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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 4, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to
Commission file number 1-10658
MU-20210304_G1.JPG
Micron Technology, Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-1618004
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
8000 S. Federal Way, Boise, Idaho
83716-9632
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
(208) 368-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol Name of each exchange on which registered
Common Stock, par value $0.10 per share MU Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer Accelerated Filer Non-Accelerated Filer Smaller Reporting Company Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The number of outstanding shares of the registrants common stock as of March 25, 2021 was 1,121,415,561.




Micron Corporate Profile
MU-20210304_G2.JPG

Founded on October 5, 1978

Headquartered in
Boise, Idaho, USA
 
4th
Largest semiconductor company
in the world*

134
On the 2020 Fortune 500

44,000
Patents granted and growing**

17
Countries**

13
Manufacturing sites and
14 customer labs**

40,000
Team members**
It’s All About Data
Data is today’s new business currency, and memory and storage are emerging as strategic differentiators which will redefine how we extract value from data to learn, explore, communicate, and navigate our world.
Who We Are
Micron designs, develops, and manufactures industry-leading memory and storage products. By creating rapid advancements in artificial intelligence, 5G, machine learning, and autonomous vehicles, we unlock innovation in key market segments like mobile, data center, healthcare, automotive, and cloud networking. Our technology and expertise are central to cutting-edge computing applications and new business models which disrupt and advance the industry.
Our Vision
As a global leader in memory and storage solutions, we are transforming how the world uses information to enrich life for all. By advancing technologies to collect, store, and manage data with unprecedented speed and efficiency, we continue to lead the transformation of information intelligence. In a world of change, we remain nimble, allowing our products to continue inspiring the world to learn, communicate, and advance faster than ever.
Our Commitment

*Based on Gartner Market Share: Semiconductors by End Market, Worldwide, 2019 (April 2020), excluding IP/software revenue
**Micron data as of September 3, 2020.
The world has come to expect our commitment to innovative solutions and people depend on our integrity. We rededicate ourselves daily to demonstrating our environmental conscience, an inclusive team culture where all voices are heard and respected, and sharing our philanthropic social giving for good.
Media Inquiries
mediarelations@micron.com

Government Inquiries
govaffairs@micron.com

Investor Inquiries
investorrelations@micron.com
Global Product Portfolio
DRAM | NAND | NOR | Solid-State Drives
High Bandwidth Memory (HBM) | Multichip Packages
Connect with us on micron.com
© 2021 Micron Technology, Inc. Micron, the Micron orbit logo, the M orbit logo, Intelligence AcceleratedTM, and other Micron trademarks are the property of Micron Technology, Inc. All other trademarks are the property of their respective owners. Products and specifications are subject to change without notice. Rev 03/21 CCMMD-1707390403-3712




Table of Contents

Introduction
2
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Statements of Operations
3
Consolidated Statements of Comprehensive Income
4
Consolidated Balance Sheets
5
Consolidated Statements of Changes in Equity
6
Consolidated Statements of Cash Flows
8
Notes to Consolidated Financial Statements
9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
26
Results of Operations
29
Liquidity and Capital Resources
33
Item 3. Quantitative and Qualitative Disclosures about Market Risk
35
Item 4. Controls and Procedures
35
Part II. Other Information
Item 1. Legal Proceedings
35
Item 1A. Risk Factors
35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
54
Item 6. Exhibits
55
Signatures
56


MU-20210304_G3.JPG 1



Definitions of Commonly Used Terms
As used herein, “we,” “our,” “us,” and similar terms include Micron Technology, Inc. and its consolidated subsidiaries, unless the context indicates otherwise. Abbreviations, terms, or acronyms are commonly used or found in multiple locations throughout this report and include the following:
Term Definition Term Definition
2023 Notes 2.497% Senior Notes due 2023 GDDR Graphics Double Data Rate
2024 Notes
4.640% Senior Notes due 2024
IMFT IM Flash Technologies, LLC
2024 Term Loan A Senior Term Loan A due 2024 Inotera Inotera Memories, Inc.
2025 Notes
5.500% Senior Notes due 2025
Intel
Intel Corporation
2026 Notes
4.975% Senior Notes due 2026
MCP Multi-Chip Package
2027 Notes
4.185% Senior Notes due 2027
Micron
Micron Technology, Inc. (Parent Company)
2029 Notes
5.327% Senior Notes due 2029
MMJ Micron Memory Japan, G.K.
2030 Notes
4.663% Senior Notes due 2030
Revolving Credit Facility $2.5 billion Revolving Credit Facility due July 2023
2032D Notes
3.125% Convertible Senior Notes due 2032
SSD Solid State Drive
DDR Double Data Rate

Micron Technology, Inc., including its consolidated subsidiaries, is 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.

Micron, Crucial, any associated logos, and all other Micron trademarks are the property of Micron. Intel and 3D XPoint are trademarks of Intel Corporation or its subsidiaries. Other product names or trademarks that are not owned by Micron are for identification purposes only and may be the trademarks of their respective owners.

Available Information
Investors and others should note that we announce material financial information about our business and products through a variety of means, including our investor relations website (investors.micron.com), filings with the U.S. Securities and Exchange Commission (the “SEC”), press releases, public conference calls, and webcasts. We use these channels to achieve broad, non-exclusionary distribution of information to the public and for complying with our disclosure obligations under Regulation FD. Therefore, we encourage investors, the media, and others interested in our company to review the information we post on such channels.

Forward-Looking Statements
This Form 10-Q contains trend information and other forward-looking statements that involve a number of risks and uncertainties. Such forward-looking statements may be identified by words such as "anticipate," "expect," "intend," "pledge," "committed," "plans," "opportunities," "future," "believe," "target," "on track," "estimate," "continue," "likely," "may," "will," "would," "should," "could," and variations of such words and similar expressions. Specific forward-looking statements include, but are not limited to, statements such as those made regarding the impact of coronavirus disease 2019 (“COVID-19”) to our business; the planned sale of our facility located in Lehi, Utah, and effect on depreciation expense; the sufficiency of our cash and investments; and capital spending in 2021. Our actual results could differ materially from our historical results and those discussed in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, those identified in “Part II. Other Information – Item 1A. Risk Factors.”
2 | 2021 Q2 10-Q



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

Micron Technology, Inc.
Consolidated Statements of Operations
(In millions, except per share amounts)
(Unaudited)

Quarter ended Six months ended
March 4,
2021
February 27,
2020
March 4,
2021
February 27,
2020
Revenue $ 6,236  $ 4,797  $ 12,009  $ 9,941 
Cost of goods sold 4,587  3,442  8,624  7,220 
Gross margin 1,649  1,355  3,385  2,721 
Research and development 641  681  1,288  1,321 
Selling, general, and administrative 214  223  428  434 
Other operating (income) expense, net 131  11  140 
Operating income 663  440  1,529  958 
Interest income 10  34  20  78 
Interest expense (42) (46) (90) (93)
Other non-operating income (expense), net (1) 17  45 
635  427  1,476  988 
Income tax (provision) benefit (48) (21) (99) (76)
Equity in net income (loss) of equity method investees
16  29 
Net income 603  407  1,406  915 
Net income attributable to noncontrolling interests —  (2) —  (19)
Net income attributable to Micron $ 603  $ 405  $ 1,406  $ 896 
Earnings per share
Basic $ 0.54  $ 0.37  $ 1.26  $ 0.81 
Diluted 0.53  0.36  1.23  0.79 
Number of shares used in per share calculations
Basic 1,120  1,111  1,118  1,109 
Diluted 1,144  1,133  1,139  1,131 









See accompanying notes to consolidated financial statements.
MU-20210304_G3.JPG 3



Micron Technology, Inc.
Consolidated Statements of Comprehensive Income
(In millions)
(Unaudited)

Quarter ended Six months ended
March 4,
2021
February 27,
2020
March 4,
2021
February 27,
2020
Net income $ 603  $ 407  $ 1,406  $ 915 
Other comprehensive income (loss), net of tax
Gains (losses) on derivative instruments (28) (18) 12  (15)
Gains (losses) on investments (3) (4) (2)
Pension liability adjustments —  (1)
Cumulative translation adjustments —  — 
Other comprehensive income (loss) (29) (15) 10  (18)
Total comprehensive income 574  392  1,416  897 
Comprehensive income attributable to noncontrolling interests
—  (2) —  (19)
Comprehensive income attributable to Micron $ 574  $ 390  $ 1,416  $ 878 

































See accompanying notes to consolidated financial statements.
4 | 2021 Q2 10-Q



Micron Technology, Inc.
Consolidated Balance Sheets
(In millions, except par value amounts)
(Unaudited)
As of March 4,
2021
September 3,
2020
Assets
Cash and equivalents $ 6,507  $ 7,624 
Short-term investments 677  518 
Receivables 3,353  3,912 
Inventories 4,743  5,373 
Assets held for sale 1,461  — 
Other current assets 538  538 
Total current assets 17,279  17,965 
Long-term marketable investments 1,316  1,048 
Property, plant, and equipment 31,848  31,031 
Operating lease right-of-use assets 575  584 
Intangible assets 342  334 
Deferred tax assets 726  707 
Goodwill 1,228  1,228 
Other noncurrent assets 821  781 
Total assets $ 54,135  $ 53,678 
Liabilities and equity
Accounts payable and accrued expenses $ 4,550  $ 5,817 
Current debt 323  270 
Other current liabilities 560  548 
Total current liabilities 5,433  6,635 
Long-term debt 6,298  6,373 
Noncurrent operating lease liabilities 528  533 
Noncurrent unearned government incentives 661  643 
Other noncurrent liabilities 552  498 
Total liabilities 13,472  14,682 
Commitments and contingencies
Shareholders’ equity
Common stock, $0.10 par value, 3,000 shares authorized, 1,202 shares issued and 1,121 outstanding (1,194 shares issued and 1,113 outstanding as of September 3, 2020)
120  119 
Additional capital 9,234  8,917 
Retained earnings 34,723  33,384 
Treasury stock, 81 shares held (81 shares held as of September 3, 2020)
(3,495) (3,495)
Accumulated other comprehensive income (loss) 81  71 
Total equity 40,663  38,996 
Total liabilities and equity $ 54,135  $ 53,678 


See accompanying notes to consolidated financial statements.
MU-20210304_G3.JPG 5



Micron Technology, Inc.
Consolidated Statements of Changes in Equity
(In millions)
(Unaudited)


Common Stock Additional Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive
Income (Loss)
Total Shareholders’ Equity
Number
of Shares
Amount
Balance at September 3, 2020 1,194  $ 119  $ 8,917  $ 33,384  $ (3,495) $ 71  $ 38,996 
Net income —  —  —  803  —  —  803 
Other comprehensive income (loss), net —  —  —  —  —  39  39 
Stock issued under stock plans 33  —  —  —  34 
Stock-based compensation expense —  —  92  —  —  —  92 
Repurchase of stock (1) —  (8) (49) —  —  (57)
Balance at December 3, 2020 1,198  $ 120  $ 9,034  $ 34,138  $ (3,495) $ 110  $ 39,907 
Net income —  —  —  603  —  —  603 
Other comprehensive income (loss), net —  —  —  —  —  (29) (29)
Stock issued under stock plans —  105  —  —  —  105 
Stock-based compensation expense —  —  97  —  —  —  97 
Repurchase of stock —  —  (2) (18) —  —  (20)
Balance at March 4, 2021 1,202  $ 120  $ 9,234  $ 34,723  $ (3,495) $ 81  $ 40,663 





























See accompanying notes to consolidated financial statements.
6 | 2021 Q2 10-Q



Micron Technology, Inc.
Consolidated Statements of Changes in Equity
(In millions)
(Unaudited)


Micron Shareholders    
Common Stock Additional Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive
Income (Loss)
Total Micron Shareholders’ Equity Noncontrolling Interest in Subsidiary Total Equity
Number
of Shares
Amount
Balance at August 29, 2019 1,182  $ 118  $ 8,214  $ 30,761  $ (3,221) $ $ 35,881  $ 889  $ 36,770 
Net income —  —  —  491  —  —  491  15  506 
Other comprehensive income (loss), net —  —  —  —  —  (3) (3) —  (3)
Stock issued under stock plans 31  —  —  —  32  —  32 
Stock-based compensation expense —  —  72  —  —  —  72  —  72 
Repurchase of stock —  —  (6) (34) (50) —  (90) —  (90)
Acquisition of noncontrolling interest —  —  123  —  —  —  123  (904) (781)
Cash settlement of convertible notes —  —  (6) —  —  —  (6) —  (6)
Balance at November 28, 2019 1,185  $ 119  $ 8,428  $ 31,218  $ (3,271) $ $ 36,500  $ —  $ 36,500 
Net income —  —  —  405  —  —  405  —  405 
Other comprehensive income (loss), net —  —  —  —  —  (15) (15) —  (15)
Stock issued under stock plans —  121  —  —  —  121  —  121 
Stock-based compensation expense —  —  85  —  —  —  85  —  85 
Repurchase of stock (1) —  (4) (21) (45) —  (70) —  (70)
Settlement of capped calls —  —  98  —  (98) —  —  —  — 
Cash settlement of convertible notes —  —  (3) —  —  —  (3) —  (3)
Balance at February 27, 2020 1,191  $ 119  $ 8,725  $ 31,602  $ (3,414) $ (9) $ 37,023  $ —  $ 37,023 























See accompanying notes to consolidated financial statements.
MU-20210304_G3.JPG 7



Micron Technology, Inc.
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
Six months ended March 4,
2021
February 27,
2020
Cash flows from operating activities
Net income $ 1,406  $ 915 
Adjustments to reconcile net income to net cash provided by operating activities    
Depreciation expense and amortization of intangible assets 3,036  2,661 
Amortization of debt discount and other costs 15  16 
Stock-based compensation 189  157 
(Gain) loss on debt prepayments, repurchases, and conversions —  (42)
Change in operating assets and liabilities    
Receivables 533  104 
Inventories 629  (69)
Accounts payable and accrued expenses (777) 257 
Deferred income taxes, net (11) 38 
Other (25)
Net cash provided by operating activities 5,024  4,012 
Cash flows from investing activities    
Expenditures for property, plant, and equipment (5,756) (3,999)
Purchases of available-for-sale securities (1,349) (566)
Proceeds from maturities of available-for-sale securities 746  523 
Proceeds from sales of available-for-sale securities 178  1,059 
Proceeds from government incentives 176  105 
Other 31  (21)
Net cash provided by (used for) investing activities (5,974) (2,899)
Cash flows from financing activities    
Payments on equipment purchase contracts (123) (29)
Repayments of debt (103) (1,676)
Acquisition of noncontrolling interest in IMFT —  (744)
Proceeds from issuance of debt —  1,250 
Other 17  (8)
Net cash provided by (used for) financing activities (209) (1,207)
Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash 43  (14)
Net increase (decrease) in cash, cash equivalents, and restricted cash (1,116) (108)
Cash, cash equivalents, and restricted cash at beginning of period 7,690  7,279 
Cash, cash equivalents, and restricted cash at end of period $ 6,574  $ 7,171 




See accompanying notes to consolidated financial statements.
8 | 2021 Q2 10-Q



Micron Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tabular amounts in millions, except per share amounts)
(Unaudited)

Significant Accounting Policies

For a discussion of our significant accounting policies, see “Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Significant Accounting Policies” of our Annual Report on Form 10-K for the year ended September 3, 2020. Except for the significant accounting policy associated with inventories as discussed below, there have been no changes to our significant accounting policies since our Annual Report on Form 10-K for the year ended September 3, 2020.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of Micron and our consolidated subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) consistent in all material respects with those applied in our Annual Report on Form 10-K for the year ended September 3, 2020, except for changes in accounting and presentation of inventories. See “Inventories” below for changes to our significant accounting policies, and the “Inventories” note for additional information.

In the opinion of our management, the accompanying unaudited consolidated financial statements contain all necessary adjustments, consisting of a normal recurring nature, to fairly state the financial information set forth herein. Certain reclassifications have been made to prior period amounts to conform to current period presentation.

Our fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. Fiscal 2021 contains 52 weeks and our fiscal 2020 contained 53 weeks. The first and second quarters of fiscal 2021 and 2020 each contained 13 weeks. All period references are to our fiscal periods unless otherwise indicated. These interim financial statements 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 3, 2020.

Through October 31, 2019, IMFT was a consolidated variable interest entity. We acquired Intel’s noncontrolling interest in IMFT on October 31, 2019, at which time IMFT became a wholly-owned subsidiary.

Inventories

Effective as of the beginning of the second quarter of 2021, we changed the method of inventory costing from average cost to first-in, first-out (“FIFO”). The difference between average cost and FIFO was not material to any previously reported financial statements. Therefore, we have recognized the cumulative effect of the change as a reduction of inventories and a charge to cost of goods sold of $133 million as of the beginning of the second quarter of 2021.

Inventories are stated at the lower of cost or net realizable value, with cost being determined on a FIFO basis. Cost includes depreciation, labor, material, and overhead costs, including product and process technology costs. When net realizable value (which requires projecting future average selling prices, sales volumes, and costs to complete products in work in process inventories) is below cost, we record a charge to cost of goods sold to write down inventories to their estimated net realizable value in advance of when inventories are actually sold. 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. We remove amounts from inventory and charge such amounts to cost of goods sold on a FIFO basis.


MU-20210304_G3.JPG 9



Recently Adopted Accounting Standards

In November 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-18 – Collaborative Arrangements, which clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue when the collaborative arrangement participant is a customer in the context of a unit of account and precludes recognizing as revenue consideration received from a collaborative arrangement participant if the participant is not a customer. We adopted ASU 2018-18 in the first quarter of 2021 under the retrospective adoption method to the date we adopted ASC 606, which was August 31, 2018. The adoption of this ASU did not have a significant impact on our financial statements.

In June 2016, the FASB issued ASU 2016-13 – Measurement of Credit Losses on Financial Instruments, which requires a financial asset (or a group of financial assets) measured on the basis of amortized cost to be presented at the net amount expected to be collected. This ASU requires that the income statement reflect the measurement of credit losses for newly recognized financial assets as well as the increases or decreases of expected credit losses that have taken place during the period. This ASU requires that credit losses of debt securities designated as available-for-sale be recorded through an allowance for credit losses and limits the credit loss to the amount by which fair value is below amortized cost. We adopted ASU 2016-13 in the first quarter of 2021 under the modified retrospective adoption method. The adoption of this ASU did not have a significant impact on our financial statements.


Recently Issued Accounting Standards

In August 2020, the FASB issued ASU 2020-06 – Debt Debt with Conversion and Other Options and Derivatives and Hedging Contracts in Entity’s Own Equity, which simplifies the accounting for convertible debt instruments by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. This ASU requires a convertible debt instrument to be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. This ASU requires an entity to use the if-converted method in the diluted earnings per share calculation for convertible instruments. This ASU will be effective for us in the first quarter of 2023, with early adoption permitted beginning in the first quarter of 2022, and permits the use of either the modified retrospective or fully retrospective method of transition. We are evaluating the timing and effects of our adoption of this ASU on our financial statements.


10 | 2021 Q2 10-Q



Cash and Investments

Substantially all of our marketable debt and equity investments were classified as available-for-sale as of the dates noted below. Cash and equivalents and the fair values of our available-for-sale investments, which approximated amortized costs, were as follows:
March 4, 2021 September 3, 2020
As of Cash and Equivalents Short-term Investments
Long-term Marketable Investments(1)
Total Fair Value Cash and Equivalents Short-term Investments
Long-term Marketable Investments(1)
Total Fair Value
Cash $ 3,747  $ —  $ —  $ 3,747  $ 3,996  $ —  $ —  $ 3,996 
Level 1(2)
Money market funds 1,332  —  —  1,332  1,828  —  —  1,828 
Level 2(3)
Certificates of deposit 1,409  50  —  1,459  1,740  10  1,752 
Corporate bonds —  268  797  1,065  266  592  861 
Government securities —  204  137  341  115  243  364 
Asset-backed securities —  43  382  425  31  211  243 
Commercial paper 19  112  —  131  50  96  —  146 
6,507  $ 677  $ 1,316  $ 8,500  7,624  $ 518  $ 1,048  $ 9,190 
Restricted cash(4)
67  66 
Cash, cash equivalents, and restricted cash $ 6,574  $ 7,690 
(1)The maturities of long-term marketable securities range from one to four years.
(2)The fair value of Level 1 securities is measured based on quoted prices in active markets for identical assets.
(3)The fair value of Level 2 securities is measured using information obtained from pricing services, which obtain quoted market prices for similar instruments, non-binding market consensus prices that are corroborated by observable market data, or various other methodologies, to determine the appropriate value at the measurement date. We perform supplemental analysis to validate information obtained from these pricing services. No adjustments were made to the fair values indicated by such pricing information as of March 4, 2021 or September 3, 2020.
(4)Restricted cash is included in other noncurrent assets and primarily relates to certain government incentives received prior to being earned and for which restrictions lapse upon achieving certain performance conditions.

Gross realized gains and losses from sales of available-for-sale securities were not significant for any period presented.


Receivables

As of March 4,
2021
September 3,
2020
Trade receivables $ 3,007  $ 3,494 
Income and other taxes 176  232 
Other 170  186 
$ 3,353  $ 3,912 


MU-20210304_G3.JPG 11



Inventories

As of March 4,
2021
September 3,
2020
Finished goods $ 736  $ 1,001 
Work in process 3,527  3,854 
Raw materials and supplies 480  518 
$ 4,743  $ 5,373 

Effective as of the beginning of the second quarter of 2021, we changed our method of inventory costing from average cost to FIFO. This change in accounting principle is preferable because in an environment with continuously changing production costs FIFO more closely matches the actual cost of goods sold with the revenues from sales of those specific units, better represents the actual cost of inventories remaining on hand at any period-end, and improves comparability with our semiconductor industry peers. The change to FIFO was not material to any prior periods, nor is the cumulative effect of $133 million material to the second quarter of 2021. As such, prior periods were not retrospectively adjusted, and the cumulative effect was reported as an increase to cost of goods sold for the second quarter of 2021 of $133 million, with an offsetting reduction to beginning inventories. This charge resulted in a corresponding reduction to operating income, a $128 million reduction to net income, and an $0.11 reduction to diluted earnings per share for the second quarter of 2021.

Beginning in the second quarter of 2021, we changed the classification of spare parts for equipment to better align with the manner in which they are used in operations. As a result, we now present spare parts as other current assets and no longer as a component of raw materials inventories. This reclassification was applied on a retrospective basis. As a result, $270 million of spare parts were presented in other current assets as of March 4, 2021, and we reclassified $234 million of spare parts from inventories to other current assets in the accompanying balance sheet as of September 3, 2020.


Assets Held for Sale

In the second quarter of 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 XPointTM at scale. Effective as of the end of the second quarter of 2021, we ceased development of 3D XPoint technology and engaged in discussions with potential buyers 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 and ceased depreciating the assets. As of March 4, 2021, the significant balances of assets and liabilities classified as held-for-sale in connection with our Lehi facility included $1.44 billion of property, plant, and equipment included in assets held for sale and $51 million of a finance lease obligation included in current portion of long-term debt. We also recognized a charge of $49 million to cost of goods sold in the second quarter of 2021 to write down 3D XPoint inventory due to our decision to cease further development of this technology. We expect to reach an agreement for the sale of our Lehi facility within calendar year 2021.


12 | 2021 Q2 10-Q



Property, Plant, and Equipment

As of March 4,
2021
September 3,
2020
Land $ 279  $ 352 
Buildings 12,819  13,981 
Equipment(1)
48,649  48,525 
Construction in progress(2)
2,058  1,600 
Software 920  873 
  64,725  65,331 
Accumulated depreciation (32,877) (34,300)
  $ 31,848  $ 31,031 
(1)Included costs related to equipment not placed into service of $2.27 billion as of March 4, 2021 and $1.63 billion as of September 3, 2020.
(2)Included building-related construction, tool installation, and software costs for assets not placed into service.


Intangible Assets and Goodwill

March 4, 2021 September 3, 2020
As of Gross
Amount
Accumulated
Amortization
Gross
Amount
Accumulated
Amortization
Product and process technology $ 646  $ (304) $ 616  $ (282)
Goodwill 1,228  1,228 

In the first six months of 2021 and 2020, we capitalized $49 million and $30 million, respectively, for product and process technology with weighted-average useful lives of 9 years and 11 years, respectively. Expected amortization expense is $40 million for the remainder of 2021, $64 million for 2022, $56 million for 2023, $50 million for 2024, and $29 million for 2025.


Leases

Short-term and variable lease expenses were not significant and are presented within operating lease costs in the table below. Sublease income was not significant for any period presented. The components of lease expense are presented below:
Quarter ended Six months ended
March 4,
2021
February 27,
2020
March 4,
2021
February 27,
2020
Finance lease cost
Amortization of right-of-use assets $ 17  $ 39  $ 33  $ 79 
Interest on lease liabilities 10 11
Operating lease cost 27  24  54 48
$ 49  $ 68  $ 97  $ 138 

MU-20210304_G3.JPG 13



Other information related to our leases was as follows:
Six months ended March 4,
2021
February 27,
2020
Cash flows used for operating activities
Finance leases
$ 11  $ 12 
Operating leases(1)
53  (10)
Cash flows used for financing activities from financing leases 41  129 
Noncash acquisitions of right-of-use assets
Finance leases 68 
Operating leases
21  24 
(1) Included $48 million of reimbursements received for tenant improvements for the six months ended February 27, 2020.

As of March 4,
2021
September 3,
2020
Finance lease right-of-use assets (included in property, plant, and equipment and assets held for sale) $ 461  $ 426 
Weighted-average remaining lease term (in years)
Finance leases
5 5
Operating leases
7 7
Weighted-average discount rate
Finance leases
4.09  % 4.51  %
Operating leases
2.63  % 2.67  %

Maturities of lease liabilities existing as of March 4, 2021 were as follows:
For the year ending Finance Leases Operating Leases
Remainder of 2021 $ 48  $ 33 
2022 98  73 
2023 86  68 
2024 61  60 
2025 45  49 
2026 and thereafter 286  415 
Less imputed interest (102) (114)
$ 522  $ 584 

The table above excludes any lease liabilities for leases that have been executed but have not yet commenced. As of March 4, 2021, we had such lease liabilities relating to 1) operating lease payment obligations of $147 million for the initial 10-year lease term for a building, which may, at our election, be terminated after 3 years or extended for an additional 10 years, and 2) finance lease obligations of $807 million over a weighted-average period of 15 years for leases embedded in gas supply arrangements. We will recognize right-of-use assets and associated lease liabilities at the time such assets become available for our use.


14 | 2021 Q2 10-Q



Accounts Payable and Accrued Expenses

As of March 4,
2021
September 3,
2020
Accounts payable $ 1,628  $ 2,191 
Property, plant, and equipment 1,884  2,374 
Salaries, wages, and benefits 645  849 
Income and other taxes 145  237 
Other 248  166 
$ 4,550  $ 5,817 


Debt

March 4, 2021 September 3, 2020
Net Carrying Amount Net Carrying Amount
As of Stated Rate Effective Rate Current Long-Term Total Current Long-Term Total
Finance lease obligations
N/A 4.09  % $ 127  $ 395  $ 522  $ 76  $ 410  $ 486 
2023 Notes 2.497  % 2.64  % —  1,246  1,246  —  1,245  1,245 
2024 Notes
4.640  % 4.76  % —  598  598  —  598  598 
2024 Term Loan A 1.370  % 1.42  % 62  1,124  1,186  62  1,186  1,248 
2026 Notes
4.975  % 5.07  % —  498  498  —  498  498 
2027 Notes
4.185  % 4.27  % —  896  896  —  895  895 
2029 Notes
5.327  % 5.40  % —  696  696  —  696  696 
2030 Notes
4.663  % 4.73  % —  845  845  —  845  845 
2032D Notes
3.125  % 6.33  % 133  —  133  131  —  131 
MMJ Creditor Payments N/A N/A —  — 
 
$ 323  $ 6,298  $ 6,621  $ 270  $ 6,373  $ 6,643 

Revolving Credit Facility

As of March 4, 2021, no amounts were outstanding under the Revolving Credit Facility and $2.50 billion was available to us. Any amounts outstanding under the Revolving Credit Facility would mature in July 2023 and we may repay amounts borrowed any time without penalty. The Revolving Credit Facility bears interest at a rate equal to LIBOR plus 1.25% based on our current corporate credit rating and leverage ratio.

2032D Convertible Senior Notes

The closing price of our common stock exceeded 130% of the conversion price for the 2032D Notes for at least 20 trading days in the 30 consecutive trading days ended on March 31, 2021. As a result, the 2032D Notes are convertible by the holders through June 30, 2021. As of March 4, 2021, based on the $84.33 trading price of our common stock and the $9.98 conversion price, the aggregate conversion value of $1.13 billion exceeded the aggregate principal amount of $134 million by $995 million.


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Contingencies

Patent Matters

As is typical in the semiconductor and other high-tech industries, from time to time, others have asserted, and may in the future assert, that our products or manufacturing processes infringe upon their intellectual property rights.

On August 12, 2014, MLC Intellectual Property, LLC filed a patent infringement action against Micron in the U.S. District Court for the Northern District of California. The complaint alleges that Micron infringes a single U.S. patent and seeks damages, attorneys’ fees, and costs.

On November 21, 2014, Elm 3DS Innovations, LLC (“Elm”) filed a patent infringement action against Micron; Micron Semiconductor Products, Inc.; and Micron Consumer Products Group, Inc. in the U.S. District Court for the District of Delaware. On March 27, 2015, Elm filed an amended complaint against the same entities. The amended complaint alleges that unspecified semiconductor products of ours that incorporate multiple stacked die infringe 13 U.S. patents and seeks damages, attorneys’ fees, and costs.

On December 15, 2014, Innovative Memory Solutions, Inc. filed a patent infringement action against Micron in the U.S. District Court for the District of Delaware. The complaint alleges that a variety of our NAND products infringe eight U.S. patents and seeks damages, attorneys’ fees, and costs. Subsequently, six patents were invalidated or withdrawn, leaving two asserted patents in the District Court.

On March 19, 2018, Micron Semiconductor (Xi’an) Co., Ltd. (“MXA”) was served with a patent infringement complaint filed by Fujian Jinhua Integrated Circuit Co., Ltd. (“Jinhua”) in the Fuzhou Intermediate People’s Court in Fujian Province, China (the “Fuzhou Court”). On April 3, 2018, Micron Semiconductor (Shanghai) Co. Ltd. (“MSS”) was served with the same complaint. The complaint alleges that MXA and MSS infringe a Chinese patent by manufacturing and selling certain Crucial DDR4 DRAM modules. The complaint seeks an order requiring MXA and MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China; to stop manufacturing, using, selling, and offering for sale the accused products in China; and to pay damages of 98 million Chinese yuan plus court fees incurred.

On March 21, 2018, MXA was served with a patent infringement complaint filed by United Microelectronics Corporation (“UMC”) in the Fuzhou Court. On April 3, 2018, MSS was served with the same complaint. The complaint alleges that MXA and MSS infringe a Chinese patent by manufacturing and selling certain Crucial DDR4 DRAM modules. The complaint seeks an order requiring MXA and MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China; to stop manufacturing, using, selling, and offering for sale the accused products in China; and to pay damages of 90 million Chinese yuan plus court fees incurred.

On April 3, 2018, MSS was served with another patent infringement complaint filed by Jinhua and two additional complaints filed by UMC in the Fuzhou Court. The three additional complaints allege that MSS infringes three Chinese patents by manufacturing and selling certain Crucial MX300 SSDs and certain GDDR5 memory chips. The two complaints filed by UMC each seek an order requiring MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China; to stop manufacturing, using, selling, and offering for sale the accused products in China; and to pay damages for each complaint of 90 million Chinese yuan plus court fees incurred. The complaint filed by Jinhua seeks an order requiring MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China; to stop manufacturing, using, selling, and offering for sale the accused products in China; and to pay damages of 98 million Chinese yuan plus court fees incurred. On October 9, 2018, UMC withdrew its complaint that alleged MSS infringed a Chinese patent by manufacturing and selling certain GDDR5 memory chips.

On July 5, 2018, MXA and MSS were notified that the Fuzhou Court granted a preliminary injunction against those entities that enjoins them from manufacturing, selling, or importing certain Crucial and Ballistix-branded DRAM modules and solid-state drives in China. The affected products made up slightly more than 1% of our annualized revenue in 2018. We are complying with the ruling and have requested the Fuzhou Court to reconsider or stay its decision.

16 | 2021 Q2 10-Q



On May 4, 2020, Flash-Control, LLC filed a patent infringement action against Micron in the U.S. District Court for the Western District of Texas. The complaint alleges that four U.S. patents are infringed by unspecified DDR4 SDRAM, NVRDIMM, NVDIMM, 3D XPoint, and/or SSD products that incorporate memory controllers and flash memory. The complaint seeks damages, attorneys’ fees, and costs.

Among other things, the above lawsuits pertain to substantially all of our DRAM, NAND, and other memory and storage products we manufacture, which account for substantially all of our revenue.

Qimonda

On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda’s insolvency proceedings, filed suit against Micron and Micron Semiconductor B.V. (“Micron B.V.”), in the District Court of Munich, Civil Chamber. The complaint seeks to void, under Section 133 of the German Insolvency Act, a share purchase agreement between Micron B.V. and Qimonda signed in fall 2008, pursuant to which Micron B.V. purchased substantially all of Qimonda’s shares of Inotera (the “Inotera Shares”), representing approximately 18% of Inotera’s outstanding shares at that time, and seeks an order requiring us to re-transfer those shares to the Qimonda estate. The complaint also seeks, among other things, to recover damages for the alleged value of the joint venture relationship with Inotera and to terminate, under Sections 103 or 133 of the German Insolvency Code, a patent cross-license between us and Qimonda entered into at the same time as the share purchase agreement.

Following a series of hearings with pleadings, arguments, and witnesses on behalf of the Qimonda estate, on March 13, 2014, the court issued judgments: (1) ordering Micron B.V. to pay approximately $1 million in respect of certain Inotera Shares sold in connection with the original share purchase; (2) ordering Micron B.V. to disclose certain information with respect to any Inotera Shares sold by it to third parties; (3) ordering Micron B.V. to disclose the benefits derived by it from ownership of the Inotera Shares, including in particular, any profits distributed on the Inotera Shares and all other benefits; (4) denying Qimonda’s claims against Micron for any damages relating to the joint venture relationship with Inotera; and (5) determining that Qimonda’s obligations under the patent cross-license agreement are canceled. In addition, the court issued interlocutory judgments ordering, among other things: (1) that Micron B.V. transfer to the Qimonda estate the Inotera Shares still owned by Micron B.V. and pay to the Qimonda estate compensation in an amount to be specified for any Inotera Shares sold to third parties; and (2) that Micron B.V. pay the Qimonda estate as compensation an amount to be specified for benefits derived by Micron B.V. from ownership of the Inotera Shares. The interlocutory judgments had no immediate, enforceable effect and Micron, accordingly, has been able to continue to operate with full control of the Inotera Shares subject to further developments in the case. On April 17, 2014, Micron and Micron B.V. filed a notice of appeal with the German Appeals Court challenging the District Court’s decision. After opening briefs, the Appeals Court held a hearing on the matter on July 9, 2015, and thereafter appointed an independent expert to perform an evaluation of Dr. Jaffé’s claims that the amount Micron paid for Qimonda was less than fair market value. On January 25, 2018, the court-appointed expert issued a report concluding that the amount paid by Micron was within an acceptable fair-value range. The Appeals Court held a subsequent hearing on April 30, 2019, and on May 28, 2019, the Appeals Court remanded the case to the expert for supplemental expert opinion. On March 31, 2020, the expert presented a revised opinion to the Appeals Court which reaffirmed the earlier view that the amount paid by Micron was still within an acceptable range of fair value. On March 4, 2021, the Appeals Court issued an order setting forth a new legal view that whether the 2008 sale of Inotera Shares is voidable depends on the question whether, in October 2008, Qimonda had a restructuring plan in place, and whether Micron was aware of and reasonably relied on that restructuring plan sufficient to form a belief that Qimonda was not imminently illiquid. The Appeals Court has scheduled a procedural hearing for June 29, 2021 to discuss next steps.

MU-20210304_G3.JPG 17



Antitrust Matters

On April 27, 2018, a complaint was filed against Micron and other DRAM suppliers in the U.S. District Court for the Northern District of California. Subsequently, two substantially identical cases were filed in the same court. The lawsuits purported to be on behalf of a nationwide class of indirect purchasers of DRAM products. On September 3, 2019, the District Court granted Micron’s motion to dismiss and allowed the plaintiffs the opportunity to file a consolidated, amended complaint. On October 28, 2019, the plaintiffs filed a consolidated, amended complaint that purported to be on behalf of a nationwide class of indirect purchasers of DRAM products. The amended complaint asserted claims based on alleged price-fixing of DRAM products under federal and state law during the period from June 1, 2016 to at least February 1, 2018, and sought treble monetary damages, costs, interest, attorneys’ fees, and other injunctive and equitable relief. On December 21, 2020, the District Court dismissed the plaintiffs’ claims and entered judgment against them. On January 19, 2021, the plaintiffs filed a notice of appeal to the U.S. Court of Appeals for the Ninth Circuit.

On June 26, 2018, a complaint was filed against Micron and other DRAM suppliers in the U.S. District Court for the Northern District of California. Subsequently, four substantially identical cases were filed in the same court. On October 28, 2019, the plaintiffs filed a consolidated, amended complaint. The consolidated complaint purported to be on behalf of a nationwide class of direct purchasers of DRAM products. The consolidated complaint asserted claims based on alleged price-fixing of DRAM products under federal and state law during the period from June 1, 2016 through at least February 1, 2018, and sought treble monetary damages, costs, interest, attorneys’ fees, and other injunctive and equitable relief. On December 21, 2020, the District Court granted Micron’s motion to dismiss and granted the plaintiffs permission to file a further amended complaint. On January 11, 2021, the plaintiffs filed a further amended complaint asserting substantially the same claims and seeking the same relief.

Additionally, six cases have been filed in the following Canadian courts: Superior Court of Quebec, the Federal Court of Canada, the Ontario Superior Court of Justice, and the Supreme Court of British Columbia. The substantive allegations in these cases are similar to those asserted in the cases filed in the United States.

On May 15, 2018, the Chinese State Administration for Market Regulation (“SAMR”) notified Micron that it was investigating potential collusion and other anticompetitive conduct by DRAM suppliers in China. On May 31, 2018, SAMR made unannounced visits to our sales offices in Beijing, Shanghai, and Shenzhen to seek certain information as part of its investigation. We are cooperating with SAMR in its investigation.

Securities Matters

On March 5, 2019, a derivative complaint was filed by a shareholder against certain current and former officers and directors of Micron, allegedly on behalf of and for the benefit of Micron, in the U.S. District Court for the District of Delaware alleging securities fraud, breaches of fiduciary duties, and other violations of law involving misrepresentations about purported anticompetitive behavior in the DRAM industry. The complaint seeks damages, fees, interest, costs, and other appropriate relief.

On February 9, 2021, a derivative complaint was filed by a shareholder against Sanjay Mehrotra and other current and former directors of Micron, allegedly on behalf of and for the benefit of Micron, in the U.S. District Court for the District of Delaware alleging violations of securities laws, breaches of fiduciary duties, and other violations of law involving allegedly false and misleading statements about Micron’s commitment to diversity and progress in diversifying its workforce, executive leadership, and Board of Directors. The complaint seeks damages, fees, interest, costs, and an order requiring Micron to take various actions to allegedly improve its corporate governance and internal procedures.

Other

On December 5, 2017, Micron filed a complaint against UMC and Jinhua in the U.S. District Court for the Northern District of California. The complaint alleges that UMC and Jinhua violated the Defend Trade Secrets Act, the civil provisions of the Racketeer Influenced and Corrupt Organizations Act, and California’s Uniform Trade Secrets Act by misappropriating Micron’s trade secrets and other misconduct. Micron’s complaint seeks damages, restitution, disgorgement of profits, injunctive relief, and other appropriate relief.

18 | 2021 Q2 10-Q



On June 13, 2019, current Micron employee, Chris Manning, filed a putative class action lawsuit on behalf of Micron employees subject to the Idaho Wage Claim Act who earned a performance-based bonus after the conclusion of 2018 whose performance rating was calculated based upon a mandatory percentage distribution range of performance ratings. On July 12, 2019, Manning and three other Company employees filed an amended complaint as putative class action representatives. On behalf of themselves and the putative class, Manning and the three other plaintiffs assert claims for violation of the Idaho Wage Claim Act, breach of contract, breach of the covenant of good faith and fair dealing, and fraud. On June 24, 2020, the court entered judgment in favor of Micron based on the statute of limitations, and the plaintiffs filed a notice of appeal on July 23, 2020.

On July 31, 2020, Micron and Intel entered into a binding arbitration agreement under which the parties agreed to present to an arbitral panel various financial disputes related to the IMFT joint venture between Micron and Intel, which ended October 31, 2019, and to other agreements relating to the joint development, production, and sale of non-volatile memory products. Each party alleges that the other owes damages relating to allegations of breach of one or more agreements.

On July 13, 2015, Allied Telesis, Inc. and Allied Telesis International (Asia) Pte Ltd. filed a complaint against Micron in the Superior Court of California in Santa Clara alleging breach of implied and express warranties and fraudulent inducement to contract arising from plaintiffs’ purchase of certain allegedly defective DDR1 products between 2008 and 2010. Through subsequent amendments to the complaint, the plaintiffs substituted Allied Telesis K.K. as plaintiff, withdrew the warranty claims, and added claims of fraudulent concealment, negligent misrepresentation, negligence, and strict products liability. The plaintiff’s amended complaint seeks an unspecified award of damages, including punitive damages and lost profits. On September 3, 2020, the Superior Court granted summary judgment dismissing the claims for negligence and strict products liability and denied summary judgment as to the claims for negligent misrepresentation, fraudulent concealment, and fraudulent inducement to contract. No trial date has been set; however, trial is expected to occur in the second half of calendar 2021.

In the normal course of business, we are a party to a variety of agreements pursuant to which we may be obligated to indemnify another party. It is not possible to predict the maximum potential amount of future payments under these types of agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement. Historically, our payments under these types of agreements have not had a material adverse effect on our business, results of operations, or financial condition.

We are unable to predict the outcome of the patent matters, Qimonda matter, antitrust matters, securities matters, binding arbitration with Intel, or any other matters noted above, and cannot make a reasonable estimate of the potential loss or range of possible losses. A determination that our products or manufacturing processes infringe the intellectual property rights of others or entering into a license agreement covering such intellectual property could result in significant liability and/or require us to make material changes to our products and/or manufacturing processes. Any of the foregoing, as well as the resolution of any other legal matter noted above, could have a material adverse effect on our business, results of operations, or financial condition.

We are currently a party to legal actions other than those described in this note arising from the normal course of business, none of which are expected to have a material adverse effect on our business, results of operations, or financial condition.


Equity

Micron Shareholders’ Equity

Accumulated Other Comprehensive Income: Changes in accumulated other comprehensive income by component for the six months ended March 4, 2021 were as follows:
MU-20210304_G3.JPG 19



Gains (Losses) on Derivative Instruments Pension Liability Adjustments Unrealized Gains (Losses) on Investments Cumulative Foreign Currency Translation Adjustment Total
As of September 3, 2020 $ 45  $ 19  $ $ (1) $ 71 
Other comprehensive income before reclassifications 17  (4) 16 
Amount reclassified out of accumulated other comprehensive income (10) (1) (1) —  (12)
Tax effects
—  — 
Other comprehensive income (loss) 12  (4) 10 
As of March 4,2021 $ 57  $ 20  $ $ —  $ 81 


Fair Value Measurements

The estimated fair values and carrying values of our outstanding debt instruments (excluding the carrying value of equity components of our convertible notes) were as follows:
March 4, 2021 September 3, 2020
As of Fair
Value
Carrying
Value
Fair
Value
Carrying
Value
Notes $ 6,565  $ 5,966  $ 6,710  $ 6,026 
Convertible notes 1,125  133  634  131 

The fair values of our convertible notes were determined based on Level 2 inputs, including the trading price of our convertible notes when available, our stock price, and interest rates based on similar debt issued by parties with credit ratings similar to ours. The fair values of our other debt instruments were estimated based on Level 2 inputs, including discounted cash flows, the trading price of our notes when available, and interest rates based on similar debt issued by parties with credit ratings similar to ours.

Assets classified as held for sale are carried at the lower of fair value less cost to sell or carrying value. Significant judgments and assumptions are required to estimate their fair values. Actual selling prices could vary significantly from our estimated fair value and we could recognize losses in the event that the sales prices of assets classified as held for sale are lower than their carrying values.


20 | 2021 Q2 10-Q



Derivative Instruments

Gross Notional Amount Fair Value of
Assets(1)
Liabilities(2)
As of March 4, 2021
Derivative instruments with hedge accounting designation
Cash flow currency hedges
$ 3,086  $ 28  $ (36)
Derivative instruments without hedge accounting designation
Non-designated currency hedges
1,121  (8)
$ 30  $ (44)
As of September 3, 2020
Derivative instruments with hedge accounting designation
Cash flow currency hedges
$ 1,845  $ 41  $ (2)
Derivative instruments without hedge accounting designation
Non-designated currency hedges
1,587  (1)
$ 45  $ (3)
(1)Included in receivables – other and other noncurrent assets.
(2)Included in accounts payable and accrued expenses – other and other noncurrent liabilities.

Derivative Instruments with Hedge Accounting Designation

We utilize currency forward contracts that generally mature within two years to hedge our exposure to changes in currency exchange rates. Currency forward contracts are measured at fair value based on market-based observable inputs including currency exchange spot and forward rates, interest rates, and credit-risk spreads (Level 2). We do not use derivative instruments for speculative purposes.

Cash Flow Hedges: We utilize cash flow hedges for our exposure from changes in currency exchange rates for certain capital expenditures and manufacturing costs. We recognized losses of $30 million and gains of $17 million for the second quarter and first six months of 2021, respectively, and losses of $17 million and $14 million for the second quarter and first six months of 2020, respectively, in accumulated other comprehensive income from cash flow hedges. Neither the amount excluded from hedge effectiveness nor the reclassifications from accumulated other comprehensive income to earnings was significant for the second quarters or first six months of 2021 or 2020. As of March 4, 2021, we expect to reclassify $45 million of pre-tax gains related to cash flow hedges from accumulated other comprehensive income into earnings in the next 12 months.

Derivative Instruments without Hedge Accounting Designation

Currency Derivatives: We generally utilize a rolling hedge strategy with currency forward contracts that mature within three months to hedge our exposures of monetary assets and liabilities from changes in currency exchange rates. At the end of each reporting period, monetary assets and liabilities denominated in currencies other than the U.S. dollar are remeasured into U.S. dollars and the associated outstanding forward contracts are marked to market. Currency forward contracts are valued at fair values based on the middle of bid and ask prices of dealers or exchange quotations (Level 2). Realized and unrealized gains and losses on derivative instruments without hedge accounting designation as well as the changes in the underlying monetary assets and liabilities from changes in currency exchange rates are included in other non-operating income (expense), net. Gains and losses for derivative instruments without hedge accounting designation were not significant for the periods presented.


MU-20210304_G3.JPG 21



Equity Plans

As of March 4, 2021, 70 million shares of our common stock were available for future awards under our equity plans.

Restricted Stock and Restricted Stock Units (“Restricted Stock Awards”)

Restricted Stock Awards activity is summarized as follows:
Quarter ended Six months ended
March 4,
2021
February 27,
2020
March 4,
2021
February 27,
2020
Restricted stock award shares granted —  —  10 
Weighted-average grant-date fair value per share $ 82.10  $ 54.71  $ 52.02  $ 46.38 

Employee Stock Purchase Plan (“ESPP”)

For each six-month ESPP period ended January 2021 and January 2020, we issued 2 million shares at a per share price of $42.55 and $38.16, respectively. Assumptions used in the Black-Scholes option valuation model for ESPP grants for the periods below were as follows:

Quarter ended March 4,
2021
February 27,
2020
Weighted-average grant-date fair value per share $ 22.40  $ 14.43 
Average expected life in years 0.5 0.5
Weighted-average expected volatility 48  % 43  %
Weighted-average risk-free interest rate 0.1  % 1.5  %
Expected dividend yield % %

Stock-based Compensation Expense

Stock based compensation expense recognized in our statements of operations is presented below. Stock-based compensation expense of $33 million and $42 million was capitalized and remained in inventory as of March 4, 2021 and September 3, 2020, respectively.

Quarter ended Six months ended
March 4,
2021
February 27,
2020
March 4,
2021
February 27,
2020
Stock-based compensation expense by caption
Cost of goods sold $ 57  $ 37  $ 98  $ 68 
Research and development 29  22  53  41 
Selling, general, and administrative 26  26  53  48 
$ 112  $ 85  $ 204  $ 157 
Stock-based compensation expense by type of award
Restricted stock awards $ 94  $ 70  $ 171  $ 127 
Employee stock purchase plan 15  11  27  19 
Stock options 11 
$ 112  $ 85  $ 204  $ 157 

22 | 2021 Q2 10-Q



As of March 4, 2021, $838 million of total unrecognized compensation costs for unvested awards, before the effect of any future forfeitures, was expected to be recognized through the second quarter of 2025, resulting in a weighted-average period of 1.4 years.

Revenue and Customer Contract Liabilities

Revenue by Technology
Quarter ended Six months ended
March 4,
2021
February 27,
2020
March 4,
2021
February 27,
2020
DRAM $ 4,444  $ 3,083  $ 8,500  $ 6,552 
NAND 1,650  1,514  3,224  2,936 
Other (primarily 3D XPoint memory and NOR) 142  200  285  453 
$ 6,236  $ 4,797  $ 12,009  $ 9,941 
See “Segment and Other Information” for disclosure of disaggregated revenue by market segments.

Contract Liabilities

Our contract liabilities from customer advances are for advance payments received from customers to secure product in future periods. Other contract liabilities consist of amounts received in advance of satisfying performance obligations. These balances are reported within other current liabilities and other noncurrent liabilities. The following table presents contract liabilities:
As of March 4,
2021
September 3,
2020
Contract liabilities from customer advances $ 43  $ 40 
Other contract liabilities 22  25 
$ 65  $ 65 

Revenue recognized during the first six months of 2021 from the ending balance of 2020 included $43 million from meeting performance obligations of other contract liabilities and shipments against customer advances.

Revenue is primarily recognized at a point in time when control of the promised goods is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods. Substantially all contracts with our customers are short-term in duration at fixed, negotiated prices with payment generally due shortly after delivery. From time to time, we have contracts with initial terms that include performance obligations that extend, in some cases, beyond one year. As of March 4, 2021, we expect future revenue related to these longer-term contracts of approximately $291 million, of which approximately 92% relates to performance obligations and product shipments we expect to satisfy within the next 12 months and 8% beyond 12 months.

As of March 4, 2021 and September 3, 2020, other current liabilities included $485 million and $466 million, respectively, for estimates of consideration payable to customers, including estimates for pricing adjustments and returns.


MU-20210304_G3.JPG 23



Other Operating (Income) Expense, Net

Quarter ended Six months ended
March 4,
2021
February 27,
2020
March 4,
2021
February 27,
2020
Patent license charges $ 128  $ —  $ 128  $ — 
Other 11  12 
$ 131  $ 11  $ 140  $


Other Non-Operating Income (Expense), Net

Quarter ended Six months ended
March 4,
2021
February 27,
2020
March 4,
2021
February 27,
2020
Gain (loss) on debt prepayments, repurchases, and conversions $ —  $ —  $ —  $ 42 
Other (1) 17  3
$ $ (1) $ 17  $ 45 


Income Taxes

Our income tax (provision) benefit consisted of the following:
Quarter ended Six months ended
March 4,
2021
February 27,
2020
March 4,
2021
February 27,
2020
Income before taxes $ 635  $ 427  $ 1,476  $ 988 
Income tax (provision) benefit (48) (21) (99) (76)
Effective tax rate 7.6  % 4.9  % 6.7  % 7.7  %

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. The effect of tax incentive arrangements reduced our tax provision by $45 million (benefiting our diluted earnings per share by $0.04) and $101 million ($0.09 per diluted share) for the second quarter and first six months of 2021, respectively, and were not significant to our tax provision for the second quarter or first six months of 2020.

As of March 4, 2021, gross unrecognized tax benefits were $415 million, substantially all of which would affect our effective tax rate in the future, if recognized. Amounts accrued for interest and penalties related to uncertain tax positions were not significant for any period presented. During the second quarter of 2021, we received notice from the Internal Revenue Service that they intend to examine our 2018 and 2019 tax years. We believe that adequate amounts of taxes and related interest and penalties have been provided.


24 | 2021 Q2 10-Q



Earnings Per Share

Quarter ended Six months ended
March 4,
2021
February 27,
2020
March 4,
2021
February 27,
2020
Net income attributable to Micron – Basic
$ 603  $ 405  $ 1,406  $ 896 
Assumed conversion of debt —  —  —  (4)
Net income attributable to Micron – Diluted $ 603  $ 405  $ 1,406  $ 892 
Weighted-average common shares outstanding – Basic 1,120  1,111  1,118  1,109 
Dilutive effect of equity plans and convertible notes
24  22  21  22 
Weighted-average common shares outstanding – Diluted 1,144  1,133  1,139  1,131 
Earnings per share
Basic $ 0.54  $ 0.37  $ 1.26  $ 0.81 
Diluted 0.53  0.36  1.23  0.79 

Antidilutive potential common stock shares that could dilute basic earnings per share in the future were 2 million for the second quarter and first six months of 2021 and were 1 million and 4 million for the second quarter and first six months of 2020, respectively.


Segment and Other Information

Segment information reported herein is consistent with how it is reviewed and evaluated by our chief operating decision maker. We have the following four business units, which are our reportable segments:

Compute and Networking Business Unit (“CNBU”): Includes memory products sold into client, cloud server, enterprise, graphics, and networking markets.
Mobile Business Unit (“MBU”): Includes memory and storage products sold into smartphone and other mobile-device markets.
Storage Business Unit (“SBU”): Includes SSDs and component-level solutions sold into enterprise and cloud, client, and consumer storage markets, and other discrete storage products sold in component and wafer form.
Embedded Business Unit (“EBU”): Includes memory and storage products sold into automotive, industrial, and consumer markets.

Certain operating expenses directly associated with the activities of a specific segment are charged to that segment. Other indirect operating income and expenses are generally allocated to segments based on their respective percentage of cost of goods sold or forecasted wafer production. We do not identify or report internally our assets (other than goodwill) or capital expenditures by segment, nor do we allocate gains and losses from equity method investments, interest, other non-operating income or expense items, or taxes to segments.

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Quarter ended Six months ended
March 4,
2021
February 27,
2020
March 4,
2021
February 27,
2020
Revenue
CNBU $ 2,636  $ 1,967  $ 5,182  $ 3,946 
MBU 1,811  1,258  3,312  2,715 
SBU 850  870  1,761  1,838 
EBU 935  696  1,744  1,430 
All Other 10  12 
$ 6,236  $ 4,797  $ 12,009  $ 9,941 
Operating income (loss)
CNBU $ 709  $ 283  $ 1,192  $ 684 
MBU 464  183  834  478 
SBU (59) (2) (55) (219)
EBU 141  79  257  192 
All Other (1)
1,257  542  2,230  1,136 
Unallocated
Inventory accounting policy change to FIFO (133) —  (133) — 
Change in inventory cost absorption (160) —  (160) — 
3D XPoint inventory write-down (49) —  (49) — 
Stock-based compensation (112) (85) (204) (157)
Patent license charges (128) —  (128) — 
Restructure and asset impairments (5) (10) (13) (6)
Other (7) (7) (14) (15)
(594) (102) (701) (178)
Operating income $ 663  $ 440  $ 1,529  $ 958 

Certain Concentrations

Revenue from WPG Holdings Limited was 12% of total revenue for the first six months of 2021.


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 3, 2020. 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 2021 contains 52 weeks and our fiscal 2020 contained 53 weeks. Our second quarters and first six months of 2020 and 2021 each contained 13 and 26 weeks, respectively. All tabular dollar amounts are in millions, except per share amounts.

Overview

Micron Technology, Inc., including its consolidated subsidiaries, is 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
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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 to perform certain manufacturing processes. In recent years, we have increased our manufacturing scale and product diversity through strategic acquisitions, expansion, and various partnering arrangements.

We make significant investments to develop proprietary product and process technology, which are implemented in our manufacturing facilities, and generally increase the density per wafer and reduce manufacturing costs of each generation of product through advancements in product and process technology, such as our leading-edge process technology and 3D NAND architecture. 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. A significant portion of our revenues are from sales of managed NAND and SSD products, which incorporate NAND, a controller, firmware, and in some cases, DRAM. An increasing portion of our SSDs incorporate proprietary controllers and firmware that we have developed. Development of advanced technologies enables us to diversify our product portfolio toward a richer mix of differentiated, high-value solutions and to target high-growth markets.

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. Our success is largely dependent on obtaining returns on our research and development (“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 return-driven capital spending.

Cessation of 3D XPoint Development and Planned Sale of Our Facility in Lehi, Utah

In the second quarter of 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. Effective as of the end of the second quarter of 2021, we ceased development of 3D XPoint technology and engaged in discussions with potential buyers for the sale of our Lehi facility that was dedicated to 3D XPoint production. As a result, we classified the property, plant, and equipment as held-for-sale and ceased depreciating the assets. We expect to reach an agreement for the sale of our Lehi facility within calendar year 2021. Our 3D XPoint technology development and Lehi facility operations are primarily included in our CNBU business unit.

Assets classified as held for sale are carried at the lower of fair value less cost to sell or carrying value. Significant judgments and assumptions are required to estimate their fair values. Actual selling prices could vary significantly from our estimated fair value and we could recognize losses in the event that the sales prices of assets classified as held for sale are lower than their carrying values.

Impact of COVID-19 on Our Business

Events surrounding the ongoing COVID-19 outbreak have resulted in a reduction in economic activity across the globe. The ultimate severity and duration of these economic repercussions, including any resulting impact on our business, remain largely unknown and ultimately will depend on many factors. As a result, we have experienced volatility in the markets that our products are sold into, driven by the move to a stay-at-home economy and fluctuations in consumer and business spending, which has affected demand for certain of our products. The ultimate extent to which COVID-19 will impact demand for our products depends on future developments, which are highly uncertain and very difficult to predict, including the effectiveness and utilization of vaccines for COVID-19 and its variants, new information that may emerge concerning the severity of COVID-19 and its variants, and actions to contain or limit their spread.

From the start of the COVID-19 outbreak, we proactively implemented preventative protocols, which we continuously assess and update for changes in conditions and emerging trends. These protocols are intended to safeguard our team members, contractors, suppliers, customers, distributors, and communities, and to ensure
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business continuity in the event government restrictions or severe outbreaks impact our operations at certain sites. While all our global manufacturing sites are currently operating with close to full staff and at normal capacity levels, our facilities could be required to temporarily curtail production levels or temporarily cease operations based on government mandates. We may be required, or deem it to be in the best interest of our employees, customers, partners, suppliers, and stakeholders, to alter our business operations in order to maintain a healthy and safe environment. It is not clear what potential effects any such alterations or modifications may have on our business, including effects on our customers, employees, and prospects, or on our financial results. We are following government policies and recommendations designed to slow the spread of COVID-19 and remain committed to the health and safety of our team members, contractors, suppliers, customers, distributors, and communities.

We continuously assess our efforts to respond to the COVID-19 outbreak, which have included the following:

In locations experiencing continued community COVID-19 infections, we prohibit onsite visitors and are generally requiring team members to work from home where possible. Where work from home is not possible, all on-site team members must complete health questionnaires, pass through thermal scanning equipment to ensure they do not have an elevated body temperature, wear a mask while on site, and adhere to physical distancing requirements and team member separation protocols. We have also enhanced our contact tracing, significantly decreased business travel, and where possible, made ventilation and other health and safety enhancements at our facilities and provided COVID-19 testing and vaccinations for our team members.
To respond to changing market conditions, we shift supply from markets which have experienced declines in demand to markets that have experienced demand increases.
We evaluate our supply chain and communicate with our suppliers to identify supply gaps and have taken steps to ensure continuity. In some cases, we have added alternative suppliers and increased our on-hand inventory of raw materials needed in our operations.
We have added assembly and test capacity to provide redundant manufacturing capability through our network of captive operations and external partners.
We have evaluated all our construction projects across our global manufacturing operations and enacted protocols to enhance the safety of our team members, suppliers, and contractors.
We have developed strategies and implemented measures to respond to a variety of potential economic scenarios, such as limitations on new hiring and business travel and reductions of discretionary spending.
We are working with government authorities in the jurisdictions where we operate, and continuing to monitor our operations in an effort to ensure we follow government requirements, relevant regulations, industry standards, and best practices to help safeguard our team members, while safely continuing operations at our sites across the globe.

We believe these actions are appropriate and prudent to safeguard our team members, contractors, suppliers, customers, and communities, while allowing us to safely continue operations. We cannot predict how the steps we, our team members, government entities, suppliers, or customers take in response to the COVID-19 outbreak will ultimately impact our business, outlook, or results of operations.

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, NOR, and other technologies. We sell our products into various markets through our business units in numerous forms, including wafers, components, modules, SSDs, managed NAND, and MCP products. Our system-level solutions, including SSDs, managed NAND, and MCPs, typically include a controller and firmware and in some cases combine DRAM, NAND, and/or NOR.

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. Low-power DRAM (“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, networking, and consumer applications.

3D XPoint: 3D XPoint is a class of non-volatile technology between DRAM and NAND in the memory and storage hierarchy. Effective as of the end of the second quarter of 2021, we ceased development of our 3D XPoint technology and products.


Results of Operations

Consolidated Results

Second
Quarter
First
Quarter
Second
Quarter
Six Months
2021 2021 2020 2021 2020
Revenue $ 6,236  100% $ 5,773  100% $ 4,797  100% $ 12,009  100% $ 9,941  100%
Cost of goods sold 4,587  74% 4,037  70% 3,442  72% 8,624  72% 7,220  73%
Gross margin 1,649  26% 1,736  30% 1,355  28% 3,385  28% 2,721  27%
Research and development 641  10% 647  11% 681  14% 1,288  11% 1,321  13%
Selling, general, and administrative 214  3% 214  4% 223  5% 428  4% 434  4%
Other operating (income) expense, net 131  2% —% 11  —% 140  1% —%
Operating income 663  11% 866  15% 440  9% 1,529  13% 958  10%
Interest income (expense), net (32) (1)% (38) (1)% (12) —% (70) (1)% (15) —%
Other non-operating income (expense), net —% 13  —% (1) —% 17  —% 45  —%
Income tax (provision) benefit (48) (1)% (51) (1)% (21) —% (99) (1)% (76) (1)%
Equity in net income (loss) of equity method investees 16  —% 13  —% —% 29  —% —%
Net income attributable to noncontrolling interests —  —% —  —% (2) —% —  —% (19) —%
Net income attributable to Micron $ 603  10% $ 803  14% $ 405  8% $ 1,406  12% $ 896  9%

Total Revenue: Total revenue for the second quarter of 2021 increased 8% as compared to the first quarter of 2021 primarily due to increases in sales of DRAM and NAND products. Sales of DRAM products for the second quarter of 2021 increased 10% as compared to the first quarter of 2021 primarily due to an upper-single-digit percent increase in bit shipments driven by the mobile, server, automotive, and networking markets. Sales of NAND products for the second quarter of 2021 increased 5% as compared to the first quarter of 2021 primarily due to an upper-single-digit percent increase in bit shipments driven by managed NAND products sold in mobile markets and SSDs, partially offset by a lower-single-digit percent decline in average selling prices.

Total revenue for the second quarter and first six months of 2021 increased 30% and 21%, respectively, as compared to the corresponding periods of 2020 primarily due to increases in DRAM and NAND sales. Sales of DRAM products for the second quarter of 2021 increased 44% as compared to the second quarter of 2020 primarily
MU-20210304_G3.JPG 29



due to growth in bit shipments in the upper-40% range driven by the mobile, client, networking, and automotive markets. Sales of DRAM products for the first six months of 2021 increased 30% as compared to the first six months of 2020 primarily due to growth in bit shipments in the lower-30% range. Sales of NAND products for the second quarter of 2021 increased 9% as compared to the second quarter of 2020 primarily due to increases in bit shipments in the low-30% range driven by consumer and mobile markets, partially offset by an upper-teens percentage decline in average selling prices. Sales of NAND products for the first six months of 2021 increased 10% as compared to the first six months of 2020 primarily due to increases in bit shipments in the mid-20% range, partially offset by a low-teens percentage decline in average selling prices.

Overall Gross Margin: Our overall gross margin percentage decreased to 26% for the second quarter of 2021 from 30% for the first quarter of 2021, primarily due to one-time impacts of changes in our inventory costing method to FIFO and cost absorption processes in the second quarter of 2021, as detailed below. Our gross margins included the impact of underutilization costs at our Lehi facility of $111 million for the second quarter of 2021, $113 million for the first quarter of 2021, and $142 million for the second quarter of 2020. Effective as of the end of the second quarter of 2021, we ceased development of 3D XPoint technology and recognized a charge of $49 million to cost of goods sold in the second quarter of 2021 to write down 3D XPoint inventory due to our decision to cease further development of this technology. Our Lehi facility was dedicated to 3D XPoint production and we expect to reach an agreement for the sale of the facility within calendar 2021. As a result, we classified the property, plant, and equipment as held-for-sale and ceased depreciating the assets, which we expect to decrease depreciation expense by approximately $75 million in the third quarter of 2021.

Our overall gross margin percentage decreased to 26% for the second quarter of 2021 from 28% for the second quarter of 2020 primarily due to the impact of inventory accounting and costing changes and declines in average selling prices, partially offset by manufacturing cost reductions resulting from strong execution in delivering products featuring advanced technologies and from continuous improvement initiatives to reduce production costs. Our overall gross margin percentage increased to 28% for the first six months of 2021 from 27% for the first six months of 2020 primarily due to manufacturing cost reductions, partially offset by the effects of inventory accounting and costing changes and declines in average selling prices.

Effective as of the beginning of the second quarter of 2021, we changed our method of inventory costing from average cost to 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 the second quarter of 2021.

Revenue by Business Unit

Second
Quarter
First
Quarter
Second
Quarter
Six Months
2021 2021 2020 2021 2020
CNBU $ 2,636  42% $ 2,546  44% $ 1,967  41% $ 5,182  43% $ 3,946  40%
MBU 1,811  29% 1,501  26% 1,258  26% 3,312  28% 2,715  27%
SBU 850  14% 911  16% 870  18% 1,761  15% 1,838  18%
EBU 935  15% 809  14% 696  15% 1,744  15% 1,430  14%
All Other —% —% —% 10  —% 12  —%
  $ 6,236  $ 5,773  $ 4,797  $ 12,009  $ 9,941 
Percentages of total revenue may not total 100% due to rounding.

Changes in revenue for each business unit for the second quarter of 2021 as compared to the first quarter of 2021 were as follows:

CNBU revenue increased 4% primarily due to increases in volume and pricing across data center, networking, and client markets, partially offset by declines in sales to the graphics market.
MBU revenue increased 21% primarily due to increases in bit shipments of high-value mobile MCP products driven by demand growth in smartphone markets as 5G momentum increases.
SBU revenue decreased 7% primarily due to price declines.
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EBU revenue increased 16% primarily due to bit shipment increases driven by strong demand growth in automotive as demand recovered from pandemic-related shutdowns and growth in industrial markets.

Changes in revenue for each business unit for the second quarter and first six months of 2021 as compared to the corresponding periods of 2020 were as follows:

CNBU revenue increased 34% and 31%, respectively, primarily due to increases in bit shipments to the client, cloud server, and graphics markets.
MBU revenue increased 44% and 22%, respectively, primarily due to increases in bit shipments for high-value mobile MCP products partially offset by price declines.
SBU revenue decreased 2% and 4%, respectively, primarily due to price declines partially offset by increases in bit shipments for NAND products driven by consumer markets.
EBU revenue increased 34% and 22%, respectively, primarily due to increases in bit shipments to the automotive, industrial, and consumer markets from transitions to an increasing mix of high-density DRAM and NAND products, partially offset by price declines.

Operating Income (Loss) by Business Unit

Second
Quarter
First
Quarter
Second
Quarter
Six Months
2021 2021 2020 2021 2020
CNBU $ 709  27% $ 483  19% $ 283  14% $ 1,192  23% $ 684  17%
MBU 464  26% 370  25% 183  15% 834  25% 478  18%
SBU (59) (7)% —% (2) —% (55) (3)% (219) (12)%
EBU 141  15% 116  14% 79  11% 257  15% 192  13%
All Other 50% —  —% (1) (17)% 20% 8%
  $ 1,257  $ 973  $ 542  $ 2,230  $ 1,136 
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 2021 as compared to the first quarter of 2021 were as follows:

CNBU operating income increased primarily due to manufacturing cost reductions, increases in bit shipments, and increases in DRAM pricing.
MBU operating income increased primarily due to increases in bit shipments and manufacturing cost reductions.
SBU operating margin declined primarily due to declines in NAND selling prices.
EBU operating income increased primarily due to increases in bit shipments.

Changes in operating income or loss for each business unit for the second quarter and first six months of 2021 as compared to the corresponding periods of 2020 were as follows:

CNBU operating income increased primarily due to increases in bit shipments, manufacturing cost reductions, and higher selling prices, partially offset by higher R&D costs.
MBU operating income increased primarily due to increases in sales of high-value MCP products, manufacturing cost reductions for low-power DRAM, and lower R&D costs, partially offset by declines in low-power DRAM and NAND pricing.
SBU operating margin for the second quarter of 2021 declined from the second quarter of 2020 primarily due to decreases in selling prices, partially offset by manufacturing cost reductions and increases in bit shipments. SBU operating margin for the first six months of 2021 improved from the first six months of 2020 primarily due to lower manufacturing costs and increases in bit shipments, partially offset by decreases in selling prices.
EBU operating income increased primarily due to increases in bit shipments and lower R&D costs, partially offset by lower selling prices.


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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 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 2021 were relatively unchanged as compared to the first quarter of 2021.

R&D expenses for the second quarter and first six months of 2021 were 6% and 2% lower, respectively, as compared to the corresponding periods of 2020, primarily due to decreases in volumes of development and pre-qualification wafers, partially offset by increases in employee compensation and depreciation expense resulting from higher capital spending.

Selling, General, and Administrative: SG&A expenses for the second quarter of 2021 were relatively unchanged as compared to the first quarter of 2021. SG&A expenses for the second quarter and first six months of 2021 were relatively unchanged as compared to the corresponding periods of 2020.

Income Taxes: Our income tax (provision) benefit consisted of the following:
Second
Quarter
First
Quarter
Second
Quarter
Six Months
2021 2021 2020 2021 2020
Income before taxes $ 635  $ 841  $ 427  $ 1,476  $ 988 
Income tax (provision) benefit (48) (51) (21) (99) (76)
Effective tax rate
7.6  % 6.1  % 4.9  % 6.7  % 7.7  %

Changes to our effective tax rate in the periods presented were primarily due to the geographic mix of our earnings.

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. The effect of tax incentive arrangements reduced our tax provision by $45 million (benefiting our diluted earnings per share by $0.04) for the second quarter of 2021, by $56 million ($0.05 per diluted share) for the first quarter of 2021, by $101 million ($0.09 per diluted share) for the first six months of 2021, and were not significant to our tax provision for the second quarter or first six months of 2020.

See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Income Taxes.”

Other: Interest expense for the second quarter of 2021 decreased 13% as compared to the first quarter of 2021 primarily due to decreases in debt obligations and an increase in capitalized interest from higher levels of capital projects in process. Interest income for the second quarter of 2021 was relatively unchanged as compared to the first quarter of 2021.

Interest expense for the second quarter of 2021 decreased 9% as compared to the second quarter of 2020 primarily due to a decrease in interest rates and an increase in capitalized interest from higher levels of capital projects in process, partially offset by an increase in debt obligations. Interest expense for the first six months of 2021 was relatively unchanged as compared to the first six months of 2020. Interest income for the second quarter and first six months of 2021 decreased 71% and 74%, respectively, as compared to the corresponding periods of 2020 as a result of decreases in interest rates, partially offset by higher cash and investment balances.

Further discussion of other operating and non-operating income and expenses can be found in “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Equity Plans,” “– Other Operating (Income) Expense, Net” and “– Other Non-Operating Income (Expense), Net.”


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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. We are continuously evaluating 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 4, 2021, $2.50 billion was available to draw under our Revolving Credit Facility. 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.

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 2021 for property, plant, and equipment, net of partner contributions, to be approximately $9 billion, focused on technology transitions and product enablement. Actual amounts for 2021 will vary depending on market conditions. As of March 4, 2021, we had purchase obligations of approximately $2.02 billion for the acquisition of property, plant, and equipment, of which approximately $1.82 billion is expected to be paid within one year.

In May 2018, our Board of Directors 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 a Rule 10b5-1 trading plan. 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. Since the authorization in May 2018, through March 4, 2021, we had repurchased an aggregate of $2.84 billion of the authorized amount.

Cash and marketable investments totaled $8.50 billion as of March 4, 2021 and $9.19 billion as of September 3, 2020. Our 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 4, 2021, $2.45 billion of our cash and marketable investments was held by our foreign subsidiaries.

Cash Flows:
Six Months
2021 2020
Net cash provided by operating activities $ 5,024  $ 4,012 
Net cash provided by (used for) investing activities (5,974) (2,899)
Net cash provided by (used for) financing activities (209) (1,207)
Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash 43  (14)
Net increase (decrease) in cash, cash equivalents, and restricted cash $ (1,116) $ (108)

Operating Activities: Cash provided by operating activities reflects net income 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 increase in cash provided by operating activities for the first six months of 2021 as compared to the first six months of 2020 was primarily due to higher net income compared with the prior period and changes in working capital.

Investing Activities: For the first six months of 2021, net cash used for investing activities consisted primarily of $5.54 billion of expenditures for property, plant, and equipment (net of partner contributions) and $425 million of net outflows from purchases, sales, and maturities of available-for-sale securities.

For the first six months of 2020, net cash used for investing activities consisted primarily of $3.86 billion of expenditures for property, plant, and equipment (net of partner contributions) partially offset by $1.02 billion of net inflows from sales, maturities, and purchases of available-for-sale securities.

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Financing Activities: For the first six months of 2021, net cash used for financing activities consisted primarily of $123 million for payments on equipment purchase contracts and $103 million for repayments of debt.

For the six months of 2020, net cash used for financing activities consisted primarily of $1.68 billion of cash payments to reduce our debt, including $621 million for IMFT member debt repayments, $534 million to prepay the 2025 Notes, $198 million to settle conversions of notes, and $129 million for scheduled repayment of finance leases; $744 million for the acquisition of noncontrolling interest in IMFT; and $94 million for the acquisition of 1.9 million shares of treasury stock under our $10 billion share repurchase authorization. Cash used for financing activities was partially offset by net proceeds of $1.25 billion from borrowing the 2024 Term Loan A.

See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Debt.”

Potential Settlement Obligations of Convertible Notes: See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Debt – 2032D Convertible Senior Notes.”

Contractual Obligations: See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Leases” and – Debt.”


Critical Accounting Estimates

For a discussion of our significant accounting estimates, see “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Significant Accounting Estimates” of our Annual Report on Form 10-K for the year ended September 3, 2020. Except for the significant accounting estimate associated with inventories as discussed below, there have been no changes to our significant accounting estimates since our Annual Report on Form 10-K for the year ended September 3, 2020.

Inventories: Inventories are stated at the lower of cost or net realizable value, with cost being determined on a FIFO basis. Effective as of the beginning of the second quarter of 2021, we changed our method of inventory costing from average cost to FIFO. 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 and future sales volumes. 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 $371 million as of March 4, 2021. 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, which could significantly impact cost of goods sold.

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 cost or net realizable value analysis and categorize all inventories (including DRAM, NAND, and other memory) as a single group.


Recently Adopted Accounting Standards

See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Recently Adopted Accounting Standards.”


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Recently Issued Accounting Standards

See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Recently Issued Accounting Standards.”


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are affected by changes in currency exchange and interest rates. For further discussion about market risk and sensitivity analysis related to changes in currency exchange rates, see “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended September 3, 2020.


ITEM 4. CONTROLS AND PROCEDURES

An evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, the principal executive officer and principal financial officer concluded that those disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including the principal executive officer and principal financial officer, to allow timely decision regarding disclosure.

During the second quarter of 2021, we implemented new internal controls and modified existing internal controls related to our inventories as a result of changing from average cost to the FIFO inventory accounting method and our implementation of a standard cost inventory management system. Other than the foregoing, there were no other changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS

For a discussion of legal proceedings, see “Part I – Item 3. Legal Proceedings” of our Annual Report on Form 10-K for the year ended September 3, 2020 and “Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies” and “Item 1A. Risk Factors” herein.

SEC regulations require disclosure of certain proceedings related to environmental matters unless we reasonably believe that the related monetary sanctions, if any, will be less than a specified threshold. We use a threshold of $1 million for this purpose.


ITEM 1A. RISK FACTORS

In addition to the factors discussed elsewhere in this Form 10-Q, this section discusses important factors which could cause actual results or events to differ materially from those contained in any forward-looking statements made by us. The order of presentation is not necessarily indicative of the level of risk that each factor poses to us. Any of these factors could have a material adverse effect on our business, results of operations, financial condition, or stock price. Our operations could also be affected by other factors that are presently unknown to us or not considered significant.
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Risk Factor Summary

Risks Related to Our Business, Operations, and Industry
the effects of the COVID-19 outbreak;
volatility in average selling prices of our products;
our ability to maintain or improve gross margins;
the highly competitive nature of our industry;
our ability to develop and produce new memory and storage technologies, products, and markets;
dependency on specific customers, concentration of revenue with a select number of customers, and customers who are located internationally;
our international operations, including geopolitical risks;
limited availability and quality of materials, supplies, and capital equipment and dependency on third-party service providers for ourselves and our customers;
products that fail to meet specifications, are defective, or incompatible with end uses;
disruptions to our manufacturing processes;
breaches of our security systems or those of our customers, suppliers, or business partners;
attracting, retaining, and motivating highly skilled employees;
achieving or maintaining certain performance obligations associated with incentives from various governments;
future acquisitions and/or alliances;
restructure charges;
customer responsible sourcing requirements and related regulations; and
a downturn in the world-wide economy.

Risks Related to Intellectual Property and Litigation
protecting our intellectual property and retaining key employees who are knowledgeable of and develop our intellectual property;
legal proceedings and claims;
allegations of anticompetitive conduct;
risks associated with our former IMFT joint venture with Intel;
claims that our products or manufacturing processes infringe or otherwise violate the intellectual property rights of others or failure to obtain or renew license agreements covering such intellectual property; and
alleged patent infringement complaints in Chinese courts.

Risks Related to Laws and Regulations
tariffs, trade restrictions, and/or trade regulations;
tax expense and tax laws in key jurisdictions; and
laws, regulations, or industry standards.

Risks Related to Capitalization and Financial Markets
our ability to generate sufficient cash flows or obtain access to external financing;
our debt obligations;
changes in foreign currency exchange rates;
counterparty default risk;
volatility in the trading price of our common stock; and
fluctuations in the amount and timing of our common stock repurchases and resulting impacts.

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Risks Related to Our Business, Operations, and Industry

The effects of the COVID-19 outbreak could adversely affect our business, results of operations, and financial condition.

The effects of the public health crisis caused by the COVID-19 outbreak and the measures being taken to limit COVID-19’s spread are uncertain and difficult to predict, but may include, and in some cases, have included and may continue to include:

A decrease in short-term and/or long-term demand and/or pricing for our products and a global economic recession that could further reduce demand and/or pricing for our products, resulting from actions taken by governments, businesses, and/or the general public in an effort to limit exposure to and the spreading of COVID-19, such as travel restrictions, quarantines, and business shutdowns or slowdowns;
Negative impacts to our operations, including:
reductions in production levels, R&D activities, product development, technology transitions, yield enhancement activities, and qualification activities with our customers, resulting from our efforts to mitigate the impact of COVID-19 through measures we have enacted at our locations around the world in an effort to protect our employees’ and contractors’ health and well-being, including working from home, limiting the number of meeting attendees, reducing the number of people in certain of our sites at any one time, quarantines of team members, contractors, or vendors who are at risk of contracting, or have contracted, COVID-19, and limiting employee travel;
increased costs resulting from our efforts to mitigate the impact of COVID-19 through physical-distancing measures, working from home, upgrades to our sites, COVID-19 testing, enhanced cleaning measures, and the increased use of personal protective equipment at our sites;
increased costs for, or unavailability of, transportation, raw materials, or other inputs necessary for the operation of our business;
reductions in, or cessation of operations at any site or in any jurisdiction resulting from government restrictions on movement and/or business operations or our failure to prevent and/or adequately mitigate spread of COVID-19 at one or more of our sites;
our inability to continue, or increased costs of, construction projects due to delays in obtaining materials, equipment, labor, engineering services, government permits, or any other essential aspect of projects, which could impact our ability to introduce new technologies, reduce costs, or meet customer demand;
disruptions to our supply chain in connection with the sourcing and transportation of materials, equipment and engineering support, and services from or in geographic areas that have been impacted by COVID-19 and by efforts to contain the spread of COVID-19; and
Deterioration of worldwide credit and financial markets that could: limit our ability to obtain external financing to fund our operations and capital expenditures; result in losses on our holdings of cash and investments due to failures of financial institutions and other parties; or result in a higher rate of losses on our accounts receivables due to credit defaults.

While certain COVID-19 vaccines have been approved and become available for use in the United States and certain other countries in recent months, we are unable to predict how widely utilized the vaccines will be, whether they will be effective in preventing the spread of COVID-19 (including its variant strains), and when or if normal economic activity and business operations will resume.

These effects, alone or taken together, could have a material adverse effect on our business, results of operations, legal exposure, or financial condition. A sustained, prolonged, or recurring outbreak could exacerbate the adverse impact of such measures.

Volatility in average selling prices for our semiconductor memory and storage products may adversely affect our business.

We have experienced significant volatility in our average selling prices, including dramatic declines as noted in the table below, and may continue to experience such volatility in the future. In some prior periods, average selling prices for our products have been below our manufacturing costs and we may experience such circumstances in
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