School of BusinessInvestment Program
Hunter Beaudoin European EconomistNick Sutton Asian EconomistRob Solomon Real Assets Manager
September 25, 2018
Micron Technology
School of BusinessInvestment Program
1
Agenda
Micron Technology
What Is a Semiconductor?
DRAM and NAND Explained
Investment Thesis Competitive Landscape
Company Strategy
Acquisition History
SWOT Analysis and Recommendation
Financial Highlights and Valuation Overview
Corporate Governance
Growth Drivers
School of BusinessInvestment Program
▪ What is a semiconductor?▪ Silicon product that conducts electricity▪ Used in computers, smartphones, appliances, medical equipment, and gaming hardware▪ Cyclical▪ Fit as many transistors as possible
▪ Moore’s Law▪ Fierce competition over the three principles
▪ Industry Boons▪ Market Share Gains▪ Higher Margins and/or Profit▪ Higher Relative Product Performance
▪ Industry Hindrances▪ Weak economy▪ Delayed delivery▪ Price competition▪ Failure to keep up with technology
1
Semiconductor Basics and Industry Overview
Micron Technology
School of BusinessInvestment Program
4
● DRAM ○ Dynamic Random Access Memory○ Most common type of RAM for PCs and
workstations○ DRAM vs SRAM○ High volume memory for graphics○ Used for personal computers and some
gaming systems
● NAND○ NOT-AND○ Non-volatile flash storage technology○ Used in flash drives like USBs, solid state
drives for laptops, and memory cards in devices such as smartphones
○ High storage density and access speeds○ Less expensive than DRAM chips
Micron TechnologyDRAM vs NAND
School of BusinessInvestment Program
Investment ThesisMicron Technology
Macro 1. DRAM Oligopoly
2. AI, Cloud, IoT, and autonomous vehicle drivers
Company1. Front runner in semiconductor production
and research
2. $10B in stock buyback and $2.7B net
cash position
3. New 3D Xpoint Technology and facility
School of BusinessInvestment Program
● Manufacturing Locations○ Hiroshima, Japan○ Taichung, Taiwan○ Taoyuan, Taiwan○ Muar, Malaysia○ Singapore○ Xian, China○ Lehi, Utah*○ Manassas, Virginia*
Company OverviewMicron Technology
● Headquartered in Boise, Idaho
● 34,000 employees● Three Global Brands
○ Micron, Crucial, and Ballistix
● Proven innovator○ 26,000 patents○ Created world’s smallest
64k DRAM chip○ Introduced 3D Xpoint
Technology
School of BusinessInvestment Program
Company HistoryMicron Technology
→ 1998: Micron becomes one of the largest memory producers in the world with
the purchase of Texas Instruments' worldwide memory operations.
→ 2002: Acquires Toshiba's commodity DRAM operations at Dominion
Semiconductor, LLC, a subsidiary of Toshiba Corporation of Japan
→ 2010: Acquires Numonyx B.V. from Intel, STMicroelectronics, N.V. and
Francisco Partners.
→ 2013: Acquires Elpida Memory Inc. and Rexchip Electronics Corporation
→ 2015: Acquires Tidal Systems, Convey Computing, and Pico Computing and
announces joint venture with Intel to create 3D Xpoint Technology
→ 2016: Acquires Inotera Memories
→ 2018: Announce end of joint venture with Intel
School of BusinessInvestment Program
Company StrategyMicron Technology
Leading Brands and Segments
• DRAM revenue up 47% Y/Y and NAND sales up 21%
• Proven product quality
Innovation and Investments
• Growth trends in cloud and graphics• $3B over next 12 years on Manassas
VA facility▪ 1,100 new jobs▪ Smart devices for automotive
industry▪ Clean-rooms for R&D
• 25% of Capex earmarked for expansion projects
Synergy and Cost Savings
• Reduction of manufacturing costs for DRAM and NAND chips
School of BusinessInvestment Program
9
Growth Drivers
Micron Technology
School of BusinessInvestment Program
Corporate GovernanceMicron Technology
Data obtained from HD Company Executives page and Bloomberg
Sanjay Mehrotra•President and CEO•Joined Micron in May 2017, after a long and distinguished career at SanDisk Corporation where he led the company from start-up in 1988 until its eventual sale in 2016
•Mr. Mehrotra holds more than 70 patents and has published articles in the areas of nonvolatile memory design and flash memory systems.
Manish Bhatia•EVP, Global Operations•Mr. Bhatia joined Micron in 2017 after serving as the executive vice president of Silicon Operations at Western Digital Corporation
David Zinsner•Senior VP and CFO•Mr. Zinsner joined Micron in February 2018 with more than 20 years of financial and operations experience in the semiconductor and technology industry.
School of BusinessInvestment Program
Competitive AnalysisMicron Technology
SK Hynix (KRX:000660)
Primary competition in DRAM and NAND flash memory sales
Samsung (KRX:005930)
Samsung Semiconductors segment has greatest market share in global DRAM and NAND sales
Applied Materials (AMAT)Mainly focused on displays, competes with Micron in 3D NAND chip sales
School of BusinessInvestment Program
Ratio AnalysisMicron Technology
Charts published by Bloomberg
Highlights:● P/E Ratio● Debt/Equity● RoA● RoE
Highlights:● P/E Ratio● EPS● EPS Growth● RoE● RoI● Debt/Equity
School of BusinessInvestment Program
Competitor Price PerformanceMicron Technology
● SOXX- Semiconductor ETF○ $1.73 B Net Assets
● SMH- Semiconductor ETF○ $1.30 B Net Assets
● SOXL- Semiconductor ETF○ $747 M Net Assets
● SK Hynix- South Korean Semiconductor company
○ $50.07 B Market Cap● AMAT- American semiconductor
company○ $38.99 B Market Cap
● INTC- American Tech company○ $214.53 B Market Cap
School of BusinessInvestment Program
Chart published by Bloomberg
Financial HighlightsMicron Technology
4Q18 Consensus
Sales 8,440 8,254
Gross Margin 61.40% 60.80%
EBITDA $5,732 5,466
Operating Margin
52.60% 51.50%
Non-GAAP EPS $3.53 $3.33
School of BusinessInvestment Program
Chart published by TradingView
Technical AnalysisMicron Technology
School of BusinessInvestment Program
16Target prices derived by a 2 year estimate, 5 year projection DCF model.
Valuation - Operating ScenariosMicron Technology
School of BusinessInvestment Program
17Target prices derived by a 2 year estimate, 5 year projection DCF model.
Valuation - Scenario AnalysisMicron Technology
School of BusinessInvestment Program
Valuation Overview - Multiples AnalysisMicron Technology
Prices derived from multiples and discounted cash flow analysis.
School of BusinessInvestment Program
Analyst Opinions and Price SummaryMicron Technology
School of BusinessInvestment Program
SWOT AnalysisMicron Technology
Threats:● DRAM Price volatility concerns
● Increasing CapEx in semiconductor industry
● Speculation surrounding China tariffs
Strengths:● One of three companies who produce
DRAM chips
● Increasing DRAM demand
● Trading cheap compared to industry
● Reputable customers
● Proposed stock buybacks
Opportunities:● Artificial Intelligence
● Cloud
● Autonomous Vehicles
● Overselling due to trade skepticism
Weaknesses:● Number of shares outstanding
● Storage business unit decline
● Memory market cyclical downturns
School of BusinessInvestment Program
RecommendationMicron Technology
Purchase 227 shares of MU at $45.16Total investment of $10,251.32
School of BusinessInvestment Program
Thank you for your time. We would like to invite questions.
School of BusinessInvestment Program
Appendix
School of BusinessInvestment Program
1
Micron TechnologyMonte Carlo Simulation Price Target Verification
Script obtained from Mark Wold (Quant Wizard)
School of BusinessInvestment Program
Data Center / AI Workload GrowthMicron Technology
School of BusinessInvestment Program
DRAM / NAND Historical ASPsMicron Technology
School of BusinessInvestment Program
IoT Industry GrowthMicron Technology
School of BusinessInvestment Program
More Financial HighlightsMicron Technology
School of BusinessInvestment Program
“As we discussed at our Investor Day event, we expect industry cyclicality to be more dampened than in the past as industry supply growth from node transitions slows structurally and supply growth requires higher levels of CapEx. In addition, we continue to see robust diversified demand drivers and are confident in the long-term outlook for our business”
- Sanjay Mehrota, CEO
School of BusinessInvestment Program
Chart published by TradingView
Technical AnalysisMicron Technology
School of BusinessInvestment Program
Recent DeleveragingMicron Technology
School of BusinessInvestment Program
Revenue by MeasureMicron Technology
School of BusinessInvestment Program
Revenue by GeographyMicron Technology