8-KMaterial Agreements

MICRON TECHNOLOGY INC 8-K Report, Material Agreement (Feb 10, 2015)

Filed February 10, 2015For Securities:MU

Summary

This 8-K filing from Micron Technology, Inc. announces significant updates to its supply agreements with Inotera Memories, Inc. (Inotera). The core of the announcement revolves around two new supply agreements: the "2015 Supply Agreement" and the "2016 Supply Agreement." The 2015 Supply Agreement, effective immediately and expiring December 31, 2015, continues the previous arrangement where Inotera supplies all DRAM products to Micron at a price based on a discount from market rates. The more substantial development is the "2016 Supply Agreement," which takes effect January 1, 2016, and introduces a new pricing mechanism designed to share margins equally between Micron and Inotera. This formula considers manufacturing costs for both parties, Micron's operating expenses, and Micron's global revenue per wafer. This agreement has an initial two-year term, with provisions for extension, and outlines a wind-down process if extensions are not agreed upon. Investors should note the shift in pricing strategy for 2016, which aims for a more balanced cost and profit sharing, potentially impacting both companies' profitability and supply chain stability.

Key Highlights

  • 1Micron Technology and its subsidiary MSA have entered into new Supply Agreements with Inotera Memories, Inc.
  • 2The 2015 Supply Agreement, effective immediately and expiring Dec 31, 2015, continues the existing DRAM supply arrangement at a market-based discount.
  • 3A new 2016 Supply Agreement will commence on January 1, 2016, with a distinct pricing formula.
  • 4The 2016 Supply Agreement's pricing is based on an equal sharing of margins between Micron and Inotera.
  • 5The margin-sharing formula in the 2016 agreement incorporates manufacturing costs, Micron's operating expenses, and Micron's revenue per wafer.
  • 6The 2016 Supply Agreement has an initial two-year term, with provisions for annual extensions thereafter.
  • 7Each party can terminate the agreements upon material breach, and Micron has additional termination rights related to Inotera's financial health.

Frequently Asked Questions

The primary purpose is to ensure Micron's continued supply of DRAM products from Inotera and to update the pricing and contractual terms, particularly for 2016 onwards.

Under the 2015 Supply Agreement, pricing is still a discount from market prices. However, the 2016 Supply Agreement shifts to a formula that equally shares the profit margins between Micron and Inotera, considering their respective costs and Micron's revenue metrics.

The 2015 Supply Agreement is effective immediately and expires on December 31, 2015. The 2016 Supply Agreement has an initial two-year term starting January 1, 2016, with provisions for subsequent annual extensions.

The new model suggests a more collaborative approach to profitability. It could lead to more stable margins for both companies, aligning their interests. For Micron, it may offer greater predictability in DRAM costs, but the exact impact will depend on the competitive landscape and the actual implementation of the cost and revenue calculations within the formula.