Breaking Down Micron Technology, Inc. (MU) Financial Health: Key Insights for Investors

Understanding Micron Technology, Inc. (MU) Revenue Streams

Understanding Micron Technology, Inc.’s Revenue Streams

Total Revenue: Total revenue for the year ended August 29, 2024, was $25.11 billion, an increase of 62% compared to $15.54 billion in 2023. This contrasts with a revenue of $30.76 billion in 2022.

Revenue by Technology:

Year-over-Year Revenue Growth Rate

The year-over-year revenue growth rate exhibited significant fluctuations:

• 2024 compared to 2023: +62%
• 2023 compared to 2022: -49%
• 2022 compared to 2021: +24% (Note: 2021 data not provided in detail)

Contribution of Different Business Segments to Overall Revenue

The revenue contribution by business units for the year ended August 29, 2024, is as follows:

Analysis of Significant Changes in Revenue Streams

Key changes in revenue streams from 2023 to 2024 include:

• CNBU revenue increased by 67% driven by higher bit shipments and average selling prices.
• MBU revenue surged by 75% due to increases in average selling prices and bit shipments.
• EBU revenue rose by 27%, primarily from higher bit shipments, despite declines in average selling prices.
• SBU revenue increased by 80% due to higher average selling prices and bit shipments.

The overall recovery in revenue is attributed to a rebound in average selling prices after significant declines in 2023, coupled with increased demand across various markets including data centers, automotive, and consumer electronics.

A Deep Dive into Micron Technology, Inc. (MU) Profitability

A Deep Dive into Micron Technology, Inc. Profitability

Gross Profit Margin: For the year ended August 29, 2024, the gross margin was 22%, a recovery from a gross margin of -9% in 2023, and 45% in 2022.

Operating Profit Margin: The operating income for 2024 was reported at $1.304 billion, reflecting an operating margin of 5%. This is a significant turnaround from an operating loss of $5.745 billion in 2023.

Net Profit Margin: The net income for the year ended August 29, 2024, was $778 million, translating to a net profit margin of 3%. This contrasts sharply with a net loss of $5.833 billion in 2023.

Trends in Profitability Over Time

The following table summarizes the trends in profitability metrics over the past three years:

Comparison of Profitability Ratios with Industry Averages

Industry averages for comparable companies in the semiconductor sector indicate typical gross margins around 30%, operating margins of 10%, and net margins of 5%. Micron's recovery in 2024 shows improvement but still falls short of industry benchmarks.

Analysis of Operational Efficiency

In 2024, the cost of goods sold was $19.498 billion, resulting in a gross profit of $5.613 billion. The company faced significant challenges in 2023, which included inventory write-downs of $1.831 billion and facility underutilization costs of $382 million, which heavily impacted gross margins.

Research and development (R&D) expenses for 2024 were $3.430 billion, accounting for 14% of total revenue, while selling, general, and administrative (SG&A) expenses totaled $1.129 billion, or 4% of revenue.

The operational efficiency can be further observed through the following breakdown of operating income by business unit for 2024:

Debt vs. Equity: How Micron Technology, Inc. (MU) Finances Its Growth

Debt vs. Equity: How Micron Technology, Inc. Finances Its Growth

As of August 29, 2024, Micron Technology, Inc. reported a total debt of $13.49 billion, comprising $431 million in current debt and $12.97 billion in long-term debt.

The company's debt-to-equity ratio stands at 0.30, which is significantly below the semiconductor industry average of approximately 0.80.

Overview of the Company's Debt Levels

Micron's long-term debt includes various term loans and notes:

Recent Debt Issuances and Refinancing Activity

In 2024, the company engaged in significant debt activity, issuing $1 billion in 2031 Notes. The company also prepaid $588 million of the 2024 Term Loan A and $402 million of the 2025 Term Loan A. In 2023, Micron issued $6.70 billion of senior unsecured notes and term loan agreements.

Credit Ratings

Micron Technology holds a credit rating of BB+ from S&P, indicating a stable outlook.

Balancing Debt Financing and Equity Funding

Micron has been actively managing its capital structure. As of August 29, 2024, the total equity stands at $45.13 billion, reflecting a robust equity base compared to its debt. The company's strategy includes using debt to finance expansions while maintaining a conservative debt profile to ensure financial flexibility.

In 2024, Micron repurchased 3.2 million shares for $300 million under its share repurchase authorization, highlighting its commitment to returning value to shareholders while managing its debt levels carefully.

Assessing Micron Technology, Inc. (MU) Liquidity

Assessing Micron Technology, Inc.'s Liquidity

Current and Quick Ratios

The current ratio for Micron Technology, Inc. as of August 29, 2024, is 2.64, calculated by dividing total current assets of $24,372 million by total current liabilities of $9,248 million. The quick ratio, which excludes inventories, is 1.77, derived from current assets minus inventories ($15,497 million) divided by current liabilities.

Analysis of Working Capital Trends

Micron's working capital, defined as current assets minus current liabilities, stands at $15,124 million as of August 29, 2024. This reflects a significant increase from $16,479 million in the previous fiscal year, indicating improved liquidity despite fluctuations in inventory levels.

Cash Flow Statements Overview

For the fiscal year ended August 29, 2024, the cash flow from operating activities was $8,507 million, a significant improvement from $1,559 million in 2023. This increase is attributed to higher net income and a favorable change in working capital.

Investing activities resulted in a net cash outflow of $8,309 million, primarily due to expenditures for property, plant, and equipment totaling $8,386 million. Financing activities led to a net cash outflow of $1,842 million, influenced by debt repayments and dividend payments.

Potential Liquidity Concerns or Strengths

Despite the strong liquidity position indicated by the current and quick ratios, potential concerns arise from the high level of accounts payable, which total $7,299 million. This figure represents a sharp increase from $3,958 million in 2023, suggesting that while the company can meet short-term obligations, it relies heavily on its suppliers. Furthermore, the total cash and equivalents decreased to $7,041 million from $8,577 million in the previous year, indicating tighter liquidity management.

Is Micron Technology, Inc. (MU) Overvalued or Undervalued?

Valuation Analysis

To determine whether the company is overvalued or undervalued, we will analyze key financial ratios: price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA).

Price-to-Earnings (P/E) Ratio

The P/E ratio is calculated using the current stock price divided by the earnings per share (EPS). As of August 29, 2024, the earnings per share (EPS) is $0.70.

• Current Stock Price: $50.00
• P/E Ratio: 71.43 (calculated as $50.00 / $0.70)

Price-to-Book (P/B) Ratio

The P/B ratio is calculated by dividing the stock price by the book value per share. The total equity as of August 29, 2024, is $45,131 million and there are 1,253 million shares outstanding.

• Book Value per Share: $36.00 (calculated as $45,131 million / 1,253 million shares)
• P/B Ratio: 1.39 (calculated as $50.00 / $36.00)

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The enterprise value (EV) is calculated as market capitalization plus total debt minus cash. The total debt as of August 29, 2024, is $13,397 million and cash and equivalents are $7,041 million.

• Market Capitalization: $62,650 million (calculated as $50.00 stock price 1,253 million shares)
• Enterprise Value: $68,006 million (calculated as $62,650 million + $13,397 million - $7,041 million)
• EBITDA for 2024: $1,304 million (operating income)
• EV/EBITDA Ratio: 52.17 (calculated as $68,006 million / $1,304 million)

Stock Price Trends Over the Last 12 Months

The stock price has shown significant volatility over the past year, reaching a low of $30.00 and a high of $60.00.

Dividend Yield and Payout Ratios

The company declared a quarterly dividend of $0.115 per share in September 2024.

• Annual Dividend: $0.460
• Dividend Yield: 0.92% (calculated as $0.460 / $50.00)
• Payout Ratio: 65.71% (calculated as $0.460 / $0.70)

Analyst Consensus on Stock Valuation

As of the latest reports, analyst consensus is as follows:

• Buy: 10 analysts
• Hold: 5 analysts
• Sell: 2 analysts

Key Risks Facing Micron Technology, Inc. (MU)

Key Risks Facing Micron Technology, Inc.

Overview of Internal and External Risks:

The semiconductor industry is characterized by intense competition, rapid technological advancements, and significant price volatility. In 2024, average selling prices for DRAM products increased by 60%, while NAND products saw a 72% increase compared to 2023. However, the previous years were marked by substantial declines, with DRAM prices dropping by up to 51% and NAND prices by 46%.

Regulatory changes, particularly concerning cybersecurity reviews in China, have significantly impacted the company's ability to operate in key markets. In 2023, the Chinese Cyberspace Administration restricted the purchase of products, presenting a major risk to domestic data center and networking markets.

Operational Risks:

• Fabrication facility underutilization resulted in $382 million in costs in 2023, with additional costs of $165 million in Q1 2024 due to wafer start reductions.
• Increased manufacturing costs due to inflationary pressures and potential supply chain disruptions could further strain profit margins.

Financial Risks:

• The company's total liabilities stood at $24.285 billion as of August 29, 2024, with long-term debt at $12.966 billion.
• Interest expense has increased due to higher debt and interest rates, with net interest expense recorded at $33 million.

Strategic Risks:

• Market demand fluctuations could adversely affect revenue. In 2023, total revenue fell by 49% compared to 2022.
• Dependency on a limited number of customers remains a risk, with one customer accounting for 10% of total revenue in 2024.

Mitigation Strategies:

• Cost-saving measures implemented in 2023, including a 15% workforce reduction, aimed to yield estimated cost savings of approximately $130 million per quarter.
• The company has secured government incentives amounting to $5.5 billion over 20 years to support new facilities, which may help mitigate some financial pressures.

Financial Overview and Risk Table

Future Growth Prospects for Micron Technology, Inc. (MU)

Future Growth Prospects for Micron Technology, Inc.

Analysis of Key Growth Drivers

Micron Technology, Inc. is poised for significant growth driven by various factors including product innovations, market expansions, and strategic partnerships.

Product Innovations

The company has made substantial advancements in its product offerings, particularly with the introduction of:

• Micron G9 NAND: Launched in 2024, this ninth-generation 3D NAND technology enhances storage density and energy efficiency.
• HBM3E: This high-bandwidth memory product is designed for AI applications, providing faster data rates and improved thermal response.
• GDDR7 Memory: Announced in 2024, it delivers high-performance memory optimized for graphics and gaming applications.

Market Expansions

Micron is expanding its market reach, particularly in the following segments:

• Data Center Market: Revenue increased to $9.51 billion in 2024 from $5.71 billion in 2023, driven by demand for AI and cloud services.
• Mobile Market: The Mobile Business Unit generated $6.35 billion in revenue in 2024, up from $3.63 billion in 2023, fueled by higher demand for LPDDR5 and managed NAND solutions.

Future Revenue Growth Projections

Projections indicate that total revenue for 2024 reached $25.11 billion, a 62% increase compared to $15.54 billion in 2023. This growth is primarily attributed to:

• Sales of DRAM products rising by 60%, with total revenue from DRAM hitting $17.60 billion.
• Sales of NAND products increasing by 72%, contributing $7.23 billion in revenue.

Earnings Estimates

For 2024, net income was reported at $778 million, translating to earnings per share of $0.70 for basic and diluted shares.

Strategic Initiatives and Partnerships

Micron has entered into significant partnerships and initiatives to bolster its growth, including:

• Collaborations with government entities that provide up to $5.5 billion in funding through tax credits and incentives for new job creation.
• Investment in a new assembly and test facility in Gujarat, India, with incentives covering 50% of the project cost from the Indian government.

Competitive Advantages

Micron's competitive advantages include:

• A strong R&D focus, with expenses reaching $3.43 billion in 2024, up 10% from 2023.
• Leading-edge manufacturing capabilities that allow for the production of advanced memory technologies.
• Strategic positioning in high-growth markets such as AI, automotive, and data centers.