What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-10-04 compared with 2023-10-06 · 118 added, 121 removed, 191 unchanged (56% of the section changed)

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Industry Conditions

The memory and storage industry environment deteriorated sharply in the fourth quarter of 2022 and throughout 2023 due to weak demand in many end markets combined with global and macroeconomic challenges and lower demand resulting from customer actions to reduce inventory levels.

This led to significant reductions in average selling prices for both DRAM and NAND and bit shipments for DRAM, resulting in declines in revenue across all our business segments and nearly all our end markets.

Due to the challenging pricing environment, we recognized charges of $1.83 billion in 2023 to write down inventories to their estimated net realizable value.

Ongoing demand growth, customer inventory normalization, and industry-wide supply discipline have set the stage for increased revenue, and improved pricing and profitability throughout fiscal 2024.

As a result, pricing trends have started to improve and there were no write downs of inventories to net realizable value in the fourth quarter of 2023.

However, further write-downs of inventories in future quarters could occur if pricing expectations deteriorate.

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 into 2024.

As a result of these conditions and increases in our inventory levels, we have reduced capital expenditures and also significantly reduced wafer starts in 2023 for both DRAM and NAND.

We expect wafer starts will remain significantly below peak capacity levels for the foreseeable future as we remain focused on managing down our inventories and controlling our supply.

We recognized period costs from fabrication facility underutilization of $382 million in 2023 due to wafer start reductions.

We estimate that we will recognize approximately $200 million of period costs from underutilization due to wafer start reductions in the first quarter of 2024.

We have also taken 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.

Impact of China Cyberspace Administration Decision

On March 31, 2023, China’s Cyberspace Administration (the “CAC”) notified us that it was conducting a cybersecurity review of our products sold in China.

On May 21, 2023, we received notice that the CAC had concluded its review and decided that our products presented a cybersecurity risk.

As such, the CAC determined that critical information infrastructure operators in China may not purchase Micron products.

There is no list of the companies that have been designated as critical information infrastructure operators published by the Chinese government or otherwise available to us.

Therefore, the full impact of the CAC decision on our business remains uncertain.

The CAC decision has impacted our business, particularly in the domestic data center and networking markets in China.

In addition, although demand for DRAM and NAND is improving as customer inventory levels continue to normalize and secular growth drivers remain intact, the CAC decision continues to impact our revenue opportunity in China.

This significant headwind is impacting our outlook and slowing our recovery.

We are working to mitigate this impact over time and expect quarter-to-quarter revenue variability.

Our revenue with companies headquartered in mainland China and Hong Kong, including direct sales as well as indirect sales through distributors, is approximately a quarter of our worldwide revenue and remains our principal exposure to the CAC decision.

Although the impact of the CAC decision remains uncertain, we believe that approximately half of that China-headquartered customer revenue, which equates to a low-double-digit percentage of our worldwide revenue, is at risk of being impacted.

Despite the near-term impact to our demand as a result of the CAC decision, our long-term goal is to retain our worldwide DRAM and NAND market share.

2023 Restructure Plan

We initiated a restructure plan in response to challenging industry conditions (the “2023 Restructure Plan”).

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 $171 million in 2023 primarily related to employee severance costs.

The 2023 Restructure Plan was substantially completed in 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) subsequent to 2023.

Further information on restructure activities can be found in “Item 8.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Restructure and Asset Impairments.”

Lehi, Utah Fab and 3D XPoint

In 2021, we updated our portfolio strategy to further strengthen our focus on memory and storage innovations for the data center market.

In connection therewith, we determined that there was insufficient market validation to justify the ongoing investments required to commercialize 3D XPoint at scale.

Accordingly, we ceased development of 3D XPoint technology and engaged in discussions for the sale of our facility located in Lehi, Utah that was dedicated to 3D XPoint production.

As a result, we classified the property, plant, and equipment as held for sale in 2021, ceased depreciating the assets, and recognized a $435 million restructure and asset impairment charge and a $104 million tax benefit.

We closed the sale of our Lehi facility to TI in 2022 for $893 million and disposed of $918 million of net assets, consisting primarily of property, plant, and equipment, resulting in a $23 million loss, net of selling expenses and other adjustments.

Throughout 2024, we experienced substantial improvements in pricing and margins.

Increasing demand growth, driven in part by deployment of AI and mostly normal customer inventories, combined with industry-wide supply discipline, resulted in an industry supply and demand balance that substantially improved from 2023 conditions.

We executed well on pricing and improved our financial performance significantly from the start of the year.

We are exiting the year with excellent momentum and an industry-leading product portfolio.

In contrast, 2023 was a year of weak memory and storage industry demand in many end markets, stemming from global macroeconomic challenges and customer actions to reduce inventory levels.

These conditions, which began in the fourth quarter of 2022 and persisted into early 2024, led to significant reductions in average selling prices for both DRAM and NAND and reductions in bit shipments for DRAM.

We experienced declines in revenue across all our business segments and nearly all our end markets throughout 2023.

Also in 2023, China’s Cyberspace Administration (the “CAC”) conducted a cybersecurity review of our products sold in China and decided that our products presented a cybersecurity risk.

The CAC determined that critical information infrastructure operators in China may not purchase Micron products.

The CAC decision has impacted our business, particularly in the domestic data center and networking markets in China, and we have been working to mitigate that impact.

Our goal is to retain our worldwide DRAM and NAND market share.

In manufacturing, we have been fully utilized throughout most of 2024 on our high-volume manufacturing nodes where we are maximizing output against our current capacity, which we have proactively, structurally lowered.

Beginning in the latter part of 2022, we reduced capital expenditures and wafer starts for both DRAM and NAND in response to challenging market conditions and increased levels of our inventories.

In addition, to improve capital efficiency, we redeployed equipment from older technology nodes to support conversions to leading-edge nodes.

Since the number of wafer processing steps is higher for leading-edge nodes, this approach has resulted in a meaningful structural reduction in DRAM and NAND wafer capacity.

We believe this approach to node migration and consequent wafer capacity reduction was adopted across the industry.

We recognized period costs from fabrication facility underutilization of $382 million in 2023 and $165 million in the first quarter of 2024 due to wafer start reductions.

Subsequently, fabrication facility underutilization was reduced and principally related to legacy manufacturing capacity.

Accordingly, 2024 period costs beyond the first quarter were not significant.

In connection with improved 2024 market conditions, we reinstated our bonuses and phased out certain other temporary cost-saving measures that were implemented in 2023.

We took significant steps in 2023 to reduce our costs and operating expenses, both on a temporary and ongoing structural basis.

These measures included the 2023 Restructure Plan, as well as implementing productivity programs, suspension of our 2023 bonus, reductions in select product programs, lower discretionary spending, and cuts to 2023 executive salaries.

Under the 2023 Restructure Plan, we reduced our headcount by approximately 15% by the end of calendar 2023, through a combination of voluntary attrition and personnel reductions.

We incurred restructure charges of $171 million in 2023 primarily related to employee severance costs.

The 2023 Restructure Plan, which was substantially completed in 2023, yielded estimated cost savings of approximately $130 million per quarter (approximately 60% in cost of goods sold, 30% in R&D, and 10% in SG&A) subsequent to 2023.

47 | 2024 10-K

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Cost of goods sold 19,498 78 % 16,956 109 % 16,860 55 %

(1,416) (9) % 13,898 45 % 10,423 38 %

Gross margin 5,613 22 % (1,416) (9) % 13,898 45 %

Research and development 3,430 14 % 3,114 20 % 3,116 10 %

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Total Revenue:

Total revenue for 2023 was adversely impacted by the factors described in the section titled “Industry Conditions” above.

Total revenue for 2023 decreased 49% as compared to 2022 primarily due to decreases in sales of both DRAM and NAND products.

• Sales of DRAM products decreased 51% primarily due to a high-40s percent range decline in average selling prices and decreases in bit shipments in the high-single-digit percent range.

• Sales of NAND products decreased 46% primarily due to a low-50s percent range decline in average selling prices partially offset by increases in bit shipments in the high-single-digit percent range.

Total revenue for 2024 and 2023 was impacted by the factors described in the section titled “Industry Conditions” above.

These conditions drove a recovery of average selling prices throughout 2024 after significant declines in average selling prices throughout 2023.

Total revenue for 2024 increased 62% as compared to 2023 primarily due to increases in sales of both DRAM and NAND products.

• Sales of DRAM products increased 12% primarily due to increases in bit shipments of slightly over 10%.

• Sales of NAND products increased 11% primarily due to a high-single-digit percent increase in bit shipments and a low-single-digit percent increase in average selling prices.

• Sales of DRAM products increased 60% primarily due to a mid-40% range increase in bit shipments and a low-teen percentage range increase in average selling prices.

• Sales of NAND products increased 72% primarily due to a low-30% range increase in bit shipments and a low-30% percentage range increase in average selling prices.

Total revenue for 2023 decreased 49% as compared to 2022 primarily due to decreases in sales of both DRAM and NAND products.

• Sales of DRAM products decreased 51% primarily due to a high-40% range decline in average selling prices and decreases in bit shipments in the high-single-digit percent range.

• Sales of NAND products decreased 46% primarily due to a low-50% range decline in average selling prices partially offset by increases in bit shipments in the high-single-digit percent range.

Consolidated Gross Margin :

Our consolidated gross margin has been adversely impacted by the factors described in the section titled “Industry Conditions” above.

Our consolidated gross margin percentage decreased to negative 9% for 2023 from 45% for 2022 primarily due to declines in average selling prices for both DRAM and NAND and charges to write down inventories (as detailed in “Inventory NRV write-downs” below), and $382 million of facility underutilization costs in 2023.

Our consolidated gross margin has been impacted by the factors described in the section titled “Industry Conditions” above and inventory write-downs in 2023 as detailed in the table below.

Our consolidated gross margin percentage improved to 22% for 2024 from negative 9% for 2023, as a result of improvements in margins for both DRAM and NAND products, primarily due to increases in average selling prices, and manufacturing cost reductions, the effects of charges to write down inventories to their NRV in 2023 and lower costs in 2024 from the sale of inventories written down in 2023 (as detailed in “Inventory NRV write-downs” below).

Our consolidated gross margin percentage decreased to negative 9% for 2023 from 45% for 2022 primarily due to declines in average selling prices for both DRAM and NAND, charges to write down inventories, and $382 million of facility underutilization costs in 2023.

Inventory NRV write-downs:

Our consolidated gross margin was impacted by charges to write down inventories to their estimated net realizable value as a result of declines in average selling prices for both DRAM and NAND.

As charges to write down inventories are recorded in advance of when inventories are sold, costs of goods sold in subsequent periods are lower than they otherwise would be.

Our consolidated gross margin was impacted by charges in 2023 to write down inventories to their estimated NRV as a result of declines in average selling prices for both DRAM and NAND.

As charges to write down inventories are recorded in advance of when inventories are sold, costs of goods sold in subsequent periods were lower than they otherwise would be.

The impact of inventory NRV write-downs for each period reflects (1) inventory write-downs in that period, offset by (2) lower costs in that period on the sale of inventory written down in prior periods.

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$ 987 $ (987) $ —

Our consolidated gross margin percentage increased to 45% for 2022 from 38% for 2021, as a result of improvements in margins for both DRAM and NAND products, primarily due to reductions in manufacturing costs.

Manufacturing cost reductions were driven by strong execution in ramping our 1α DRAM and 176-layer NAND technology nodes.

For 2021, our gross margins included the impact of underutilization costs at MTU of $335 million.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Lehi, Utah Fab and 3D XPoint.” Also, effective as of the beginning of the second quarter of 2021, we changed our method of inventory costing from average cost to first-in, first-out (“FIFO”).

Concurrently, as of the beginning of the second quarter of 2021, we modified our inventory cost absorption processes used to estimate inventory values, which affects the timing of when costs are recognized.

These changes resulted in a one-time increase to cost of goods sold of approximately $293 million in 2021.

Revenue by Business Unit

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Changes in revenue for each business unit for 2024 as compared to 2023 were as follows:

• CNBU revenue increased 67% driven by increases in bit shipments and DRAM average selling prices.

• MBU revenue increased 75% primarily due to increases in average selling prices and bit shipments for both mobile DRAM and NAND.

• EBU revenue increased 27% primarily due to increases in bit shipments, partially offset by declines in average selling prices.

• SBU revenue increased 80% primarily due to increases in average selling prices and bit shipments.

Changes in revenue for each business unit for 2023 as compared to 2022 were as follows:

• CNBU revenue decreased 58% primarily due to declines in average selling prices for DRAM and decreases in bit shipments.

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• SBU revenue decreased 44% primarily due to declines in average selling prices for NAND partially offset by increases in bit shipments.

Changes in revenue for each business unit for 2022 as compared to 2021 were as follows:

• CNBU revenue increased 12% primarily due to increases in bit shipments to cloud, enterprise, and networking markets.

• MBU revenue was relatively unchanged as both DRAM and NAND revenue was relatively flat.

• EBU revenue increased 24% primarily due to strong demand growth in industrial and automotive markets.

• SBU revenue increased 15% primarily due to higher average selling prices and increases in shipments of SSD products.

49 | 2024 10-K

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Changes in operating income or loss for each business unit for 2024 as compared to 2023 were as follows:

• CNBU operating income (loss) improved primarily due to higher bit shipments, increases in average selling prices, and cost reductions, partially offset by higher R&D expenses.

• MBU operating income (loss) improved primarily due to increases in average selling prices, higher bit shipments, and cost reductions.

• EBU operating income decreased primarily due to declines in average selling prices, partially offset by higher bit shipments and cost reductions.

• SBU operating income (loss) improved primarily due to increases in average selling prices, higher bit shipments, and cost reductions, partially offset by higher R&D expenses.

Changes in operating income or loss for each business unit for 2023 as compared to 2022 were as follows:

• CNBU operating income (loss) deteriorated primarily due to declines in average selling prices and lower bit shipments.

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• SBU operating income (loss) deteriorated primarily due to declines in average selling prices.

Changes in operating income or loss for each business unit for 2022 as compared to 2021 were as follows:

• CNBU operating income increased primarily due to higher bit shipments and manufacturing cost reductions.

• MBU operating income was relatively unchanged as slight increases in gross margins were offset by higher operating expenses.

• EBU operating income increased primarily due to manufacturing cost reductions from an increasing mix of leading-edge bits, higher bit shipments, and improved DRAM pricing in industrial and consumer markets, partially offset by higher R&D expenses.

• SBU operating income increased primarily due to improved product mix driving increases in average selling prices, increases in SSD shipments, and manufacturing cost reductions, partially offset by higher R&D expenses.

Operating Expenses and Other

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R&D expenses can vary significantly depending on the timing of product qualification.

R&D expenses for 2024 increased 10% as compared to 2023 primarily due to an increase in employee compensation and higher volumes of development and prequalification wafers, partially offset by an increase in government incentives.

R&D expenses for 2023 were relatively unchanged as compared to 2022 as decreases in employee compensation were offset by higher depreciation expense.

R&D expenses for 2022 increased 17% as compared to 2021 primarily due to higher employee compensation from increases in headcount, higher volumes of development and prequalification wafers, and higher depreciation expense.

Selling, General, and Administrative:

SG&A expenses for 2024 increased 23% as compared to 2023 primarily due to an increase in employee compensation.

SG&A expenses for 2023 were 14% lower as compared to 2022 primarily due to decreases in employee compensation, legal fees, advertising, and professional services.

SG&A expenses for 2022 were 19% higher as compared to 2021 primarily due to increases in employee compensation, professional services, and legal fees.

Restructure and Asset Impairments:

For a discussion of restructure and asset impairments, see the Overview sections above titled “2023 Restructure Plan” and “Lehi, Utah Fab and 3D XPoint.”

Interest Income (Expense), Net :

Interest income (expense) improved for 2023 as compared to 2022 primarily as a result of increases in interest income due to higher interest rates on our cash and investments, partially offset by increases in interest expense due to higher debt balances and interest rates.

Interest income (expense) improved for 2022 as compared to 2021 primarily due to an increase of $59 million in interest income as a result of increases in interest rates on our cash and investments.

Interest income (expense) deteriorated for 2024 as compared to 2023 primarily due to increases in interest expense as a result of higher interest rates on our debt, partially offset by increases in interest income due to higher interest rates on our cash and investments.

Income Taxes:

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Effective tax rate 36.4 % (3.1) % 9.3 %

The change in our effective tax rate for 2024 as compared to 2023 was primarily due to changes in profitability.

The change in our effective tax rate for 2023 as compared to 2022 was primarily due to a pre-tax loss in 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.

Our effective tax rate increased in 2022 as compared to 2021 primarily due to the geographic mix of our earnings and a valuation allowance recorded against our Idaho deferred tax assets of $189 million, partially offset by tax impacts of changes in foreign currency exchange rates.

Despite a consolidated pre-tax loss on a worldwide basis in 2023, we had 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 benefit from tax incentive arrangements was not material for 2023.

The effect of tax incentive arrangements reduced our tax provision by $1.12 billion (benefiting our diluted earnings per share by $1.00) for 2022 and by $758 million ($0.66 per diluted share) for 2021.

Beginning in 2024, the Inflation Reduction Act of 2022 imposes a 15% book minimum tax on corporations with three-year average annual adjusted financial statement income exceeding $1 billion.

The impact of this tax will depend on our facts in each year, anticipated guidance from the U.S.

Department of the Treasury, and other developing global tax legislation.

As a result of the low level of profitability and jurisdictional mix of income, the benefit from tax incentive arrangements was not material for 2024 or 2023.

The effect of tax incentive arrangements reduced our tax provision by $1.12 billion (benefiting our diluted earnings per share by $1.00) for 2022.

Further changes in the tax laws of foreign jurisdictions could arise as a result of the base erosion and profit shifting project, including Pillar Two Model Rules (“Pillar Two”), undertaken by the Organisation for Economic Co-operation and Development (“OECD”).

Nearly all European Union member states have enacted the Pillar Two legislation, which will be effective for us in 2025.

While we do not expect these enacted laws to materially impact our effective tax rate for 2025, additional countries where we operate, including Singapore, have announced plans to adopt Pillar Two legislation.

Enactment of this legislation would become effective for us in 2026 and significantly increase our tax expense.

Various tax reforms are being considered in multiple jurisdictions that, if enacted, contain provisions that could materially impact our tax expense.

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Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements”:

• Lehi, Utah Fab and 3D XPoint

• Equity Plans

• Equity Compensation Plans

• Restructure and Asset Impairments

• Other Operating (Income) Expense, Net

• Other Non-Operating Income (Expense), Net

• Income Taxes

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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 $10.44 billion as of August 31, 2023, and $10.98 billion as of September 1, 2022.

Cash and marketable investments totaled $9.15 billion as of August 29, 2024, and $10.44 billion as of August 31, 2023.

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.

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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.

We expect to engage in a variety of financing transactions, from time to time, for such purposes as well as to refinance our existing indebtedness, including the issuance of securities.

As of August 29, 2024, $2.50 billion was available to draw under our Revolving Credit Facility.

On March 27, 2023, we entered into amendments to the Multi-Tranche 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 8.

Financial Statements and Supplementary Data – 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.

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.

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 2024 for property, plant, and equipment, net of partner contributions, to be slightly above $7 billion.

Actual amounts for 2024 will vary depending on market conditions.

As of August 31, 2023, we had purchase obligations of approximately $915 million for the acquisition of property, plant, and equipment, of which approximately $812 million is expected to be paid within one year.

We estimate capital expenditures in 2025 for property, plant, and equipment, net of proceeds from government incentives, to be around mid-30% range of revenue for the year.

Actual amounts for 2025 will vary depending on market conditions and may vary from quarter to quarter due to the timing of expenditures and proceeds from government incentives.

As of August 29, 2024, we had purchase obligations of approximately $1.17 billion for the acquisition of property, plant, and equipment, of which approximately $1.10 billion is expected to be paid within one year.

For a description of other contractual obligations, such as leases, debt, and commitments, see “Item 8.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Leases,” “ – Debt,” and “ – Commitments.”

To support expected memory demand in the second half of the decade, we will need to add new DRAM wafer capacity.

Following the enactment of the CHIPS Act in 2022, 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.

To support projected memory demand in the second half of the decade, we will need 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 fab facilities in the United States, based 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 began in October 2023 with DRAM production targeted to start in calendar 2025 and first output in early calendar 2026.

In addition, in October 2022, we announced plans to build a second leading-edge DRAM manufacturing fab in Clay, New York.

We 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 August 21, 2023 we announced that two of our subsidiaries had each submitted full applications on August 18, 2023 for federal funding in the form of grants under the CHIPS Act for both of these projects.

We are also advancing our global back-end assembly and test network in order to support our product portfolio and extend our ability to deliver on global customer demand in the future.

We intend to make investments at our backend facility in Xi’an, China, including a new building to provide space to add more product capability, to allow us over time to serve more of the demand from our customers in China from the Xi’an facility.

We also intend to build a new assembly and test facility in Gujarat, India to address demand in the latter half of this decade.

Construction of the fab began in October 2023, with meaningful DRAM output projected in 2027.

In addition, in October 2022, we announced plans to build a second leading-edge DRAM manufacturing facility, consisting of up to four fabs to be built over the next 20-plus years, in Clay, New York.

We expect construction site preparation to begin in calendar 2025, with production anticipated to ramp in the latter half of the decade.

We expect these new fabs to be key to meeting our requirements for additional wafer capacity starting in the second half of the decade and beyond, in line with industry demand trends and to maintain an objective of stable bit share.

We have signed a non-binding preliminary memorandum of terms with the U.S.

Department of Commerce for up to $6.1 billion in direct funding under the CHIPS Act for our planned fab in Boise, Idaho and the first two planned fabs in Clay, New York.

We are also eligible for federal loans up to $7.5 billion.

In addition, we receive a 25% investment tax credit on qualified investments in U.S.

semiconductor manufacturing under the CHIPS Act.

We have also signed a non-binding term sheet with the state of New York that provides up to $5.5 billion in funding for the planned four-fab facility over the next 20-plus years through a combination of tax credits for qualified capital investments and incentives for eligible new job wages.

Additionally, we began enablement of cleanroom space within our existing manufacturing fab in Hiroshima, Japan, that will support production of DRAM using EUV lithography.

We also continue to advance our global back-end assembly and test network in order to support our product portfolio and extend our ability to deliver on global customer demand in the future.

We have started construction to expand our existing assembly and test facility in Xi’an, China, to provide space to add more product capability, to allow us over time to serve more of the demand from our customers in China.

Construction is also progressing for the assembly and test facility in Gujarat, India to address demand in the latter half of this decade.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Government Incentives.”

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.

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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.

We expect that our cash and investments, cash flows from operations, expected funding from government incentives, and available financing will be sufficient to meet our requirements at least through the next 12 months and thereafter for the foreseeable future.

For the year ended 2024 2023 2022

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Cash provided by operating activities reflects net income (loss) adjusted for certain non-cash items, including depreciation expense, amortization of intangible assets, inventory write-downs, asset impairments, and stock-based compensation, and the effects of changes in operating assets and liabilities .

The decrease in cash provided by operating activities for 2023 as compared to 2022 was primarily due to a net loss in the current year adjusted for non-cash items and the effect of an increase in inventories and a decline in accounts payable and accrued expenses, partially offset by a decrease in receivables.

The increase in cash provided by operating activities for 2022 as compared to 2021 was primarily due to higher net income adjusted for non-cash items and the effect of lower receivables, partially offset by an increase in inventories.

The increase in cash provided by operating activities for 2024 as compared to 2023 was primarily due to net income in 2024 adjusted for non-cash items, the effect of an increase in accounts payable and accrued expenses and an increase in other current liabilities largely due to customer prepayments to secur e p roduct supply, partially offset by an increase in receivables.

The decrease in cash provided by operating activities for 2023 as compared to 2022 was primarily due to a net loss in 2023 adjusted for non-cash items and the effect of an increase in inventories and a decline in accounts payable and accrued expenses, partially offset by a decrease in receivables.

Investing Activities:

For 2024, net cash used for investing activi ties consisted primarily of $8.39 billion of expenditures for property, plant, and equipment;

and $205 million of net outflows from purchases, maturities, and sales of available-for-sale securities;

partially offset by contributions of $315 million received from government incentives to offset capital expenditures.

For 2023, net cash used for investing activities consisted primarily of $7.68 billion of expenditures for property, plant, and equipment;

contributions of $710 million received from partners to offset capital expenditures;

partially offset by contributions of $710 million received from government incentives to offset capital expenditures;

and $868 million of net inflows from maturities, sales, and purchases of available-for-sale securities.

53 | 2024 10-K

For 2022, net cash used for investing activities consisted primarily of $12.07 billion of expenditures for property, plant, and equipment;

contributions of $115 million received from partners to offset capital expenditures;

partially offset by contributions of $115 million received from government incentives to offset capital expenditures;

$888 million of net inflows from the sale of the Lehi, Utah fab;

and $155 million of net outflows from purchases, sales, and maturities of available-for-sale securities.

For 2021, net cash used for investing activities consisted primarily of $10.03 billion of expenditures for property, plant, and equipment, partially offset by contributions of $502 million received from partners to offset capital expenditures, and $1.06 billion of net outflows from purchases, sales, and maturities of available-for-sale securities.

and $155 million of net outflows from purchases, maturities, and sales of available-for-sale securities.

Financing Activities:

For 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, $896 million from the issuance of the 2033 B Notes, $749 million from the issuance of the 2033 A Notes, and $599 million from the issuance of the 2028 Notes.

Cash used for financing activities included $761 million for repayments of debt, $504 million for payments of dividends to shareholders, $425 million for the acquisition of 8.6 million shares of our common stock under our share repurchase authorization, and $138 million of payments on equipment purchase contracts.

51 | 2023 10-K

For 2022, net cash used for financing activities included $2.43 billion for the acquisition of 35.4 million shares of our common stock under our share repurchase authorization, $2.03 billion of repayments of debt primarily to redeem the 2023 Notes and 2024 Notes, $461 million of cash payments of dividends to shareholders, and $141 million of payments on equipment purchase contracts.

For 2024, net cash used for financing activi ties consisted primarily of $1.90 billion of repayments of debt, which included the prepayment of the 2024 Term Loan A and the 2025 Term Loan A borrowings;

$513 million for paym ents of dividends to shareholders;

$300 million for the acquisition of 3.2 million shares of our common stock under our share repurchase authorization;

an d $149 million of payments on equipment purchase contracts, partially offset by approximately $1.00 billion of proceeds from the issuance of the 2031 Notes.

For 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;

$896 million from the issuance of the 2033 B Notes;

$749 million from the issuance of the 2033 A Notes;

and $599 million from the issuance of the 2028 Notes.

Cash used for financing activities included $761 million for repayments of debt;

$504 million for payments of dividends to shareholders;

$425 million for the acquisition of 8.6 million shares of our common stock under our share repurchase authorization;

and $138 million of payments on equipment purchase contracts.

For 2022, net cash used for financing activities included $2.43 billion for the acquisition of 35.4 million shares of our common stock under our share repurchase authorization;

$2.03 billion of repayments of debt primarily to redeem the 2023 Notes and 2024 Notes;

$461 million of cash payments of dividends to shareholders;

and $141 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.

For 2021, net cash used for financing activities consisted primarily of $1.20 billion for the acquisition of 15.6 million shares of our common stock under our share repurchase authorization, $295 million of payments on equipment purchase contracts, $185 million of cash payments to settle conversions of our 2032D Notes, and $147 million of repayments of finance leases and other debt.

In addition, we received proceeds of $1.19 billion under an unsecured 2024 Term Loan A and used the proceeds to repay the $1.19 billion Extinguished 2024 Term Loan A.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Debt.”

12 unchanged sentences

We test goodwill for impairment in our fourth quarter each year, or more frequently if indicators of an impairment exist, to determine whether it is more likely than not that the fair value of the reporting unit with goodwill is less than its carrying value.

For reporting units for which this assessment concludes that it is more likely than not that the fair value is more than its carrying value, goodwill is considered not impaired, and we are not required to perform the goodwill impairment test.

Qualitative factors considered in this assessment include industry and market considerations, overall financial performance, and other relevant events and factors affecting the fair value of the reporting unit.

2 unchanged sentences

If the carrying value of the reporting unit exceeds its fair value, we recognize an impairment loss up to the difference between the carrying value and implied fair value.

We recognized a charge of $101 million in 2023 to impair all of the goodwill assigned to our SBU reporting unit based on our quantitative assessment for impairment in the current year.

The quantitative assessment indicated that the fair value for all of our other reporting units substantially exceeded their carrying value.

We recognized a charge of $101 million in 2023 to impair all of the goodwill assigned to our SBU reporting unit based on our quantitative assessment for impairment.

We performed a qualitative assessment for the current year and have not identified any impairment indicators for our reporting units.

Determining when to test for impairment, the reporting units, the assets and liabilities of the reporting unit, and the fair value of the reporting unit requires significant judgment and involves the use of significant estimates and assumptions.

13 unchanged sentences

Realization of deferred tax assets is dependent on our ability to generate future taxable income.

Our income tax provision or benefit is dependent, in part, on our ability to forecast future taxable income in Japan, Malaysia, the United States, Taiwan, and other jurisdictions.

Our income tax provision or benefit is dependent, in part, on our ability to forecast future taxable income in Japan, the United States, Malaysia, Taiwan, and other jurisdictions.

Such forecasts are inherently difficult and involve significant judgments including, among others, projecting future average selling prices and sales volumes, manufacturing and overhead costs, levels of capital spending, and other factors that significantly impact our analyses of the amount of net deferred tax assets that are more likely than not to be realized.

10 unchanged sentences

For example, a 5% decrease in future average selling prices would have changed the estimated net realizable value of our finished goods and work in process inventories by approximately $700 million as of August 29, 2024.

55 | 2024 10-K

GAAP provides for products to be grouped into categories in order to compare costs to net realizable values.

6 unchanged sentences

The estimate of future cash flows involves numerous assumptions which require significant judgment by us, including, but not limited to, future use of the assets for our operations versus sale or disposal of the assets, future selling prices for our products, and future production and sales volumes.

53 | 2023 10-K

Revenue recognition :

5 unchanged sentences

Differences between the estimated and actual amounts are recognized as adjustments to revenue.

Recently Adopted Accounting Standards

No material items.

Recently Issued Accounting Standards

No material items.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Recently Issued Accounting Standards.”

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis