See “Item 8. Financial Statements and Supplementary Data – Notes to be any time between six months and one year from the date we exercise our option. At the time of close, we expect to pay approximately $1.5 billion in cash for the transaction, dissolving Intel's noncontrolling interest in IMFT as well as IMFT Member Debt, which was $1 billion as of November 29, 2018.Consolidated Financial Statements – Equity.”
Cash and marketable investments totaled $7.13 billion and $7.28$8.19 billion as of November 28, 2019 and $9.12 billion as of August 29, 2018 and August 30, 2018, respectively.2019. Our investments consist primarily of bank deposits, money market funds, and liquid investment-grade,investment grade, fixed-income securities, diversified among industries and individual issuers. To mitigate credit risk, we invest through high-credit-quality financial institutions and by policy generally limit the concentration of credit exposure by restricting the amount of investments with any single obligor. As of November 28, 2019, $3.2 billion of our cash and marketable investments was held by our foreign subsidiaries.
29
Limitations on the Use of Cash and Investments
MMJ Group:Cash and marketable investments as of November 29, 201828, 2019 included $306 $463million held by the MMJ Group.MMJ. As a result of the corporate reorganization proceedings of MMJ initiated in March 2012, and for so long as such proceedings are continuing, the MMJ Group is prohibited from paying dividends to us. In addition, pursuant to an order of the Tokyo District Court, the MMJ Group cannot make loans or advances, other than certain ordinary course advances, to us without the consent of the Tokyo District Court and may, under certain circumstances, be subject to the approval of the legal trustee. As a result, the assets of the MMJ Group are not available for use by us in our other operations. Furthermore, certain uses of the assets of the MMJ, Group, including investments in certain capital expenditures, may require consent of MMJ'sMMJ’s trustees and/or the Tokyo District Court.
IMFT:Cash Flows:
| | | | | | | | |
| First Quarter | |
| 2020 | 2019 |
| | |
| Net cash provided by operating activities | $ | 2,011 | | $ | 4,810 | |
| Net cash provided by (used for) investing activities | (1,189) | | (4,427) | |
| Net cash provided by (used for) financing activities | (992) | | (2,435) | |
| Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash | (14) | | (10) | |
| Net increase in cash, cash equivalents, and restricted cash | $ | (184) | | $ | (2,062) | |
Operating Activities: For the first quarter of 2020, cash provided by operating activities was due primarily to cash generated by our operations and marketable investmentsworking capital adjustments, which included $169 million held by IMFT asthe effects of November 29, 2018. Our ability to access funds held by IMFT to finance our other operations is subject to agreement by Intel1) an increase in accounts payable and contractual limitations. Amounts held by IMFT are not anticipated to be available to finance our other operations.
Indefinitely Reinvested: Asaccrued expenses from timing of November 29, 2018, the amount of cashpayments and marketable investments held by foreign subsidiaries whose earnings were considered to be indefinitely reinvested consisted of all the $306 million of cash and marketable investments held2) a decrease in inventories, partially offset by the MMJ Group. Determinationeffects of the amountan increase in receivables due to a higher level of unrecognized deferred tax liabilities related to investments in these foreign subsidiaries is not practicable.
Cash Flows
|
| | | | | | | | |
| | | First Quarter |
| | | 2019 | | 2018 |
| Net cash provided by operating activities | | $ | 4,810 |
| | $ | 3,636 |
|
| Net cash provided by (used for) investing activities | | (4,427 | ) | | (1,434 | ) |
| Net cash provided by (used for) financing activities | | (2,435 | ) | | (1,282 | ) |
| Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash | | (10 | ) | | (6 | ) |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | | $ | (2,062 | ) | | $ | 914 |
|
Operating Activities:revenue. For the first quarter of 2019, cash provided by operating activities was due primarily to net income and the effect of working capital adjustments, which included a $286 million increase in inventory due to higher levelsthe effects of work in process and raw materials inventories,1) a $192 million decrease in deferred income taxes due primarily to the utilization ofnet deferred tax assets and 2) a $189 million decrease in receivables asdue to a resultlower level of lower levelsrevenue, partially offset by the effects of revenue.an increase in inventories.
Investing Activities: For the first quarter of 2018,2020, net cash providedused for investing activities consisted primarily of $1.93 billion of expenditures for property, plant, and equipment (net of partner contributions) partially offset by operating activities was due primarily to$744 million of net incomeinflows from sales, maturities, and the effectpurchases of working capital adjustments, which included a $261 million decrease in accounts payable, accrued expenses, and other current liabilities, and a $121 million increase in receivables due to a higher level of revenue.
Investing Activities:available-for-sale securities. For the first quarter of 2019, net cash used for investing activities consisted primarily of $2.46 billion of expenditures for property, plant, and equipment (net of partner contributions) and $1.91 billion of net outflows from sales, maturities, and purchases of available-for-sale securities.
Financing Activities: For the first quarter of 2018,2020, net cash used for investingfinancing activities
consisted primarily of $1.86$1.42 billion cash payments to reduce our debt, including $621 million for IMFT Member Debt repayments, $534 million to prepay the 2025 Notes, $196 million to settle conversions of expendituresnotes, $64 million for property, plant,scheduled repayment of finance leases, $744 million for the acquisition of noncontrolling interest in IMFT, and equipment (net$50 million for the acquisition of partner contributions),1 million shares of treasury stock under our $10 billion share repurchase authorization. Cash used for financing activities was partially offset by $453 millionnet proceeds of net inflows$1.25 billion from sales, maturities, and purchases of available-for-sale securities.
Financing Activities:borrowing the 2024 Term Loan A. For the first quarter of 2019, net cash used for financing activities consisted primarily of $1.80 billion for the acquisition of 42 million shares of treasury stock under an accelerated share repurchase agreement, a Rule 10b5-1 plan, and through open market repurchases and cash payments to reduce our our debt, including $413 million for scheduled repayment of other notes and capital leases and $164 million to settle conversions of notes. For the first quarter of 2018, net cash used for financing activities consisted primarily of cash payments to reduce our debt, including $2.64 billion to repurchase debt and settle conversions of notes and $109 million for scheduled repayment of other notes and capital leases. Cash used for financing activities in the first quarter of 2018 was partially offset by net proceeds of $1.36 billion from the issuance of 34 million shares of our common stock for $41.00 per share in a public offering.
Potential Settlement Obligations of Convertible Notes
: Since the closing price of our common stock exceeded 130% of the conversion price per share of all our convertible notes for at least 20 trading days in the 30 trading day period ended on September 30, 2018,2019, holders may convert suchthese notes at any time through the calendar quarter ended December 31, 2018.2019. Additionally, the closing price of our common stock also exceeded the thresholds for our 2032D Notes and 2033F Notes for the calendar quarter ended December 31, 2018;2019; therefore, such notes are convertible by the holders at any time through March 31, 2019.2020. The following table summarizes the potential settlements that we could be required to make for the calendar quarter ending December 31, 20182019 if all holders converted their notes. The amounts in the table below are based on our closing share price of $37.91$48.16 as of November 29, 2018.28, 2019.
| | | | | | | | | | | | | | | | Settlement Option | | | If Settled With Minimum Cash Required | | If Settled Entirely With Cash |
| | | Settlement Option | | | | If Settled With Minimum Cash Required | | If Settled Entirely With Cash | | Principal Amount | Amount in Excess of Principal | Underlying Shares | Cash | Remainder in Shares | | If Settled Entirely With Cash |
| | | Principal Amount | | Amount in Excess of Principal | | Underlying Shares | | Cash | | Remainder in Shares | | |
| 2032D Notes | | Cash and/or shares | | Cash and/or shares | | 14 |
| | $ | 37 |
| | 13 |
| | $ | 544 |
| 2032D Notes | Cash and/or shares | 13 | | $ | — | | 13 | | $ | 645 | |
| 2033F Notes | | Cash | | Cash and/or shares | | 6 |
| | 69 |
| | 5 |
| | 240 |
| 2033F Notes | Cash | Cash and/or shares | 2 | | 18 | | 1 | | 73 | |
| 2043G Notes | | Cash and/or shares | | Cash and/or shares | | 35 |
| | — |
| | 35 |
| | 1,324 |
| |
| | |
| | 55 |
| | $ | 106 |
| | 53 |
| | $ | 2,108 |
| |
| 15 | | $ | 18 | | 14 | | $ | 718 | |
Contractual Obligations:
See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Leases" and "– Debt." |
| | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period |
| As of November 29, 2018 | | Total | | Remainder of 2019 | | 2020 - 2021 |
| | 2022 - 2023 |
| | 2024 and Thereafter |
Notes payable(1)(2) | | $ | 4,213 |
| | $ | 113 |
| | $ | 594 |
| | $ | 855 |
| | $ | 2,651 |
|
Capital lease obligations(2) | | 928 |
| | 245 |
| | 339 |
| | 118 |
| | 226 |
|
Operating leases(3) | | 621 |
| | 29 |
| | 97 |
| | 100 |
| | 395 |
|
| Total | | $ | 5,762 |
| | $ | 387 |
| | $ | 1,030 |
| | $ | 1,073 |
| | $ | 3,272 |
|
| |
(1)
| Amounts include MMJ Creditor Payments, convertible notes, and other notes. |
| |
(2)
| Amounts include principal and interest. |
| |
(3)
| Amounts include contractually obligated minimum lease payments for operating leases having an initial noncancelable term in excess of one year. |
Critical Accounting Estimates
For a discussion of our critical accounting estimates, see "Part I – Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended August 30, 2018. Except for the critical accounting estimates associated with revenue recognition as discussed below, there have been no material changes to our critical accounting estimates since our Annual Report on Form 10-K for the year ended August 30, 2018.
Revenue recognition: Revenue is primarily recognized when control of the promised goods is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods. Contracts with our
customers are generally short-term in duration at fixed, negotiated prices with payment generally due shortly after delivery. We estimate a liability for returns using the expected value method based on historical rates of return. In addition, we generally offer price protection to our distributors, which is a form of variable consideration that decreases the transaction price. We estimate the amount of consideration we expect to be entitled to from sales to distributors, using the expected value method, based on historical price adjustment claims and current pricing trends. The difference between the estimated and actual amount is recognized as an adjustment to revenue.
Recently Adopted Accounting Standards
See "Item“Item 1. Financial Statements – Notes to Consolidated Financial Statements – Recently Adopted Accounting Standards."”
Recently Issued Accounting Standards Not Yet Adopted
See "Item“Item 1. Financial Statements – Notes to Consolidated Financial Statements – Recently Issued Accounting Standards Not Yet Adopted."Standards.”
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are affected by changes in currency exchange and interest rates. For further discussion about market risk and sensitivity analysis related to changes in currency exchange rates, see "Part“Part II -– Item 7A. Quantitative and Qualitative Disclosures About Market Risk" ofRisk” in our Annual Report on Form 10-K for the year ended August 30, 2018.29, 2019.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the principal executive officer and principal financial officer concluded that those disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the Commission'sCommission’s rules and forms and that such information is accumulated and communicated to our management, including the principal executive officer and principal financial officer, to allow timely decision regarding disclosure.
During the first quarter of 2019,2020, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a discussion of legal proceedings, see "Part“Part I – Item 3. Legal Proceedings"Proceedings” of our Annual Report on Form 10-K for the year ended August 30, 201829, 2019 and "Part“Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies"Contingencies” and "Item“Item 1A. Risk Factors"Factors” herein.
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ITEM 1A. RISK FACTORS
In addition to the factors discussed elsewhere in this Form 10-Q, the following are important factors, the order of which is not necessarily indicative of the level of risk that each poses to us, which could cause actual results or events to differ
materially from those contained in any forward-looking statements made by us. Any of these factors could have a material adverse effect on our business, results of operations, financial condition, or stock price. Our operations could also be affected by other factors that are presently unknown to us or not considered significant. Any of the factors below could have a material adverse effect on our business, results of operations, financial condition, or stock price.
We have experienced volatilityVolatility in average selling prices for our semiconductor memory and storage products which may adversely affect our business.
We have experienced significant volatility in our average selling prices, including dramatic declines as noted in the table below, and may continue to experience such volatility in the future. In some prior periods, average selling prices for our products have been below our manufacturing costs and we may experience such circumstances in the future. Average selling prices for our products that decline faster than our costs could have a material adverse effect on our business, results of operations, or financial condition.
| | | | | | | | |
| | DRAM | NAND |
| (percentage change in average selling prices) | | |
| | |
| 2019 from 2018 | (30) | % | (47) | % |
| 2018 from 2017 | 36 | % | (13) | % |
| 2017 from 2016 | 18 | % | (10) | % |
| 2016 from 2015 | (34) | % | (16) | % |
| 2015 from 2014 | (11) | % | (20) | % |
|
| | | | | | |
| | | DRAM | | Trade NAND |
| | | | | |
| | | (percentage change in average selling prices) |
| 2018 from 2017 | | 37 | % | | (11 | )% |
| 2017 from 2016 | | 19 | % | | (9 | )% |
| 2016 from 2015 | | (35 | )% | | (20 | )% |
| 2015 from 2014 | | (11 | )% | | (17 | )% |
| 2014 from 2013 | | 6 | % | | (23 | )% |
We may be unable to maintain or improve gross margins.
Our gross margins are dependent in part upon continuing decreases in per gigabit manufacturing costs achieved through improvements in our manufacturing processes and product designs, including, but not limited to, process line-width, additional 3D memory layers, additional bits per cell (i.e., cell levels), architecture, number of mask layers, number of fabrication steps, and yield. In future periods, we may be unable to reduce our per gigabit manufacturing costs at sufficient levels to maintain or improve gross margins. Factors that may limit our ability to maintain or reduce costs include, but are not limited to, strategic product diversification decisions affecting product mix, the increasing complexity of manufacturing processes, difficulties in transitioning to smaller line-width process technologies, 3D memory layers, NAND cell levels, transitioning to replacement gate technology for NAND, process complexity including number of mask layers and fabrication steps, manufacturing yield, technological barriers, changes in process technologies, and new products that may require relatively larger die sizes. Per
Many factors may result in a reduction of our output or a delay in ramping production, which could lead to underutilization of our production assets. These factors may include, among others, a weak demand environment, industry oversupply, inventory surpluses, our ramp of emerging technologies in dedicated manufacturing capacity, declining selling prices, and changes in supply agreements. A significant portion of our manufacturing costs are fixed and do not vary proportionally with changes in production output. As a result, lower utilization and increases in our per gigabit manufacturing costs may adversely affect our gross margins, business, results of operations, or financial condition.
In addition, per gigabit manufacturing costs may also be affected by a broader product portfolio, which may have smaller production quantities and shorter product lifecycles. Our business and the markets we serve are subject to rapid technological changes and material fluctuations in demand based on end-user preferences. As a result, we may have work in process or finished goods inventories that could become obsolete or in amounts that are in excess of our customers’ demand. As a result, we may incur charges in connection with obsolete or excess inventories, which could have a material adverse effect on our business, results of operations, or financial condition. In addition, due to the customized nature of certain of the products we manufacture, we may be unable to sell
certain finished goods inventory to alternative customers or manufacture in-process inventory to different specifications, which may result in excess and obsolescence charges in future periods. Our inability to maintain or improve gross margins could have a material adverse effect on our business, results of operations, or financial condition.
The semiconductor memory and storage markets are highly competitive.
We face intense competition in the semiconductor memory and storage markets from a number of companies, including Intel; Samsung Electronics Co., Ltd.; SK Hynix Inc.; Kioxia Holdings Corporation (formerly Toshiba Memory Corporation;Corporation); and Western Digital Corporation. Some of our competitors are large corporations or conglomerates that may have greater resources to invest in technology, capitalize on growth opportunities, and withstand downturns in the semiconductor markets in which we compete. Consolidation of industry competitors could put us at a competitive disadvantage. In addition, some governments have provided, and may continue to provide, significant assistance, financial or otherwise, to some of our competitors or to new entrants and may intervene in support of national industries and/or competitors. In particular, we face the threat of increasing competition as a result of significant investment in the semiconductor industry by the Chinese government and various state-owned or affiliated entities that is intended to advance China'sChina’s stated national policy objectives. In addition, the Chinese government may restrict us from participating in the China market or may prevent us from competing effectively with Chinese companies. Some of our competitors may use aggressive pricing to obtain market share or take business of our key customers.
Our competitors generally seek to increase siliconwafer capacity, improve yields, and reduce die size in their product designs which may result in significant increases in worldwide supply and downward pressure on prices. Increases in worldwide supply of semiconductor memory and storage also result from fabrication capacity expansions, either by way of new facilities, increased capacity utilization, or reallocation of other semiconductor production to semiconductor memory and storage production. Our competitors may increase capital expenditures resulting in future increases in worldwide supply. We and some of our competitors have plans to ramp, or are constructing or ramping, production at new fabrication facilities. Increases in worldwide supply of semiconductor memory and storage, if not accompanied by commensurate increases in demand, wouldcould lead to further declines in average selling prices for our products and wouldcould materially adversely affect our business, results of
operations, or financial condition. If competitors are more successful at developing or implementing new product or process technology, their products could have cost or performance advantages.
The competitive nature of our industry could have a material adverse effect on our business, results of operations, or financial condition.
We may be unable to generate sufficient cash flows or obtain access to external financing necessary to fund our operations, make scheduled debt payments, and make adequate capital investments.
Our cash flows from operations depend primarily on the volume of semiconductor memory and storage products sold, average selling prices, and manufacturing costs. To develop new product and process technology, support future growth, achieve operating efficiencies, and maintain product quality, we must make significant capital investments in manufacturing technology, capital equipment, facilities, R&D, and product and process technology.
We estimate that capital expenditures in 20192020 for property, plant, and equipment, net of partner contributions, towill be $9approximately $7 billion to $9.5$8 billion, focused on technology transitions and product enablement. Investments in capital expenditures may not generate expected returns or cash flows. Delays in completion and ramping of new production facilities could significantly impact our ability to realize expected returns on our capital expenditures, which could have a material adverse effect on our business, results of operations, or financial condition.
As a result of the corporate reorganization proceedings of MMJ initiated in 2012, and for so long as such proceedings are continuing, MMJ is prohibited from paying dividends, including any cash dividends, to us and such proceedings require that excess earnings be used in MMJ'sMMJ’s business or to fund the MMJ creditor payments. In addition, pursuant to an order of the Tokyo District Court, MMJ cannot make loans or advances, other than certain ordinary course advances, to us without the consent of the Tokyo District Court and may, under certain circumstances, be subject to approval of the legal trustee. As a result, the assets of MMJ are not available for use by us in our other operations. Furthermore, certain uses of the assets of MMJ, including certain capital expenditures of MMJ, may require consent of MMJ'sMMJ’s trustees and/or the Tokyo District Court.
33
In the past we have utilized external sources of financing when needed. As a result of our debt levels, expected debt amortization, and general economic conditions, it may be difficult for us to obtain financing on terms acceptable to us. We have experienced volatility in our cash flows and operating results and may continue to experience such volatility in the future, which may negatively affect our credit rating. Our credit rating may also be affected by our liquidity, financial results, economic risk, or other factors, which may increase the cost of future borrowings and make it difficult for us to obtain financing on terms acceptable to us. In 2019, we suspended the security interest in the collateral under our credit facility upon achieving specified credit ratings and the prepayment of our 2022 Term Loan B; however, the security interest would be automatically reinstated upon a decline in our corporate credit rating below a certain level. There can be no assurance that we will be able to generate sufficient cash flows, use cash held by MMJ to fund its capital expenditures, access capital markets or find other sources of financing to fund our operations, make debt payments, and make adequate capital investments to remain competitive in terms of technology development and cost efficiency. Our inability to do any of the foregoing could have a material adverse effect on our business, results of operations, or financial condition.
Increases in tariffs or other trade restrictions or taxes on our or our customers’ products or equipment and supplies could have an adverse impact on our operations.
In 2019, 89% of our revenue was from products shipped to customer locations outside the United States. We also purchase a significant portion of equipment and supplies from suppliers outside the United States. Additionally, a significant portion of our facilities are located outside the United States, including in Taiwan, Singapore, Japan, and China.
The United States and other countries have levied tariffs and taxes on certain goods. General trade tensions between the U.S. and China have been escalating since 2018, with U.S. tariffs on Chinese goods and retaliatory Chinese tariffs on U.S. goods. Some of our products are included in these tariffs. Higher duties on existing tariffs and further rounds of tariffs have been announced or threatened by U.S. and Chinese leaders. Additionally, the U.S. has threatened to impose tariffs on goods imported from other countries, which could also impact certain of our customers’ or our operations. If the U.S. were to impose current or additional tariffs on components that we or our suppliers source, our cost for such components would increase. We may also incur increases in manufacturing costs and supply chain risks due to our efforts to mitigate the impact of tariffs on our customers and our operations. Additionally, tariffs on our customers’ products could impact their sales of such end products, resulting in lower demand for our products.
We cannot predict what further actions may ultimately be taken with respect to tariffs or trade relations between the U.S. and other countries, what products may be subject to such actions, or what actions may be taken by other countries in retaliation. Further changes in trade policy, tariffs, additional taxes, restrictions on exports or other trade barriers, or restrictions on supplies, equipment, and raw materials including rare earth minerals, may limit our ability to produce products, increase our selling and/or manufacturing costs, decrease margins, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase necessary equipment and supplies, which could have a material adverse effect on our business, results of operations, or financial condition.
U.S. trade regulations have restricted our ability to sell our products to a significant customer and could restrict our ability to sell our products to other customers.
On May 16, 2019, the Bureau of Industry and Security (“BIS”) of the U.S. Department of Commerce added Huawei to the BIS’s Entity List, which imposes limitations on the supply of certain U.S. items and product support to Huawei. In 2019, our sales to Huawei accounted for 12% of our total revenue. To ensure compliance with the Entity List restrictions, we suspended shipments of all products to Huawei, effective May 16, 2019. We have determined that certain products Huawei purchases from us are not subject to the Export Administration Regulations and consequently can be lawfully sold and shipped to Huawei. Accordingly, we resumed shipping certain products to Huawei in the fourth quarter of 2019.
We applied for, and recently received, licenses that enable us to provide support for the products we sell that are not subject to the Export Administration Regulations, as well as qualify new products for Huawei’s mobile and server businesses. Additionally, these licenses allow us to ship previously restricted products that we manufacture in the United States, which represent a very small portion of our sales. However, there are still some products outside of the mobile and server markets that we are unable to sell to Huawei. While Huawei remains on the Entity List, and in
the absence of additional licenses from the BIS, we may be unable to work with Huawei on product development for uses other than in mobile and server end-products, which may have a negative effect on our ability to sell products to Huawei in the future. Despite the receipt of licenses, Entity List restrictions may also encourage Huawei to seek to obtain a greater supply of similar or substitute products from our competitors that are not subject to these restrictions, thereby decreasing our long-term competitiveness as a supplier to Huawei. Moreover, although Huawei is not prohibited from paying (and we are not restricted from collecting) accounts receivable for products we sell to Huawei, the credit risks associated with these accounts may have increased as a result of the BIS’s actions.
We cannot predict what additional actions the U.S. government may take with respect to Huawei, including modifications to, or interpretations of, Entity List restrictions, export restrictions, tariffs, or other trade limitations or barriers. We may be unable to sell certain inventories to alternative customers, which may result in excess and obsolescence charges in future periods. The licenses we have received may not be effective against such additional or heightened restrictions.
The Entity List trade restrictions enacted during our third quarter of 2019 had an adverse effect on our business. Although we received licenses in the first quarter of fiscal 2020, we are unable to predict the impact these licenses will have on our sales to Huawei, nor the impact existing or future trade restrictions may have on our business with Huawei. Other companies may be added to the Entity List and/or subject to trade restrictions. For example, in October 2019, the U.S. government added several additional Chinese organizations to the Entity List, effective October 9, 2019. In addition, there may be indirect impacts to our business which we cannot reasonably quantify, including that some of our other customer’s products which incorporate our solutions may also be impacted by these and other trade restrictions that may be imposed by the U.S., China, or other countries. Restrictions on our ability to sell and ship our products to Huawei have had, and may continue to have, an adverse effect on our business, results of operations, or financial condition. In addition, if there are changes to Export Administration Regulations or Entity List restrictions, our revenue with Huawei or other Chinese customers could be negatively impacted, and the licenses we have received could be rendered ineffective. Any such changes may have a further adverse effect on our business, results of operations, or financial condition.
Our future success depends on our ability to develop and produce competitive new memory and storage technologies.
Our key semiconductor memory and storage products and technologies face technological barriers to continue to meet long-term customer needs. These barriers include potential limitations on stacking additional 3D memory layers, increasing bits per cell (i.e., cell levels), meeting higher density requirements, and improving power consumption and reliability. We may face technological barriers to continue to shrink our products at our current or historical rate, which has generally reduced per-unit cost. We have invested and expect to continue to invest in R&D for new and existing products, which involves significant risk and uncertainties. We may be unable to recover our investment in R&D or otherwise realize the economic benefits of reducing die size or increasing memory and storage densities. Our competitors are working to develop new memory and storage technologies that may offer performance and/or cost advantages to existing technologies and render existing technologies obsolete. Accordingly, our future success may depend on our ability to develop and produce viable and competitive new memory and storage technologies. There can be no assurance of the following:
•that we will be successful in developing competitivenew semiconductor memory and storage technologies;
•that we will be able to cost-effectively manufacture new products;
•that we will be able to successfully market these technologies; and
•that margins generated from sales of these products will allow us to recover costs of development efforts.
We develop and produce advanced memory technologies, including 3D XPoint memory, a new class of non-volatile technology. There is no assurance that our efforts to develop and market new product technologies will be successful. Unsuccessful efforts to develop new semiconductor memory and storage technologies could have a material adverse effect on our business, results of operations, or financial condition.
A significant concentrationportion of our revenue is toconcentrated with a select number of customers.
In each of the last three fiscal years, approximately one-half of our total revenue was from our top ten customers. A disruption in our relationship with any of these customers could adversely affect our business. We could experience fluctuations in our customer base or the mix of revenue by customer as markets and strategies evolve. In addition, any consolidation of our
customers could reduce the number of customers to whom our products could be sold. Our
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inability to meet our customers'customers’ requirements or to qualify our products with them could adversely impact our revenue. Meaningful change in the inventory strategy of our customers, particularly those in China, could impact our industry bit demand growth outlook. The loss of one or more of our major customers or any significant reduction in orders from, or a shift in product mix by, these customers could have a material adverse effect on our business, results of operations, or financial condition.
We face risks associated with our international sales and operations that could materially adversely affect our business, results of operations, or financial condition.
In 2019, 53% of our revenue was to customers who have headquarters located in the United States. We ship our products to the locations specified by our customers. Customers with global supply chains and operations may request we deliver products to countries where they own or operate production facilities or to countries where they utilize third-party subcontractors or warehouses. As a result, 89% of our revenue in 2019 was from products shipped to customer locations outside the United States. In addition, a substantial portion of our manufacturing operations are located outside the United States. In particular, a significant portion of our manufacturing operations are concentrated in Singapore, Taiwan, Japan, and China. Many of our customers, suppliers, and vendors operate internationally and are also subject to the risks described below. In addition, the U.S. government has in the past restricted American firms from selling products and software to certain of our customers and may in the future impose similar bans or other restrictions on sales to one or more of our significant customers. These restrictions may not prohibit our competitors from selling similar products to our customers, which may result in our loss of sales and market share. Even when such restrictions are lifted, financial or other penalties or continuing export restrictions imposed with respect to our customers could have a continuing negative impact on our future revenue and results of operations, and we may not be able to recover any customers or market share we lose while complying with such restrictions. We have experienced restrictions on our ability to sell products to certain foreign customers where sales of products require export licenses or are prohibited by government action. Possible future U.S. government actions could lead to additional or enhanced controls on exports from the United States to China or other countries, bans on sales to other key customers, or other similar restrictions.
Trade-related government actions, by China or other countries, that impose barriers or restrictions that would impact our ability to sell or ship products to Huawei or other customers may have a negative impact on our financial condition and results of operations. We cannot predict the actions government entities may take in this context and may be unable to quickly offset or effectively react to government actions that restrict our ability to sell to certain customers or in certain jurisdictions. Government actions that affect our customers’ ability to sell products or access critical elements of their supply chains may result in a decreased demand for their products, which may consequently reduce their demand for our products.
Our international sales and operations are subject to a variety of risks, including:
•export and import duties, changes to import and export regulations, customs regulations and processes, and restrictions on the transfer of funds;
•imposition of bans on sales of goods or services to one or more of our significant foreign customers;
•compliance with U.S. and international laws involving international operations, including the Foreign Corrupt Practices Act of 1977, as amended, export and import laws, and similar rules and regulations;
•theft of intellectual property;
•political and economic instability;
•government actions or civil unrest preventing the flow of products, including delays in shipping and obtaining products, cancellation of orders, or loss or damage of products;
•problems with the transportation or delivery of products;
•issues arising from cultural or language differences and labor unrest;
•longer payment cycles and greater difficulty in collecting accounts receivable;
•compliance with trade, technical standards, and other laws in a variety of jurisdictions;
•contractual and regulatory limitations on the ability to maintain flexibility with staffing levels;
•disruptions to manufacturing operations as a result of actions imposed by foreign governments;
•changes in economic policies of foreign governments; and
•difficulties in staffing and managing international operations.
If we or our customers, suppliers, or vendors are impacted by these risks, it could have a material adverse effect on our business, results of operations, or financial condition.
We have been served with complaints in Chinese courts alleging patent infringement.
We have been served with complaints in Chinese courts alleging that we infringe certain Chinese patents by manufacturing and selling certain products in China. The complaints seek orders requiring us to destroy inventory of the accused products and equipment for manufacturing the accused products in China,China; to stop manufacturing, using, selling, and offering for sale the accused products in China,China; and to pay damages plus court fees.
We are unable to predict the outcome of these assertions of infringement made against us and therefore cannot estimate the range of possible loss. A determination that our products or manufacturing processes infringe the intellectual property rights of others or entering into a license agreement covering such intellectual property could result in significant liability and/or require us to make material changes to our operations in China, products, and/or manufacturing processes. Any of the foregoing could have a material adverse effect on our business, results of operations, or financial condition. (See "Part“Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies."”)
We are subject to allegations of anticompetitive conduct.
On April 27, 2018, a purported class-action lawsuitcomplaint was filed against Micron and other DRAM suppliers in the U.S. District Court for the Northern District of California assertingCalifornia. Subsequently, two substantially identical cases were filed in the same court. The lawsuits purported to be on behalf of a nationwide class of indirect purchasers of DRAM products. On September 3, 2019, the District Court granted Micron’s motion to dismiss and allowed plaintiffs the opportunity to file a consolidated, amended complaint. On October 28, 2019, the plaintiffs filed a consolidated amended complaint that purports to be on be on behalf of a nationwide class of indirect purchasers of DRAM products. The amended complaint asserts claims based on alleged price-fixing of DRAM products under federal and state law during the period from June 1, 2016 to at least February 1, 2018. Similar cases were subsequently filed in federal court in the United States, as well as in Canadian courts in Quebec, Montreal2018, and Toronto, Ontario. The complaints seekseeks treble monetary damages, costs, interest, attorneys'attorneys’ fees, and other injunctive and equitable relief.
On June 26, 2018, a complaint was filed against Micron and other DRAM suppliers in the U.S. District Court for the Northern District of California. Subsequently, four substantially identical cases were filed in the same court. On October 28, 2019, the plaintiffs filed a consolidated complaint. The consolidated complaint purports to be on behalf of a nationwide class of direct purchasers of DRAM products. The complaints assert claims based on alleged price-fixing of DRAM products under federal and state law during the period from June 1, 2016 through at least February 1, 2018, and seek treble monetary damages, costs, interest, attorneys’ fees, and other injunctive and equitable relief.
Additionally, six cases have been filed in the following Canadian courts: Superior Court of Quebec, the Federal Court of Canada, the Ontario Superior Court of Justice, and the Supreme Court of British Columbia. The substantive allegations in these cases are similar to those asserted in the cases filed in the United States.
On May 15, 2018, the Chinese State Administration for Market Regulation ("SAMR"(“SAMR”) notified Micron that it was investigating potential collusion and other anticompetitive conduct by DRAM suppliers in China. On May 31, 2018, SAMR made unannounced visits to our sales offices in Beijing, Shanghai, and Shenzhen to seek certain information as part of its investigation. We are cooperating with SAMR in its investigation.
We are unable to predict the outcome of these matters and therefore cannot estimate the range of possible loss. The final resolution of these matters could result in significant liability and could have a material adverse effect on our business, results of operations, or financial condition.
Our business, results of operations, or financial condition could be adversely affected by the limited availability and quality of materials, supplies, and capital equipment, or the dependency on third-party service providers.
Our supply chain and operations are dependent on the availability of materials that meet exacting standards and the use of third parties to provide us with components and services. We generally have multiple sources of supply for our materials and services. However, only a limited number of suppliers are capable of delivering certain materials and services that meet our standards and, in some cases, materials, components, or services are provided by a single supplier. Various factors could reduce the availability of materials or components such as chemicals, silicon wafers, gases, photoresist, controllers, substrates, lead frames, printed circuit boards, targets, and reticle glass
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blanks. Shortages or increases in lead times may occur from time to time in the future. Our manufacturing processes are also dependent on our relationships with third-party manufacturers of controllers used in a number of our products and with outsourced semiconductor assembly and test providers, contract manufacturers, logistic carriers, and other service providers.
Certain materials are primarily available in certain countries, including rare earth elements, minerals, and metals available primarily from China. Trade disputes or other political or economic conditions may limit our availability to obtain such materials. Although these rare earth and other materials are generally available from multiple suppliers, China is the predominant producer of certain of these materials. If China were to stop exporting these materials, our suppliers’ ability to obtain such supply may be constrained and we may be unable to obtain sufficient quantities, or obtain supply in a timely manner, or at a commercially reasonable cost. Constrained supply of rare earth elements, minerals, and metals may restrict our ability to manufacture certain of our products and make it difficult or impossible to compete with other semiconductor memory manufacturers who are able to obtain sufficient quantities of these materials from China.
We and/or our suppliers and service providers could be affected by tariffs, embargoes, or other trade restrictions, as well as laws and regulations enacted in response to concerns regarding climate change, conflict minerals, and responsible sourcing practices, which could limit the supply of our materials and/or increase the cost. Environmental regulations could limit our ability to procure or use certain chemicals or materials in our operations or products. In addition, disruptions in transportation lines could delay our receipt of materials. Lead times for the supply of materials have been extended in the past. The disruption of our supply of materials, components, services, or the extension of our lead times could have a material adverse effect on our business, results of operations, or financial condition.
Our operations are dependent on our ability to procure advanced semiconductor manufacturing equipment that enables the transition to lower cost manufacturing processes. For certain key types of equipment, including photolithography tools, we are sometimes dependent on a single supplier. From time to time, we have experienced difficulties in obtaining some equipment on a timely basis due to suppliers’ limited capacity. Our inability to obtain equipment on a timely basis could adversely affect our ability to transition to next generation manufacturing processes and reduce our costs. Delays in obtaining equipment could also impede our ability to ramp production at new facilities and could increase our overall costs of a ramp. Our inability to obtain advanced semiconductor manufacturing equipment in a timely manner could have a material adverse effect on our business, results of operations, or financial condition.
New product and market development may be unsuccessful.
We are developing new products, including system-level memory and storage products and solutions, which complement our traditional products or leverage their underlying design or process technology. We have made significant investments in product and process technology and anticipate expending significant resources for new semiconductor product and system-level solution development over the next several years. Additionally, we are increasingly differentiating our products and solutions to meet the specific demands of our customers, which increases our reliance on our customer'scustomer’s ability to accurately forecast the end-customer'send-customer’s needs and preferences. As a result, our product demand forecasts may be impacted significantly by the strategic actions of our customers. In order to continueFor certain of our success,markets, it is important that we must develop, manufacture, and qualify thedeliver products our customers needin a timely manner with increasingly advanced performance characteristics at the time they needour customers are designing and evaluating samples for their products. If we do not meet their product design schedules, our customers may excluded us from further consideration as a supplier for those products. The process to develop new products requires us to demonstrate advanced functionality and performance, often well in advance of a planned ramp of production, in order to secure design wins with our customers. In addition, some of our components have long lead-times, requiring us to place orders several months in advance of anticipated demand. Such long lead-times increase the risk of excess inventory or loss of sales in the event our forecasts vary substantially from actual demand. There can be no assurance of the following:
•that our product development efforts will be successful;
•that we will be able to cost-effectively manufacture new products;
•that we will be able to successfully market these products;
•that we will be able to establish or maintain key relationships with customers, or that we will not be prohibited from working with certain customers, for specific chip set or design requirements;
•that we will be able to introduce new products into the market and qualify them with our customers on a timely basis; or
•that margins generated from sales of these products will allow us to recover costs of development efforts.
Our unsuccessful efforts to develop new products and solutions could have a material adverse effect on our business, results of operations, or financial condition.
Our joint ventures and strategic relationships involve numerous risks.
We have entered into strategic relationships, including our joint development partnership and our IMFT joint venture with Intel, to develop new manufacturing process technologies and products and to manufacture certain products. At any time through December 2018, Intel can exercise its option to require us to purchase, and from January 2019 through December 2021, we can exercise our option to purchase from Intel, Intel's interest in IMFT. On October 18, 2018, we announced our intent to exercise our option to acquire Intel's interest in IMFT. Upon such exercise, Intel can elect to set the closing date of the transaction to be any time between six months and one year from the date we exercise our option. Our joint ventures and strategic relationships are subject to various risks that could adversely affect the value of our investments and our results of operations, including the following:
•diverging interests between us and our partners and disagreements on the following:
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◦ | ongoing or future development, manufacturing, or operational activities; |
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◦ | the amount, timing, or nature of further investments; and |
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◦ | commercial terms in our joint ventures or strategic relationships; |
•competition from our partners;
•access by our partners to our proprietary product and process technology which they may use;
•difficulties in transferring technology to joint ventures;
•difficulties and delays in ramping production at joint ventures;
•limited control over the operations of our joint ventures;
•inability of our partners to meet their commitments to us or our joint ventures;
differences in participation on funding capital investments in our joint ventures due to differing business models or long-term business goals;
•inadequate cash flows to fund increased capital requirements of our joint ventures;
•difficulties or delays in collecting amounts due to us from our joint ventures and partners;
•disputes with partners regarding the terms of arrangements or that terms of such arrangements are unfavorable; and
•changes in tax, legal, or regulatory requirements that necessitate changes in the agreements with our partners.
Our joint ventures and strategic relationships, if unsuccessful, could have a material adverse effect on our business, results of operations, or financial condition.
Increases in sales of system solutions may increase our dependency upon specific customers and our costs to develop and qualify our system solutions.
Our development of system-level memory and storage products is dependent, in part, upon successfully identifying and meeting our customers'customers’ specifications for those products. Developing and manufacturing system-level products with specifications unique to a customer increases our reliance upon that customer for purchasing our products in sufficient volume, quantity, and in a timely manner. If we fail to identify or develop products on a timely basis, or at all, that comply with our customers'customers’ specifications or achieve design wins with our customers, we may experience a significant adverse impact on our revenues and margins. Even if our products meet customer specifications, our sales of system-level solutions are dependent upon our customers choosing our products over those of our competitors and purchasing our products at sufficient volumes and prices. Our competitors'competitors’ products may be less costly, provide better performance, or include additional features when compared to our products. Our long-term ability to sell system-level memory and storage products is reliant upon our customers'customers’ ability to create, market, and sell their products containing our system-level solutions at sufficient volumes and prices in a timely manner. If we fail to successfully develop and market system-level products, our business, results of operations, or financial condition may be materially adversely affected.
Even if we are successful in selling system-level solutions to our customers in sufficient volume, we may be unable to generate sufficient profit if our per-unit manufacturing costs exceed our per-unit selling prices. Manufacturing system-level solutions to customer specifications requires a longer development cycle, as compared to discrete products, to design, test, and qualify, which may increase our costs. Additionally, some of our system solutions are increasingly dependent on sophisticated firmware that may require significant customization to meet customer specifications, which increases our costs and time to market. Additionally, we may need to update our firmware or develop new firmware as a result of new product introductions or changes in customer specifications and/or industry standards, which increases our costs. System complexities and extended warranties for system-level products could also increase our warranty costs. Our failure to cost-effectively manufacture system-
levelsystem-level solutions and/or firmware in a timely manner may result in reduced demand for our system-level products and could have a material adverse effect on our business, results of operations, or financial condition.
Products that fail to meet specifications, are defective, or that are otherwise incompatible with end uses could impose significant costs on us.
Products that do not meet specifications or that contain, or are perceived by our customers to contain, defects or that are otherwise incompatible with end uses could impose significant costs on us or otherwise materially adversely affect our business, results of operations, or financial condition. From time to time, we experience problems with nonconforming, defective, or incompatible products after we have shipped such products. In recent periods, we have further diversified and expanded our product offerings, which could potentially increase the chance that one or more of our products could fail to meet specifications in a particular application. Our products and solutions may be deemed fully or partially responsible for functions in our customers'customers’ products and may result in sharing or shifting of product or financial liability from our customers to us for costs incurred by the end user as a result of our customers'customers’ products failing to perform as specified. We could be adversely affected in several ways, including the following:
•we may be required or agree to compensate customers for costs incurred or damages caused by defective or incompatible products and to replace products;
•we could incur a decrease in revenue or adjustment to pricing commensurate with the reimbursement of such costs or alleged damages; and
•we may encounter adverse publicity, which could cause a decrease in sales of our products or harm our relationships with existing or potential customers.
Any of the foregoing items could have a material adverse effect on our business, results of operations, or financial condition.
Debt obligations could adversely affect our financial condition.39
We have incurred in the past, and expect to incur in the future, debt to finance our capital investments, business acquisitions, and restructuring of our capital structure. As of November 29, 2018, we had debt with a carrying value of $4.13 billion and may borrow up to an additional $2.50 billion under an undrawn revolving credit facility. In addition, as of November 29, 2018, the conversion value in excess of principal of our convertible notes was $877 million, based on the trading price of our common stock of $37.91 per share on such date.
Our debt obligations could adversely impact us. For example, these obligations could:
require us to use a large portion of our cash flow to pay principal and interest on debt, which will reduce the amount of cash flow available to fund working capital, capital expenditures, acquisitions, R&D expenditures, and other business activities;
require us to use cash and/or issue shares of our common stock to settle any conversion obligations of our convertible notes;
result in certain of our debt instruments being accelerated to be immediately due and payable or being deemed to be in default if certain terms of default are triggered, such as applicable cross payment default and/or cross-acceleration provisions;
adversely impact our credit rating, which could increase future borrowing costs;
limit our future ability to raise funds for capital expenditures, strategic acquisitions or business opportunities, R&D, and other general corporate requirements;
restrict our ability to incur specified indebtedness, create or incur certain liens, and enter into sale-leaseback financing transactions;
increase our vulnerability to adverse economic and semiconductor memory and storage industry conditions;
increase our exposure to interest rate risk from variable rate indebtedness;
continue to dilute our earnings per share as a result of the conversion provisions in our convertible notes; and
require us to continue to pay cash amounts substantially in excess of the principal amounts upon settlement of our convertible notes to minimize dilution of our earnings per share.
Our ability to meet our payment obligations under our debt instruments depends on our ability to generate significant cash flows in the future. This, to some extent, is subject to market, economic, financial, competitive, legislative, and regulatory factors as well as other factors that are beyond our control. There can be no assurance that our business will generate cash flow from operations, or that additional capital will be available to us, in amounts sufficient to enable us to meet our debt payment
obligations and to fund other liquidity needs. Additionally, events and circumstances may occur which would cause us to not be able to satisfy applicable draw-down conditions and utilize our revolving credit facility. If we are unable to generate sufficient cash flows to service our debt payment obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we are unable to implement one or more of these alternatives, we may be unable to meet our debt payment obligations, which could have a material adverse effect on our business, results of operations, or financial condition.
We may be unable to protect our intellectual property or retain key employees who are knowledgeable of and develop our intellectual property.
We maintain a system of controls over our intellectual property, including U.S. and foreign patents, trademarks, copyrights, trade secrets, licensing arrangements, confidentiality procedures, non-disclosure agreements with employees, consultants, and vendors, and a general system of internal controls. Despite our system of controls over our intellectual property, it may be possible for our current or future competitors to obtain, copy, use, or disclose, illegally or otherwise, our product and process technology or other proprietary information. The laws of some foreign countries may not protect our intellectual property to the same degree as do U.S. laws and our confidentiality, non-disclosure, and non-compete agreements may be unenforceable or difficult and costly to enforce.
Additionally, our ability to maintain and develop intellectual property is dependent upon our ability to attract, develop, and retain highly skilled employees. Global competition for such skilled employees in our industry is intense. Due to the volatile nature of our industry and our operating results, a decline in our operating results and/or stock price may adversely affect our ability to retain key employees whose compensation is dependent, in part, upon the market price of our common stock, achieving certain performance metrics, levels of company profitability, or other financial or company-wide performance. If our competitors or future entrants into our industry are successful in hiring our employees, they may directly benefit from the knowledge these employees gained while they were under our employment.
Our inability to protect our intellectual property or retain key employees who are knowledgeable of and develop our intellectual property could have a material adverse effect on our business, results of operations, or financial condition.
Claims that our products or manufacturing processes infringe or otherwise violate the intellectual property rights of others, or failure to obtain or renew license agreements covering such intellectual property, could materially adversely affect our business, results of operations, or financial condition.
As is typical in the semiconductor and other high technology industries, from time to time others have asserted, and may in the future assert, that our products or manufacturing processes infringe upon, misappropriate, misuse, or otherwise violate their intellectual property rights. We are unable to predict the outcome of these assertions made against us. Any of these types of claims, regardless of the merits, could subject us to significant costs to defend or resolve such claims and may consume a substantial portion of management'smanagement’s time and attention. As a result of these claims, we may be required to:
•pay significant monetary damages, fines, royalties, or penalties;
•enter into license or settlement agreements covering such intellectual property rights;
•make material changes to or redesign our products and/or manufacturing processes; and/or
•cease manufacturing, having made, selling, offering for sale, importing, marketing, or using products and/or manufacturing processes in certain jurisdictions.
We may not be able to take any of the actions described above on commercially reasonable terms and any of the foregoing results could have a material adverse effect on our business, results of operations, or financial condition. (See "Part“Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies."”)
We have a number of intellectual property license agreements. Some of these license agreements require us to make one-time or periodic payments. We may need to obtain additional licenses or renew existing license agreements in the future. We are unable to predict whether these license agreements can be obtained or renewed on terms acceptable to us. The failure to obtain or renew licenses as necessary could have a material adverse effect on our business, results of operations, or financial condition.
Litigation could have a material adverse effect on our business, results of operations, or financial condition.
From time to time we are subject to various legal proceedings and claims that arise out of the ordinary conduct of our business or otherwise, both domestically and internationally. Any claim, with or without merit, could result in significant legal fees that could negatively impact our financial results, disrupt our operations, and require significant
attention from our
management. We could be subject to litigation or arbitration disputes arising from our relationships with vendors or customers, supply agreements, or contractual obligations with our subcontractors or business partners. We may also be associated with and subject to litigation arising from the actions of our subcontractors or business partners. We may also be subject to litigation as a result of indemnities we issue, primarily with our customers, the terms of our product warranties, and from product liability claims. As we continue to focus on developing system solutions with manufacturers of consumer products, including autonomous driving, augmented reality, and others, we may be exposed to greater potential for personal liability claims against us as a result of consumers'consumers’ use of those products. There can be no assurance that we are adequately insured to protect against all claims and potential liabilities, and we may elect to self-insure with respect to certain matters. Exposures to various litigation could lead to significant costs and expenses as we defend claims, are required to pay damage awards, or enter into settlement agreements, any of which could have a material adverse effect on our business, results of operations, or financial condition.
We are subject to allegations of securities violations and related wrongful acts.
On January 23, 2019, a complaint was filed against Micron and two of our officers, Sanjay Mehrotra and David Zinsner, in the U.S. District Court for the Southern District of New York. The lawsuit purports to be brought on behalf of a class of purchasers of our stock during the period from June 22, 2018 through November 19, 2018. Subsequently two substantially similar cases were filed in the same court adding one of our former officers, Ernie Maddock, as a defendant and alleging a class action period from September 26, 2017 through November 19, 2018. The separate cases were joined, and a consolidated amended complaint was filed on June 15, 2019. The consolidated amended complaint alleges that defendants committed securities fraud through misrepresentations and omissions about purported anticompetitive behavior in the DRAM industry and seek compensatory and punitive damages, fees, interest, costs, and other appropriate relief. On October 2, 2019, the parties submitted a joint stipulation to dismiss the complaint. The Court approved the stipulation and dismissed the complaint on October 3, 2019. On March 5, 2019, a derivative complaint was filed by a shareholder in the U.S. District Court for the District of Delaware, based on similar allegations to the securities fraud cases, allegedly on behalf of and for the benefit of Micron, against certain current and former officers and directors of Micron for alleged breaches of their fiduciary duties and other violations of law. The complaint seeks damages, fees, interest, costs, and other appropriate relief. Similar shareholder derivative complaints were subsequently filed in the U.S. District Court for the District of Delaware and the U.S. District Court for the District of Idaho. On November 20, 2019, the plaintiff in the second action filed in the U.S. District Court for the District of Delaware voluntarily dismissed his complaint.
We are unable to predict the outcome of these matters and therefore cannot estimate the range of possible loss. The final resolution of these matters could result in significant liability and could have a material adverse effect on our business, results of operations, or financial condition.
If our manufacturing process is disrupted by operational issues, natural disasters, or other events, our business, results of operations, or financial condition could be materially adversely affected.
We and our subcontractors manufacture products using highly complex processes that require technologically advanced equipment and continuous modification to improve yields and performance. Difficulties in the manufacturing process or the effects from a shift in product mix can reduce yields or disrupt production and may increase our per gigabit manufacturing costs. We and our subcontractors maintain operations and continuously implement new product and process technology at manufacturing facilities, which are widely dispersed in multiple locations in several countries including the United States, Singapore, Taiwan, Japan, Malaysia, and China. Additionally, our control over operations at IMFT is limited by our agreements with Intel.
From time to time, there have been disruptions in the manufacturing process as a result of power outages, improperly functioning equipment, disruptions in supply of raw materials or components, or equipment failures,failures. We have manufacturing and other operations in locations subject to natural occurrences such as severe weather and geological events, including earthquakes or other environmental events. tsunamis, that could disrupt operations. In addition, our suppliers and customers also have operations in such locations. The events noted above have occurred from time to time in the past and may occur in the future. As a result, in addition to disruptions to operations, our insurance premiums may increase or we may not be able to fully recover any sustained losses through insurance.
If production is disrupted for any reason, manufacturing yields may be adversely affected, or we may be unable to meet our customers'customers’ requirements and they may purchase products from other suppliers. This could result in a
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significant increase in manufacturing costs, loss of revenues, or damage to customer relationships, any of which could have a material adverse effect on our business, results of operations, or financial condition.
Increases in tariffs or other trade restrictions or taxes on our or our customers' products or equipment and supplies could have an adverse impact on our operations.
In 2018, 88% of our revenue was from customers located outside the United States. We also purchase a significant portion of equipment and supplies from suppliers outside the United States. Additionally, a significant portion of our facilities are located outside the United States, including Taiwan, Singapore, Japan, and China. The United States and other countries have levied tariffs and taxes on certain goods. General trade tensions between the U.S. and China have been escalating in 2018, with three rounds of U.S. tariffs on Chinese goods taking effect in July, August, and September 2018, each followed by a round of retaliatory Chinese tariffs on U.S. goods. Some of our products are included in these announced tariffs. Higher duties on existing tariffs and further rounds of tariffs have been announced or threatened by U.S. and Chinese leaders. For example, a U.S. tariff on Chinese goods, including certain of our products, was scheduled to increase from 10% to 25% on January 1, 2019; however, that increase has been delayed for 90 days pending trade negotiations between the U.S. and China. If the U.S. were to impose additional tariffs on components that we or our suppliers source from China, our cost for such components would increase. We may also incur increases in manufacturing costs due to our efforts to mitigate the impact of tariffs on our customers and our operations. Additionally, tariffs on our customers' products could impact their sales of such end products, resulting in lower demand for our products. Further changes in trade policy, tariffs, additional taxes, restrictions on exports or other trade barriers, or restrictions on supplies, equipment, and raw materials including rare earth minerals, may limit our ability to produce products, increase our selling and/or manufacturing costs, decrease margins, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase necessary equipment and supplies, which could have a material adverse effect on our business, results of operations, or financial conditions.
We must attract, retain, and motivate highly skilled employees.
To remain competitive, we must attract, retain, and motivate executives and other highly skilled employees. Hiring and retaining qualified executives, engineers, technical staff, and sales representatives are critical to our business, and competition for experienced employees in our industry can be intense. Our inability to attract and retain key employees may inhibit our ability to expand our business operations. Additionally, changes to immigration policies in the numerous countries in which we operate, including the United States, may limit our ability to hire and/or retain talent in specific locations. If our total compensation programs and workplace culture cease to be viewed as competitive, our ability to attract, retain, and motivate employees could be weakened, which could have a material adverse effect on our business, results of operations, or financial condition.
The acquisition of our ownership interest in Inotera from Qimonda has been challenged by the administrator of the insolvency proceedings for Qimonda.
On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda's insolvency proceedings, filed suit against Micron and Micron Semiconductor B.V., our Netherlands subsidiary ("Micron B.V."), in the District Court of Munich, Civil Chamber. The complaint seeks to void, under Section 133 of the German Insolvency Act, a share purchase agreement between Micron B.V. and Qimonda signed in fall 2008, pursuant to which Micron B.V. purchased substantially all of Qimonda's shares of Inotera (the "Inotera Shares"), representing approximately 18% of Inotera's outstanding shares as of November 29, 2018, and seeks an order requiring us to re-transfer those shares to the Qimonda estate. The complaint also seeks, among other things, to recover damages for the alleged value of the joint venture relationship with Inotera and to terminate, under Sections 103 or 133 of the German Insolvency Code, a patent cross-license between us and Qimonda entered into at the same time as the share purchase agreement.
Following a series of hearings with pleadings, arguments, and witnesses on behalf of the Qimonda estate, on March 13, 2014, the court issued judgments: (1) ordering Micron B.V. to pay approximately $1 million in respect of certain Inotera Shares sold in connection with the original share purchase; (2) ordering Micron B.V. to disclose certain information with respect to any Inotera Shares sold by it to third parties; (3) ordering Micron B.V. to disclose the benefits derived by it from ownership of the Inotera Shares, including in particular, any profits distributed on the Inotera Shares and all other benefits; (4) denying Qimonda’s claims against Micron for any damages relating to the joint venture relationship with Inotera; and (5) determining that Qimonda's obligations under the patent cross-license agreement are canceled. In addition, the Court issued interlocutory judgments ordering, among other things: (1) that Micron B.V. transfer to the Qimonda estate the Inotera Shares still owned by Micron B.V. and pay to the Qimonda estate compensation in an amount to be specified for any Inotera Shares sold to third parties; and (2) that Micron B.V. pay the Qimonda estate as compensation an amount to be specified for benefits derived by Micron B.V. from ownership of the Inotera Shares. The interlocutory judgments have no immediate, enforceable effect on us, and, accordingly, we expect to be able to continue to operate with full control of the Inotera Shares subject to further developments in the case. We have filed a notice of appeal, and the parties have submitted briefs to the appeals court.
We are unable to predict the outcome of the matter and, therefore, cannot estimate the range of possible loss. The final resolution of this lawsuit could result in the loss of the Inotera Shares or monetary damages, unspecified damages based on the benefits derived by Micron B.V. from the ownership of the Inotera Shares, and/or the termination of the patent cross-license, which could have a material adverse effect on our business, results of operations, or financial condition.
Breaches of our security systems could expose us to losses.
We maintain a system of controls over the physical security of our facilities. We also manage and store various proprietary information and sensitive or confidential data relating to our operations. In addition, we process, store, and transmit large amounts of data relating to our customers and employees, including sensitive personal information. Unauthorized persons or employees may gain access to our facilities or network systems to steal trade secrets or other proprietary information, compromise confidential information, create system disruptions, or cause shutdowns. These parties may also be able to develop and deploy viruses, worms, and other malicious software programs that disrupt our operations and create security vulnerabilities. Breaches of our physical security and attacks on our network systems could result in significant losses and damage our reputation with customers and suppliers and may expose us to litigation if the confidential information of our customers, suppliers, or employees is compromised, which could have a material adverse effect on our business, results of operations, or financial condition.
Changes in foreign currency exchange rates could materially adversely affect our business, results of operations, or financial condition.
Across our global operations, significant transactions and balances are denominated in currencies other than the U.S. dollar (our reporting currency), primarily the euro, Singapore dollar, New Taiwan dollar, and yen. Although we hedge our primary exposures to changes in currency exchange rates from our monetary assets and liabilities, the effectiveness of these hedges is dependent upon our ability to accurately forecast our monetary assets and liabilities. In addition, a significant portion of our manufacturing costs are denominated in foreign currencies. Exchange rates for some of these currencies against the U.S. dollar, particularly the yen, have been volatile in recent periods. If these currencies strengthen against the U.S. dollar, our manufacturing costs could significantly increase. Exchange rates for the U.S. dollar that adversely change against our foreign currency exposures could have a material adverse effect on our business, results of operations, or financial condition.
We may make future acquisitions and/or alliances, which involve numerous risks.
Acquisitions and the formation or operation of alliances, such as joint ventures and other partnering arrangements, involve numerous risks, including the following:
integrating the operations, technologies, and products of acquired or newly formed entities into our operations;
increasing capital expenditures to upgrade and maintain facilities;
increased debt levels;
the assumption of unknown or underestimated liabilities;
the use of cash to finance a transaction, which may reduce the availability of cash to fund working capital, capital expenditures, R&D expenditures, and other business activities;
diverting management's attention from daily operations;
managing larger or more complex operations and facilities and employees in separate and diverse geographic areas;
hiring and retaining key employees;
requirements imposed by governmental authorities in connection with the regulatory review of a transaction, which may include, among other things, divestitures or restrictions on the conduct of our business or the acquired business;
inability to realize synergies or other expected benefits;
failure to maintain customer, vendor, and other relationships;
inadequacy or ineffectiveness of an acquired company's internal financial controls, disclosure controls and procedures, compliance programs, and/or environmental, health and safety, anti-corruption, human resource, or other policies or practices; and
impairment of acquired intangible assets, goodwill, or other assets as a result of changing business conditions, technological advancements, or worse-than-expected performance of the acquired business.
In previous years, supply of memory and storage products has significantly exceeded customer demand resulting in significant declines in average selling prices. The global memory and storage industry has experienced consolidation and may continue to consolidate. We engage, from time to time, in discussions regarding potential acquisitions and similar opportunities. To the extent we are successful in completing any such transactions, we could be subject to some or all of the risks described above, including the risks pertaining to funding, assumption of liabilities, integration challenges, and increases in debt that may accompany such transactions. Acquisitions of, or alliances with, technology companies are inherently risky and may not be successful and could have a material adverse effect on our business, results of operations, or financial condition.
Our business, results of operations, or financial condition could be adversely affected by the limited availability and quality of materials, supplies, and capital equipment, or the dependency on third-party service providers.
Our supply chain and operations are dependent on the availability of materials that meet exacting standards and the use of third parties to provide us with components and services. We generally have multiple sources of supply for our raw materials and services. However, only a limited number of suppliers are capable of delivering certain raw materials and services that meet our standards and, in some cases, materials, components, or services are provided by a single supplier. Various factors could reduce the availability of raw materials or components such as chemicals, silicon wafers, gases, photoresist, controllers, substrates, lead frames, printed circuit boards, targets, and reticle glass blanks. Shortages or increases in lead times may occur from time to time in the future. Our manufacturing processes are also dependent on our relationships with third-party manufacturers of controllers used in a number of our products and with outsourced semiconductor assembly and test providers, contract manufacturers, logistic carriers, and other service providers. Certain raw materials are primarily available in certain countries, including rare earth minerals available primarily from China, and trade disputes or other political or economic conditions may limit our availability to obtain such raw materials. We and/or our suppliers and service providers could be affected by tariffs, embargoes or other trade restrictions, as well as laws and regulations enacted in response to concerns regarding climate change, conflict minerals, and responsible sourcing practices, which could limit the supply of our raw materials and/or increase the cost. In addition, disruptions in transportation lines could delay our receipt of raw materials. Lead times for the supply of raw materials have been extended in the past. The disruption of our supply of raw materials, components, services, or the extension of our lead times could have a material adverse effect on our business, results of operations, or financial condition.
Our operations are dependent on our ability to procure advanced semiconductor manufacturing equipment that enables the transition to lower cost manufacturing processes. For certain key types of equipment, including photolithography tools, we are sometimes dependent on a single supplier. From time to time, we have experienced difficulties in obtaining some equipment on a timely basis due to suppliers' limited capacity. Our inability to obtain equipment on a timely basis could adversely affect our ability to transition to next generation manufacturing processes and reduce our costs. Delays in obtaining equipment could also impede our ability to ramp production at new facilities and could increase our overall costs of a ramp. Our inability to obtain
advanced semiconductor manufacturing equipment in a timely manner could have a material adverse effect on our business, results of operations, or financial condition.
A downturn in the worldwide economy may harm our business.
Downturns in the worldwide economy have harmed our business in the past and future downturns could also adversely affect our business. Adverse economic conditions affect demand for devices that incorporate our products, such as personal computers, mobile devices, SSDs, and servers. Reduced demand for these products could result in significant decreases in our average selling prices and product sales. A deterioration of current conditions in worldwide credit markets could limit our ability to obtain external financing to fund our operations and capital expenditures. In addition, we may experience losses on our holdings of cash and investments due to failures of financial institutions and other parties. Difficult economic conditions may also result in a higher rate of losses on our accounts receivables due to credit defaults. As a result, a downturn in the worldwide economy could have a material adverse effect on our business, results of operations, or financial condition.
Our resultsBreaches of operations could be affected by natural disasters and other events in the locations in which weour security systems, or our customers or suppliers operate.
We have manufacturing and other operations in locations subject to natural occurrences such as severe weather and geological events, including earthquakes or tsunamis, that could disrupt operations or result in construction delays. In addition, our suppliers and customers also have operations in such locations. A natural disaster, fire, explosion, or other event that results in a prolonged disruption to our operations, or the operationsthose of our customers, suppliers, or business partners, could expose us to losses.
We maintain a system of controls over the physical security of our facilities. We also manage and store various proprietary information and sensitive or confidential data relating to our operations. In addition, we process, store, and transmit large amounts of data relating to our customers and employees, including sensitive personal information. Unauthorized persons or employees may gain access to our facilities or network systems to steal trade secrets or other proprietary information, compromise confidential information, create system disruptions, or cause shutdowns. These parties may also be able to develop and deploy viruses, worms, and other malicious software programs that disrupt our operations and create security vulnerabilities. Breaches of our physical security and attacks on our network systems, or breaches or attacks on our customers, suppliers, or business partners who have confidential or sensitive information regarding us and our customers and suppliers, could result in significant losses and damage our reputation with customers and suppliers and may expose us to litigation if the confidential information of our customers, suppliers, or employees is compromised. The foregoing could have a material adverse effect on our business, results of operations, or financial condition.
Our acquisition of Intel's noncontrolling interest in IMFT involves numerous risks.
On October 31, 2019, we purchased Intel’s noncontrolling interest in IMFT, now known as MTU. Our acquisition involves risks including, but not limited to, an inability to sell the product MTU produces, increases in underutilization charges, increase in R&D expenses, retention of key employees, and successful integration of MTU. We may also face risks from disputes in connection with joint venture activities, or difficulties or delays in collecting amounts due to us. The foregoing could have a material adverse effect on our business, results of operations, or financial condition.
Debt obligations could adversely affect our financial condition.
We have incurred in the past, and expect to incur in the future, debt to finance our capital investments, business acquisitions, and restructure of our capital structure. As of November 28, 2019, we had debt with a carrying value of $5.65 billion. As of November 28, 2019, we also had an undrawn revolving credit facility that matures in July 2023 and provides for borrowings of up to $2.50 billion. As of November 28, 2019, the conversion value in excess of principal of our convertible notes was $567 million, based on the trading price of our common stock of $48.16 per share on such date.
Our debt obligations could adversely impact us. For example, these obligations could:
•require us to use a large portion of our cash flow to pay principal and interest on debt, which will reduce the amount of cash flow available to fund working capital, capital expenditures, acquisitions, R&D expenditures, and other business activities;
•require us to use cash and/or issue shares of our common stock to settle any conversion obligations of our convertible notes;
•result in certain of our debt instruments being accelerated to be immediately due and payable or being deemed to be in default if certain terms of default are triggered, such as applicable cross payment default and/or cross-acceleration provisions;
•adversely impact our credit rating, which could increase future borrowing costs;
•limit our future ability to raise funds for capital expenditures, strategic acquisitions or business opportunities, R&D, and other general corporate requirements;
•restrict our ability to incur specified indebtedness, create or incur certain liens, and enter into sale-leaseback financing transactions;
•increase our vulnerability to adverse economic and semiconductor memory and storage industry conditions;
•increase our exposure to interest rate risk from variable rate indebtedness;
•continue to dilute our earnings per share as a result of the conversion provisions in our convertible notes; and
•require us to continue to pay cash amounts substantially in excess of the principal amounts upon settlement of our convertible notes to minimize dilution of our earnings per share.
Our ability to meet our payment obligations under our debt instruments depends on our ability to generate significant cash flows in the future. This, to some extent, is subject to market, economic, financial, competitive, legislative, and regulatory factors as well as other factors that are beyond our control. There can be no assurance that our business will generate cash flow from operations, or that additional capital will be available to us, in amounts sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs. Additionally, events and circumstances may occur which would cause us to not be able to satisfy applicable draw-down conditions and utilize our revolving credit facility. In 2019, we suspended the security interest in the collateral under our credit facility upon achieving a specified credit rating and prepaying the 2022 Term Loan B; however, if our corporate credit rating were to decline below a certain level, the security interest would be automatically reinstated. If we are unable to generate sufficient cash flows to service our debt payment obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we are unable to implement one or more of these alternatives, we may be unable to meet our debt payment obligations, which could have a material adverse effect on our business, results of operations, or financial condition.
We must attract, retain, and motivate highly skilled employees.
To remain competitive, we must attract, retain, and motivate executives and other highly skilled employees. Competition for experienced employees in our industry can be intense and hiring and retaining qualified executives, engineers, technical staff, and sales representatives are critical to our business. Our inability to attract and retain key employees may inhibit our ability to maintain or expand our business operations. Additionally, changes to immigration policies in the numerous countries in which we operate, including the United States, may limit our ability to hire and/or retain talent in specific locations. If our total compensation programs and workplace culture cease to be viewed as competitive, our ability to attract, retain, and motivate employees could be weakened, which could have a material adverse effect on our business, results of operations, or financial condition.
The acquisition of our ownership interest in Inotera from Qimonda has been challenged by the administrator of the insolvency proceedings for Qimonda.
On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda’s insolvency proceedings, filed suit against Micron and Micron Semiconductor B.V. (“Micron B.V.”), in the District Court of Munich, Civil Chamber. The complaint seeks to void, under Section 133 of the German Insolvency Act, a share purchase agreement between Micron B.V. and Qimonda signed in fall 2008, pursuant to which Micron B.V. purchased substantially all of Qimonda’s shares of Inotera (the “Inotera Shares”), representing approximately 18% of Inotera’s outstanding shares at that time, and seeks an order requiring us to re-transfer those shares to the Qimonda estate. The complaint also seeks, among other things, to recover damages for the alleged value of the joint venture relationship with Inotera and to terminate, under Sections 103 or 133 of the German Insolvency Code, a patent cross-license between us and Qimonda entered into at the same time as the share purchase agreement.
Following a series of hearings with pleadings, arguments, and witnesses on behalf of the Qimonda estate, on March 13, 2014, the court issued judgments: (1) ordering Micron B.V. to pay approximately $1 million in respect of certain Inotera Shares sold in connection with the original share purchase; (2) ordering Micron B.V. to disclose certain information with respect to any Inotera Shares sold by it to third parties; (3) ordering Micron B.V. to disclose the benefits derived by it from ownership of the Inotera Shares, including in particular, any profits distributed on the
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Inotera Shares and all other benefits; (4) denying Qimonda’s claims against Micron for any damages relating to the joint venture relationship with Inotera; and (5) determining that Qimonda’s obligations under the patent cross-license agreement are canceled. In addition, the Court issued interlocutory judgments ordering, among other things: (1) that Micron B.V. transfer to the Qimonda estate the Inotera Shares still owned by Micron B.V. and pay to the Qimonda estate compensation in an amount to be specified for any Inotera Shares sold to third parties; and (2) that Micron B.V. pay the Qimonda estate as compensation an amount to be specified for benefits derived by Micron B.V. from ownership of the Inotera Shares. The interlocutory judgments have no immediate, enforceable effect on us, and, accordingly, we expect to be able to continue to operate with full control of the Inotera Shares subject to further developments in the case. On April 17, 2014, Micron and Micron B.V. filed a notice of appeal with the German Appeals Court challenging the District Court’s decision. After opening briefs, the Appeals Court held a hearing on the matter on July 9, 2015, and thereafter appointed two independent experts to perform an evaluation of Dr. Jaffé’s claims that the amount Micron paid for Qimonda was less than fair market value. On January 25, 2018, the court-appointed experts issued their report concluding that the amount paid by Micron was within an acceptable fair-value range. The Appeals Court held a subsequent hearing on April 30, 2019, and on May 28, 2019, the Appeals Court remanded the case to the experts for supplemental expert opinion.
We are unable to predict the outcome of the matter and, therefore, cannot estimate the range of possible loss. The final resolution of this lawsuit could result in the loss of the Inotera Shares or monetary damages, unspecified damages based on the benefits derived by Micron B.V. from the ownership of the Inotera Shares, and/or the termination of the patent cross-license, which could have a material adverse effect on our business, results of operations, or financial condition.
We may incur additional tax expense or become subject to additional tax exposure.
We operate in a number of locations outside the United States, including Singapore, where we have tax incentive arrangements that are conditional, in part, upon meeting certain business operations and employment thresholds. Our domestic and international taxes are dependent upon the geographic mix of our earnings among these jurisdictions. Our provision for income taxes and cash tax liabilities in the future could be adversely affected by numerous factors, including challenges by tax authorities to our tax positions and intercompany transfer pricing arrangements, failure to meet performance obligations with respect to tax incentive agreements, expanding our operations in various countries, and changes in tax laws and regulations. Additionally, we file income tax returns with the U.S. federal government, various U.S. states, and various other jurisdictions throughout the world and certain tax returns may remain open to examination for several years. The results of audits and examinations of previously filed tax returns and continuing assessments of our tax exposures may have an adverse effect on our provision for income taxes and cash tax liability. The foregoing items could have a material adverse effect on our business, results of operations, or financial condition.
A change in tax laws in key jurisdictions could materially increase our tax expense.
We are subject to income taxes in the U.S. and many foreign jurisdictions. Changes to income tax laws and regulations in any of the jurisdictions in which we operate, or in the interpretation of such laws, could significantly increase our effective tax rate and ultimately reduce our cash flow from operating activities and otherwise have a material adverse effect on our financial condition. For example, our effective tax rate increased from 1.2% for 2018 to 9.8% for 2019 primarily as a result of the Tax Cuts and Jobs Act, enacted on December 22, 2017 by the United States and for which the U.S. Treasury Department continues to issue interpretive guidance. Additionally, various levels of government are increasingly focused on tax reform and other legislative actions to increase tax revenue. Further changes in the tax laws of foreign jurisdictions could arise as a result of the base erosion and profit shifting project undertaken by the Organization for Economic Co-operation and Development, which represents a coalition of member countries and recommended changes to numerous long-standing tax principles. If adopted by countries, such changes, as well as changes in U.S. federal and state tax laws or in taxing jurisdictions’ administrative interpretations, decisions, policies, and positions, could have a material adverse effect on our business, results of operations, or financial condition.
Our incentives from various governments are conditional upon achieving or maintaining certain performance obligations and are subject to reduction, termination, or clawback.
We have received, and may in the future continue to receive, benefits and incentives from national, state, and local governments in various regions of the world designed to encourage us to establish, maintain, or increase
investment, workforce, or production in those regions. These incentives may take various forms, including grants, loan subsidies, and tax arrangements, and typically require us to perform or maintain certain levels of investment, capital spending, employment, technology deployment, or research and development activities to qualify for such incentives. We cannot guarantee that we will successfully achieve performance obligations required to qualify for these incentives or that the granting agencies will provide such funding. These incentive arrangements typically provide the granting agencies with rights to audit our performance with the terms and obligations. Such audits could result in modifications to, or termination of, the applicable incentive program. The incentives we receive could be subject to reduction, termination, or clawback, and any decrease or clawback of government incentives could have a material adverse effect on our business, results of operations, or financial condition.
A change in tax laws in key jurisdictions could materially increase our tax expense.
We are subjectmay make future acquisitions and/or alliances, which involve numerous risks.
Acquisitions and the formation or operation of alliances, such as joint ventures and other partnering arrangements, involve numerous risks, including the following:
•integrating the operations, technologies, and products of acquired or newly formed entities into our operations;
•increasing capital expenditures to income taxesupgrade and maintain facilities;
•increased debt levels;
•the assumption of unknown or underestimated liabilities;
•the use of cash to finance a transaction, which may reduce the availability of cash to fund working capital, capital expenditures, R&D expenditures, and other business activities;
•diverting management’s attention from daily operations;
•managing larger or more complex operations and facilities and employees in separate and diverse geographic areas;
•hiring and retaining key employees;
•requirements imposed by governmental authorities in connection with the U.S.regulatory review of a transaction, which may include, among other things, divestitures or restrictions on the conduct of our business or the acquired business;
•inability to realize synergies or other expected benefits;
•failure to maintain customer, vendor, and many foreign jurisdictions. Changes to income tax lawsother relationships;
•inadequacy or ineffectiveness of an acquired company’s internal financial controls, disclosure controls and regulations in anyprocedures, compliance programs, and/or environmental, health and safety, anti-corruption, human resource, or other policies or practices; and
•impairment of the jurisdictions in which we operate,acquired intangible assets, goodwill, or in the interpretation of such laws, could significantly increase our effective tax rate and ultimately reduce our cash flow from operating activities and otherwise have a material adverse effect on our financial condition. For example,other assets as a result of the Tax Cuts and Jobs Act (the "Tax Act") enacted on December 22, 2017 by the United States, our effective tax rate increased to 12.6% in the first quarter of 2019, depending on the amount and geographic mix of our taxable income. Additionally, various levels of government are increasingly focused on tax reform and other legislative action to increase tax revenue. Further changes in the tax laws of foreign jurisdictions could arise as a resultchanging business conditions, technological advancements, or worse-than-expected performance of the base erosionacquired business.
In previous years, supply of memory and profit shifting project undertaken bystorage products has significantly exceeded customer demand resulting in significant declines in average selling prices. The global memory and storage industry has experienced consolidation and may continue to consolidate. We engage, from time to time, in discussions regarding potential acquisitions and similar opportunities. To the Organization for Economic Co-operationextent we are successful in completing any such transactions, we could be subject to some or all of the risks described above, including the risks pertaining to funding, assumption of liabilities, integration challenges, and Development, which represents a coalitionincreases in debt that may accompany such transactions. Acquisitions of, member countriesor alliances with, technology companies are inherently risky and recommended changes to numerous long-standing tax principles. If adopted by countries, such changes, as well as changes in U.S. federalmay not be successful and state tax laws or in taxing jurisdictions' administrative interpretations, decisions, policies, and positions, could have a material adverse effect on our business, results of operations, or financial condition.
We may incur additional tax expenseChanges in foreign currency exchange rates could materially adversely affect our business, results of operations, or become subject to additional tax exposure.financial condition.
We operateAcross our global operations, significant transactions and balances are denominated in currencies other than the U.S. dollar (our reporting currency), primarily the euro, Singapore dollar, New Taiwan dollar, and yen. In addition, a number of locations outside the United States, including Singapore, where we have tax incentive arrangements that are conditional, in part, upon meeting certain business operations and employment thresholds. Our domestic and international taxes are dependent upon the geographic mixsignificant portion of our earnings amongmanufacturing costs are denominated in foreign currencies. Exchange rates for some of these jurisdictions. Our provision for income taxes and cash tax liabilities in the future could be adversely affected by numerous factors, including challenges by tax
authorities to our tax positions and intercompany transfer pricing agreements, failure to meet performance obligations with respect to tax incentive agreements, and changes in tax laws and regulations. Additionally, we file income tax returns withcurrencies against the U.S. federal government, variousdollar have been volatile and may be volatile in future periods. If these currencies strengthen against the U.S. states, and various other jurisdictions throughoutdollar, our manufacturing costs could significantly increase. Exchange rates for the world and certain tax returns may remain open to examination for several years. The results of audits and examinations of previously filed tax returns and continuing assessments ofU.S. dollar that adversely change against our taxforeign currency exposures may have an adverse effect on our provision for income taxes and cash tax liability. The foregoing items could have a material adverse effect on our business, results of operations, or financial condition.
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We may incur additional restructuring charges in future periods.
From time to time, we have, and may in the future, enter into restructure initiatives in order to, among other items, streamline our operations, respond to changes in business conditions, our markets or product offerings, or to centralize certain key functions. We may not realize expected savings or other benefits from our restructure activities and may incur additional restructure charges or other losses in future periods associated with other initiatives. In connection with any restructure initiatives, we could incur restructure charges, loss of production output, loss of key personnel, disruptions in our operations, and difficulties in the timely delivery of products, which could have a material adverse effect on our business, results of operations, or financial condition.
We face risks associated with our international sales and operations that could materially adversely affect our business, results of operations, or financial condition.
A substantial majority of our consolidated revenue is from customers located outside the United States. In addition, a substantial portion of our manufacturing operations are located outside the United States. In particular, a significant portion of our manufacturing operations are concentrated in Singapore, Taiwan, Japan, and China. Our international sales and operations are subject to a variety of risks, including:
export and import duties, changes to import and export regulations, customs regulations and processes, and restrictions on the transfer of funds;
imposition of bans on sales of goods or services to one or more of our significant foreign customers;
compliance with U.S. and international laws involving international operations, including the Foreign Corrupt Practices Act of 1977, as amended, export and import laws, and similar rules and regulations;
theft of intellectual property;
political and economic instability;
problems with the transportation or delivery of products;
issues arising from cultural or language differences and labor unrest;
longer payment cycles and greater difficulty in collecting accounts receivable;
compliance with trade, technical standards, and other laws in a variety of jurisdictions;
contractual and regulatory limitations on the ability to maintain flexibility with staffing levels;
disruptions to manufacturing operations as a result of actions imposed by foreign governments;
changes in economic policies of foreign governments; and
difficulties in staffing and managing international operations.
Many of our customers, suppliers, and vendors operate internationally and are also subject to the foregoing risks. For example, the United States government has in the past banned American firms from selling products and software to certain of our customers and may in the future impose similar bans or other restrictions on sales to one or more of our significant customers. If we or our customers, suppliers, or vendors are impacted by these risks, it could have a material adverse effect on our business, results of operations, or financial condition.
Compliance with customer and responsible sourcing requirements and related regulations regarding the use of conflict minerals could limit the supply and increase the cost of certain metalsmaterials, supplies, and services used in manufacturing our products.
IncreasedMany of our customers have adopted responsible sourcing programs that require us to periodically report on our supply chain and responsible sourcing efforts to ensure we source the materials, supplies, and services we use and incorporate into the products we sell in a manner that is consistent with their programs. Some of our customers may elect to disqualify us as a supplier or reduce purchases from us if we are unable to verify that our products meet the specifications of their responsible sourcing programs. Meeting customer requirements may limit the sourcing and availability of some of the materials, supplies, and services we use, particularly when the availability of such is concentrated to a limited number of suppliers. This in turn may affect our ability and/or the cost to obtain materials, supplies, and services necessary for the manufacture of our products in sufficient quantities.
This increased focus on environmental protection and social responsibility initiatives led to the passage of Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") and its implementing SEC regulations. The Dodd-Frank Actact imposes supply chain diligence and disclosure requirements for certain manufacturers of products containing specific minerals that may originate in or near the Democratic Republic of the Congo (the "DRC") and finance or benefit local armed groups. These "conflict minerals"conflict minerals are commonly found in materials used in the manufacture of semiconductors. The implementation of these regulations may limit the sourcing and availability of some of these materials. This in turn may affect our ability to obtain materials necessary for the manufacture of our products in sufficient quantities and may affect related material pricing. Some of our customers may elect to disqualify us as a supplier or reduce purchases from us if we are unable to verify that our products are DRC conflict free. In addition, many of our customers have or are planning to
adopt responsible sourcing programs with requirements that our broader in terms of minerals and geographies than DRC conflict minerals programs. Our inability to comply with customers’ requirements regarding the use of conflict and other mineralsfor responsible sourcing or with regulations could have a material adverse effect on our business, results of operations, or financial condition.
We and others are subject to a variety of laws, and regulations, or industry standards that may result in additional costs and liabilities.
The manufacturing of our products requires the use of facilities, equipment, and materials that are subject to a broad array of laws and regulations in numerous jurisdictions in which we operate. Additionally, we are subject to a variety of other laws and regulations relative to the construction, maintenance, and operations of our facilities. Any of thesechanges in laws, regulations, or regulationsindustry standards could cause us to incur additional direct costs, as well as increased indirect costs related to our relationships with our customers and suppliers, and otherwise harm our operations and financial condition. Any failure to comply with these laws, regulations, or regulationsindustry standards could adversely impact our reputation and our financial results. Additionally, we engage various third parties to represent us or otherwise act on our behalf and we partner with other companies in our joint ventures, all of whomwho are also subject to a broad array of laws, regulations, and regulations.industry standards. Our engagement with these third parties and our ownership in these joint ventures may also expose us to risks associated with their respective compliance with these laws and regulations. As a result of these items, we could experience the following:
•suspension of production;
•remediation costs;
•alteration of our manufacturing processes;
•regulatory penalties, fines, and legal liabilities; and
•reputational challenges.
Our failure, or the failure of our third-party agents, or joint ventures, to comply with these laws, and regulations, or industry standards could have a material adverse effect on our business, results of operations, or financial condition.
We are subject to counterparty default risks.
We have numerous arrangements with financial institutions that subject us to counterparty default risks, including cash deposits, investments, capped call contracts on our common stock, and derivative instruments. As a result, we are subject to the risk that the counterparty to one or more of these arrangements will default on its performance obligations. A counterparty may not comply with their contractual commitments which could then lead to their defaulting on their obligations with little or no notice to us, which could limit our ability to take action to mitigate our exposure. Additionally, our ability to mitigate our exposures may be constrained by the terms of our contractual arrangements or because market conditions prevent us from taking effective action. If one of our counterparties becomes insolvent or files for bankruptcy, our ability to recover any losses suffered as a result of that counterparty'scounterparty’s default may be limited by the liquidity of the counterparty or the applicable laws governing the bankruptcy proceedings. In the event of such default, we could incur significant losses, which could have a material adverse effect on our business, results of operations, or financial condition.
The operations of MMJ are subject to continued oversight by the Tokyo District Court during the pendency of the corporate reorganization proceedings.
Because MMJ'sMMJ’s plan of reorganization provides for ongoing payments to creditors following the closing of ourthe MMJ acquisition, of MMJ, the reorganization proceedings in Japan (the "Japan Proceedings"“Japan Proceedings”) are continuing and MMJ remains subject to the oversight of the Tokyo District Court and of the trustees (including a trustee designated by us, who we refer to as the business trustee, and a trustee designated by the Tokyo District Court, who we refer to as the legal trustee), pending completion of the reorganization proceedings. The business trustee is responsible for overseeing the operation of the business of the MMJ, other than oversight in relation to acts that need to be carried out in connection with the Japan Proceedings, which are the responsibility of the legal trustee. MMJ'sThe final creditor payment under MMJ’s plan of reorganization is scheduled to occur in December 2019. Following distribution of the final payment and the Tokyo District Court’s approval and issuance of an order concluding the reorganization proceedings, MMJ’s reorganization proceedings in Japan and oversight ofby the Tokyo District Court will continue until the final creditor payment is made under MMJ's plan of reorganization, which is scheduled to occur in December 2019, but may occur on a later date to the extent any claims of creditors remain unfixed on the final scheduled installment payment date. MMJ may petition the Tokyo District Court for an early termination of the reorganization proceedings once two-thirds of all payments under the plan of reorganization are made. Although such early terminations are customarily granted, there can be no assurance that the Tokyo District Court will grant any such petition in this particular case.terminate.
During the pendency of the reorganization proceedings in Japan, MMJ is obligated to provide periodic financial reports to the Tokyo District Court and may be required to obtain the consent of the Tokyo District Court prior to taking a number of significant actions relating to its businesses, including transferring or disposing of, or acquiring, certain material assets, incurring or guaranteeing material indebtedness, settling material disputes, or entering into certain material agreements. The
consent of the legal trustee may also be required for matters that would likely have a material impact on the operations or assets of MMJ or for transfers of material assets, to the extent the matters or transfers would reasonably be expected to materially and adversely affect execution of MMJ'sMMJ’s plan of reorganization. Accordingly, during the pendency of the reorganization proceedings in Japan, our ability to operate MMJ as part of our global business or to cause MMJ to take certain actions that we deem advisable for its business could be adversely affected if the Tokyo District Court or the legal trustee is unwilling to consent to various actions that we may wish to take with respect to MMJ.
The operations of MMJ being subject to the continued oversight by the Tokyo District Court during the pendency of the corporate reorganization proceedings could have a material adverse effect on our business, results of operations, or financial condition.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In May 2018, we announced that ourOur Board of Directors hadhas authorized the discretionary repurchase of up to $10 billion of our outstanding common stock beginning in 2019. We may purchase shares on a discretionary basis through open-market purchases, block trades, privately-negotiated transactions, derivative transactions, and/or derivative transactions,pursuant to Rule 10b5-1 trading plans. The repurchase authorization does not obligate us to acquire any common stock and is subject to market conditions and our ongoing determination of the best use of available cash. The repurchase authorization does not obligate us to acquire any common stock. In the first quarter of 2019, we repurchased an aggregate of 42 million shares of our common stock for $1.80 billion under an accelerated share repurchase agreement, Rule 10b5-1 plans, and through open market repurchases. The shares were recorded as treasury stock.
| | | | | | | | | | | | | | | | | | | | |
| Period | | | Total number of shares purchased | Average price paid per share | Total number of shares (or units) purchased as part of publicly announced plans or programs | Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under publicly announced plans or programs |
| | | | | | |
| August 30, 2019 | – | | October 3, 2019 | — | | $ | — | | — | | |
| October 4, 2019 | – | | October 31, 2019 | 659,192 | | 45.52 | | — | | |
| November 1, 2019 | – | | November 28, 2019 | 417,688 | | 47.89 | | — | | |
| | | 1,076,880 | | 46.44 | | | $ | 7,287,838,276 | |
|
| | | | | | | | | | | | | | | | |
| Period | | (a) Total number of shares purchased | | (b) Average price paid per share | | (c) Total number of shares (or units) purchased as part of publicly announced plans or programs | | (d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under publicly announced plans or programs |
| August 31, 2018 | – | October 4, 2018 | | 25,691,192 |
| | $ | 43.39 |
| | 25,691,192 |
| | |
| October 5, 2018 | – | November 1, 2018 | | 11,494,319 |
| | 41.42 |
| | 11,494,319 |
| | |
| November 2, 2018 | – | November 29, 2018 | | 5,220,139 |
| | 40.78 |
| | 5,220,139 |
| | |
| | | | | 42,405,650 |
| | | | | | $ | 8,196,303,572 |
|
Shares of common stock withheld as payment of withholding taxes and exercise prices in connection with the vesting or exercise of equity awards are also treated as common stock repurchases. Those withheld shares of common stock are not considered common stock repurchases under an authorized common stock repurchase plan and accordingly are excluded from the amounts in the table above.
ITEM 6. ExhibitsEXHIBITS
| | | | | | | | | | | | | | | | | | | | |
| Exhibit Number | Description of Exhibit | Filed Herewith | Form | Period Ending | Exhibit/ Appendix | Filing Date |
| | | | | | |
| 31.1 | | | X | | | | |
| 31.2 | | | X | | | | |
| 32.1 | | | X | | | | |
| 32.2 | | | X | | | | |
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | X | | | | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | X | | | | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | X | | | | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | X | | | | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | X | | | | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | X | | | | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | X | | | | |
|
| | | | | | |
| Exhibit Number | Description of Exhibit | Filed Herewith | Form | Period Ending | Exhibit/ Appendix | Filing Date |
| 3.1 | | | 8-K | | 99.2 | 1/26/15 |
| 3.2 | | | 8-K | | 99.2 | 10/17/18 |
| 10.70 | | ü | | | | |
| 31.1 | | ü | | | | |
| 31.2 | | ü | | | | |
| 32.1 | | ü | | | | |
| 32.2 | | ü | | | | |
| 101.INS | XBRL Instance Document | ü | | | | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | ü | | | | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | ü | | | | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | ü | | | | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | ü | | | | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | ü | | | | |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrantRegistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | |
| | |
| | Micron Technology, Inc. |
| | | (Registrant) |
| | | |
| | | |
| Date: | December 19, 201820, 2019 | By: | /s/ David A. Zinsner |
| | | David A. Zinsner |
| | | Senior Vice President and Chief Financial Officer |
| | | (Principal Financial Officer) |
| | | |
| | | /s/ Paul Marosvari |
| | | Paul Marosvari |
| | | Vice President and Chief Accounting Officer |
| | | (Principal Accounting Officer) |
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