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Micron Technology, Inc. Nikhil Nichani Francis Perez Business Summary Micron Technology, based in Boise, Idaho, engages in manufacturing and marketing of semiconductor devices worldwide. The company’s product line include Dynamic Random Access Memory(DRAM), Solid-State Drive(SSD), and Flash Memory(NAND and NOR). Micron’s products are used in many electronic applications such as personal computers, memory cards, mobile phones, USB storage devices, digital cameras, and MP3 players. Micron has assembling facilities in the United States, Asia, Middle-East, and Europe, and is a major player in the international markets with strong sales in China. In May, 2010, Micron completed the acquisition of Numonyx, which manufactures NOR Flash Memory, giving Micron a 40% share in that market. Micron Technology, Inc.(NASDAQ:MU) S&P 500: 1,180.55 52 Week Range: 6.36-11.40 Last Trade: 7.27 Beta: 1.05 Market Cap: 7.24B Recommendation: Buy 2009A 2010A 2011E 2012E EPS(Diluted) (2.35) 1.85 1.10 1.24 P/E Ratio N/A 3.93 6.61 5.87 S&P 500 P/E 20.52 21.53 Customer/Suppliers • 45% of fiscal 2010 sales were to the computing market, including PCs, servers, notebooks, and workstations. • 84% of fiscal 2010 sales came from international companies and divisions – 39% of total sales to China • Intel and HP account for 9%, and 13% of sales, respectively • Majority of Micron’s operations require raw materials obtained from limited number of suppliers. The Numonyx division is under contract to receive supplies from Hynix Semiconductors until September 2011. Competitors Micron SanDisk Elpida Toshiba Market Cap 7.24B 10.46B ¥189.8B($2.2B)* ¥1.8T($21.3B)* Revenue(ttm) 8.48B 4.74B ¥623.6B($7.33B)* ¥6.5T($76.5B)* P/E(ttm) 3.99 9.61 Profit Margin(ttm) 22.9% 24.3% -0.95% 1.01% P/TB .93 2.13 EBITDA(MRQ) 433M 432.8M ¥48.8B($574M)* ¥71B($835M)* ROE(ttm) 28.5% 26.4% -1.80% 20.95% YoY Sales(MRQ) 91.4% 39.8% 55.2% 2.9% *Converted to USD using 85 USD/JPY cross rate Competitive Advantage • Only American company in the DRAM market, one of the largest in the world. DRAM is used as main system memory in PC and servers • Broad international base give it less exposure to local economic downturn • MU’s EV is 15% less than that of SanDisk’s(6.6B vs. 7.8B), yet revenues are 79% higher • Variety of products offered for manufacturing of a diverse list of electronics Source of Revenue Strengths • Strong management – Decreasing debt, increasing cash • Diversified customer base – International sales increased 82.05% in FY2010 • Gross Margin – 32% in FY 2010, highest in the last 10 years • Free Cash Flow – $2.4B; 245% increase YoY, 29.24% of sales, highest in the last 10 years • Undervalued – 3.9 vs 18.7 industry P/E Weakness • Virtually no backlog – customers reluctant to enter into long term, fixed price contracts • Small in the over all semiconductor market – less than 2% market share in the US • Volatile average selling prices(ASP) in NAND and DRAM market • Exposed to significant liabilities related to products that are incompatible to end users Opportunities • Corporate/Personal Windows 7 upgrade cycle – still in the early innings of the migration from XP to 7 – 109% growth in DRAM in 2010 • Growth in global smart phone usage – sales up 96% in Q3 YoY, 19.3% of overall phone sales • Stronger foreign currencies(yen, Singapore dollar, euro) and weaker US dollar • Rebound in DRAM and NAND prices • Takeover target Threats • Dramatic decline in ASP of DRAM and NAND is continuous – decreased 52% and 56% in 2009, respectively. Due to huge supply surpluses • Further decline in global economic activity • Litigation – Outstanding lawsuits over price fixing • Weakness in foreign currency could steer customers to foreign competition, raise cost • Higher rates – 25% of debt is variable
"Micron Technology_ Inc"