Segment information reported herein is consistent with how it is reviewed and evaluated by our chief operating decision maker. We have the following four4 business units, which are our reportable segments:
Certain operating expenses directly associated with the activities of a specific segment are charged to that segment. Other indirect operating income and expenses (income) 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.
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 31, 2017.29, 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. Our fiscal 2018Fiscal year 2020 contains 53 weeks and 2017 eachthe fourth quarter of 2020 will contain 5214 weeks. All production data includes the production of IMFT and Inotera. All tabular dollar amounts are in millions, except per share amounts.
Our Management's Discussion and Analysis is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. This discussion is organized as follows:
Overview: Overview of our operations, business, and highlights of key events.
Results of Operations: An analysis of our financial results consisting of the following:
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◦ | Operating results by business segment; |
| |
◦ | Operating results by product; and |
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◦ | Operating expenses and other. |
Liquidity and Capital Resources: An analysis of changes in our balance sheet and cash flows and discussion of our financial condition and liquidity.
Critical Accounting Estimates
Recently Issued Accounting Standards
Overview
Micron Technology, Inc., including its consolidated subsidiaries, is an industry leader in innovative memory and storage solutions. Through our global brands –— Micron® and 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 nearlymore than 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,client, consumer, industrial, graphics, automotive, and mobile.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 the proprietary product and process technology, which isare 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 portion of our sales.revenue. We generally develophave developed proprietary firmware and expect to introduce proprietary controllers, intowhich are included in certain of our SSDs in new products starting in 2018.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, and 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 utilizationand return-driven capital spending.
Impact of COVID-19 to our Business
Events surrounding the ongoing COVID-19 outbreak have resulted in a reduction in economic activity across the globe. The severity and duration of these economic repercussions remain largely unknown and ultimately will depend on many factors, including the speed and effectiveness of the containment efforts throughout the world. While we have observed demand increases in some areas of our manufacturingbusiness that support the stay-at-home economy, such as products used in data center infrastructure, successful ongoing developmentnotebook computers, and integration of advanced product and process technology, return-driven capital spending, and successful R&D investments.
To leverage our significant investments in R&D,similar applications, we have formed,also observed demand decreases in other categories such as smartphones, consumer electronics, and automotive. The extent to which COVID-19 will impact demand for our products depends on future developments, which are highly uncertain and very difficult to predict, including new information that may emerge concerning the severity of the coronavirus and actions to contain and treat its impacts. While all our global sites are currently operational, our
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facilities could be required to temporarily curtail production levels or temporarily cease operations based on government mandates.
From the start of the COVID-19 outbreak, we proactively implemented preventative protocols intended to safeguard our team members, contractors, suppliers, customers, distributors, and communities, and ensure business continuity in the event government restrictions or severe outbreaks impact our operations at certain sites. We remain committed to the health and safety of our team members, contractors, suppliers, customers, distributors, and communities, and are following government policies and recommendations designed to slow the spread of COVID-19.
Our efforts to respond to the COVID-19 outbreak include the following:
•We have put health screenings in place, required social distancing, and have established team separation protocols at our facilities. We are also prohibiting visitors, have suspended business travel, and require team members to work from home to the extent possible. Where work from home is not possible, all on-site team members must pass through thermal scanning equipment to ensure they do not have an elevated body temperature and must wear a mask at all times.
•To respond to changing market conditions, we have shifted some supply from markets which have experienced declines in demand, such as smartphones, to markets that have experienced demand increases, such as data center markets.
•We have evaluated our supply chain and communicated with our suppliers to identify supply gaps and taken steps to ensure continuity. In some cases, we have added alternative suppliers and increased our on-hand inventory of raw materials needed in our operations.
•We have added assembly and test capacity to provide redundant manufacturing capability through our network of captive and external partners.
•We are evaluating all our construction projects across our global manufacturing operations and enacting protocols to enhance the safety of our team members, suppliers, and contractors.
•We have developed strategies and are implementing measures to respond to a variety of potential economic scenarios, such as limitations on new hiring, suspension of business travel, and reductions in discretionary spending.
•We are working with government authorities in the jurisdictions where we operate, and continuing to monitor our operations in an effort to ensure we follow government requirements, relevant regulations, industry standards, and best practices to help safeguard our team members, while safely continuing operations to the extent possible at our sites across the globe.
We believe these actions are appropriate and prudent to safeguard our team members, contractors, suppliers, customers, and communities, while allowing us to safely continue operations, but we cannot predict how the steps we, our team members, government entities, suppliers, or customers take in response to the COVID-19 outbreak will impact our business, outlook, or results of operations.
We will continue to actively monitor the situation and may continue to form, strategic joint venturestake further actions altering our business operations that allow us to sharewe determine are in the costsbest interests of developingour employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, employees, and prospects, or on our financial results.
Products
Our product portfolio of memory and storage productsolutions, advanced solutions, and process technology with third parties. In addition,
from time to time, we also sell and/or license technology to other parties. We continue to pursue additional opportunities to monetizestorage platforms is based on our investment in intellectual property through partneringhigh-performance semiconductor memory and storage technologies, including DRAM, NAND, 3D XPoint memory, NOR, and other arrangements.technologies. We sell our products into various markets through our business units in various forms, including wafers, components, modules, SSDs, managed NAND, and MCP products. MCP products combine DRAM, NAND, and/or NOR and in some cases also include a controller and firmware.
DRAM: DRAM products are dynamic random access memory semiconductor devices with low latency that provide high-speed data retrieval with a variety of performance characteristics. DRAM products lose content when power is turned off (“volatile”) and are most commonly used in client, cloud server, enterprise, networking, industrial, and automotive markets. Low-power DRAM products, which are engineered to meet standards for performance and power consumption, are sold into smartphone and other mobile-device markets, as well as into the automotive, industrial, and consumer markets.
NAND: NAND products are non-volatile, re-writeable semiconductor storage devices that provide high-capacity, low-cost storage with a variety of performance characteristics. NAND is used in SSDs for the enterprise and cloud, client, and consumer markets and in removable storage markets. Managed NAND is used in smartphones and other mobile-devices, consumer, automotive, and embedded markets. Low-density NAND is ideal for applications like automotive, surveillance, machine-to-machine, automation, printers, and home networking.
3D XPoint Technology: 3D XPoint is a new class of non-volatile technology between DRAM and NAND in the memory and storage hierarchy, offering higher capacity and non-volatility over DRAM along with lower latency and higher endurance as compared to NAND. 3D XPoint technology is ideal for data center and other markets requiring high-bandwidth storage and low-latency performance.
NOR: NOR products are non-volatile re-writable semiconductor memory devices that provide fast read speeds. NOR is most commonly used for reliable code storage (i.e., boot, application, operating system, and execute-in-place code in an embedded system) and for frequently-changing small data storage and is ideal for automotive, industrial, and consumer applications.
Results of Operations
Consolidated Results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Third
Quarter | | Second
Quarter | | Third
Quarter | | Nine Months | | | |
| 2020 | | 2020 | | 2019 | | 2020 | | 2019 | |
| | | | | | | | | | |
| Revenue | $ | 5,438 | | 100 | % | $ | 4,797 | | 100 | % | $ | 4,788 | | 100 | % | $ | 15,379 | | 100 | % | $ | 18,536 | | 100 | % |
| Cost of goods sold | 3,675 | | 68 | % | 3,442 | | 72 | % | 2,960 | | 62 | % | 10,895 | | 71 | % | 9,229 | | 50 | % |
| Gross margin | 1,763 | | 32 | % | 1,355 | | 28 | % | 1,828 | | 38 | % | 4,484 | | 29 | % | 9,307 | | 50 | % |
| | | | | | | | | | |
| Selling, general, and administrative | 216 | | 4 | % | 223 | | 5 | % | 206 | | 4 | % | 650 | | 4 | % | 624 | | 3 | % |
| Research and development | 649 | | 12 | % | 681 | | 14 | % | 606 | | 13 | % | 1,970 | | 13 | % | 1,818 | | 10 | % |
| Other operating (income) expense, net | 10 | | — | % | 11 | | — | % | 6 | | — | % | 18 | | — | % | 139 | | 1 | % |
| Operating income | 888 | | 16 | % | 440 | | 9 | % | 1,010 | | 21 | % | 1,846 | | 12 | % | 6,726 | | 36 | % |
| | | | | | | | | | |
| Interest income (expense), net | (28) | | (1) | % | (12) | | — | % | 23 | | — | % | (43) | | — | % | 59 | | — | % |
| Other non-operating income (expense), net | 10 | | — | % | (1) | | — | % | (317) | | (7) | % | 55 | | — | % | (392) | | (2) | % |
| Income tax (provision) benefit | (68) | | (1) | % | (21) | | — | % | 135 | | 3 | % | (144) | | (1) | % | (622) | | (3) | % |
| Equity in net income (loss) of equity method investees | 3 | | — | % | 1 | | — | % | — | | — | % | 6 | | — | % | 1 | | — | % |
| Net income attributable to noncontrolling interests | (2) | | — | % | (2) | | — | % | (11) | | — | % | (21) | | — | % | (20) | | — | % |
| Net income attributable to Micron | $ | 803 | | 15 | % | $ | 405 | | 8 | % | $ | 840 | | 18 | % | $ | 1,699 | | 11 | % | $ | 5,752 | | 31 | % |
Total Revenue: Total revenue for the third quarter of 2020 increased 13% as compared to the second quarter of 2020 primarily as a result of increases in sales of DRAM products and NAND products. Sales of DRAM products for the third quarter of 2020 increased 16% from the second quarter of 2020 primarily due to an approximate 10% increase in bit shipment volumes and mid-single-digit increase in average selling prices due to strong demand from
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|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Second Quarter | | First Quarter | | Six Months |
| | 2018 | | % of Net Sales | | 2017 | | % of Net Sales | | 2018 | | % of Net Sales | | 2018 | | % of Net Sales | | 2017 | | % of Net Sales |
| Net sales | $ | 7,351 |
| | 100 | % | | $ | 4,648 |
| | 100 | % | | $ | 6,803 |
| | 100 | % | | $ | 14,154 |
| | 100 | % | | $ | 8,618 |
| | 100 | % |
| Cost of goods sold | 3,081 |
| | 42 | % | | 2,944 |
| | 63 | % | | 3,056 |
| | 45 | % | | 6,137 |
| | 43 | % | | 5,903 |
| | 68 | % |
| Gross margin | 4,270 |
| | 58 | % | | 1,704 |
| | 37 | % | | 3,747 |
| | 55 | % | | 8,017 |
| | 57 | % | | 2,715 |
| | 32 | % |
| | | | | | | | | | | | | | | | | | | | |
| SG&A | 196 |
| | 3 | % | | 187 |
| | 4 | % | | 191 |
| | 3 | % | | 387 |
| | 3 | % | | 346 |
| | 4 | % |
| R&D | 523 |
| | 7 | % | | 473 |
| | 10 | % | | 448 |
| | 7 | % | | 971 |
| | 7 | % | | 943 |
| | 11 | % |
| Other operating (income) expense, net | (16 | ) | | — | % | | — |
| | — | % | | 11 |
| | — | % | | (5 | ) | | — | % | | 23 |
| | — | % |
| Operating income | 3,567 |
| | 49 | % | | 1,044 |
| | 22 | % | | 3,097 |
| | 46 | % | | 6,664 |
| | 47 | % | | 1,403 |
| | 16 | % |
| | | |
|
| | | | | | | | | | | | | | | | |
| Interest income (expense), net | (61 | ) | | (1 | )% | | (153 | ) | | (3 | )% | | (101 | ) | | (1 | )% | | (162 | ) | | (1 | )% | | (285 | ) | | (3 | )% |
| Other non-operating income (expense), net | (53 | ) | | (1 | )% | | 34 |
| | 1 | % | | (204 | ) | | (3 | )% | | (257 | ) | | (2 | )% | | 20 |
| | — | % |
| Income tax (provision) benefit | (143 | ) | | (2 | )% | | (38 | ) | | (1 | )% | | (114 | ) | | (2 | )% | | (257 | ) | | (2 | )% | | (69 | ) | | (1 | )% |
| Equity in net income (loss) of equity method investees | 1 |
| | — | % | | 7 |
| | — | % | | — |
| | — | % | | 1 |
| | — | % | | 5 |
| | — | % |
| Net income attributable to noncontrolling interests | (2 | ) | | — | % | | — |
| | — | % | | — |
| | — | % | | (2 | ) | | — | % | | — |
| | — | % |
| Net income attributable to Micron | $ | 3,309 |
| | 45 | % | | $ | 894 |
| | 19 | % | | $ | 2,678 |
| | 39 | % | | $ | 5,987 |
| | 42 | % | | $ | 1,074 |
| | 12 | % |
Net Sales
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Second Quarter | | First Quarter | | Six Months |
| | 2018 | | % of Total | | 2017 | | % of Total | | 2018 | | % of Total | | 2018 | | % of Total | | 2017 | | % of Total |
| CNBU | $ | 3,691 |
| | 50 | % | | $ | 1,917 |
| | 41 | % | | $ | 3,212 |
| | 47 | % | | $ | 6,903 |
| | 49 | % | | $ | 3,387 |
| | 39 | % |
| MBU | 1,566 |
| | 21 | % | | 1,082 |
| | 23 | % | | 1,365 |
| | 20 | % | | 2,931 |
| | 21 | % | | 2,114 |
| | 25 | % |
| SBU | 1,254 |
| | 17 | % | | 1,041 |
| | 22 | % | | 1,383 |
| | 20 | % | | 2,637 |
| | 19 | % | | 1,901 |
| | 22 | % |
| EBU | 829 |
| | 11 | % | | 590 |
| | 13 | % | | 830 |
| | 12 | % | | 1,659 |
| | 12 | % | | 1,168 |
| | 14 | % |
| All Other | 11 |
| | — | % | | 18 |
| | — | % | | 13 |
| | — | % | | 24 |
| | — | % | | 48 |
| | 1 | % |
| | $ | 7,351 |
| | | | $ | 4,648 |
| | | | $ | 6,803 |
| |
|
| | $ | 14,154 |
| |
|
| | $ | 8,618 |
| |
|
|
Percentages of total net sales reflect rounding and may not total 100%.
Total netrevenue for the third quarter of 2020 increased 14% as compared to the third quarter of 2019 primarily due to increases in sales of both NAND and DRAM products. Sales of DRAM products for the third quarter of 2020 increased 6% as compared to the third quarter of 2019 primarily due to growth in bit shipments in the upper-30-percent range, partially offset by declines in average selling prices in the low-20-percent range. Sales of NAND products for the third quarter of 2020 increased 51% as compared to the third quarter of 2019 primarily due to increases in bit shipments in the low-30-percent range and increases in average selling prices in the mid-teen-percent range.
Total revenue for the first nine months of 2020 decreased 17% as compared to the first nine months of 2019 primarily due to price declines resulting from imbalances between supply and market demand over the last several quarters. Sales of DRAM products for the first nine months of 2020 decreased 25% as compared to the first nine months of 2019 primarily due to declines in average selling prices in the low-40-percent range, partially offset by growth in bit shipments in the high-20-percent range. Sales of NAND products for the first nine months of 2020 increased 11% as compared to the first nine months of 2019 primarily due to increases in bit shipments in the low-30-percent range, partially offset by declines in average selling prices in the mid-teen-percent range.
Overall Gross Margin: Our overall gross margin percentage increased to 32% for the third quarter of 2020 from 28% for the second quarter of 20182020 primarily due to higher average selling prices and improvements in product mix. Our gross margins included the impact of underutilization costs at MTU of approximately $155 million for the third quarter of 2020, $142 million for the second quarter of 2020, and $125 million for the first quarter of 2020.
Our overall gross margin percentage decreased to 32% for the third quarter of 2020 from 38% for the third quarter of 2019 and decreased to 29% for the first nine months of 2020 from 50% for the first nine months of 2019, primarily due to declines in DRAM average selling prices, partially offset by the effect of decreases in non-cash depreciation expense from the revision in estimated useful lives of equipment in our NAND wafer fabrication facilities described below, cost reductions resulting from strong execution in delivering products featuring advanced technologies, and continuous improvement initiatives to reduce production costs.
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 the existing equipment in our NAND wafer fabrication facilities and our research and development facilities from five years to seven years as of the beginning of the first quarter of 2020.
The revision in estimated useful lives reduced NAND manufacturing depreciation expense by approximately $425 million in the first nine months of 2020, of which approximately $150 million remained capitalized in inventory as of the end of the third quarter of 2020. Adjusting for the effect of the reduced amount of depreciation expense remaining in inventory, the revision in estimated useful lives benefited cost of goods sold by approximately $275 million for the first nine months of 2020 ($140 million for the third quarter of 2020, $95 million for the second quarter of 2020, and $40 million for the first quarter of 2020).
Revenue by Business Unit
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Third
Quarter | | Second
Quarter | | Third
Quarter | | Nine Months | | | |
| 2020 | | 2020 | | 2019 | | 2020 | | 2019 | |
| | | | | | | | | | |
| CNBU | $ | 2,218 | | 41 | % | $ | 1,967 | | 41 | % | $ | 2,079 | | 43 | % | $ | 6,164 | | 40 | % | $ | 8,065 | | 44 | % |
| MBU | 1,525 | | 28 | % | 1,258 | | 26 | % | 1,174 | | 25 | % | 4,240 | | 28 | % | 4,997 | | 27 | % |
| SBU | 1,014 | | 19 | % | 870 | | 18 | % | 813 | | 17 | % | 2,852 | | 19 | % | 2,978 | | 16 | % |
| EBU | 675 | | 12 | % | 696 | | 15 | % | 700 | | 15 | % | 2,105 | | 14 | % | 2,432 | | 13 | % |
| All Other | 6 | | — | % | 6 | | — | % | 22 | | — | % | 18 | | — | % | 64 | | — | % |
| | $ | 5,438 | | | $ | 4,797 | | | $ | 4,788 | | | $ | 15,379 | | | $ | 18,536 | | |
Percentages of total revenue may not total 100% due to rounding.
Changes in revenue for each business unit for the third quarter of 2020 as compared to the second quarter of 2020 were as follows:
•CNBU revenue increased 8%13% due to increases in average selling prices and bit sales volume for DRAM driven by strong demand in data center markets.
•MBU revenue increased 21% primarily due to increases in bit sales volumes of low-power DRAM.
•SBU revenue increased 17% primarily due to improved NAND pricing and significant growth in SSD shipment volumes driven by strong demand in data center and OEM client markets.
•EBU revenue decreased 3% primarily due to a reduction in automotive demand.
Changes in revenue for each business unit for the third quarter of 2020 as compared to the third quarter of 2019 were as follows:
•CNBU revenue increased 7% primarily due to increases in bit sales growth for DRAM products partially offset by price declines. Consistent with our view that our technology and product roadmap are more closely aligned with our CNBU business unit, beginning in the second quarter of 2020, we have included all activities for 3D XPoint within CNBU.
•MBU revenue increased 30% primarily due to bit sales growth for high-value mobile MCP products, partially offset by price declines.
•SBU revenue increased 25% primarily due to improved NAND pricing and significant growth in SSD shipment volumes driven by strong demand in data center and OEM client markets, partially offset by the decline in 3D XPoint revenue attributable to SBU after the first quarter of 2020.
•EBU revenue decreased 4% primarily due reduction in automotive demand and declines in DRAM selling prices, partially offset by increased sales to industrial multimarkets.
Changes in revenue for each business unit for the first nine months of 2020 as compared to the first nine months of 2019 were as follows:
•CNBU revenue decreased 24% primarily due to DRAM price declines driven by imbalances in supply and demand, partially offset by bit sales growth across key markets.
•MBU revenue decreased 15% primarily due to price declines, partially offset by bit sales growth for high-value mobile MCP products.
•SBU revenue decreased 4% primarily due to the decline in 3D XPoint revenue in SBU after the first quarter of 20182020 and NAND selling price declines, partially offset by bit sales growth for SSDs.
•EBU revenue decreased 13% primarily due to strong executionprice declines partially offset by bit sales growth in industrial multimarkets and market conditionsautomotive markets.
Operating Income (Loss) by Business Unit
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Third
Quarter | | Second
Quarter | | Third
Quarter | | Nine Months | | | |
| 2020 | | 2020 | | 2019 | | 2020 | | 2019 | |
| | | | | | | | | | |
| CNBU | $ | 448 | | 20 | % | 283 | | 14 | % | $ | 800 | | 38 | % | $ | 1,132 | | 18 | % | $ | 4,171 | | 52 | % |
| MBU | 295 | | 19 | % | 183 | | 15 | % | 331 | | 28 | % | 773 | | 18 | % | 2,241 | | 45 | % |
| SBU | 177 | | 17 | % | (2) | | — | % | (198) | | (24) | % | (42) | | (1) | % | (138) | | (5) | % |
| EBU | 64 | | 9 | % | 79 | | 11 | % | 173 | | 25 | % | 256 | | 12 | % | 822 | | 34 | % |
| All Other | (3) | | (50) | % | (1) | | (17) | % | 4 | | 18 | % | (2) | | (11) | % | 11 | | 17 | % |
| | $ | 981 | | | $ | 542 | | | $ | 1,110 | | | $ | 2,117 | | | $ | 7,107 | | |
Percentages reflect operating income (loss) as a percentage of revenue for DRAM across our primary markets, particularlyeach business unit.
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Changes in operating income or loss for server, mobile, and client. The strong demandeach business unit for our products enabled usthe third quarter of 2020 as compared to increase DRAM average selling prices and sales volumes resulting in higher CNBU and MBU sales. Despite significant increases in SSD revenue in the second quarter of 20182020 were as follows:
•CNBU operating income increased primarily due to improved DRAM selling prices.
•MBU operating income increased primarily due to increases in sales volumes and lower R&D expenses.
•SBU operating margin improved primarily due to increases in NAND pricing, higher SSD sales volumes, stronger data center SSD mix, manufacturing cost reductions, and lower R&D expenses.
•EBU operating income decreased primarily due to a lower mix of automotive sales.
Changes in operating income or loss for each business unit for the third quarter and first nine months of 2020 as compared to the corresponding periods of 2019 were as follows:
•CNBU operating income decreased primarily due to declines in DRAM pricing and MTU underutilization costs in 2020 related to 3D XPoint.
•MBU operating income decreased primarily due to declines in low-power DRAM and NAND pricing, partially offset by increases in sales of high-value MCP products and manufacturing cost reductions.
•SBU operating margin improved primarily due to lower 3D XPoint underutilization costs, manufacturing cost reductions, increases in sales volumes, and improved product mix. SBU operating margins for the third quarter of 2020 benefited from higher selling prices as compared to the third quarter of 2019. SBU operating margins for the first nine months of 2020 were adversely impacted by lower selling prices as compared to the first nine months of 2019.
•EBU operating income decreased as a result of declines in pricing, partially offset by increases in sales volumes.
Operating Expenses and Other
Selling, General, and Administrative: SG&A expenses for the third quarter of 2018, SBU revenue decreased due2020 were relatively unchanged as compared to declines in NAND component revenue.
Total net sales for the second quarter of 2020. SG&A expenses for the third quarter and first sixnine months of 2018 increased 58%2020 were 5% and 64%,4% higher as compared to the corresponding periods of 2019 primarily due to increases in employee compensation, partially offset by decreases in consulting fees.
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 third quarter of 2020 were 5% lower as compared to the second quarter of 2020 primarily due to decreases in volumes of development and pre-qualification wafers. R&D expenses for the third quarter and first nine months of 2020 were 7% and 8% higher, respectively, as compared to the corresponding periods of 2017. Solid execution and strong demand for our products across our primary markets, particularly in client, enterprise, mobile, and cloud, drove higher sales in the second quarter of 2018 for all operating segments and significant increases in sales volumes for both DRAM and Trade NAND products as well as increases in average selling prices for DRAM products.
Gross Margin
Our overall gross margin percentage increased to 58% for the second quarter of 2018 from 55% for the first quarter of 2018 primarily due to strong demand for our DRAM products that drove favorable pricing conditions, combined with overall reductions in manufacturing costs. The increase in our gross margin percentage for the second quarter of 2018 reflects margin expansion for DRAM products driven by the continued growth in product offerings and sales for server and mobile products featuring our 1X nm DRAM technology. Gross margin percentages increased for CNBU, MBU, and EBU operating segments in the second quarter of 2018 as compared to the first quarter of 2018.
Our overall gross margin percentage increased to 58% for the second quarter of 2018 from 37% for the second quarter of 2017 and increased to 57% for the first six months of 2018 from 32% for the first six months of 2017, reflecting increases in the gross margin percentages for all operating segments, primarily due to strong execution and market demand together with manufacturing cost reductions. From January 2016 through December 6, 2016, the date we acquired the remaining interest in Inotera, we purchased all of Inotera's DRAM output under supply agreements at prices based on a formula that equally shared margin between Inotera and us. For the first quarter of 2017, we purchased $504 million of DRAM products from Inotera under these agreements, representing 37% of our aggregate DRAM bit production.
Operating Results by Business Segments
CNBU
|
| | | | | | | | | | | | | | | | | | | |
| | Second Quarter | | First Quarter | | Six Months |
| | 2018 | | 2017 | | 2018 | | 2018 | | 2017 |
| Net sales | $ | 3,691 |
| | $ | 1,917 |
| | $ | 3,212 |
| | $ | 6,903 |
| | $ | 3,387 |
|
| Operating income | 2,329 |
| | 736 |
| | 1,914 |
| | 4,243 |
| | 940 |
|
CNBU sales for the second quarter of 2018 increased 15% as compared to the first quarter of 2018 due to higher sales into cloud server and client markets and improved pricing for our DRAM products. As a result, CNBU operating income improved for the second quarter of 2018 compared to the first quarter of 2018. See "Operating Results by Product – DRAM" for further detail.
CNBU sales for the second quarter and first six months of 2018 increased 93% and 104%, respectively, as compared to the corresponding periods of 2017 due to increases in average selling prices for our products sold into the client market, growth in the cloud market driven by significant increases in DRAM content per server, and increases in sales into the enterprise market. Favorable conditions in key CNBU markets for the second quarter and first six months of 2018 drove increases in average selling prices and sales volumes as compared to the corresponding periods of 2017. CNBU operating income for the second quarter and first six months of 2018 improved from the corresponding periods of 2017 primarily due to improved pricing, manufacturing cost reductions, and product mix.
MBU
|
| | | | | | | | | | | | | | | | | | | |
| | Second Quarter | | First Quarter | | Six Months |
| | 2018 | | 2017 | | 2018 | | 2018 | | 2017 |
| Net sales | $ | 1,566 |
| | $ | 1,082 |
| | $ | 1,365 |
| | $ | 2,931 |
| | $ | 2,114 |
|
| Operating income | 689 |
| | 170 |
| | 505 |
| | 1,194 |
| | 259 |
|
MBU sales are comprised primarily of DRAM and NAND, with mobile DRAM products accounting for a significant majority of the sales. MBU sales for the second quarter of 2018 increased 15% as compared to the first quarter of 2018 primarily due to strong acceptance of our low-power DRAM products and increases in sales of mobile DRAM products into smartphone markets. MBU operating income for the second quarter of 2018 improved from the first quarter of 2018 primarily due to manufacturing cost reductions and increases in sales volumes for both DRAM and NAND products as well as improved DRAM pricing resulting from strong demand for our products.
MBU sales for the second quarter and first six months of 2018 increased 45% and 39%, respectively, as compared to the corresponding periods of 2017 primarily due to improvements in DRAM pricing and increases in sales volumes, driven by customer qualifications for LPDRAM and managed NAND products, combined with higher memory content in smartphones.
MBU operating income for the second quarter and first six months of 2018 improved from the corresponding periods of 20172019, primarily due to increases in average selling prices for mobile DRAM products, manufacturing cost reductions,employee compensation, increases in volumes of development and higher sales volumes.
SBU
|
| | | | | | | | | | | | | | | | | | | |
| | Second Quarter | | First Quarter | | Six Months |
| | 2018 | | 2017 | | 2018 | | 2018 | | 2017 |
| Net sales | $ | 1,254 |
| | $ | 1,041 |
| | $ | 1,383 |
| | $ | 2,637 |
| | $ | 1,901 |
|
| Operating income | 251 |
| | 71 |
| | 400 |
| | 651 |
| | 26 |
|
SBU salespre-qualification wafers, and a reduction of Trade NAND products for the second quarter of 2018 decreased 7% as compared to the first quarter of 2018 due to declines in NAND component salesR&D reimbursements from lower average selling prices,our partners, partially offset by increaseslower depreciation expense from the revision of the estimated useful lives of equipment. R&D expenses were reduced by $23 million and $85 million in SSD sales. Sales of SSD storage products for the second quarter of 2018 increased 22% as compared to the first quarter of 2018, driven by strong demand in cloud and client markets for products incorporating our TLC 3D NAND technology. SBU Non-Trade sales were $136 million for the second quarter of 2018 as compared to $122 million for the first quarter of 2018 and $158 million for the second quarter of 2017. SBU operating income for the second quarter of 2018 was also adversely affected by costs associated with IMFT's production of 3D XPoint products at less than full capacity, partially offset by a mix shift to SSD products and NAND manufacturing cost reductions. See "Operating Results by Product – Trade NAND" for further details.
SBU sales of Trade NAND products for the secondthird quarter and first sixnine months of 2018 increased 23% and 40%,2020, respectively, as compareddue to the corresponding periodsrevision of 2017 primarily due to increasesthe estimated useful lives of equipment. R&D expenses were reduced by $6 million and $59 million in sales volumes from strong demand, particularly for sales of SSD products into the cloud market. SBU sales of SSD storage products for the secondthird quarter and first sixnine months of 2018 increased by 81% and 103%,2019, respectively, as compared to the corresponding periods of 2017 primarily as a result of the launch of new SSD products incorporating our TLC 3D NAND technology. SBU operating income for the second quarter and first six months of 2018 improved from the corresponding periods of 2017 primarily due to manufacturing cost reductions and improvements in product mix.
EBU
|
| | | | | | | | | | | | | | | | | | | |
| | Second Quarter | | First Quarter | | Six Months |
| | 2018 | | 2017 | | 2018 | | 2018 | | 2017 |
| Net sales | $ | 829 |
| | $ | 590 |
| | $ | 830 |
| | $ | 1,659 |
| | $ | 1,168 |
|
| Operating income | 363 |
| | 193 |
| | 342 |
| | 705 |
| | 371 |
|
EBU sales are comprised of DRAM, NAND, and NOR Flash in decreasing order of revenue. EBU salesreimbursements, primarily from our joint development activities with Intel for the second quarter of 2018 were relatively unchanged from the first quarter of 2018. EBU operating income for the second quarter of 2018 increased from the first quarter of 2018 primarily due to manufacturing cost reductions and improved pricing for DRAM products resulting from strong demand for our products.
EBU sales for the second quarter and first six months of 2018 increased 41% and 42%, respectively, as compared to the corresponding periods of 2017 primarily due to strong demand and higher sales volumes for DRAM, NAND, and eMCP in consumer markets. EBU operating income for the second quarter and first six months of 2018 increased as compared to the corresponding periods of 2017 as a result of increases in average selling prices, manufacturing cost reductions, and increases in sales volumes.
Operating Results by Product
Net Sales by Product
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Second Quarter | | First Quarter | | Six Months |
| | 2018 | | % of Total | | 2017 | | % of Total | | 2018 | | % of Total | | 2018 | | % of Total | | 2017 | | % of Total |
| DRAM | $ | 5,213 |
| | 71 | % | | $ | 2,960 |
| | 64 | % | | $ | 4,562 |
| | 67 | % | | $ | 9,775 |
| | 69 | % | | $ | 5,381 |
| | 62 | % |
| Trade NAND | 1,805 |
| | 25 | % | | 1,412 |
| | 30 | % | | 1,866 |
| | 27 | % | | 3,671 |
| | 26 | % | | 2,684 |
| | 31 | % |
| Non-Trade | 136 |
| | 2 | % | | 158 |
| | 3 | % | | 122 |
| | 2 | % | | 258 |
| | 2 | % | | 281 |
| | 3 | % |
| Other | 197 |
| | 3 | % | | 118 |
| | 3 | % | | 253 |
| | 4 | % | | 450 |
| | 3 | % | | 272 |
| | 3 | % |
| | $ | 7,351 |
| | | | $ | 4,648 |
| | | | $ | 6,803 |
| | | | $ | 14,154 |
| | | | $ | 8,618 |
| | |
Percentages of total net sales reflect rounding and may not total 100%.
Non-Trade consists of3D NAND and 3D XPoint products manufactured and sold to Intel through IMFT under a long-term supply agreement at prices approximating cost. Information regarding products that combine both NAND and DRAM components is reported within Trade NAND. Other includes sales of NOR and trade 3D XPoint products.
DRAM
|
| | | | | |
| Second Quarter 2018 Versus | | First Six Months 2018 Versus |
| First Quarter 2018 | | Second Quarter 2017 | | First Six Months 2017 |
| | | | | |
| (percentage change) |
Average selling prices per gigabit | increased low double digit | | increased low 40% range | | increased high 40% range |
Gigabits sold | increased mid single digit | | increased low 20% range | | increased low 20% range |
Increasestechnologies, which were substantially completed in sales volumes and prices for the secondthird quarter of 2018 as compared to the2019 and first quarter of 2018 and second2020, respectively.
Income Taxes: Our income tax (provision) benefit consisted of the following:
| | | | | | | | | | | | | | | | | |
| Third
Quarter | Second
Quarter | Third
Quarter | Nine Months | |
| 2020 | 2020 | 2019 | 2020 | 2019 |
| | | | | |
| Income tax (provision) benefit, excluding items below | $ | (30) | | $ | 1 | | $ | 125 | | $ | (60) | | $ | (469) | |
| Utilization of and other changes in net deferred tax assets of MMJ, MMT, and MTTW | (38) | | (22) | | (32) | | (84) | | (162) | |
| Repatriation tax, net of adjustments related to uncertain tax positions | — | | — | | 42 | | — | | 9 | |
| $ | (68) | | $ | (21) | | $ | 135 | | $ | (144) | | $ | (622) | |
| | | | | |
| Effective tax rate | 7.8 | % | 4.9 | % | (18.9) | % | 7.8 | % | 9.7 | % |
Our income tax provision for the third quarter of 2017 resulted from strong conditions for server, mobile, and client markets. Our gross margin percentage on sales of DRAM products for the second quarter of 2018 improved from the first quarter of 2018 and second quarter of 2017 primarily due to increases in average selling prices due to favorable market conditions and manufacturing cost reductions.
Trade NAND
|
| | | | | |
| Second Quarter 2018 Versus | | First Six Months 2018 Versus |
| First Quarter 2018 | | Second Quarter 2017 | | First Six Months 2017 |
| | | | | |
| (percentage change) |
Average selling prices per gigabyte | decreased mid-teens range | | decreased high single digit | | decreased mid single digit |
Gigabytes sold | 2020 increased low double digit | | increased low 40% range | | increased low 40% range |
Decreases in net sales for the second quarter of 2018 as compared to the first quarter of 2018 resulted from declines in average selling prices partially offset by increase in sales of cloud and client SSDs driven by growth and gains in market share for SSD products. Increases in net sales for the second quarter of 2018 as compared to the second quarter of 20172020 primarily resulted fromas a result of increases in sales of cloud and client SSDs.our profit before tax. Our ability to meet increased demand for SSDs and other NAND productsincome tax provision in the secondthird quarter of 2018 was2020 increased as compared to the third quarter of 2019 primarily due to improvementstax benefits in process technology, including our transition to 3D NAND products and strong execution. Our gross margin percentage on sales of Trade NAND for the secondthird quarter of 2018 declined slightly2019 resulting from the first quarter of 2018 as declines in average selling prices outpaced manufacturing cost reductions.tax law changes. Our gross margin percentage on sales of Trade NAND for the second quarter of 2018 improved from the second quarter of 2017 as manufacturing cost reductions outpaced declines in average selling prices.
Operating Expenses and Other
Selling, General, and Administrative
SG&A expenses for the second quarter of 2018 were relatively unchanged compared to the first quarter of 2018. SG&A expenses for the second quarter of 2018 were 5% higher than the second quarter of 2017 primarily due to increases in payroll costs. SG&A expensesincome tax provision decreased for the first sixnine months of 2018 were 12% higher than the first six months of 2017 primarily due to increases in performance-based pay and other payroll costs.
Research and Development
R&D expenses for the second quarter of 2018 were 17% higher than the first quarter of 2018 primarily due to higher volumes of product being processed that had not been qualified and increases in payroll costs. R&D expenses for the second quarter of 2018 were 11% higher than the second quarter of 2017 primarily due to increases in payroll costs. R&D expenses for the first six months of 2018 were slightly higher2020 as compared to the first sixnine months of 2017 due to increases2019 primarily as a result of reductions in payroll costs, partially offset by lower volumes of product being processed that had not been qualified.
We shareour profit before tax and the cost of certain product and process development activities with development partners, including Intel. We expect to continue to jointly develop NAND technologies with Intel through the third generation of 3D NAND, which is expected to be delivered in 2019. In the second quarter of 2018, we and Intel mutually agreed to independently develop subsequent generations of 3D NAND in order to better optimize the technology and products for each individual business' needs. Our R&D expenses were reduced by reimbursements under our arrangements by $58 million for the second quarter of 2018, $56 million for the first quarter of 2018, and $59 million for the second quarter of 2017.
Income Taxes
Income tax (provision) benefit consisted of the following:
|
| | | | | | | | | | | | | | | | | | | |
| | Second Quarter | | First Quarter | | Six Months |
| | 2018 | | 2017 | | 2018 | | 2018 | | 2017 |
| Provisional estimate for the Repatriation Tax, net of adjustments related to uncertain tax positions | $ | (1,335 | ) | | $ | — |
| | $ | — |
| | $ | (1,335 | ) | | $ | — |
|
| Remeasurement of deferred tax assets and liabilities reflecting lower U.S. corporate tax rates | (133 | ) | | — |
| | — |
| | (133 | ) | | — |
|
| Provisional estimate for the release of the valuation allowance on the net deferred tax assets of our U.S. operations | 1,337 |
| | — |
| | — |
| | 1,337 |
| | — |
|
| Utilization of and other changes in net deferred tax assets of MMJ, MMT, and MTTW | (17 | ) | | (8 | ) | | (26 | ) | | (43 | ) | | (21 | ) |
| Other income tax (provision) benefit | 5 |
| | (30 | ) | | (88 | ) | | (83 | ) | | (48 | ) |
| | $ | (143 | ) | | $ | (38 | ) | | $ | (114 | ) | | $ | (257 | ) | | $ | (69 | ) |
| | | | | | | | | | |
| Effective tax rate | 4.1 | % | | 4.1 | % | | 4.1 | % | | 4.1 | % | | 6.1 | % |
foreign minimum tax. Our income taxes reflectinclude the following:
various provisional estimates for the impactseffect of the Tax Act, including the Repatriation Tax, remeasurement of deferred tax assets and liabilities at the lower U.S. corporate rate of 21%, and release of a substantial portion of the valuation allowance on the net deferred tax assets of our U.S. operations; and
operations outside the United States, including Singapore, where we have tax incentive arrangements that further decrease our effective tax rates.
On December 22, 2017, the U.S. government enacted the Tax Act which lowers the U.S. corporate income tax rate from 35% to 21% and significantly affects how income from foreign operations is taxed in the United States. As a result of our fiscal year-end, our U.S. statutory federal rate will be 25.7% for 2018 (based on the 35% corporate rate through December 31, 2017 and 21% from that date through the end of fiscal year 2018) and 21% for subsequent years. The Tax Act imposes a Repatriation
Tax in 2018; provides a U.S. federal tax exemption on foreign earnings distributed to the United States; and, beginning in 2019, creates a Foreign Minimum Tax. The Tax Act allows us to elect to pay any Repatriation Tax due in eight annual interest-free payments in increasing amounts beginning in December 2018. In connection with the provisions of the Tax Act, we are continuing to evaluate whether to account for the Foreign Minimum Tax provisions that begin for us in 2019 as a period cost or in our measurement of deferred taxes.
SAB 118 allows the use of provisional amounts (reasonable estimates) if our analyses of the impacts of the Tax Act has not been completed when our financial statements for the second quarter of fiscal year 2018 are issued. Provisional amounts may be adjusted during a one-year measurement period as accounting for the income tax effects of the Tax Act are completed or as estimates are revised.
In accordance with SAB 118, we recorded certain provisional estimates included in the table above. Although the provisional estimates are based on the best available interpretations of the Tax Act, the final impacts may differ from the estimates due to, among other things, the issuance of additional regulatory and legislative guidance related to the Tax Act.
As noted above, provisional estimates were recorded for the Repatriation Tax and the release of the valuation allowance on the net deferred tax assets of our U.S. operations. To determine the amount of the Repatriation Tax, we must determine the accumulated foreign earnings of our foreign subsidiaries and the amount of foreign income tax paid on such earnings. The provisional estimate of the Repatriation Tax is also based, in part, on the amount of cash and other specified assets anticipated to be held by our foreign subsidiaries as of August 30, 2018, the end of our fiscal year 2018, which may determine the portion of the accumulated foreign earnings taxed at an effective rate of 15.5% or 8%. As a result, the Repatriation Tax may change as amounts are finalized. The U.S. Department of Treasury has issued interpretive guidance regarding the Repatriation Tax and we expect that they will issue additional guidance. Based on the information available, we can reasonably estimate the Repatriation Tax and therefore recorded a provisional amount; however, we are continuing to gather additional information and analyze authoritative guidance to finalize the computation of the Repatriation Tax as well as the impacts on the valuation allowance release of the Repatriation Tax and the Tax Act.
We operate in a number of locationsjurisdictions outside the UnitesUnited States, including Singapore, where we have tax incentive arrangements thatarrangements. These incentives expire, in whole or in part, at various dates through 2034 and are conditional, in part, upon meeting certain business operations and employment thresholds. The effect of tax incentive arrangements which expire in whole or in part at various dates through 2030, reduced our tax provision by $436$70 million (benefiting our diluted earnings per share by $0.35)$0.06) for the third quarter of 2020, were not significant for the second quarteror first quarters of 2018, by $3912020, and $71 million ($0.32 per diluted share) in the first quarter of 2018, and by $132 million ($0.110.06 per diluted share) for the secondthird quarter of 2017. The Tax Act establishes a new provision designed to impose the Foreign Minimum Tax beginning in 2019. Consequently, we may incur additional U.S. tax expense on income of our foreign subsidiaries that could offset a significant portion of the benefits realized from our tax incentive arrangements. Beginning in 2019, our tax rate may increase to the low teens percentage depending on profitability.
Other
Net interest:Interest expense decreased 40% for the secondthird quarter of 2018 as compared to the first quarter of 2018 primarily due to decreases in debt obligations in the first six months of 2018. Net interest expense decreased 60% for the second quarter of 20182020 increased 11% as compared to the second quarter of 2017 primarily due to decreases2020 as a result of increases in debt obligations, includingobligations. Interest income for the redemption of $600 million in principal amount of notes in the fourththird quarter of 2017 and the redemption and conversion of an aggregate of $2.42 billion in principal amount of notes in the first six months of 2018, as well as an increase in capitalized interest from higher levels of capital spending. Interest income also increased in the second quarter of 20182020 decreased 32% as compared to the second quarter of 20172020 due to decreases in interest rates partially offset by an increase in investment balances.
Interest expense for the third quarter and first nine months of 2020 increased 76% and 62% as compared to the corresponding periods of 2019 primarily due to increases in our aggregate cashdebt obligations and investments. Neta reduction of capitalized interest expense decreased 43%from lower levels of capital projects in process. Interest income for the third quarter and first sixnine months of 20182020 decreased 56% and 32% as compared to the first six monthscorresponding periods of 2017 primarily due to decreases in debt obligations, increases in interest income2019 as a result of increasesdecreases in ourinterest rates, partially offset by higher levels of cash and investments, and increases in capitalized interest.investment balances.
Further discussion of other operating and non-operating income and expenses can be found 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" notes.Net.”
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, in the future, to engage in a variety of financing transactions for such purposes, including the issuance of securities. We have an undrawn revolving credit facility that expires in FebruaryAs of May 28, 2020, and provides for additional borrowings of up$2.50 billion was available to $750 million based on eligible receivables.draw under our Revolving Credit Facility. 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
33
estimate thatcapital expenditures in 2018 for property, plant, and equipment,2020, net of partner contributions, to be in the range of $7.5approximately $8 billion, plus or minus 5 percent, focused on technology transitions and product enablement. The actualActual amounts for 20182020 will vary depending on market conditions.timing of equipment deliveries. As of March 1, 2018,May 28, 2020, we had commitments of approximately $1.6$2.67 billion for the acquisition of property, plant, and equipment, substantially all of which approximately $2.32 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 through open-market purchases, block trades, privately-negotiated transactions, derivative transactions, and/or pursuant to Rule 10b5-1 trading plans. The repurchase authorization has no expiration date, 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. Through May 28, 2020, we had repurchased an aggregate of $2.8 billion of the authorized amount. See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Equity.”
Cash and marketable investments totaled $8.56 billion and $6.05$9.24 billion as of March 1, 2018May 28, 2020 and $9.12 billion as of August 31, 2017, respectively.29, 2019. Our investments consist primarily of bank deposits, money market funds, and liquid investment-grade, fixed-income securities, diversified among industries and individual issuers. As of March 1, 2018, $3.94 billion of our cash and marketable investments was held by our foreign subsidiaries. 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.
In October 2017, we issued 34 million shares As of May 28, 2020, $2.98 billion of our common stock for $41.00 per share in a public offering for proceeds of $1.36 billion, net of underwriting feescash and other offering costs. In the first six months of 2018, we paid $2.93 billion in cash for the repurchase or settlement upon conversion of notes with an aggregate principal amount of $2.42 billion. See "Item 1. Financial Statements – Notes to Consolidated Financial Statements – Debt." We may redeem, repurchase, or otherwise retire additional debt in the future.marketable investments was held by our foreign subsidiaries.
Limitations on the Use of Cash and Investments
MMJ Group:Cash and marketable investments as of May 28, 2020 included $495$228 million held by the MMJ Group as of March 1, 2018.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 JapanTokyo District Court, the MMJ Group cannot make loans or advances, other than certain ordinary course advances, to us without the consent of the JapanTokyo 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, and in MMT, may require consent of MMJ'sMMJ’s trustees and/or the JapanTokyo District Court.
MSTW and MTTW: Cash and marketable investments included $59 million held by MSTW and MTTW as of March 1, 2018. The 2021 MSTW Term Loan contains covenants that limit or restrict the ability of MSTW and MTTW to pay dividends. As a result, the assets of MSTW and MTTW are not available for use by us in our other operations.
IMFT: Cash and marketable investments included $317 million held by IMFT as of March 1, 2018. Our ability to access funds held by IMFT to finance our other operations is subject to agreement by Intel and contractual limitations. Amounts held by IMFT are not anticipated to be available to finance our other operations.
Indefinitely Reinvested: As of March 1, 2018, $3.18 billion of cash and marketable investments, including substantially all of the amounts held by MMJ, MSTW, and MTTW, was held by foreign subsidiaries whose earnings were considered to be indefinitely reinvested. As a result of the Tax Act, substantially all of our accumulated foreign earnings earned before December 31, 2017 were treated as taxable for U.S. federal income taxes; however, the repatriation of all or a portion of these earnings would continue to be subject to foreign and state tax upon repatriation to the United States. As we evaluate the impact of the Tax Act and the future cash needs of our global operations, we may revise the amount of the foreign earnings considered to be indefinitely reinvested outside of the United States. Determination of the amount of unrecognized deferred tax liabilities related to investments in these foreign subsidiaries is not practicable.
Cash Flows:
| | | | | | | | |
| Nine Months | |
| 2020 | 2019 |
| | |
| Net cash provided by operating activities | $ | 6,035 | | $ | 10,956 | |
| Net cash provided by (used for) investing activities | (4,851) | | (8,985) | |
| Net cash provided by (used for) financing activities | (135) | | (3,330) | |
| Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash | (8) | | 6 | |
| Net increase in cash, cash equivalents, and restricted cash | $ | 1,041 | | $ | (1,353) | |
|
| | | | | | | |
| | First Six Months |
| | 2018 | | 2017 |
| Net cash provided by operating activities | $ | 7,984 |
| | $ | 2,543 |
|
| Net cash provided by (used for) investing activities | (3,843 | ) | | (5,385 | ) |
| Net cash provided by (used for) financing activities | (1,420 | ) | | 2,341 |
|
| Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash | 4 |
| | (33 | ) |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | 2,725 |
| | $ | (534 | ) |
Operating Activities:For the first six months of 2018, cash Cash provided by operating activities was due primarily to cash generated by our operationsreflects net income adjusted for certain non-cash items, including depreciation expense, amortization of intangible assets, and stock-based compensation, and the effecteffects of changes in operating assets and liabilities. The decrease in the first nine months of 2020 as compared to 2019 was primarily due to lower net income compared with the prior period and changes in working capital adjustments, which included $630 million of cash used for increases in receivables, partially offset by $93 million of cash provided by an increase in accounts payable and accrued expenses.capital.
Investing Activities: For the first sixnine months of 2017, cash provided by operating activities was due primarily to cash generated by our operations and the effect of working capital adjustments, which included $773 million of cash used for net increases in receivables, $361 million of payments attributed to intercompany balances with Inotera, and $399 million of cash provided by net increases in accounts payable and accrued expenses.
Investing Activities: For the first six months of 2018,2020, net cash used for investing activities consisted primarily of $4.22$5.77 billion of expenditures for property, plant, and equipment (which excludes offsets(net of amounts funded by our partners),partner contributions) partially offset by $198 million$1.00 billion of net inflows from sales, maturities, and purchases of available-for-sale securities. For the first sixnine months of 2017,2019, net cash used for investing activities consisted primarily of $2.63 billion of net cash paid for the Inotera Acquisition (net of $361 million of payments attributed to intercompany balances with Inotera included in operating activities) and $2.43$7.08 billion of expenditures for property, plant, and equipment (which excludes offsets(net of amounts funded by our partners).partner contributions) and $1.92 billion of net outflows from sales, maturities, and purchases of available-for-sale securities.
Financing Activities: For the first sixnine months of 2018,2020, net cash used for financing activities consisted primarily of redemption$4.29 billion of cash payments to reduce our debt, including $2.50 billion to pay down borrowings under our Revolving Credit Facility, $621 million for IMFT Member Debt repayments, $534 million to prepay our 2025 Notes, $266 million to settle conversions of notes, and $171 million for scheduled repayment of finance leases; $744 million for the acquisition of Intel’s noncontrolling interest in IMFT; and $134 million for the acquisition of 2.8 million shares of our 2023 Secured Notescommon stock under our $10 billion share repurchase authorization. Cash used for $1.37financing activities was partially offset by proceeds of $2.50 billion in cash, redemption offrom our Revolving Credit Facility, $1.25 billion from the 2023 Notes,
and $1.25 billion from the 2024 Term Loan A. For the first nine months of 2019, net cash used for $1.05financing activities consisted primarily of $2.66 billion in cash,for the acquisition of 66.4 million shares of common stock, $1.65 billion of payments to settle conversions of our convertible notes, for $511and $731 million of cash, and $449 million forscheduled repayments of other notes payable and capitalfinance leases, partially offset by net proceeds of $1.36$1.79 billion from the aggregate issuance of 34 million sharesour 2024 Notes, 2026 Notes, and 2029 Notes.
Potential Settlement Obligations of our common stock for $41.00 per share in a public offering and $650 million of proceeds from IMFT Member Debt. For the first six months of 2017, net cash provided by financing activities consisted primarily of $2.48 billion of net proceeds from the 2021 MSTW Term Loan and $445 million of net proceeds from the 2021 MSAC Term Loan, partially offset by $556 million for repayments of debt. Convertible Notes:
See "Item“Item 1. Financial Statements – Notes to Consolidated Financial Statements – Debt."Debt – Convertible Senior Notes.”
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 December 31, 2017, holders may convert their notes through the calendar quarter ended March 31, 2018. The following table summarizes the potential settlements that we could be required to make for the calendar quarter ending March 31, 2018 if all holders converted their notes. The amounts in the table below are based on our closing share price of $47.62 as of March 1, 2018.
|
| | | | | | | | | | | | | | | | | |
| | 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 | |
| 2032C Notes | Cash and/or shares | | Cash and/or shares | | 18 |
| | $ | — |
| | 18 |
| | $ | 849 |
|
| 2032D Notes | Cash and/or shares | | Cash and/or shares | | 18 |
| | — |
| | 18 |
| | 845 |
|
2033E Notes(1) | Cash | | Cash and/or shares | | 5 |
| | 197 |
| | 1 |
| | 261 |
|
2033F Notes(1) | Cash | | Cash and/or shares | | 27 |
| | 393 |
| | 18 |
| | 1,272 |
|
| 2043G Notes | Cash and/or shares | | Cash and/or shares | | 35 |
| | — |
| | 35 |
| | 1,674 |
|
| | | |
| | 103 |
| | $ | 590 |
| | 90 |
| | $ | 4,901 |
|
| |
(1)
| Amounts as of March 1, 2018 include $178 million and $129 million for the settlement obligation (principal and amounts in excess of principal) of 2033E Notes and 2033F Notes, respectively, that had been converted but not settled. The settlement obligation of these notes will settle in cash in the third quarter of 2018. |
Contractual Obligations:
As of March 1, 2018, the contractual obligations of principalSee “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Leases” and interest of all our notes payable was $9.80 billion, of which $610 million is due in the remainder of 2018, $3.30 billion is due in 2019 and 2020, $2.77 billion is due in 2021 and 2022, and $3.12 billion is due in 2023 and thereafter. There have been no other material changes“– Debt.”
Recently Adopted Accounting Standards
See “Item 1. Financial Statements – Notes to our contractual obligations as described in "Part IConsolidated Financial Statements – Item 2. 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 31, 2017, other than our purchase commitments for the acquisition of property, plant, and equipment as described above.Recently Adopted Accounting Standards.”
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 31, 2017. Except for the critical accounting estimates associated with our income taxes 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 31, 2017.
Income taxes: We are required to estimate our provision for income taxes and amounts ultimately payable or recoverable in numerous tax jurisdictions around the world. These estimates involve significant judgment and interpretations of regulations and are inherently complex. Resolution of income tax treatments in individual jurisdictions may not be known for many years after completion of any fiscal year. We are also required to evaluate the realizability of our deferred tax assets on an ongoing basis in accordance with U.S. GAAP, which requires the assessment of our performance and other relevant factors. Realization of deferred tax assets is dependent on our ability to generate future taxable income. In recent periods, our results of operations have benefitted from increases in the amount of deferred taxes we expect to realize, primarily from the levels of capital spending and increases in the amount of taxable income we expect to realize in Japan and Taiwan. Our income tax provision or benefit is dependent, in part, on our ability to forecast future taxable income in these and other jurisdictions. Such forecasts are inherently difficult and involve significant judgments including, among others, projecting future average selling prices and sales volumes, manufacturing and overhead costs, levels of capital spending, and other factors that significantly impact our analyses of the amount of net deferred tax assets that are more likely than not to be realized.
In connection with the Tax Act, we recognized a provision for income taxes of $131 million in the second quarter of 2018, of which $133 million was related to the impact of remeasuring our deferred tax assets and liabilities to reflect the lower tax rate and $2 million of income tax benefit was considered a provisional estimate. The provisional estimate included $1.34 billion associated with the Repatriation Tax, essentially offset by a benefit of $1.34 billion for the release of the valuation allowance on the net deferred tax assets of our U.S. operations. Based on the information available, we recorded a provisional amount;
however, we are continuing to gather additional information and analyze authoritative guidance to finalize the computation of the Repatriation Tax as well as the impacts on the valuation allowance release as a result of the Tax Act.
Recently Issued Accounting Standards
See "Item“Item 1. Financial Statements – Notes to Consolidated Financial Statements – Recently Issued Accounting Standards."”
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are affected by changes in currency exchange and interest rates. See discussion regarding certain interest rate risks below. 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 31, 2017.29, 2019.
Interest Rate Risk
We are exposed to interest rate risk related to our indebtedness and our investment portfolio. As of March 1, 2018 and August 31, 2017, the carrying value of our debt with fixed interest rates was $4.0 billion and $5.7 billion, respectively, and as a result, the fair value of our debt fluctuates with changes in market interest rates. We estimate that, as of March 1, 2018 and August 31, 2017, a decrease in market interest rates of 1% would increase the fair value of our fixed-rate debt by approximately $130 million and $273 million, respectively.
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 RuleRules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934)1934, as amended (the “Exchange Act”)) 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'sSecurities and Exchange Commission’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 secondthird quarter of 2018,2020, 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.
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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 31, 201729, 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.
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
The effects of the factors belowCOVID-19 outbreak could adversely affect our business, results of operations, and financial condition.
The effects of the public health crisis caused by the COVID-19 outbreak and the measures being taken to limit COVID-19’s spread are uncertain and difficult to predict, but may include:
•A decrease in short-term and/or long-term demand and/or pricing for our products, and a global economic recession or depression that could further reduce demand and/or pricing for our products, resulting from actions taken by governments, businesses, and/or the general public in an effort to limit exposure to and the spreading of COVID-19, such as travel restrictions, quarantines, and business shutdowns or slowdowns;
•Negative impacts to our operations, including:
◦reductions in production levels, R&D activities, product development, technology transitions, yield enhancement activities, and qualification activities with our customers, resulting from our efforts to mitigate the impact of COVID-19 through social-distancing measures we have enacted at our locations around the world in an effort to protect our employees’ and contractors’ health and well-being, including working from home, limiting the number of meeting attendees, reducing the number of people in our sites at any one time, quarantines of team members, contractors, or vendors who are at risk of contracting, or have contracted, COVID-19, and suspending employee travel (“Social Distancing Measures”);
◦increased costs resulting from our efforts to mitigate the impact of COVID-19 through Social Distancing Measures, working from home, enhanced cleaning measures and the increased use of personal protective equipment at our sites;
◦increased costs for, or unavailability of, transportation, raw materials, or other inputs necessary for the operation of our business;
◦reductions in or cessation of operations at any site or in any jurisdiction resulting from government restrictions on movement and/or business operations or our failure to prevent and/or adequately mitigate spread of COVID-19 at one or more of our sites; and
◦our inability to continue or resume construction projects due to delays in obtaining materials, equipment, labor, engineering services, government permits or any other essential aspect of projects, which could impact our ability to introduce new technologies, reduce costs or meet customer demand;
•Deterioration of worldwide credit and financial markets that could limit our ability to obtain external financing to fund our operations and capital expenditures, result in losses on our holdings of cash and investments due to failures of financial institutions and other parties, and result in a higher rate of losses on our accounts receivables due to credit defaults; and
•Disruptions to our supply chain in connection with the sourcing and transportation of materials, equipment and engineering support, and services from or in geographic areas that have been impacted by COVID-19 and by efforts to contain the spread of COVID-19.
The resumption of normal business operations after such interruptions may be delayed or constrained by lingering effects of COVID-19 on our team members, contractors, suppliers, third-party service providers, customers, or distributors.
These effects, alone or taken together, could have a material adverse effect on our business, results of operations, legal exposure, or financial condition,condition. A sustained, prolonged, or stock price.recurring outbreak could exacerbate the adverse impact of such measures.
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. Decreases in averageAverage 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) |
| 2017 from 2016 | 19 | % | | (9 | )% |
| 2016 from 2015 | (35 | )% | | (20 | )% |
| 2015 from 2014 | (11 | )% | | (17 | )% |
| 2014 from 2013 | 6 | % | | (23 | )% |
| 2013 from 2012 | (11 | )% | | (18 | )% |
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
37
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 inventories 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 Corporation;Memory 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 such as China,may begin to provide, or have provided and may continue to provide, significant assistance, financial assistanceor otherwise, to some of our competitors or to new entrants. 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’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.
Debt obligations could adversely affect our financial condition.
As of March 1, 2018, we had debt with a carrying value of $9.32 billion. In addition, the conversion value in excess of principal of our convertible notes as of March 1, 2018 was $3.18 billion. In the first six months of 2018, and full years of 2017 and 2016, we paid $2.93 billion and 4 million shares of our treasury stock as non-cash settlement, $1.63 billion, and $94 million, respectively, to repurchase and settle notes with principal amounts of $2.42 billion, $1.55 billion, and $57 million,
respectively. As of March 1, 2018, we had an undrawn revolving credit facility that provided for additional borrowings of up to $750 million based on eligible receivables. Events and circumstances may occur which would cause us to not be able to satisfy applicable draw-down conditions and utilize this revolving credit facility. 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.
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;
result in all obligations owing under the 2021 MSTW Term Loan being accelerated to be immediately due and payable if MSTW fails to comply with certain covenants, including financial covenants;
increase the interest rate under the 2021 MSTW Term Loan if we or MSTW fails to maintain certain financial covenants;
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. 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 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 net cashcapital expenditures in 2018 for property, plant, and equipment will2020, net of partner contributions, to be approximately $7.5$8 billion, plus or minus 5 percent, which reflects the offset of amounts we expect to be funded by our partners.focused on technology transitions and product enablement. Investments in capital expenditures offset by amounts funded bymay not generate expected returns or cash flows. Delays in completion and ramping of new production facilities could significantly impact our partners, were $2.11 billion in the second quarter of 2018. As of March 1, 2018, we had cash and marketable investments of $8.56 billion. As of March 1, 2018, $3.18 billion of cash and marketable investments, including substantially all of the cash held by the MMJ Group, MSTW, and MTTW, was held by foreign subsidiaries whose earnings were considered to be indefinitely reinvested. As a result of the Tax Act, substantially all of our accumulated foreign earnings earned before December 31, 2017 were treated as taxable; however, the repatriation of all or a portion of these earnings would continue to be subject to foreign and state tax upon repatriation to the United States. In addition, cash of $317 million held by IMFT was generally not available to finance our other operations.
The 2021 MSTW Term Loan contains covenants that limit or restrict MSTW's ability to create liens inrealize expected returns on our capital expenditures, which could have a material adverse effect on our business, results of operations, or dispose of collateral securing obligations under the 2021 MSTW Term Loan, mergers involving MSTW and/or MTTW, loans orfinancial condition.
guarantees to third parties by MTTW and/or MSTW, and MSTW's and/or MTTW's distribution of cash dividends. As a result, the assets of MSTW and/or MTTW are not available for use by us in our other operations.
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 JapanTokyo District Court, MMJ cannot make loans or advances, other than certain ordinary course advances, to us without the consent of the JapanTokyo 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, and MMT or further investments in MMT, may require consent of MMJ'sMMJ’s trustees and/or the JapanTokyo District Court.
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 Senior Secured Term Loan B due 2022; 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 or credit 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.
A downturn in the worldwide economy may harm our business.
The health crisis caused by COVID-19 has adversely affected economic conditions and caused a downturn in the worldwide economy. Downturns in the worldwide economy have harmed our business in the past and the current downturn has adversely affected our business. As a result, demand for certain of our products used in smartphones, consumer electronics, and automotive, has declined. Reduced demand for these or other products could result in significant decreases in our average selling prices and product sales. If these adverse conditions persist or worsen, we could experience additional reduction in demand for our products and/or devices that incorporate our products. Future downturns could also adversely affect our business. In addition, to the extent our customers or distributors have elevated inventory levels, we may experience a decrease in short-term and/or long-term demand and/or pricing for our products.
A deterioration of 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, downturns in the worldwide economy 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, Malaysia, 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
39
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.
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 (“EAR”) 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 received licenses that enable us to provide support for the products we sell that are not subject to the EAR, 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.
More recently, on May 15, 2020, the BIS modified its existing rules that subject certain foreign-produced items to the EAR. We believe these actions could hinder Huawei’s ability to source parts required to manufacture their products, and could consequently have a negative impact on Huawei’s demand for our products.
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 organizations to the Entity List, effective October 9, 2019, and in May 2020 added 33 more China-based organizations, effective June 5, 2020.
Other trade restrictions imposed by BIS or non-US governments may further impact our business. For example, on April 28, 2020, the BIS published new rules that increase the number of products that require export licenses and remove certain license exemptions by expanding scope of military end-users and military end-use controls for sales of certain products. These new trade restrictions went into effect on June 29, 2020. While we do not expect these changes to materially impact our business, complying with them may increase costs, and further restrictions may materially reduce our customer opportunities in China. These and other trade restrictions that may be imposed by the U.S., China, or other countries may indirectly impact our business in ways we cannot reasonably quantify, including that some of our other customers’ products which incorporate our solutions may also be impacted. 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 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), shrinking products in order to reduce costs, meeting higher density requirements, and improving power consumption and reliability. To meet these requirements, weWe 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 thatto continue to invest in R&D for new memory technologies willand existing products, which involves significant risk and uncertainties. We may be developed byunable to recover our investment in R&D or otherwise realize the semiconductoreconomic benefits of reducing die size or increasing memory and storage industry.densities. Our competitors are working to develop new memory and storage technologies that may offer performance andand/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.
New product 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. 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. 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 with 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 IMFT joint venture with Intel, to manufacture products and develop new manufacturing process technologies and products. These joint ventures and strategic relationships are subject to various risks that could adversely affect the value of our investments and our results of operations. These risks include the following:
our interests could diverge from our partners' interests or we may not be able to agree with our partners on ongoing manufacturing and operational activities, or on the amount, timing, or nature of further investments in our joint ventures;
our joint venture partners' products may compete with our products;
we may experience difficulties in transferring technology to joint ventures;
we may experience difficulties and delays in ramping production at joint ventures;
our control over the operations of our joint ventures is limited;
due to financial constraints, our joint venture partners may be unable to meet their commitments to us or our joint ventures and may pose credit risks for our transactions with them;
due to differing business models or long-term business goals, we and our partners may not participate to the same extent on funding capital investments in our joint ventures;
cash flows may be inadequate to fund increased capital requirements of our joint ventures;
we may experience difficulties or delays in collecting amounts due to us from our joint ventures and partners;
the terms of our partnering arrangements may turn out to be unfavorable; and
changes in tax, legal, or regulatory requirements may 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.
A significant concentrationportion of our net salesrevenue is toconcentrated with a select number of customers.
In each of the last three fiscal years, approximately one-half of our total net sales were torevenue 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 inability to meet our customers'customers’ requirements or to qualify our products with them could adversely impact our sales.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 herein. 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
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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;
•public health issues (for example, an outbreak of a contagious disease such as COVID-19, Severe Acute Respiratory Syndrome (“SARS-CoV”), avian and swine influenza, measles, or Ebola);
•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; to stop manufacturing, using, selling, and offering for sale the accused products in 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 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 complaint was filed against Micron and other DRAM suppliers in the U.S. District Court for the Northern District of California. 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 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, and seeks treble monetary damages, costs, interest, 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, amended complaint. The consolidated complaint purports to be on behalf of a nationwide class of direct purchasers of DRAM products. The consolidated complaint asserts 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 seeks 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”) 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 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 conditions, economic conditions, or public health issues, such as COVID-19, may limit our ability 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.
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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, responsible sourcing practices, public health crises, or contagious disease outbreaks, 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 customers’ ability to accurately forecast the end-customer’s needs and preferences. As a result, our product demand forecasts may be impacted significantly by the strategic actions of our customers.
For certain of our markets, it is important that we deliver products in a timely manner with increasingly advanced performance characteristics at the time our customers are designing and evaluating samples for their products. If we do not meet their product design schedules, our customers may exclude 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. The effects of the public health crisis caused by the COVID-19 outbreak and the measures being taken to limit COVID-19’s spread could negatively impact our ability to meet anticipated timelines and/or expected or required quality standards with respect to the development of certain of our products. 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.
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 offor those products. Developing and manufacturing system-level products
with specifications unique to a customer increases our reliance upon that customer for purchasing our products inat sufficient volume, quantity,volumes and prices 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 salesrevenue 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 customer'scustomers’ 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-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. AsOur products and solutions may be deemed fully or partially responsible for functionality in our 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 weof our 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.
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 secret laws,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.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.
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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 also "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’ 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 purported 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 alleged that defendants committed securities fraud through misrepresentations and omissions about purported anticompetitive behavior in the DRAM industry and sought 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. On November 21, 2019, the plaintiff voluntarily dismissed his complaint that was filed in the U.S. District Court for the District of Idaho.
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 our manufacturing operations,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, wethere have experiencedbeen disruptions in ourthe 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 tsunamis, that could disrupt operations. In addition, our suppliers and customers also have operations in such locations. Additionally, other environmental events. events including political or public health crises, such as an outbreak of contagious diseases like COVID-19, SARS-CoV, avian and swine influenza, measles, or Ebola, may affect our production capabilities or that of our suppliers, including as a result of quarantines, closures of production facilities, lack of supplies, or delays caused by restrictions on travel or shipping. For example, in March 2020, the government of Malaysia announced measures to restrict movement in that country in an effort to suppress the number of COVID-19 cases. Those restrictions temporarily limited our ability to fully operate our manufacturing facilities in that country. 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 at a fabrication facility 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 significant increase in manufacturing costs, loss of revenues,revenue, or damage to customer relationships, any of which could have a material adverse effect on our business, results of operations, or financial condition.
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Breaches of our security systems, or those 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 May 28, 2020, we had debt with a carrying value of $6.69 billion. As of May 28, 2020, $2.50 billion of our Revolving Credit Facility was available to us. As of May 28, 2020, the conversion value in excess of principal of our 2032D Notes was $488 million, based on the trading price of our common stock of $46.47 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 or obtain external financing 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 our Senior Secured Term Loan B due 2022; 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, as well as restrictions on global travel as a result of local or global public health crises requiring quarantines or other precautions to limit exposure to infectious diseases, may limit our ability to hire and/or retain talent in, or transfer talent to, 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'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 March 1, 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’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 Courtcourt 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 havehad no immediate, enforceable effect on us, and Micron, accordingly, we expect to behas been 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 an independent expert 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 expert issued a 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.expert for supplemental expert opinion. On March 31, 2020, the expert presented a
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revised opinion to the Appeals Court which reaffirmed the earlier view that the amount paid by Micron was still within an acceptable range of fair value.
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 restructuring chargestax expense or become subject to additional tax exposure.
We operate in future periods.
In separate transactions in 2017, we sold our assembly and test facility located in Akita, Japan and our 40% ownership interest in Tera Probe; assets associated with our 200mm fabrication facility in Singapore; and assets related to our Lexar brand. In 2016, we initiated a restructure plan in response to business conditions and the need to accelerate focus on our key priorities. The plan included the elimination of certain projects and programs, the permanent closure of a number of open headcount requisitions, workforce reductionslocations outside the United States, including Singapore, where we have tax incentive arrangements that are conditional, in part, upon meeting certain areasbusiness operations and employment thresholds. Our domestic and international taxes are dependent upon the geographic mix of our business,earnings among these jurisdictions. Our provision for income taxes and other non-headcount related spending reductions. As a result of thesecash tax liabilities in the future could be adversely affected by numerous factors, including challenges by tax authorities to our tax positions and other actions, we incurred charges of $18 million, $67 million, and $3 million for 2017, 2016, and 2015, respectively.
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 associatedintercompany transfer pricing arrangements, failure to meet performance obligations with other initiatives. In connection with any restructure initiatives, we could incur restructure charges, loss of production output, loss of key personnel, disruptions inrespect to tax incentive agreements, expanding our operations in various countries, and difficultieschanges in tax laws and regulations. Additionally, we file income tax returns with the timely deliveryU.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 products, whichaudits 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.
Breaches ofA change in tax laws in key jurisdictions could materially increase our security systems could expose us to losses.tax expense.
We maintainare 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 flows from operating activities and otherwise have a systemmaterial 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 controls over the physical securityTax Cuts and Jobs Act, enacted on December 22, 2017 by the United States. Additionally, various levels 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,government are increasingly focused on tax reform and other malicious software programs that disrupt our operationslegislative actions to increase tax revenue. Further changes in the tax laws of foreign jurisdictions could arise as a result of the base erosion and create security vulnerabilities. Breachesprofit shifting project undertaken by the Organisation for Economic Co-operation and Development, which represents a coalition of our physical securitymember countries and attacks on our network systems could resultrecommended changes to numerous long-standing tax principles. If adopted by countries, such changes, as well as changes in significant lossesU.S. federal and damage our reputation with customersstate tax laws or in taxing jurisdictions’ administrative interpretations, decisions, policies, and suppliers and may expose us to litigation if the confidential information of our customers, suppliers, or employees is compromised, whichpositions, 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. We recorded net losses from changes in currency exchange rates of $36 million for the first six months of 2018, $74 million for 2017, and $24 million for 2016. Based on our foreign currency balances of monetary assets and liabilities, as of March 1, 2018, we estimate that a 10% adverse change in exchange rates versus the U.S. dollar would result in losses of approximately $414 million. 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, 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 for DRAM and NAND. 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.
The limited availability of raw materials, supplies, or capital equipment could materially adversely affect our business, results of operations, or financial condition.
Our operations require raw materials, and in certain cases, third party services, that meet exacting standards. 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. 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, sub-assemblies, targets, and reticle glass blanks. Shortages may occur, from time to time, in the future. We and/or our suppliers could be affected by laws and regulations enacted in response to concerns regarding climate change, which could increase the cost and limit the supply of our raw materials. 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 or 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.
Increases in tariffs or other taxes on our products or equipment and supplies could have an adverse impact on our operations.
We sell a significant majority of our products into countries outside the United States and we purchase a significant portion of equipment and supplies from suppliers outside the United States. The United States and other countries have levied tariffs and taxes on certain goods. Further tariffs, additional taxes or trade barriers may increase our 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.
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 results of operations could be affected by natural disasters and other events in the locations in which we 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, such as earthquakes or tsunamis, that could disrupt operations. 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 operations of our customers or suppliers, 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 thetheir 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.
The operations of MMJ are subject to continued oversight by
We may make future acquisitions and/or alliances, which involve numerous risks.
Acquisitions and the Japan Court during the pendency of the corporate reorganization proceedings.
Because MMJ's plan of reorganization provides for ongoing payments to creditors following the closing of our acquisition of MMJ, the reorganization proceedings in Japan (the "Japan Proceedings") are continuing and MMJ remains subject to the oversight of the Japan 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 Japan Court, who we refer to as the legal trustee), pending completion of the reorganization proceedings. The business trustee is responsible for overseeing theformation 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 of MMJ, other than oversightactivities;
•diverting management’s attention from daily operations;
•managing larger or more complex operations and facilities and employees in relation to acts that need to be carried outseparate and diverse geographic areas;
•hiring and retaining key employees;
•requirements imposed by government authorities in connection with the Japan Proceedings,regulatory review of a transaction, which are the responsibility of the legal trustee. MMJ's reorganization proceedings in Japan, and oversight of the Japan 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 unfixedinclude, among other things, divestitures or restrictions on the final scheduled installment payment date. MMJ may petition the Japan 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 Japan Court will grant any such petition in this particular case.
During the pendency of the reorganization proceedings in Japan, MMJ is obligated to provide periodic financial reports to the Japan Court and may be required to obtain the consent of the Japan 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's plan of reorganization. Accordingly, during the pendency of the reorganization proceedings in Japan, our ability to operate MMJ as partconduct of our global business or the acquired business;
•inability to cause MMJ to take certain actions that we deem advisable for its business could be adversely affected if the Japan Courtrealize synergies or the legal trustee is unwilling to consent to various actions that we may wish to take with respect to MMJ.other expected benefits;
The operations of MMJ being subject to the continued oversight by the Japan Court during the pendency of the corporate reorganization proceedings 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 agreements, income before taxes being lower than anticipated in countries with lower statutory tax rates and higher than anticipated in countries with higher statutory tax rates, changes in the valuation of deferred tax assets and liabilities, •failure to meet performance obligations with respect to tax incentive agreements,maintain customer, vendor, and changes in tax lawsother relationships;
•inadequacy or ineffectiveness of an acquired company’s internal financial controls, disclosure controls and regulations. We file income tax returns with the U.S. federal government, various U.S. states,procedures, compliance programs, and/or environmental, health and varioussafety, anti-corruption, human resource, or other jurisdictions throughout the world. Our U.S. federalpolicies or practices; and state tax returns remain open to examination for 2013 through 2017. In addition, tax returns that remain open to examination in Japan and Taiwan range from the years 2012 to 2017, and in Singapore from 2013 to 2017. The results
•impairment 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,acquired intangible assets, goodwill, or financial condition.
A change in tax laws in key jurisdictions could materially increase our tax expense.
On December 22, 2017, the U.S. government enacted the Tax Act. The Tax Act lowers the U.S. corporate income tax rate from 35% to 21% and significantly affects how income from our foreign operations are taxed in the United States. Asother assets as a result of our fiscal year-end,changing business conditions, technological advancements, or worse-than-expected performance of the lower corporate income tax rate will be phasedacquired business.
The global memory and storage industry has experienced consolidation and may continue to consolidate. We engage, from time to time, in resulting in a U.S. statutory federal rate of 25.7% for 2018,discussions regarding potential acquisitions and 21% for subsequent years. Based onsimilar opportunities. To the information available, we recorded provisional amounts under SAB 118; however,extent we are continuingsuccessful in completing any such transactions, we could be subject to gather additional information and analyze authoritative guidance to finalize the computationsome or all of the Repatriation Tax. The final tax impactsrisks described above, including the risks pertaining to funding, assumption of liabilities, integration challenges, and increases in debt that may differ from our provisional estimates due to, among other things, the issuanceaccompany such transactions. Acquisitions of, additional regulatoryor alliances with, technology companies are inherently risky and legislative guidance. As a result of the Tax Act, our tax rate may increase up to the low teens percentage depending on future profitability.
We may not utilize all of our net deferred tax assets.
We have substantial deferred tax assets, which include, among others, net operating loss and credit carryforwards. As of August 31, 2017, our U.S. federal and state net operating loss carryforwards, including uncertain tax benefits, were $3.88 billion and $1.95 billion, respectively, which, if not utilized, will expire at various dates from 2028 through 2037 and 2018 through 2037, respectively. As of August 31, 2017, our foreign net operating loss carryforwards were $6.30 billion, which will, if not utilized, substantially all expire at various dates from 2019 through 2026. As of August 31, 2017, we had gross deferred tax assets of $3.78 billion and valuation allowances of $2.32 billion against our deferred tax assets. As of March 1, 2018, after recording the provisional estimated impact of the Tax Act, which includes the utilization of a substantial portion of our U.S. deferred tax assets, we had net deferred tax assets of $1.95 billion and valuation allowances of $943 million against our deferred tax assets. Utilization of all of our net operating loss and credit carryforwards would increase the amount of our annual cash taxes reducing the overall amount of cash available to be used in other areas of the businesssuccessful and could have a material adverse effect on our business, results of operations, or financial condition.
A changeChanges in ownership may limitforeign currency exchange rates could materially adversely affect our ability to utilizebusiness, results of operations, or financial condition.
Across our net operating loss carryforwards.
On January 18, 2017, our shareholders approvedglobal 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 Section 382 Rights Agreement (the "Rights Agreement"), under which our shareholders of record as of the close of business on August 1, 2016 received one right for each share of common stock outstanding, which entitles certain shareholders to purchase additional sharessignificant portion of our common stock atmanufacturing costs are denominated in foreign currencies. Exchange rates for some of these currencies against the U.S. dollar have been volatile and may be volatile in future 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 significant discountmaterial adverse effect on our business, results of operations, or financial condition.
We may incur additional restructuring charges in future periods.
From time to time, we have, and may in the eventfuture, 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 certain transactions that may resultproduction output, loss of key personnel, disruptions in an ownership change, as defined by Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"). In general, an ownership change will occur when the percentage of our ownership by one or more 5% shareholders has increased by more than 50% at any time during the prior three years. Rights will attach to all shares of the Company’s common stock issued prior to the earlier of the rights' distribution date or expiration date as set forthoperations, and difficulties in the Rights Agreement. Pursuant to the Rights Agreement, if a shareholder (or group) acquires beneficial ownershiptimely delivery of 4.99% or more of the outstanding shares of our common stock without prior approval of our Board or without meeting certain customary exceptions, the rights (other than rights held by the acquiring shareholder (or group) and certain related persons) would become exercisable. The Rights Agreement is intended to avoid an adverse ownership change, thereby preserving our current ability to utilize certain net operating loss and credit carryforwards; however, there is no assurance that the Rights Agreement will prevent all transfers that could result in such an ownership change.
If we experience a 50% or greater change in ownership involving shareholders owning 5% or more of our common stock, it could adversely impact our ability to utilize our existing net operating loss and credit carryforwards. The inability to utilize
existing net operating loss and credit carryforwards would significantly increase the amount of our annual cash taxes and reduce the overall amount of cash available to be used in other areas of the businessproducts, which could have a material adverse effect on our business, results of operations, or financial condition.
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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 in sufficient quantities materials, supplies, and services necessary for the manufacture of our products.
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 new 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.
Our inability to comply with thecustomers’ requirements for responsible sourcing or with regulations regarding the use of conflict minerals 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 partner with other companies inengage various third parties to represent us or otherwise act on our joint ventures, whichbehalf who are also subject to a broad array of laws, regulations, and regulations.industry standards. Our ownership inengagement with these joint venturesthird parties 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 joint ventures,third-party agents, 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 face risks associated with our international sales and operations that could materially adversely affect our business, results of operations, or financial condition.
Sales to customers outside the United States approximated 86% of our consolidated net sales for 2017. 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;
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 our 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 our ability to maintain flexibility with our staffing levels;
disruptions to our 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.
These factors 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. Additionally, we are subject to counterparty default risk from our customers for amounts receivable from them. 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’s plan of reorganization provides for ongoing payments to creditors following the closing of the MMJ acquisition, the reorganization proceedings in Japan (the “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 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. As of the end of the second quarter of 2020, substantially all creditor payments had been paid under MMJ’s plan of reorganization. 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 by the Tokyo District Court will 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’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.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the second quarter ofIn May 2018, we share-settled allannounced that our Board of Directors authorized the discretionary repurchase of up to $10 billion of our remaining 2032Coutstanding common stock through open-market purchases, block trades, privately-negotiated transactions, derivative transactions, and/or pursuant to Rule 10b5-1 trading plans. The repurchase authorization has no expiration date, does not obligate us to acquire any common stock, and 2033E Capped Callsis subject to market conditions and a portionour ongoing determination of our 2032D Capped Calls and received 7,022,506 sharesthe best use of our common stock.available cash.
| | | | | | | | | | | | | | | | | | | | |
| Period | | | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Maximum number (or approximate dollar value) of shares that may yet be purchased under publicly announced plans or programs |
| | | | | | |
| February 28, 2020 | – | April 2, 2020 | 320,260 | | $ | 40.41 | | 320,260 | | |
| April 3, 2020 | – | April 30, 2020 | 608,716 | | 45.18 | | 608,716 | | |
| May 1, 2020 | – | May 28, 2020 | — | | — | | — | | |
| | | 928,976 | | $ | 43.54 | | 928,976 | | $ | 7,203,401,131 | |
|
| | | | | | | | | | | | | |
| 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 |
| December 1, 2017 | – | January 4, 2018 | | 4,710,314 |
| | $ | 45.68 |
| | | | |
| January 5, 2018 | – | February 1, 2018 | | — |
| | — |
| | | | |
| February 2, 2018 | – | March 1, 2018 | | 2,312,192 |
| | 42.47 |
| | | | |
| | | | | 7,022,506 |
| | 44.62 |
| |
| | |
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.
53
ITEM 6. ExhibitsEXHIBITS
| | | | | | | | | | | | | | | | | | | | |
| Exhibit Number | Description of Exhibit | Filed Herewith | Form | Period Ending | Exhibit/ Appendix | Filing Date |
| | | | | | |
| 4.16 | | | | 8-K | | 4.2 | 4/24/20 |
| 4.17 | | | | 8-K | | 4.3 | 4/24/20 |
| 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 | | 99.1 | 4/15/14 |
| 10.1 | | | DEF 14A | | B | 12/7/2017 |
| 10.75 | | | DEF 14A | | A | 12/7/2017 |
| 10.76 | | 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 | | | | |
SIGNATURES
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: | March 23, 2018June 30, 2020 | 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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