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Micron: Fiscal 3Q15 Financial Results

Sales down 8% Q/Q

(in $ million) 3Q14 3Q15 9 mo. 14 9 mo. 15
Revenues 3,982 3,853 12,131 12,592
Growth   -3%   4%
Net income (loss) 806 491 1,895 2,428

Micron Technology, Inc. announced results of operations for its third quarter of fiscal 2015, which ended June 4, 2015.

Revenues for the third quarter of fiscal 2015 were $3.85 billion and were 8% lower compared to the second quarter of fiscal 2015 and 3% lower compared to the third quarter of fiscal 2014.

Cash flows from operations were $1.34 billion for the third quarter of fiscal 2015.

In the fiscal third quarter, Micron experienced market headwinds driven primarily by weakness in the PC sector,” stated D. Mark Durcan, CEO. “We remain focused on the long term as we continue to deploy advanced process technology to enable products and drive manufacturing efficiency.”

On a GAAP basis, net income attributable to Micron shareholders for the third quarter of fiscal 2015 was $491 million, or $0.42 per diluted share, compared to net income of $934 million, or $0.78 per diluted share, for the second quarter of fiscal 2015 and net income of $806 million, or $0.68 per diluted share, for the third quarter of fiscal 2014.

On a non-GAAP basis, net income attributable to Micron shareholders for the third quarter of fiscal 2015 was $620 million, or $0.54 per diluted share, compared to net income of $941 million, or $0.81 per diluted share, for the second quarter of fiscal 2015.

Revenues for the third quarter of fiscal 2015 were 8% lower compared to the second quarter of fiscal 2015 primarily due to a 10% decline in DRAM ASPs and relatively flat DRAM sales volume. The company’s overall consolidated gross margin of 31% for the third quarter of fiscal 2015 was down 3% compared to the second quarter of fiscal 2015 primarily due to lower ASPs for DRAM, partially offset by lower manufacturing costs.

Investments in capital expenditures were $734 million for the third quarter of fiscal 2015. The company ended the third quarter of fiscal 2015 with cash and marketable investments of $7.33 billion.

In the third quarter of fiscal 2015, the company recognized aggregate losses of $18 million primarily from repurchases of $269 million principal amount of the company’s 2032 notes in a series of transactions for $782 million in cash. In the first quarter of fiscal 2015, the company recognized aggregate losses of $30 million in connection with debt restructure activities, including settlements of conversions of the company’s 2031B Notes for $389 million in cash; repurchases of $36 million principal amount of the company’s 2032 notes in a series of transactions for $125 million in cash; and the repayment of a $121 million note prior to its scheduled maturity. In the third quarter and first nine months of fiscal 2014, the company recognized losses of $16 million and $171 million, respectively, from transactions to restructure its debt, including conversions, settlements, repurchases and exchange transactions.

Income taxes for the third and second quarters of fiscal 2015 and third quarter of fiscal 2014 included $22 million, $33 million and $49 million, respectively, related to the utilization of deferred tax assets as a result of MMJ’s and MMT’s operations. Income taxes for the third quarter of fiscal 2015 also included $45 million to write down the value of MMJ’s deferred tax assets as a result of changes in Japan tax laws and rates. Remaining taxes for fiscal 2015 and 2014 primarily reflect taxes on the company’s other non-U.S. operations. The company has a full valuation allowance for its net deferred tax asset associated with its U.S. operations. The provision (benefit) for taxes on U.S. operations for fiscal 2015 and 2014 was substantially offset by changes in the valuation allowance.

Equity in net income of equity method investees for the second quarter of fiscal 2015 included $65 million related to the company’s share of Inotera’s release of valuation allowances against its deferred tax assets related to its net operating loss carryforward.

On April 30, 2015, the company issued $550 million in aggregate principal amount of 5.25% Senior Notes due January 2024 and $450 million in aggregate principal amount of 5.625% Senior Notes due January 2026. Issuance costs for the 2024 Notes and 2026 Notes totaled $9 million. On February 3, 2015, the company issued $1.00 billion in aggregate principal amount of 5.25% Senior Notes due August 2023. Issuance costs for the 2023 Notes totaled $12 million.

In the third quarter of fiscal 2015, the company also recorded $209 million of debt from new and existing facilities, including existing revolving credit facilities, a new collateralized note and new capital leases, primarily equipment sale-leaseback arrangements. The debt recorded in the third quarter of fiscal 2015 was payable between 2 to 5 years with rates of up to 2.8%.

As of June 4, 2015, the company had (1) revolving credit facilities available that provide for up to $861 million of additional financing based on eligible receivables and inventories; (2) a term loan agreement available to obtain financing collateralized by certain property, plant, and equipment in the amount of 6.90 billion New Taiwan dollars or an equivalent amount in U.S. dollars (approximately $225 million as of June 4, 2015), of which the company drew 40 million on June 18, 2015; and (3) a commitment letter and progress payment agreement through our IMFT venture to obtain up to $275 million of financing to be collateralized by semiconductor production equipment.

Comments

Abstracts of the earnings call transcript:

Mark Adams, president:
"DRAM business (...) represents roughly 61% of our total revenue in fiscal Q3
"Trade NAND revenue represented 32% of total revenue in fiscal Q3 and performance was consistent with our expectations. Our trade NAND bit growth was approximately flat due to mix shifts in favor of longer term design win opportunities for both Micron managed NAND and MCPs for Mobile and SSDs for our storage business. These products represent strong growth opportunities for us going forward.
"As a percent of trade NAND revenue in fiscal Q3, consumer, which includes cards, USB and components, was in the mid-40% range. Mobile, including MCPs was in the low 20% range; SSDs were in the high teens. AIMM and other embedded markets combined are roughly mid-teens. We saw a 3% uptick in NAND component pricing in the quarter as we move more bits to our own SSD and mobile business and reduce the supply available to the transactional channel market.
"We continue to better position our MLC portfolio to focus on strategic customers in higher performance segments. In fiscal Q3, these efforts reduced our MLC shipments into the existing TLC-enabled components channel by approximately 30%.
"Revenues in Micron's storage business unit was $901 million in fiscal Q3, down 6% sequentially as we opportunistically shifted more NAND bits to higher margin businesses such as our mobile and embedded business units.
"We expect to have roughly 50% of our SDDs on TLC by the end of fiscal year 2016."

Ernie Maddock, CFO:
"On the trade NAND side which includes our growing MCP business, revenue increased approximately 3% in the third quarter with average selling prices increasing approximately 6%, partially offset by a slight decrease in sales volume. The increase in the trade NAND average selling price was mix related as higher ASP units grew relatively faster than the overall average. Trade NAND gross margin improved slightly compared to the prior quarter and was in the low 20% range as the increase in mix related ASP exceeded the higher related cost.
"The trade NAND gross margins for the fourth quarter using quarter-to-date average ASP and projected mix for the quarter are expected to be flat compared to the third quarter, based on bit production down low to mid-single digits while ASPs are relatively stable and cost per bit is approximately flat."

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