MICRON TECHNOLOGY INC MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-K)
This discussion should be read in conjunction with the consolidated financial statements and accompanying notes for the year ended
September 1, 2022. All period references are to our fiscal periods unless otherwise indicated. Our fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. Fiscal 2022 and 2021 contained 52 weeks and fiscal 2020 contained 53 weeks. Our fourth quarter of fiscal 2020 contained 14 weeks and all other fiscal quarters in the years presented contained 13 weeks. All tabular dollar amounts are in millions, except per share amounts. For an overview of our business and certain related trends, see "Part I - Item 1. Business - Overview." Results of Operations Consolidated Results For the year ended 2022 2021 2020 Revenue $ 30,758100 % $ 27,705100 % $ 21,435100 % Cost of goods sold 16,860 55 % 17,282 62 % 14,883 69 % Gross margin 13,898 45 %
10,423 38% 6,552 31%
Research and development 3,116 10 % 2,663 10 % 2,600 12 % Selling, general, and administrative 1,066 3 % 894 3 % 881 4 % Restructure and asset impairments 48 - % 488 2 % 60 - % Other operating (income) expense, net (34) - % 95 - % 8 - % Operating income 9,702 32 %
6,283 23% 3,003 14%
Interest income (expense), net (93) - % (146) (1) % (80) - % Other non-operating income (expense), net (38) - % 81 - % 60 - % Income tax (provision) benefit (888) (3) % (394) (1) % (280) (1) % Equity in net income (loss) of equity method investees 4 - % 37 - % 7 - % Net income attributable to noncontrolling interests - - % - - % (23) - % Net income attributable to Micron
$ 8,68728 % $ 5,86121 % $ 2,68713 % 43 | 2022 10-K
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Total revenue: Total revenue for 2022 increased by 11% compared to 2021, mainly due to increased sales of DRAM and NAND products.
•Sales of DRAM products increased 12% primarily due to increases in bit shipments of slightly over 10%. •Sales of NAND products increased 11% primarily due to a high-single-digit percent increase in bit shipments and a low-single-digit percent increase in average selling prices. In the fourth quarter of 2022, the memory and storage industry environment deteriorated sharply due to global and macroeconomic challenges combined with downward inventory adjustments by customers, leading to significant reductions in bit shipments and average selling prices for both DRAM and NAND resulting in a 23% decline in revenue as compared to the third quarter of 2022. For the first quarter of 2023, continuation of these challenging conditions and inventory adjustments by customers have resulted in further reductions in near-term demand for both DRAM and NAND and we expect bit shipments and pricing to decline as compared to the fourth quarter of 2022.
Total revenue for 2021 increased by 29% compared to 2020, mainly due to increased sales of DRAM and NAND products.
•Sales of DRAM products increased 38% primarily due to growth in bit shipments in the high-20% range and a high single-digit percent increase in average selling prices. •Sales of NAND products increased 14% primarily due to increases in bit shipments in the high-20% range, partially offset by a decline in average selling prices of slightly over 10%. Consolidated Gross Margin: Our consolidated gross margin percentage increased to 45% for 2022 from 38% for 2021, as a result of improvements in margins for both DRAM and NAND products, primarily due to reductions in manufacturing costs. Manufacturing cost reductions were driven by strong execution in ramping our 1? DRAM and 176-layer NAND technology nodes. Our consolidated gross margin percentage declined to 39% in the fourth quarter of 2022 from 47% in the third quarter of 2022 and we expect that in the first quarter of 2023 the percentage will decline further due to decreases in average selling prices as a result of the challenging industry environment for memory and storage products. To address our elevated inventory levels and reduce supply growth, in the first quarter of 2023, we are selectively reducing facility utilization in both DRAM and NAND. We also expect that inflationary pressure will continue to be a headwind to costs in the first quarter of 2023. Our consolidated gross margin percentage increased to 38% for 2021 from 31% for 2020, primarily due to the increases in DRAM average selling prices and cost reductions resulting from strong execution in delivering products featuring advanced technologies, partially offset by declines in NAND average selling prices. Our gross margins included the impact of underutilization costs at MTU of
$335 millionfor 2021 and $557 millionfor 2020. Underutilization costs at MTU declined in 2021 primarily due to the plan to sell MTU's Lehifacility and classification of assets as held for sale at the end of the second quarter of 2021, which resulted in the cessation of depreciation on those assets. See "Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Lehi, UtahFab and 3D XPoint." Effective as of the beginning of the second quarter of 2021, we changed our method of inventory costing from average cost to first-in, first-out ("FIFO"). Concurrently, as of the beginning of the second quarter of 2021, we modified our inventory cost absorption processes used to estimate inventory values, which affects the timing of when costs are recognized. These changes resulted in a one-time increase to cost of goods sold of approximately $293 millionin 2021. [[Image Removed: mu-20220901_g5.jpg]] 44 --------------------------------------------------------------------------------
Table of Contents Revenue by Business Unit For the year ended 2022 2021 2020
$ 13,69345 % $ 12,28044 % $ 9,18443 % MBU 7,260 24 % 7,203 26 % 5,702 27 % EBU 5,235 17 % 4,209 15 % 2,759 13 % SBU 4,553 15 % 3,973 14 % 3,765 18 % All Other 17 - % 40 - % 25 - % $ 30,758 $ 27,705 $ 21,435
Total revenue percentages may not add up to 100% due to rounding.
The evolution of the turnover of each business unit for 2022 compared to 2021 is as follows:
•CNBU revenue increased 12% primarily due to increases in bit shipments to cloud, enterprise, and networking markets. •MBU revenue was relatively unchanged as both DRAM and NAND revenue was relatively flat. •EBU revenue increased 24% primarily due to strong demand growth in industrial and automotive markets. •SBU revenue increased 15% primarily due to higher average selling prices and increases in shipments of SSD products.
The evolution of the turnover of each business unit for 2021 compared to 2020 is as follows:
•CNBU revenue increased 34% primarily due to broad-based increases in bit shipments across markets and higher average selling prices for DRAM. •MBU revenue increased 26% primarily due to increases in bit shipments for high-value mobile MCP products. •EBU revenue increased 53% primarily due to increases in bit shipments driven by strong demand growth in automotive, industrial, and consumer markets and improved pricing in industrial and consumer markets. •SBU revenue increased 6% as increases in bit shipments for NAND products outpaced declines in average selling prices.
Operating profit (loss) per business unit
For the year ended 2022 2021 2020 CNBU
$ 5,84443 % $ 4,29535 % $ 2,01022 % MBU 2,160 30 % 2,173 30 % 1,074 19 % EBU 1,752 33 % 1,006 24 % 301 11 % SBU 513 11 % 173 4 % 36 1 % All Other 12 71 % 20 50 % (2) (8) % $ 10,281 $ 7,667 $ 3,419
Percentages reflect operating profit (loss) as a percentage of revenue for each business unit.
The change in operating profit for each business unit for 2022 compared to 2021 is as follows:
•CNBU operating income increased primarily due to higher bit shipments and manufacturing cost reductions. •MBU operating income was relatively unchanged as slight increases in gross margins were offset by higher operating expenses. •EBU operating income increased primarily due to manufacturing cost reductions from an increasing mix of leading-edge bits, higher bit shipments, and improved DRAM pricing in industrial and consumer markets, partially offset by higher R&D expenses. •SBU operating income increased primarily due to improved product mix driving increases in average selling prices, increases in SSD shipments, and manufacturing cost reductions, partially offset by higher R&D expenses. 45 | 2022 10-K -------------------------------------------------------------------------------- Table of
The evolution of the operating result of each business unit for 2021 compared to 2020 is as follows:
•CNBU operating income increased primarily due to increases in bit shipments, higher average selling prices, manufacturing cost reductions, and lower MTU underutilization costs. •MBU operating income increased primarily due to increases in sales of high-value MCP products, manufacturing cost reductions for low-power DRAM, and increases in DRAM bit shipments. •EBU operating income increased primarily due to improved pricing in industrial and consumer markets, cost reductions from an increasing mix of leading-edge bits, and higher bit shipments. •SBU operating income increased primarily due to lower manufacturing costs and increases in bit shipments, partially offset by decreases in selling prices and higher R&D costs.
Operating expenses and others
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 2022 increased 17% as compared to 2021 primarily due to higher employee compensation from increases in headcount, higher volumes of development and prequalification wafers, and higher depreciation expense. R&D expenses for 2021 increased 2% as compared to 2020 primarily due to increases in employee compensation and depreciation expense resulting from higher capital spending, partially offset by lower volumes of development and prequalification wafers. Selling, General, and Administrative: SG&A expenses for 2022 were 19% higher as compared to 2021 primarily due to increases in employee compensation, professional services, and legal fees. SG&A expenses for 2021 were relatively unchanged as compared to 2020. Restructure and Asset Impairments: In the first quarter of 2022, we sold our
Lehi, Utahfacility to TI. In 2021, the Lehifacility was classified as held for sale and we recognized a restructure charge of $435 millionto write down the assets held for sale to the expected consideration to be received under our agreement with TI. For further discussion see "Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Lehi, UtahFab and 3D XPoint."
Interest income (expense): Net interest expense for 2022 decreased by
Income Taxes: Our income tax benefit (provision) consisted of the following: For the year ended
2022 2021 2020 Income before taxes
$ 9,571 $ 6,218 $ 2,983
Income tax (provision) (888) (394) (280) Effective tax rate
9.3 % 6.3 % 9.4 % Our effective tax rate increased in 2022 as compared to 2021 primarily due to the geographic mix of our earnings and a valuation allowance recorded against our
Idahodeferred tax assets of $189 million, partially offset by tax impacts of changes in foreign currency exchange rates. Our effective tax rate decreased in 2021 as compared to 2020 primarily as a result of a $104 milliontax benefit recorded for the discrete $435 millioncharge to write down the Lehiassets held for sale. [[Image Removed: mu-20220901_g5.jpg]] 46
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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 $1.12 billion(benefiting our diluted earnings per share by $1.00) for 2022, by $758 million( $0.66per diluted share) for 2021, and by $215 million( $0.19per diluted share) for 2020. Beginning in 2023, provisions in the Tax Cuts and Jobs Act of 2017 will require us to capitalize and amortize R&D expenditures rather than deducting the costs as incurred. Unless the effective date is deferred or the law is repealed, we expect an increase to our effective tax rate for several years. In addition, the mix of our income, together with U.S.and foreign tax rules, results in taxes becoming more fixed at lower profitability levels. As a result of these factors, we estimate tax expense of at least $300 millionfor 2023. Beyond this level, our actual tax expense will depend on the level of operating income through the year.
Beginning in 2024, the Cut Inflation Act 2022 imposes an accounting minimum tax of 15% on corporations whose adjusted financial statement three-year average annual income exceeds
Various tax reforms are being considered in several jurisdictions which, if enacted, contain provisions that could increase our tax burdens. We continue to monitor the potential impact of these various tax reform proposals on our overall effective tax rate and financial statements.
See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Income Taxes”.
Other: Further information can be found in “Item 8. Financial statements and supplementary data – Notes to the consolidated financial statements – Other (revenue) operating expenses, net”; “- Other non-operating income (expenses), net”; and other notes to the financial statements.
Cash 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
$10.98 billionas of September 1, 2022, and $10.40 billionas of September 2, 2021. 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 September 1, 2022, $3.79 billionof our cash and marketable investments was held by our foreign subsidiaries. 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 September 1, 2022, $2.50 billionwas available to draw under our Revolving Credit Facility. Funding of certain significant capital projects is also dependent on the receipt of government incentives, which are subject to conditions and may not be obtained. To develop new product and process technology, support future growth, achieve operating efficiencies, and maintain product quality, we must continue to invest in manufacturing technologies, facilities and equipment, and R&D. We estimate capital expenditures in 2023 for property, plant, and equipment, net of partner contributions, to be around $8 billion. Actual amounts for 2023 will vary depending on market conditions. As of September 1, 2022, we had purchase obligations of approximately $4.04 billionfor the acquisition of property, plant, and equipment, of which approximately $2.97 billionis expected to be paid within one year. For a description of other contractual obligations, such as debt, leases, and purchase obligations, see "Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Debt," " - Leases," and " - Commitments." 47 | 2022 10-K -------------------------------------------------------------------------------- Table of
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 is expected to begin in calendar 2023 with DRAM production targeted to start in calendar 2025. In addition, in October 2022, we announced plans to build a second leading-edge DRAM manufacturing fab in Clay, New York. We plan to start site preparation work in calendar 2023 and expect construction to begin in calendar 2024, with production anticipated to ramp in the latter half of the decade. We expect these new fabs to fulfill our requirements for additional wafer capacity starting in the second half of the decade and beyond, in line with industry demand trends. On November 1, 2021, we issued $1 billionin aggregate principal amount of unsecured 2032 Green Bonds. Over time, we plan to allocate an amount equal to the net proceeds to fund eligible sustainability-focused projects involving renewable energy, green buildings, energy efficiency, water management, waste abatement, and a circular economy. Our Board of Directors has authorized the discretionary repurchase of up to $10 billionof 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 September 1, 2022, we have repurchased an aggregate of $6.47 billionof the authorized amount. See "Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Equity." On September 29, 2022, our Board of Directors declared a quarterly dividend of $0.115per share, payable in cash on October 26, 2022, to shareholders of record as of the close of business on October 11, 2022. 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 anticipate that our cash and investments, operating cash flow and available financing will be sufficient to meet our needs for at least the next 12 months and thereafter for the foreseeable future.
Cash Flows For the year ended 2022 2021 2020 Net cash provided by operating activities
$ 15,181 $ 12,468 $ 8,306Net cash provided by (used for) investing activities (11,585) (10,589) (7,589) Net cash provided by (used for) financing activities (2,980) (1,781) (317) Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash (106) 41 11 Net increase (decrease) in cash, cash equivalents, and restricted cash $ 510 $ 139 $ 411Operating Activities: Cash provided by operating activities reflects net income adjusted for certain non-cash items, including depreciation expense, amortization of intangible assets, asset impairments, and stock-based compensation, and the effects of changes in operating assets and liabilities. The increase in cash provided by operating activities for 2022 as compared to 2021 was primarily due to higher net income adjusted for non-cash items and the effect of lower receivables, partially offset by an increase in inventories. The increase in cash provided by operating activities for 2021 as compared to 2020 was primarily due to higher net income adjusted for non-cash items and the effect of lower inventories, partially offset by an increase in receivables due to a higher level of sales. [[Image Removed: mu-20220901_g5.jpg]] 48
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Investing Activities: For 2022, net cash used for investing activities consisted primarily of
$12.07 billionof expenditures for property, plant, and equipment; inflows of $115 millionof partner contributions for capital expenditures; $888 millionof net inflows from the sale of the Lehi, Utahfab; and $155 millionof net outflows from purchases, sales, and maturities of available-for-sale securities. For 2021, net cash used for investing activities consisted primarily of $10.03 billionof expenditures for property, plant, and equipment, partially offset by inflows of $502 millionof partner contributions for capital expenditures, and $1.06 billionof net outflows from purchases, sales, and maturities of available-for-sale securities. For 2020, net cash used for investing activities consisted primarily of $8.22 billionof expenditures for property, plant, and equipment, partially offset by inflows of $272 millionof partner contributions for capital expenditures, and $415 millionof net inflows from purchases, sales, and maturities of available-for-sale securities. Financing Activities: For 2022, net cash used for financing activities included $2.43 billionfor the acquisition of 35.4 million shares of our common stock under our share repurchase authorization, $2.03 billionof repayments of debt primarily to redeem the 2023 Notes and 2024 Notes, $461 millionof cash payments of dividends to shareholders, and $141 millionof payments on equipment purchase contracts. Cash used for financing activities was partially offset by aggregate proceeds of $2.00 billionfrom the issuance of the unsecured 2032 Green Bonds, 2041 Notes, and 2051 Notes. For 2021, net cash used for financing activities consisted primarily of $1.20 billionfor the acquisition of 15.6 million shares of our common stock under our share repurchase authorization, $295 millionof payments on equipment purchase contracts, $185 millionof cash payments to settle conversions of our 2032D Notes, and $147 millionof repayments of finance leases and other debt. In addition, we received proceeds of $1.19 billionunder an unsecured 2024 Term Loan A and used the proceeds to repay the $1.19 billionExtinguished 2024 Term Loan A. For 2020, net cash used for financing activities consisted primarily of $4.37 billionof cash payments to reduce our debt, including $2.50 billionto pay down borrowings under our Revolving Credit Facility, $621 millionfor repayments of IMFT's debt obligations to Intel, $534 millionto prepay our 2025 Notes, $266 millionto settle conversions of notes, and $248 millionfor scheduled repayment of finance leases; $744 millionfor the acquisition of Intel's noncontrolling interest in IMFT; and $176 millionfor the acquisition of 3.6 million shares of our common stock under our share repurchase authorization. Cash used for financing activities was partially offset by proceeds of $2.50 billionfrom our Revolving Credit Facility, $1.25 billionfrom the 2023 Notes, and $1.25 billionfrom the Extinguished 2024 Term Loan A.
See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Debt”.
Critical Accounting Estimates The preparation of financial statements and related disclosures in conformity with
U.S.GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. Estimates and judgments are based on historical experience, forecasted events, and various other assumptions that we believe to be reasonable under the circumstances. Estimates and judgments may vary under different assumptions or conditions and involve a significant level of uncertainty. We evaluate our estimates and judgments on an ongoing basis. Our management believes the accounting policies below are critical in the portrayal of our financial condition and results of operations and require management's most difficult, subjective, or complex judgments. Contingencies: We are subject to the possibility of losses from various contingencies. Significant judgment is necessary to estimate the probability and amount of a loss, if any, from such contingencies. An accrual is made when it is probable that a liability has been incurred or an asset has been impaired, and the amount of loss can be reasonably estimated. In accounting for the resolution of contingencies, significant judgment may be necessary to estimate amounts pertaining to periods prior to the resolution that are charged to operations in the period of resolution and amounts related to future periods. 49 | 2022 10-K -------------------------------------------------------------------------------- Table of
Goodwill: We test goodwill for impairment in our fourth quarter each year, or more frequently if indicators of an impairment exist, to determine whether it is more likely than not that the fair value of the reporting unit with goodwill is less than its carrying value. For reporting units for which this assessment concludes that it is more likely than not that the fair value is more than its carrying value, goodwill is considered not impaired, and we are not required to perform the goodwill impairment test. Qualitative factors considered in this assessment include industry and market considerations, overall financial performance, and other relevant events and factors affecting the fair value of the reporting unit. For reporting units for which this assessment concludes that it is more likely than not that the fair value is below the carrying value, goodwill is tested for impairment by determining the fair value of each reporting unit and comparing it to the carrying value of the net assets assigned to the reporting unit. If the fair value of the reporting unit exceeds its carrying value, goodwill is considered not impaired. If the carrying value of the reporting unit exceeds its fair value, we would record an impairment loss up to the difference between the carrying value and implied fair value. Our qualitative assessment for the current year indicated that the fair value for all of our reporting units substantially exceeded their carrying value and that a quantitative assessment was unnecessary. Determining when to test for impairment, the reporting units, the assets and liabilities of the reporting unit, and the fair value of the reporting unit requires significant judgment and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates, forecasted manufacturing costs, and other expenses and are developed as part of our long-range planning process. The same estimates are used in business planning, forecasting, and capital budgeting as part of our long-term manufacturing capacity analysis. We test the reasonableness of the output of our long-range planning process by calculating an implied value per share and comparing that to current stock prices, analysts' consensus pricing, and management's expectations. These estimates and assumptions are used to calculate projected future cash flows for the reporting unit, which are discounted using a risk-adjusted rate to estimate a fair value. The discount rate requires determination of appropriate market comparables. We base fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. Income taxes: We are required to estimate our provision for income taxes and amounts ultimately payable or recoverable in numerous tax jurisdictions around the world. These estimates involve significant judgment and interpretations of regulations and are inherently complex. Resolution of income tax treatments in individual jurisdictions may not be known for many years after completion of the applicable year. We are also required to evaluate the realizability of our deferred tax assets on an ongoing basis in accordance with U.S.GAAP, which requires the assessment of our performance and other relevant factors. Realization of deferred tax assets is dependent on our ability to generate future taxable income. Our income tax provision or benefit is dependent, in part, on our ability to forecast future taxable income in Japan, the United States, Malaysia, and other jurisdictions. Such forecasts are inherently difficult and involve significant judgments including, among others, projecting future average selling prices and sales volumes, manufacturing and overhead costs, levels of capital spending, and other factors that significantly impact our analyses of the amount of net deferred tax assets that are more likely than not to be realized. 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 $337 millionas of September 1, 2022. Due to the volatile nature of the semiconductor memory and storage markets, actual selling prices and volumes often vary significantly from projected prices and volumes; as a result, the timing of when product costs are charged to operations can vary significantly. [[Image Removed: mu-20220901_g5.jpg]] 50 -------------------------------------------------------------------------------- Table of
U.S.GAAP provides for products to be grouped into categories in order to compare costs to net realizable values. The amount of any inventory write-down can vary significantly depending on the determination of inventory categories. We review the major characteristics of product type and markets in determining the unit of account for which we perform the lower of average cost or net realizable value analysis and categorize all inventories (including DRAM, NAND, and other memory) as a single group. Property, plant, and equipment: We periodically assess the estimated useful lives of our property, plant, and equipment based on technology node transitions, capital spending, and equipment re-use rates. We also review the carrying value of property, plant, and equipment for impairment when events and circumstances indicate that the carrying value of an asset or group of assets may not be recoverable from the estimated future cash flows expected to result from its use and/or disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to the amount by which the carrying value exceeds the estimated fair value of the assets. The estimate of future cash flows involves numerous assumptions which require significant judgment by us, including, but not limited to, future use of the assets for our operations versus sale or disposal of the assets, future selling prices for our products, and future production and sales volumes. In addition, significant judgment is required in determining the groups of assets for which impairment tests are separately performed. Revenue recognition: 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. Contracts with our customers are generally short-term in duration at fixed, negotiated prices with payment generally due shortly after delivery. We estimate a liability for returns using the expected value method based on historical returns. In addition, we generally offer price protection to our distributors, which is a form of variable consideration that decreases the transaction price. We use the expected value method, based on historical price adjustments and current pricing trends, to estimate the amount of revenue recognized from sales to distributors. Differences between the estimated and actual amounts are recognized as adjustments to revenue.
Recently Adopted Accounting Standards
No material element.
Recently issued accounting standards
No material element.
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