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 August 31, 2023. 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 2024 and 2023 each contain 52 weeks. All tabular dollar amounts are in millions, except per share amounts.

Overview

We are an industry leader in innovative memory and storage solutions transforming how the world uses information to enrich life for all. With a relentless focus on our customers, technology leadership, and manufacturing and operational excellence, Micron delivers a rich portfolio of high-performance DRAM, NAND, and NOR memory and storage products through our Micron® and Crucial® brands. Every day, the innovations that our people create fuel the data economy, enabling advances in artificial intelligence and 5G applications that unleash opportunities — from the data center to the intelligent edge and across the client and mobile user experience.

We manufacture our products at wholly-owned facilities and also utilize subcontractors for certain manufacturing processes. Our global network of manufacturing centers of excellence not only allows us to benefit from scale while streamlining processes and operations, but it also brings together some of the world’s brightest talent to work on the most advanced memory technology. Centers of excellence bring expertise together in one location, providing an efficient support structure for end-to-end manufacturing, with quicker cycle times, in partnership with teams such as research and development (“R&D”), product engineering, human resources, procurement, and supply chain. For our locations in Singapore and Taiwan, this is also a combination of bringing fabrication and back-end manufacturing together. We make significant investments to develop proprietary product and process technology, which generally increases bit density per wafer and reduces per-bit manufacturing costs of each generation of product. We continue to introduce new generations of products that offer improved performance characteristics, including higher data transfer rates, advanced packaging solutions, lower power consumption, improved read/write reliability, and increased memory density.

We face intense competition in the semiconductor memory and storage markets and to remain competitive we must continuously develop and implement new products and technologies and decrease manufacturing costs in spite of ongoing inflationary cost pressures. Our success is largely dependent on obtaining returns on our R&D investments, efficient utilization of our manufacturing infrastructure, development and integration of advanced product and process technologies, market acceptance of our diversified portfolio of semiconductor-based memory and storage solutions, and efficient capital spending.

Product Technologies

Our product portfolio of memory and storage solutions, advanced solutions, and storage platforms is based on our high-performance semiconductor memory and storage technologies, including DRAM, NAND, and NOR. We sell our products into various markets through our business units in numerous forms, including components, modules, SSDs, managed NAND, MCPs, and wafers. Our system-level solutions, including SSDs and managed NAND, combine NAND, a controller, firmware, and in some cases DRAM.

DRAM**:** DRAM products are dynamic random access memory semiconductor devices with low latency that provide high-speed data retrieval with a variety of performance characteristics. DRAM products lose content when power is turned off (“volatile”) and are most commonly used in client, cloud server, enterprise, networking, graphics, industrial, and automotive markets. LPDRAM products, which are engineered to meet standards for performance and power consumption, are sold into smartphone and other mobile-device markets (including client markets for Chromebooks and notebook PCs), as well as into the automotive, industrial, consumer, and datacenter 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, consumer, and automotive markets and in removable storage markets. Managed NAND is used in smartphones and other mobile devices, and in consumer, automotive, and embedded markets. Low-density NAND is ideal for applications like automotive, surveillance, machine-to-machine, automation, printer, and home networking.

NOR**:** NOR products are non-volatile, re-writable semiconductor memory devices that provide fast read speeds. NOR is most commonly used for reliable code storage (e.g., boot, application, operating system, and execute-in-place code in an embedded system) and for frequently changing small data storage and is ideal for automotive, industrial, and consumer applications.

Industry Conditions

The memory and storage industry environment deteriorated sharply in the fourth quarter of 2022 and throughout 2023 due to weak demand in many end markets combined with global and macroeconomic challenges and lower demand resulting from customer actions to reduce inventory levels. This led to significant reductions in average selling prices for both DRAM and NAND and reductions in bit shipments for DRAM, resulting in declines in revenue across all our business segments and nearly all our end markets. For the first quarter of 2024, improving demand growth driven in part by deployment of artificial intelligence, customer inventory normalization, and industry-wide supply discipline, resulted in an improved industry supply and demand balance. As a result, we have experienced improvements in pricing and margins.

As a result of challenging market conditions that have persisted since the fourth quarter of 2022 and increased levels of our inventories, in recent quarters we have reduced capital expenditures and wafer starts for both DRAM and NAND. We expect wafer starts will remain below peak capacity levels for the second quarter of 2024 as we remain focused on managing down our inventories and controlling our supply. We recognized period costs from fabrication facility underutilization of $165 million in first quarter of 2024 and $222 million in the fourth quarter of 2023 due to wafer start reductions. We expect reduced underutilization charges in the second quarter of 2024. In addition, we have strategically diverted underutilized equipment toward ramping new technology nodes, which will help us increase leading edge production in a capital efficient manner. Since the number of wafer processing steps is higher for leading-edge nodes, this approach of diverting underutilized tools to the leading edge meaningfully reduces our overall wafer capacity.

Impact of China Cyberspace Administration Decision

On March 31, 2023, China’s Cyberspace Administration (the “CAC”) notified us that it was conducting a cybersecurity review of our products sold in China. On May 21, 2023, we received notice that the CAC had concluded its review and decided that our products presented a cybersecurity risk. As such, the CAC determined that critical information infrastructure operators in China may not purchase Micron products. The CAC decision has impacted our business, particularly in the domestic data center and networking markets in China, and we have been working to mitigate that impact. Our long-term goal is to retain our worldwide DRAM and NAND market share.

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Results of Operations

Consolidated Results

			First Quarter						Fourth Quarter						First Quarter
			2024						2023						2023
Revenue			$	4,726		100		%	$	4,010		100		%	$	4,085		100		%
Cost of goods sold			4,761			101		%	4,445			111		%	3,192			78		%
Gross margin			(35)			(1)		%	(435)			(11)		%	893			22		%
Research and development			845			18		%	719			18		%	849			21		%
Selling, general, and administrative			263			6		%	219			5		%	251			6		%
Restructure and asset impairments			—			—		%	4			—		%	13			—		%
Other operating (income) expense, net			(15)			—		%	95			2		%	(11)			—		%
Operating income (loss)			(1,128)			(24)		%	(1,472)			(37)		%	(209)			(5)		%
Interest income (expense), net			—			—		%	5			—		%	37			1		%
Other non-operating income (expense), net			(27)			(1)		%	9			—		%	(4)			—		%
Income tax (provision) benefit			(73)			(2)		%	24			1		%	(8)			—		%
Equity in net income (loss) of equity method investees			(6)			—		%	4			—		%	(11)			—		%
Net income (loss)			$	(1,234)		(26)		%	$	(1,430)		(36)		%	$	(195)		(5)		%

Total Revenue: Total revenue for the first quarter of 2024 was impacted by the factors described in the section titled “Industry Conditions” above. Total revenue for the first quarter of 2024 increased 18% as compared to the fourth quarter of 2023 primarily due to increases in sales of both DRAM and NAND products.

• Sales of DRAM products in the first quarter of 2024 increased 24% as compared to the fourth quarter of 2023 primarily due to a low-20s percent range increase in bit shipments and increases in average selling prices in the low single-digit-percent range.

• Sales of NAND products in the first quarter of 2024 increased 2% as compared to the fourth quarter of 2023 primarily due to an approximate 20% increase in average selling prices partially offset by decreases in bit shipments in the mid-teens percent range after record NAND bit shipments in the fourth quarter of 2023.

Total revenue for the first quarter of 2024 increased 16% as compared to the first quarter of 2023 primarily due to increases in sales of both DRAM and NAND products.

• Sales of DRAM products in the first quarter of 2024 increased 21% as compared to the first quarter of 2023 primarily due to a low-80s percent range increase in bit shipments partially offset by a decrease in average selling prices in the low-30s percent range.

• Sales of NAND products in the first quarter of 2024 increased 12% as compared to the first quarter of 2023 primarily due to a high-70s percent range increase in bit shipments partially offset by a decrease in average selling prices in the high-30s percent range.

Consolidated Gross Margin**:** Our consolidated gross margin has been impacted by the factors described in the section titled “Industry Conditions” above. Our consolidated gross margin percentage improved to negative 1% for the first quarter of 2024 from negative 11% for the fourth quarter of 2023, as a result of improvements in margins for both DRAM and NAND products, primarily due to increases in average selling prices, and a higher mix of revenue from DRAM. Our consolidated gross margin percentage declined to negative 1% for the first quarter of 2024 from 22% for the first quarter of 2023 primarily due to declines in average selling prices for both DRAM and NAND and $165 million of facility underutilization costs in the first quarter of 2024.

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Inventory NRV write-downs: Our consolidated gross margin was impacted by charges in the third and second quarters of 2023 to write down inventories to their estimated net realizable value as a result of declines in average selling prices for both DRAM and NAND. As charges to write down inventories are recorded in advance of when inventories are sold, costs of goods sold in subsequent periods are lower than they otherwise would be. The impact of inventory NRV write-downs for each period reflects (1) inventory write-downs in that period, offset by (2) lower costs in that period on the sale of inventory written down in prior periods. The impacts of inventory NRV write-downs are summarized below:

			First Quarter			Fourth Quarter			First Quarter
			2024			2023			2023
Provision to write down inventory to NRV			$	—		$	—		$	—
Lower costs from sale of inventory written down in prior periods			605			563			—
			$	605		$	563		$	—

Revenue by Business Unit

			First Quarter						Fourth Quarter						First Quarter
			2024						2023						2023
CNBU			$	1,737		37		%	$	1,200		30		%	$	1,746		43		%
MBU			1,293			27		%	1,211			30		%	655			16		%
EBU			1,037			22		%	860			21		%	1,000			24		%
SBU			653			14		%	739			18		%	680			17		%
All Other			6			—		%	—			—		%	4			—		%
			$	4,726					$	4,010					$	4,085

Percentages of total revenue may not total 100% due to rounding.

Changes in revenue for each business unit for the first quarter of 2024 as compared to the fourth quarter of 2023 were as follows:

• CNBU revenue increased 45% primarily due to increases in bit shipments driven by strong demand in data center and client end markets.

• MBU revenue increased 7% primarily due to increases in average selling prices and NAND bit shipments, driven by improved end market demand.

• EBU revenue increased 21% primarily due to increases in bit shipments reflecting growth across most end markets.

• SBU revenue decreased 12% primarily due to declines in component NAND sales, partially offset by increases in SSD sales.

Changes in revenue for each business unit for the first quarter of 2024 as compared to the first quarter of 2023 were as follows:

• CNBU revenue decreased 1% as declines in average selling prices were largely offset by increases in bit shipments.

• MBU revenue increased 97% primarily due to increases in bit shipments for both DRAM and NAND, partially offset by declines in average selling prices.

• EBU revenue increased 4% primarily due to increases in bit shipments, partially offset by declines in average selling prices.

• SBU revenue decreased 4% primarily due to declines in average selling prices, partially offset by increases in bit shipments.

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Operating Income (Loss) by Business Unit

			First Quarter						Fourth Quarter						First Quarter
			2024						2023						2023
CNBU			$	(397)		(23)		%	$	(403)		(34)		%	$	190		11		%
MBU			(687)			(53)		%	(733)			(61)		%	(195)			(30)		%
EBU			10			1		%	35			4		%	194			19		%
SBU			(490)			(75)		%	(672)			(91)		%	(257)			(38)		%
All Other			4			67		%	2			—		%	3			75		%
			$	(1,560)					$	(1,771)					$	(65)

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 first quarter of 2024 as compared to the fourth quarter of 2023 were as follows:

• CNBU operating income (loss) was relatively unchanged.

• MBU operating income (loss) improved primarily due to increases in average selling prices.

• EBU operating income decreased slightly primarily due to declines in average selling prices.

• SBU operating income (loss) improved primarily due to increases in average selling prices.

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

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

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

• EBU operating income decreased primarily due to declines in average selling prices.

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

Operating Expenses and Other

Research and Development: R&D expenses vary primarily with the number of development and pre-qualification wafers processed, the cost of advanced equipment dedicated to new product and process development, and personnel costs. Because of the lead times necessary to manufacture our products, we typically begin to process wafers before completion of performance and reliability testing. Development of a product is deemed complete when it is qualified through internal reviews and tests for performance and reliability. R&D expenses can vary significantly depending on the timing of product qualification.

R&D expenses for the first quarter of 2024 increased 18% as compared to the fourth quarter of 2023 due to higher volumes of development and prequalification wafers and an increase in employee compensation. R&D expenses for the first quarter of 2024 compared to the first quarter of 2023 were relatively unchanged as lower volumes of development and prequalification wafers were largely offset by increases in employee compensation.

Selling, General, and Administrative: SG&A expenses for the first quarter of 2024 increased 20% as compared to the fourth quarter of 2023 primarily due to an increase in employee compensation. SG&A expenses for the first quarter of 2024 were relatively unchanged compared to the first quarter of 2023.

Other operating (income) expense, net: In the fourth quarter of 2023, we recognized a charge of $101 million included in other operating (income) expense, net to impair all of the goodwill assigned to our SBU reporting unit based on a quantitative assessment for impairment.

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Income Taxes: Our income tax (provision) benefit consisted of the following:

			First Quarter			Fourth Quarter			First Quarter
			2024			2023			2023
Income (loss) before taxes			$	(1,155)		$	(1,458)		$	(176)
Income tax (provision) benefit			(73)			24			(8)
Effective tax rate			(6.3)		%	1.6		%	(4.5)		%

For the first quarter of 2024, we recorded tax expense based on actual first quarter results for jurisdictions where small changes in our projected pre-tax income may cause significant changes in the estimated annual effective tax rate.

In future quarters where a reliable annual effective tax rate can be estimated for all jurisdictions, we would revert back to a global annual effective tax rate method, which may result in a significant adjustment due to the change in methodology during that period.

The change in our effective tax rate for the first quarter of 2024 as compared to the fourth quarter of 2023 was primarily due to discrete tax benefits occurring in the fourth quarter of 2023 and interim tax expense methodology in the first quarter of 2024. The change in our effective tax rate for the first quarter of 2024 as compared to the first quarter of 2023 was primarily due to changes in levels of profitability, interim tax expense methodology, and our geographic mix of earnings. Despite a consolidated pre-tax loss on a worldwide basis, we have taxes payable in certain geographies due to minimum taxable income reportable in those geographies.

We operate in a number of jurisdictions outside the United States, including Singapore, where we have tax incentive arrangements. These incentives expire, in whole or in part, at various dates through 2034 and are conditional, in part, upon meeting certain business operations and employment thresholds. As a result of a loss before taxes and geographical mix of income, the benefit from tax incentive arrangements was not material for the periods presented.

Various tax reforms are being considered in multiple jurisdictions that, if enacted, contain provisions that could materially impact our tax expense. We continue to monitor the potential impact of these various tax reform proposals to our overall global effective tax rate and financial statements.

Other: Further information can be found in the following notes contained in “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Equity Plans.”

Liquidity and Capital Resources

Our primary sources of liquidity are cash generated from operations and financing obtained from capital markets and financial institutions. Cash generated from operations is highly dependent on selling prices for our products, which can vary significantly from period to period. Cash and marketable investments totaled $9.77 billion as of November 30, 2023, and $10.44 billion as of August 31, 2023. Our cash and investments consist primarily of bank deposits, money market funds, and liquid investment-grade, fixed-income securities, which are diversified among industries and individual issuers. 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 November 30, 2023, $2.56 billion of our cash and marketable investments was held by our foreign subsidiaries.

We continuously evaluate alternatives for efficiently funding our capital expenditures and ongoing operations. We expect, from time to time, to engage in a variety of financing transactions for such purposes, including the issuance of securities. As of November 30, 2023, $2.50 billion was available to draw under our Revolving Credit Facility.

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To develop new product and process technology, support future growth, achieve operating efficiencies, and maintain product quality, we must continue to invest in manufacturing technologies, facilities and equipment, and R&D. We estimate capital expenditures in 2024 for property, plant, and equipment, net of proceeds from government incentives, to be in the range of $7.5 billion to $8.0 billion. Actual amounts for 2024 will vary depending on market conditions and may vary from quarter to quarter due to the timing of expenditures. As of November 30, 2023, we had purchase obligations of approximately $1.03 billion for the acquisition of property, plant, and equipment, of which approximately $963 million is expected to be paid within one year. For a description of other contractual obligations, such as leases and debt, see “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Leases,” and “ – Debt.”

To support expected memory demand in the second half of the decade, we will need to add new DRAM wafer capacity. Following the enactment of the CHIPS Act in 2022, we announced plans to invest in two leading-edge memory manufacturing fabs in the United States, contingent on CHIPS Act support through grants and investment tax credits. As part of this plan, in September 2022, we broke ground on a leading-edge memory manufacturing fab in Boise, Idaho. Construction of the fab began in October 2023 with DRAM production targeted to start in calendar 2025 and first output in early calendar 2026. In addition, in October 2022, we announced plans to build a second leading-edge DRAM manufacturing fab in Clay, New York. We expect construction to begin in calendar 2024, with production anticipated to ramp in the latter half of the decade. We expect these new fabs to be key to meeting our requirements for additional wafer capacity starting in the second half of the decade and beyond, in line with industry demand trends. On August 21, 2023, we announced that two of our subsidiaries had each submitted full applications on August 18, 2023 for federal funding in the form of grants under the CHIPS Act for both of these projects.

We are also advancing our global back-end assembly and test network in order to support our product portfolio and extend our ability to deliver on global customer demand in the future. We intend to make investments at our backend facility in Xi’an, China, including a new building to provide space to add more product capability, to allow us over time to serve more of the demand from our customers in China from the Xi’an facility. We also intend to build a new assembly and test facility in Gujarat, India to address demand in the latter half of this decade.

Our Board of Directors has authorized the discretionary repurchase of up to $10 billion of our outstanding common stock through open-market purchases, block trades, privately-negotiated transactions, derivative transactions, and/or pursuant to Rule 10b5-1 trading plans. The repurchase authorization has no expiration date, does not obligate us to acquire any common stock, and is subject to market conditions and our ongoing determination of the best use of available cash. Through November 30, 2023, we had repurchased an aggregate of $6.89 billion of the authorized amount. See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Equity.”

On December 20, 2023, our Board of Directors declared a quarterly dividend of $0.115 per share, payable in cash on January 18, 2024, to shareholders of record as of the close of business on January 2, 2024. The declaration and payment of any future cash dividends are at the discretion and subject to the approval of our Board of Directors. Our Board of Directors' decisions regarding the amount and payment of dividends will depend on many factors, including, but not limited to, our financial condition, results of operations, capital requirements, business conditions, debt service obligations, contractual restrictions, industry practice, legal requirements, regulatory constraints, and other factors that our Board of Directors may deem relevant.

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

Cash Flows

			First Quarter
			2024			2023
Net cash provided by operating activities			$	1,401		$	943
Net cash provided by (used for) investing activities			(1,558)			(2,266)
Net cash provided by (used for) financing activities			(352)			2,632
Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash			(1)			(6)
Net increase (decrease) in cash, cash equivalents, and restricted cash			$	(510)		$	1,303

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Operating Activities: Cash provided by operating activities reflects net income (loss) adjusted for certain non-cash items, including depreciation expense, amortization of intangible assets, and stock-based compensation, and the effects of changes in operating assets and liabilities. The increase in cash provided by operating activities for the first quarter of 2024 as compared to the first quarter of 2023 was primarily due to a larger net loss in the current year adjusted for non-cash items and the effect of an increase in receivables, which was more than offset by a decrease in inventories, an increase in accounts payable and accrued expenses, and an increase in other current liabilities largely due to approximately $600 million of customer prepayments to secure product supply.

Investing Activities: For the first quarter of 2024, net cash used for investing activities consisted primarily of $1.80 billion of expenditures for property, plant, and equipment; contributions of $85 million received from government incentives to offset capital expenditures; partially offset by $175 million of net inflows from maturities, sales, and purchases of available-for-sale securities.

For the first quarter of 2023, net cash used for investing activities consisted primarily of $2.45 billion of expenditures for property, plant, and equipment; partially offset by $272 million of net inflows from maturities, sales, and purchases of available-for-sale securities.

Financing Activities: For the first quarter of 2024, net cash used for financing activities consisted primarily of $129 million for payments of dividends to shareholders, $56 million of payments on equipment purchase contracts, and $53 million for repayments of debt.

For the first quarter of 2023, net cash provided by financing activities consisted primarily of $2.60 billion of proceeds from our 2025, 2026, and 2027 Term Loan A borrowings and $749 million (net of original issue discount) from the issuance of the 2029 B Notes. Cash used for financing activities included $425 million for the acquisition of 8.6 million shares of our common stock under our share repurchase authorization, $126 million of cash payments of dividends to shareholders, and $47 million of payments on equipment purchase contracts.

Critical Accounting Estimates

For a discussion of our critical accounting estimates, see “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” of our Annual Report on Form 10-K for the year ended August 31, 2023. There have been no significant changes to our critical accounting estimates since our Annual Report on Form 10-K for the year ended August 31, 2023.

Recently Adopted Accounting Standards

No material items.

Recently Issued Accounting Standards

No material items.