10-QPeriod: Q3 FY2005

MICRON TECHNOLOGY INC Quarterly Report for Q3 Ended Jun 2, 2005

Filed July 7, 2005For Securities:MU

Summary

Micron Technology Inc. (MU) reported a net loss of $127.9 million for the third quarter of fiscal year 2005, a significant decline from the $90.9 million net income in the same period last year. This downturn was driven by a substantial decrease in average selling prices (ASPs) for memory products, which fell by 41% year-over-year, despite a 55% increase in the volume of megabits sold. The company's gross margin also compressed dramatically, dropping to 8.2% from 34.7% in the prior year's quarter, primarily due to the lower ASPs and increased costs from its TECH joint venture. While the company continues to invest heavily in capital expenditures, including an increase in production capacity at its 300mm facility, the current market conditions for DRAM are challenging. Investors should closely monitor the company's ability to manage costs and navigate the volatile pricing environment in the semiconductor memory market.

Key Highlights

  • 1Net loss of $127.9 million in Q3 FY2005, compared to a net income of $90.9 million in Q3 FY2004.
  • 2Average selling prices (ASPs) per megabit decreased by 41% year-over-year, while megabits sold increased by 55%.
  • 3Gross margin significantly declined to 8.2% from 34.7% year-over-year due to lower ASPs and higher joint venture costs.
  • 4Inventories increased as production outpaced sales, driven by increased capacity utilization at the 300mm facility.
  • 5Capital expenditures remain high, with $921.6 million in the first nine months of FY2005, and projected $1.0 billion to $1.5 billion for FY2006.
  • 6The company is facing significant legal challenges, including ongoing litigation with Rambus and Tessera, as well as investigations into potential antitrust violations in the DRAM industry.

Frequently Asked Questions

The primary driver for the net loss was a sharp decline in the average selling prices (ASPs) of Micron's memory products. These prices fell by 41% compared to the same period last year, significantly impacting revenue and profitability despite an increase in the volume of megabits sold.

Gross margin contracted severely to 8.2% from 34.7% in the prior year's quarter. This was mainly due to the significant drop in ASPs. Additionally, higher costs associated with products purchased from the TECH joint venture contributed to the lower gross margin for the quarter.

Micron continues to invest heavily in capital expenditures, with $921.6 million spent in the first nine months of fiscal year 2005, and expects to spend between $1.0 billion and $1.5 billion in fiscal year 2006. The company is increasing production capacity at its 300mm wafer fabrication facility, which has led to higher inventory levels as production outpaced sales in the current quarter.

Micron is involved in several significant legal matters. These include ongoing patent litigation with Rambus and Tessera, which pertain to key memory products and could lead to substantial liability or require product modifications. Additionally, the company is cooperating with a Department of Justice investigation into potential antitrust violations in the DRAM industry, which has also led to numerous class-action lawsuits.