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September 20, 2011 | 7 Pages Semiconductors Company Report Micron Technology, Inc. (NNM: MU) MU: LITIGATION HEADLINES, AUGUST KITCHEN SINK BUT RATING: BUY EXPECT GOOD GUIDANCE, 2012 MUCH BETTER; LOWERING Vijay Rakesh ESTIMATES (312) 525-8431 firstname.lastname@example.org We believe significant DRAM cuts in the September quarter position MU well. But the August quarter will be a “kitchen sink” Fiscal Year Ends Aug and we are conservatively lowering our estimates further, as Taiwanese DRAM OEMs are indicating August was especially Rating: Buy brutal. There is also MU-RMBS litigation going on with the trial Price: Close $6.88 going to jury this week. MU will reports its AugQ after the Price Target: $14.00 close of market on September 29. We believe MU presents 52-wk Range: $5.18-$11.95 attractive L-T valuations, as continued industry consolidation, Market Capitalization (M): $7,058 mix change to NAND and lower Memory Capex position it well. Shares Outstanding (M): 1,041.7 DRAM Supply Cuts. While Korean OEMs have not cut output, Avg. Daily Vol. (000): 43,544 we believe almost every Taiwanese-Japanese DRAM OEM Dividend Yield: NA has cut DRAM output. We believe 1) Nanya has cut output Debt/Total cap: 20% 20-30% into SepQ, 2) Powerchip cut output 30% in PC-DRAM EPS Growth Rate: 10.0% and Rexchip, we believe running at a loss in August with DRAM L-T Organic Revenue Growth: 15.0% pricing, 3) Elpida we believe is unwilling to supply DRAM at Short Interest: 6.5% these prices and we believe is reducing supply to the market by Tangible Book Value: $7.83 20-30%+. We believe cash costs for Taiwanese-Japanese DRAM OEMs are $0.90-$1.10, which makes it unsustainable to supply DRAM at $0.60-0.70/Gb for DDR3 currently. We believe Inotera is also seeing some cuts with pricing. Nonetheless, given broadbased cuts, DRAM pricing has Earnings Summary stabilized with DDR2 1Gb ~$1.00 and DDR3 1Gb ~$0.65. FYE Aug 2011E 2012E 2013E RMBS Litigation Update: We believe Monday (Sep19) saw closing arguments/rebuttals in the MU-RMBS case. The case EPS & P/E Summary goes to jury on Wednesday and we could have some sort of a 2011 2012 2013 EPS: 2011E Prior 2012E Prior 2013E Prior wrap-up or headline summation from the case this week. There Q1 $0.17A $0.17A $0.00 $0.10 $0.22 $0.22 has been a range of settlement estimates from $300M up to Q2 $0.09A $0.09A $0.04 $0.13 $0.20 $0.21 $2-3B thrown around in the press. Q3 $0.09A $0.09A $0.17 $0.18 $0.26 $0.27 August Kitchen Sink But now DRAM Supply Cuts for NovQ: Q4 ($0.05) $0.07 $0.22 $0.23 $0.29 $0.30 We are therefore conservatively lowering our AugQ from prior Full Year $0.31 $0.42 $0.45 $0.64 $0.96 $1.00 $2.17B/$0.07 to $2.11B/($0.05) and FCF negative as it was a P/E Ratio: -- -- -- -- -- -- peak Capex quarter. We are conservatively modeling a 20% drop in DRAM pricing in AugQ versus prior down 10%, and modeling 0% GM for combined MU+Inotera in DRAM for AugQ. So far for the NovQ, DRAM pricing has been up 7%. Lowering F12E from $9.63B/$0.64 to $9.31B/$0.45. We believe F13E will see a significantly consolidated, low Capex memory environment and tweaking F13 to $11B/$0.96 from $11.4B/$1.00. We remain positive on MU not only because valuations have been depressed, DRAM pricing is unsustainable and competitors are cutting production, but also because of the longer-term story of diversification to NAND Flash. Our price-target of $14 is the equivalent of 1.4x 12-month TBV of ~$10. Source: Factset Important Disclosures regarding Price Target Risks, Valuation Methodology, Regulation Analyst Certification, Investment Banking, Ratings Definitions, and potential conflicts of interest begin on Page I of the Appendix Section. 800 Shades Creek Parkway Suite 700 Birmingham, AL 35209 205-949-3500 Sterne, Agee & Leach Inc. is Member NYSE, FINRA, SIPC MICRON TECHNOLOGY, INC. (NNM: MU) September 20, 2011 Page 2 MICRON TECHNOLOGY, INC. (NNM: MU) September 20, 2011 Micron Technology, Inc. Quarterly Income Statement Page 3 MICRON TECHNOLOGY, INC. (NNM: MU) September 20, 2011 Micron Technology, Inc. Balance Sheet & Cash Flow Summary Page 4 MICRON TECHNOLOGY, INC. (NNM: MU) September 20, 2011 APPENDIX SECTION Company Description: Micron manufactures and markets semiconductor devices worldwide primarily for the memory markets today. Its DRAM products provide data storage and retrieval, including primarily DDR2 and DDR3. Micron is the fourth largest player in the DRAM market, with approximately an 11% share, and the fourth largest player in the NAND flash market, with about a 7% share. In 2009, the DRAM market was $23 billion compared with the NAND flash market at $21 billion; by our estimates. Micron currently supplies to DRAM, NAND, CMOS Sensor markets and is expected to enter the solar and LED markets in 2011-12. IMPORTANT DISCLOSURES: Price Target Risks & Related Risk Factors: Investment Thesis and Price Target Risks Micron competes in a cyclical, technologically intensive business. The company's ability to meet our financial expectations and achieve future growth is subject to a number of risk factors, including, but not limited to, the following: Market Risks - Micron's continued success in its research and development efforts and timely introduction and execution of its new products; - Slower demand growth in the NAND market may leave a substantial supply overhang, further depressing pricing; - Competition from peer Taiwanese, Korean and Japanese OEMs in the 300mm DRAM market; and - Unexpected changes in legal and regulatory requirements, tariffs and exchange rates, political and economic stability, staffing and management issues, and potentially adverse tax consequences for its international operations. Technology Risks - Slower-than-expected DRAM transition from 40nm - Slower-than-expected transition to 300mm wafer size in both DRAM and NAND. Valuation Methodology: Our $14 PT for MU is based on a 1.4x 12-month tangible book of closer to $10. We believe DRAM pricing will bottom in the November quarter, and multiple new DRAM drivers with PCs, tablets, smartphones and new OS launches should stabilize pricing and margins for MU. Also, NAND and NOR markets are strong and improving, which combined with strong cash flow should continue to improve the book on MU. We also raised our gross margins and earnings expectations on MU, as fundamentals and pricing start to stabilize and improve. We believe investors will start to focus more on the improving fundamentals and pricing and the potential $10 TBV could become a support level. Regulation Analyst Certification: I, Vijay Rakesh, (312) 525-8431, hereby certify the views expressed in this research report accurately reflect my personal views about the subject security(ies) or issuer(s). I further certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by me in this report. Sterne, Agee & Leach, Inc. Disclosure Legend as of September 20, 2011: Company Disclosure(s) – See Below Apple Inc. (AAPL - NNM): 1 Micron Technology, Inc. (MU - NNM): 1 Research In Motion Limited (RIMM - NNM): 1 Disclosure Legend 1. Sterne, Agee & Leach, Inc. makes a market in the shares of the subject company. 2. Sterne, Agee & Leach, Inc. has, over the past 12 months, managed or co-managed a public securities offering or provided other investment banking services for the subject company. 3. Sterne, Agee & Leach, Inc. received compensation for products or services other than investment banking services from the subject company in the past 12 months. 4. The Sterne Agee analyst who has active coverage on this company owns a position in the subject company. 5. Sterne, Agee & Leach, Inc. or its affiliates beneficially own 1% or more of any class of common equity securities of the subject company. Appendix Section, Page I MICRON TECHNOLOGY, INC. (NNM: MU) September 20, 2011 Sterne Agee & Leach, Inc. expects to receive or intends to seek compensation for investment banking services from the subject company in the next three months. Sterne, Agee & Leach, Inc.’s research analysts receive compensation that is based upon various factors, including Sterne, Agee & Leach, Inc.’s total revenues, a portion of which is generated by investment banking activities. Definition of Investment Ratings: BUY: We expect this stock to outperform the industry over the next 12 months. NEUTRAL: We expect this stock to perform in line with the industry over the next 12 months. UNDERPERFORM: We expect this stock to underperform the industry over the next 12 months. RESTRICTED: Restricted list requirements preclude comment. Ratings Distribution: Of the securities rated by Sterne, Agee & Leach, Inc., as of June 30, 2011, 50.8% had a BUY rating, 47.6% had a NEUTRAL rating, 1.1% had a UNDERPERFORM rating, and 0% was RESTRICTED. Within those ratings categories, 1.59% of the securities rated BUY, 5.86% rated NEUTRAL, 0% rated UNDERPERFORM, and 0% rated RESTRICTED received investment banking services from Sterne, Agee & Leach, Inc., within the 12 months preceding June 30, 2011. ADDITIONAL INFORMATION AVAILABLE UPON REQUEST: Contact Robert Hoehn at 1-212-338-4731. Other Disclosures: Opinions expressed are our present opinions only. This material is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Sterne, Agee & Leach, Inc., its affiliates, or one or more of its officers, employees, or consultants may, at times, have long or short or options positions in the securities mentioned herein and may act as principal or agent to buy or sell such securities. Copyright © 2011 Sterne, Agee & Leach, Inc. All Rights Reserved. Sterne, Agee & Leach, Inc. disclosure price charts are updated within the first fifteen days of each new calendar quarter per FINRA regulations. Price charts for companies initiated upon in the current quarter, and rating and target price changes occurring in the current quarter, will not be displayed until the following quarter. Price Chart(s): To receive price charts or other disclosures on the companies mentioned in this report, please contact Sterne, Agee & Leach, Inc. toll- free at (800) 240-1438 or (205) 949-3689. Appendix Section, Page II STERNE, AGEE & LEACH, INC. Founded in 1901, Sterne Agee has been providing investors like you with high-quality investment opportunities for over a century. During the early years, our founders prominently established themselves in the financial securities industry in the southeastern United States. Today, we have expanded to serve all regions of the country. Sterne, Agee is headquartered in Birmingham, Alabama with offices in 22 states. Sterne Agee is one of the largest independent firms in the country. Sterne, Agee & Leach, Inc. is a division of Sterne Agee Group, Inc., which also includes The Trust Company of Sterne, Agee & Leach, Inc.; Sterne Agee Asset Management, Inc.; Sterne Agee Clearing, Inc.; and Sterne Agee Financial Services, Inc.— www.sterneagee.com EQUITY CAPITAL MARKETS Ryan Medo Managing Dir., Eq. Cap. Mkts. (205) 949-3623 William McIlroy Director, Equity Products (212) 338-4781 Robert Lake Vice President (205) 949-3624 Paul Garner Associate (212) 338-4799 David Lee Director, Equity Services (205) 949-3689 Yan Chao Associate (205) 949-3622 INSTITUTIONAL SALES INSTITUTIONAL TRADING Steve Pokorny Head of Institutional Sales (214) 702-4020 JT Cacciabaudo Head of Trading (212) 763-8288 EQUITY RESEARCH Robert Hoehn Director of Research (212) 338-4731 CONSUMER FINANCIAL SERVICES (CONT.) Apparel Retailing & Toys Life Insurance Margaret Whitfield SVP, Sr. Analyst (973) 519-1019 John M. Nadel Mng. Dir. 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(214) 702-4045 TECHNOLOGY Philip May Analyst (214) 702-4004 Data Networking and Storage ENERGY Alex Kurtz Mng. Dir (415) 402-6015 Exploration & Production Amelia Harris Analyst (408) 918-6132 Michael J. McAllister Mng. Dir. (212) 338-4783 Tim Rezvan, CFA Analyst (212) 338-4736 Financial Technology Greg Smith Mng. Dir (818) 615-2029 Ryan Mueller Associate (212) 338-4732 Jennifer Dugan Analyst (415) 402-6051 FINANCIAL SERVICES Hardware, Mobile Devices, IT Supply Chain Shaw Wu SVP, Sr. Analyst (415) 362-7431 Asset Management Jason Weyeneth, CFA SVP, Sr. Analyst (212) 763-8293 LED Supply Chain Charles Warren Analyst (646) 376-5309 Andrew Huang Mng. Dir. (415) 362-6143 Banks & Thrifts Semiconductors Matthew Kelley Mng. Dir. (207) 699-5800 Vijay Rakesh Mng. Dir. (312) 525-8431 Mike I. 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