Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended September 1, 2022. All period references are to our fiscal periods unless otherwise indicated. Our fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. Fiscal years 2023 and 2022 each contain 52 weeks. All tabular dollar amounts are in millions, except per share amounts.
Overview
We are an industry leader in innovative memory and storage solutions transforming how the world uses information to enrich life for all . With a relentless focus on our customers, technology leadership, and manufacturing and operational excellence, Micron delivers a rich portfolio of high-performance DRAM, NAND, and NOR memory and storage products through our Micron® and Crucial® brands. Every day, the innovations that our people create fuel the data economy, enabling advances in artificial intelligence and 5G applications that unleash opportunities — from the data center to the intelligent edge and across the client and mobile user experience.
We manufacture our products at wholly-owned facilities and also utilize subcontractors for certain manufacturing processes. Our global network of manufacturing centers of excellence not only allows us to benefit from scale while streamlining processes and operations, but it also brings together some of the world’s brightest talent to work on the most advanced memory technology. Centers of excellence bring expertise together in one location, providing an efficient support structure for end-to-end manufacturing, with quicker cycle times, in partnership with teams such as research and development (“R&D”), product engineering, human resources, procurement, and supply chain. For our locations in Singapore and Taiwan, this is also a combination of bringing fabrication and back-end manufacturing together. We make significant investments to develop proprietary product and process technology, which generally increases bit density per wafer and reduces per-bit manufacturing costs of each generation of product. We continue to introduce new generations of products that offer improved performance characteristics, including higher data transfer rates, advanced packaging solutions, lower power consumption, improved read/write reliability, and increased memory density.
We face intense competition in the semiconductor memory and storage markets and to remain competitive we must continuously develop and implement new products and technologies and decrease manufacturing costs in spite of ongoing inflationary cost pressures. Our success is largely dependent on obtaining returns on our R&D investments, efficient utilization of our manufacturing infrastructure, development and integration of advanced product and process technologies, market acceptance of our diversified portfolio of semiconductor-based memory and storage solutions, and efficient capital spending.
Product Technologies
Our product portfolio of memory and storage solutions, advanced solutions, and storage platforms is based on our high-performance semiconductor memory and storage technologies, including DRAM, NAND, and NOR. We sell our products into various markets through our business units in numerous forms, including components, modules, SSDs, managed NAND, MCPs, and wafers. Our system-level solutions, including SSDs and managed NAND, combine NAND, a controller, firmware, and in some cases DRAM.
DRAM: DRAM products are dynamic random access memory semiconductor devices with low latency that provide high-speed data retrieval with a variety of performance characteristics. DRAM products lose content when power is turned off (“volatile”) and are most commonly used in client, cloud server, enterprise, networking, graphics, industrial, and automotive markets. LPDRAM products, which are engineered to meet standards for performance and power consumption, are sold into smartphone and other mobile-device markets (including client markets for Chromebooks and notebook PCs), as well as into the automotive, industrial, and consumer markets.
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NAND: NAND products are non-volatile, re-writeable semiconductor storage devices that provide high-capacity, low-cost storage with a variety of performance characteristics. NAND is used in SSDs for the enterprise and cloud, client, and consumer markets and in removable storage markets. Managed NAND is used in smartphones and other mobile devices, and in consumer, automotive, and embedded markets. Low-density NAND is ideal for applications like automotive, surveillance, machine-to-machine, automation, printer, and home networking.
NOR: NOR products are non-volatile re-writable semiconductor memory devices that provide fast read speeds. NOR is most commonly used for reliable code storage (e.g., boot, application, operating system, and execute-in-place code in an embedded system) and for frequently changing small data storage and is ideal for automotive, industrial, and consumer applications.
Industry Conditions
The memory and storage industry environment deteriorated sharply in the fourth quarter of 2022 through the first six months of 2023 due to reduced demand resulting from customer adjustments to lower elevated inventory levels and weak demand in many end markets combined with global and macroeconomic challenges. This led to significant reductions in average selling prices and bit shipments for both DRAM and NAND, as well as declines in revenue across all of our business segments and nearly all our end markets. Due to the challenging pricing environment, we recognized a $1.43 billion charge to write down inventories to their estimated net realizable value in the second quarter of 2023 and we project approximately $500 million of additional write-downs in the third quarter. These projected write-downs, which relate to inventories to be produced in the third quarter, may change significantly. Small changes to price expectations beyond the third quarter could have a substantial positive or negative impact on our expected third quarter inventory write-downs. Further write-downs of inventories in future quarters could occur if the challenging pricing environment persists. Given the challenging pricing environment, elevated levels of inventories for suppliers and customers, and significant supply-demand mismatch, we expect industry profitability will remain challenged throughout calendar 2023.
As a result of these conditions and increases in our inventory levels, we have reduced wafer starts and capital expenditures. We recognized $27 million of period costs from underutilization in the second quarter of 2023 due to wafer start reductions. We estimate approximately $300 million of period costs from underutilization due to wafer start reductions in the second half of 2023. We are also taking significant steps to reduce our costs and operating expenses. These actions include the 2023 Restructure Plan discussed below and additional reductions in external spending, including implementing productivity programs across the business, suspension of our 2023 bonus company-wide, reductions in select product programs, lower discretionary spending, and cuts to 2023 executive salaries across the company.
2023 Restructure Plan
We initiated the 2023 Restructure Plan in response to challenging industry conditions. Under the plan, we expect our headcount reduction to approach 15% by the end of calendar 2023, through a combination of voluntary attrition and personnel reductions. In connection with the plan, we incurred restructure charges of $86 million and $99 million in the second quarter and first six months of 2023, respectively. We expect to incur additional charges of approximately $60 million in the second half of 2023. As of March 2, 2023, we expect to make future cash payments of approximately $120 million in connection with the plan, substantially all of which will be paid in 2023. We expect the plan to be substantially completed by the end of the third quarter of 2023. As a result of the 2023 Restructure Plan, we expect to realize cost savings of approximately $130 million per quarter (approximately 60% in cost of goods sold, 30% in R&D, and 10% in SG&A) starting in the fourth quarter of 2023. Further information on restructure activities can be found in “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Restructure and Asset Impairments.”
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Results of Operations
Consolidated Results
Second Quarter First Quarter Second Quarter Six months ended
2023 2023 2022 2023 2022
Revenue $ 3,693 100 % $ 4,085 100 % $ 7,786 100 % $ 7,778 100 % $ 15,473 100 %
Cost of goods sold 4,899 133 % 3,192 78 % 4,110 53 % 8,091 104 % 8,232 53 %
Gross margin
(1,206) (33) % 893 22 % 3,676 47 % (313) (4) % 7,241 47 %
Research and development 788 21 % 849 21 % 792 10 % 1,637 21 % 1,504 10 %
Selling, general, and administrative 231 6 % 251 6 % 263 3 % 482 6 % 522 3 %
Restructure and asset impairments 86 2 % 13 — % 5 — % 99 1 % 43 — %
Other operating (income) expense, net
(8) — % (11) — % 70 1 % (19) — % (5) — %
Operating income (loss) (2,303) (62) % (209) (5) % 2,546 33 % (2,512) (32) % 5,177 33 %
Interest income (expense), net 30 1 % 37 1 % (43) (1) % 67 1 % (78) (1) %
Other non-operating income (expense), net
2 — % (4) — % 6 — % (2) — % (69) — %
Income tax (provision) benefit
(54) (1) % (8) — % (255) (3) % (62) (1) % (474) (3) %
Equity in net income (loss) of equity method investees
13 — % (11) — % 9 — % 2 — % 13 — %
Net income (loss) $ (2,312) (63) % $ (195) (5) % $ 2,263 29 % $ (2,507) (32) % $ 4,569 30 %
Total Revenue: Total revenue for the second quarter and first six months of 2023 decreased significantly relative to the comparative periods described below as a result of the factors described in the “Industry Conditions” section above.
Total revenue for the second quarter of 2023 decreased 10% as compared to the first quarter of 2023 primarily due to decreases in sales of both DRAM and NAND products.
• Sales of DRAM products decreased 4% primarily due to an approximate 20 percent decline in average selling prices partially offset by a mid-teens percent range increase in bit shipments.
• Sales of NAND products decreased 20% primarily due to a mid-20s percent range decline in average selling prices partially offset by a mid-to-high single-digit percent range increase in bit shipments.
Total revenue for the second quarter of 2023 decreased 53% as compared to the second quarter of 2022 primarily due to decreases in sales of both DRAM and NAND products.
• Sales of DRAM products decreased 52% primarily due to a high-40s percent range decline in average selling prices and decreases in bit shipments in the low-teens percent range.
• Sales of NAND products decreased 55% primarily due to a high-40s percent range decline in average selling prices and decreases in bit shipments in the mid-teens percent range.
Total revenue for the first six months of 2023 decreased 50% as compared to the first six months of 2022 primarily due to decreases in both DRAM and NAND sales.
• Sales of DRAM products decreased 51% primarily due to a low-40s percent range decline in average selling prices and decreases in bit shipments in the mid-teens percent range.
• Sales of NAND products decreased 48% primarily due to a high-30s percent range decline in average selling prices and decreases in bit shipments in the high-teens percent range.
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Consolidated Gross Margin : Our consolidated gross margin percentage decreased to negative 33% for the second quarter of 2023 from 22% for the first quarter of 2023 primarily due to a $1.43 billion charge to write down inventories to their estimated net realizable value and the declines in average selling prices for both DRAM and NAND. Our consolidated gross margin percentage decreased to negative 33% for the second quarter of 2023 from 47% for the second quarter of 2022 primarily due to the charge to write down inventories and declines in average selling prices for both DRAM and NAND. Our consolidated gross margin percentage decreased to negative 4% for the first six months of 2023 from 47% for the first six months of 2022 primarily due to the charge to write down inventories and declines in average selling prices for both DRAM and NAND.
Revenue by Business Unit
Second Quarter First Quarter Second Quarter Six months ended
2023 2023 2022 2023 2022
CNBU $ 1,375 37 % $ 1,746 43 % $ 3,461 44 % $ 3,121 40 % $ 6,867 44 %
MBU 945 26 % 655 16 % 1,875 24 % 1,600 21 % 3,782 24 %
EBU 865 23 % 1,000 24 % 1,277 16 % 1,865 24 % 2,497 16 %
SBU 507 14 % 680 17 % 1,171 15 % 1,187 15 % 2,321 15 %
All Other 1 — % 4 — % 2 — % 5 — % 6 — %
$ 3,693 $ 4,085 $ 7,786 $ 7,778 $ 15,473
Percentages of total revenue may not total 100% due to rounding.
Changes in revenue for each business unit for the second quarter of 2023 as compared to the first quarter of 2023 were as follows:
• CNBU revenue decreased 21% primarily due to declines in DRAM average selling prices and decreases in bit shipments due to weakened conditions in server markets.
• MBU revenue increased 44% primarily due to increases in bit shipments due to timing of shipments between quarters, partially offset by declines in average selling prices for both DRAM and NAND.
• EBU revenue decreased 14% primarily due to declines in average selling prices for both DRAM and NAND and declines in bit shipments for NAND as a result of weakness in industrial and consumer markets.
• SBU revenue decreased 25% primarily due to declines in average selling prices as a result of challenging NAND market conditions.
Changes in revenue for each business unit for the second quarter and first six months of 2023 as compared to the corresponding periods of 2022 were as follows:
• CNBU revenue decreased 60% and 55%, respectively, primarily due to declines in DRAM average selling prices and decreases in bit shipments.
• MBU revenue decreased 50% and 58%, respectively, primarily due to declines in average selling prices for both DRAM and NAND and decreases in NAND bit shipments.
• EBU revenue decreased 32% and 25%, respectively, primarily due to lower DRAM revenue resulting from declines in DRAM average selling prices and decreases in bit shipments.
• SBU revenue decreased 57% and 49%, respectively, primarily due to declines in average selling prices and decreases in bit shipments for NAND.
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Operating Income (Loss) by Business Unit
Second Quarter First Quarter Second Quarter Six months ended
2023 2023 2022 2023 2022
CNBU $ (35) (3) % $ 190 11 % $ 1,562 45 % $ 155 5 % $ 3,086 45 %
MBU (344) (36) % (195) (30) % 588 31 % (539) (34) % 1,212 32 %
EBU 88 10 % 194 19 % 421 33 % 282 15 % 843 34 %
SBU (357) (70) % (257) (38) % 178 15 % (614) (52) % 330 14 %
All Other 1 100 % 3 75 % 1 50 % 4 80 % 4 67 %
$ (647) $ (65) $ 2,750 $ (712) $ 5,475
Percentages reflect operating income (loss) as a percentage of revenue for each business unit.
Changes in operating income or loss for each business unit for the second quarter of 2023 as compared to the first quarter of 2023 were as follows:
• CNBU operating income (loss) declined primarily due to declines in average selling prices and lower bit shipments.
• MBU operating loss increased primarily due to declines in average selling prices partially offset by lower R&D costs due to spending optimization.
• EBU operating income decreased primarily due to declines in average selling prices for both DRAM and NAND and declines in bit shipments for NAND.
• SBU operating loss increased primarily due to declines in average selling prices partially offset by lower operating expenses due to spending optimization.
Changes in operating income or loss for each business unit for the second quarter and first six months of 2023 as compared to the corresponding periods of 2022 were as follows:
• CNBU operating income (loss) declined primarily due to declines in average selling prices and lower bit shipments.
• MBU operating income (loss) declined primarily due to declines in average selling prices.
• EBU operating income decreased primarily due to declines in average selling prices and lower bit shipments.
• SBU operating income (loss) declined primarily due to declines in average selling prices and lower bit shipments.
Operating Expenses and Other
Research and Development: R&D expenses vary primarily with the number of development and pre-qualification wafers processed, the cost of advanced equipment dedicated to new product and process development, and personnel costs. Because of the lead times necessary to manufacture our products, we typically begin to process wafers before completion of performance and reliability testing. Development of a product is deemed complete when it is qualified through internal reviews and tests for performance and reliability. R&D expenses can vary significantly depending on the timing of product qualification.
R&D expenses for the second quarter of 2023 were 7% lower as compared to the first quarter of 2023 primarily due to lower volumes of development and prequalification wafers. R&D expenses for the second quarter of 2023 were relatively unchanged compared to the second quarter of 2022 as decreases in employee compensation were offset by higher depreciation expense. R&D expenses for the first six months of 2023 were 9% higher as compared to the first six months of 2022 primarily due to higher volumes of development and prequalification wafers and higher depreciation expense.
Selling, General, and Administrative: SG&A expenses for the second quarter of 2023 were 8% lower as compared to the first quarter of 2023 primarily due to decreases in employee compensation and other incremental decreases across multiple expense categories. SG&A expenses for the second quarter and first six months of 2023 decreased 12% and 8%, respectively, as compared to the corresponding periods of 2022, primarily due to decreases in employee compensation, legal fees, and advertising.
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Restructure and Asset Impairments: See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Restructure and Asset Impairments” and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview.”
Interest Income (Expense), Net : Interest income (expense) for the second quarter of 2023 was relatively unchanged compared to the first quarter of 2023. Interest income (expense) improved for the second quarter and first six months of 2023 as compared to the corresponding periods of 2022, primarily as a result of increases of $107 million and $185 million, respectively, in interest income due to higher interest rates on our cash and investments.
Income Taxes: Our income tax (provision) benefit consisted of the following:
Second Quarter First Quarter Second Quarter Six months ended
2023 2023 2022 2023 2022
Income (loss) before taxes $ (2,271) $ (176) $ 2,509 $ (2,447) $ 5,030
Income tax (provision) benefit (54) (8) (255) (62) (474)
Effective tax rate (2.4) % (4.5) % 10.2 % (2.5) % 9.4 %
The changes in our effective tax rate for the second quarter and first six months of 2023 as compared to the corresponding periods of 2022 were primarily due to pre-tax losses incurred in the first six months of 2023. Despite a consolidated pre-tax loss on a worldwide basis, we have taxes payable in certain geographies due to minimum taxable income reportable in those geographies.
We operate in a number of jurisdictions outside the United States, including Singapore, where we have tax incentive arrangements. These incentives expire, in whole or in part, at various dates through 2034 and are conditional, in part, upon meeting certain business operations and employment thresholds. As a result of a loss before taxes and geographical mix of income, the net benefit from tax incentive arrangements was not material for the first six months of 2023. These arrangements reduced our tax provision by $304 million ($0.27 per diluted share) for the second quarter of 2022 and $594 million ($0.53 per diluted share) for the first six months of 2022.
Other: Further information on other items can be found in “Item 1. Financial Statements – Notes to Consolidated Financial Statements.”
Liquidity and Capital Resources
Our primary sources of liquidity are cash generated from operations and financing obtained from capital markets and financial institutions. Cash generated from operations is highly dependent on selling prices for our products, which can vary significantly from period to period. Cash and marketable investments totaled $12.03 billion as of March 2, 2023, and $10.98 billion as of September 1, 2022. Our cash and investments consist primarily of bank deposits, money market funds, and liquid investment-grade, fixed-income securities, which are diversified among industries and individual issuers. To mitigate credit risk, we invest through high-credit-quality financial institutions and by policy generally limit the concentration of credit exposure by restricting the amount of investments with any single obligor. As of March 2, 2023, $3.53 billion of our cash and marketable investments was held by our foreign subsidiaries.
We continuously evaluate alternatives for efficiently funding our capital expenditures and ongoing operations. We expect, from time to time, to engage in a variety of financing transactions for such purposes, including the issuance of securities. As of March 2, 2023, $2.50 billion was available to draw under our Revolving Credit Facility. On March 27, 2023, we entered into amendments to the Term Loan Agreement and the agreements governing the Revolving Credit Facility and the 2024 Term Loan A to revise the leverage ratio covenant in each such agreement, as further described in “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Debt.” Funding of certain significant capital projects is also dependent on the receipt of government incentives, which are subject to conditions and may not be obtained.
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To develop new product and process technology, support future growth, achieve operating efficiencies, and maintain product quality, we must continue to invest in manufacturing technologies, facilities and equipment, and R&D. We estimate capital expenditures in 2023 for property, plant, and equipment, net of partner contributions, to be approximately $7.0 billion. Actual amounts for 2023 will vary depending on market conditions. As of March 2, 2023, we had purchase obligations of approximately $3.14 billion for the acquisition of property, plant, and equipment, of which approximately $2.26 billion is expected to be paid within one year. For a description of other contractual obligations, such as leases, debt, and commitments, see “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Leases,” “ – Debt,” and “ – Commitments.”
To support expected memory demand in the second half of the decade, we plan to add new DRAM wafer capacity. Following the enactment of the U.S. CHIPS and Science Act of 2022 (“CHIPS Act”), we announced plans to invest in two leading-edge memory manufacturing fabs in the United States, contingent on CHIPS Act support through grants and investment tax credits. As part of this plan, in September 2022, we broke ground on a leading-edge memory manufacturing fab in Boise, Idaho. Construction of the fab is expected to begin in calendar 2023 with DRAM production targeted to start in calendar 2025. In addition, in October 2022, we announced plans to build a second leading-edge DRAM manufacturing fab in Clay, New York. We plan to start site preparation work in calendar 2023 and expect construction to begin in calendar 2024, with production anticipated to ramp in the latter half of the decade. We expect these new fabs to fulfill our requirements for additional wafer capacity starting in the second half of the decade and beyond, in line with industry demand trends.
On November 1, 2021, we issued $1 billion in aggregate principal amount of unsecured 2032 Green Bonds. Over time, we plan to allocate an amount equal to the net proceeds to fund eligible sustainability-focused projects involving renewable energy, green buildings, energy efficiency, water management, waste abatement, and a circular economy. Through November 1, 2022, the date of our 2022 Green Bond Report, we had allocated $676 million toward this commitment. We currently anticipate that 100% of net proceeds of the 2032 Green Bonds will be allocated and dispersed for eligible projects by November 1, 2023.
Our Board of Directors has authorized the discretionary repurchase of up to $10 billion of our outstanding common stock through open-market purchases, block trades, privately-negotiated transactions, derivative transactions, and/or pursuant to Rule 10b5-1 trading plans. The repurchase authorization has no expiration date, does not obligate us to acquire any common stock, and is subject to market conditions and our ongoing determination of the best use of available cash. Through March 2, 2023, we had repurchased an aggregate of $6.89 billion of the authorized amount. See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Equity.”
On March 28, 2023, our Board of Directors declared a quarterly dividend of $0.115 per share, payable in cash on April 25, 2023, to shareholders of record as of the close of business on April 10, 2023. The declaration and payment of any future cash dividends are at the discretion and subject to the approval of our Board of Directors. Our Board of Directors' decisions regarding the amount and payment of dividends will depend on many factors, including, but not limited to, our financial condition, results of operations, capital requirements, business conditions, debt service obligations, contractual restrictions, industry practice, legal requirements, regulatory constraints, and other factors that our Board of Directors may deem relevant.
We expect that our cash and investments, cash flows from operations, and available financing will be sufficient to meet our requirements at least through the next 12 months and thereafter for the foreseeable future.
Cash Flows
Six months ended
2023 2022
Net cash provided by operating activities $ 1,286 $ 7,566
Net cash provided by (used for) investing activities (4,181) (5,176)
Net cash provided by (used for) financing activities 4,434 (979)
Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash 9 (16)
Net increase (decrease) in cash, cash equivalents, and restricted cash $ 1,548 $ 1,395
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Operating Activities: Cash provided by operating activities reflects net income (loss) adjusted for certain non-cash items, including depreciation expense, amortization of intangible assets, and stock-based compensation, and the effects of changes in operating assets and liabilities. The decrease in cash provided by operating activities for the first six months of 2023 as compared to the first six months of 2022 was primarily due to a net loss in the current quarter adjusted for non-cash items and the effect of lower receivables, partially offset by an increase in inventories and a decline in accounts payable and accrued expenses.
Investing Activities: For the first six months of 2023, net cash used for investing activities consisted primarily of $4.65 billion of expenditures for property, plant, and equipment, partially offset by $480 million of net inflows from maturities, sales, and purchases of available-for-sale securities.
For the first six months of 2022, net cash used for investing activities consisted primarily of $5.88 billion of expenditures for property, plant, and equipment; inflows of $66 million of partner contributions for capital expenditures; $893 million of net inflows from the sale of the Lehi, Utah fab; and $119 million of net outflows from purchases, sales, and maturities of available-for-sale securities.
Financing Activities: For the first six months of 2023, net cash provided by financing activities consisted primarily of $3.20 billion of proceeds from our 2025, 2026, and 2027 Term Loan A borrowings, $1.27 billion from the issuance of the 2029 B Notes, and $749 million from the issuance of the 2033 Notes. See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Debt.” Cash used for financing activities included $425 million for the acquisition of 8.6 million shares of our common stock under our share repurchase authorization, $252 million of cash payments of dividends to shareholders, and $76 million of payments on equipment purchase contracts.
For the first six months of 2022, net cash used for financing activities included $1.98 billion of repayments of debt primarily to redeem the 2023 Notes and 2024 Notes, $667 million for the acquisition of 8.4 million shares of our common stock under our share repurchase authorization, $224 million of cash payments of dividends to shareholders, and $105 million of payments on equipment purchase contracts. Cash used for financing activities was partially offset by aggregate proceeds of $2.00 billion from the issuance of the unsecured 2032 Green Bonds, 2041 Notes, and 2051 Notes.
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Critical Accounting Estimates
For a discussion of our critical accounting estimates, see “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” of our Annual Report on Form 10-K for the year ended September 1, 2022. Except for the significant accounting estimate associated with inventories as discussed below, there have been no changes to our critical accounting estimates since our Annual Report on Form 10-K for the year ended September 1, 2022.
Inventories : Inventories are stated at the lower of cost or net realizable value, with cost being determined on a first-in, first-out (“FIFO”) basis. Cost includes depreciation, labor, material, and overhead costs, including product and process technology costs. Determining net realizable value of inventories involves significant judgments, including projecting future average selling prices, future sales volumes, and estimated costs to complete. To project average selling prices and sales volumes, we review recent sales volumes, existing customer orders, current contract prices, industry analyses of supply and demand, seasonal factors, general economic trends, and other information. Actual selling prices and volumes may vary significantly from projected prices and volumes due to the volatile nature of the semiconductor memory and storage markets. When these analyses reflect estimated net realizable values below our manufacturing costs, we record a charge to cost of goods sold in advance of when inventories are actually sold. As a result, the timing of when product costs are charged to costs of goods sold can vary significantly. Differences in forecasted average selling prices used in calculating lower of cost or net realizable value adjustments can result in significant changes in the estimated net realizable value of product inventories and accordingly the amount of write-down recorded. For example, a 5% variance in the estimated selling prices would have changed the estimated net realizable value of our inventory by approximately $600 million as of March 2, 2023. Due to the volatile nature of the semiconductor memory and storage markets, actual selling prices and volumes often vary significantly from projected prices and volumes; as a result, the timing of when product costs are charged to operations can vary significantly.
U.S. GAAP provides for products to be grouped into categories in order to compare costs to net realizable values. The amount of any inventory write-down can vary significantly depending on the determination of inventory categories. We review the major characteristics of product type and markets in determining the unit of account for which we perform the lower of average cost or net realizable value analysis and categorize all inventories (including DRAM, NAND, and other memory) as a single group.
Recently Adopted Accounting Standards
No material items.
Recently Issued Accounting Standards
No material items.
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