micron final

11/19/2014

Western Washington University Student Research

Micron Technology (MU)

Date: 17/11/2014 Current Price: 33.23 (USD) Recommendation: BUYTicker: MU (NYSE) Target Price: 47.52

Day's Range: 33.52 - 34.39

52wk Range: 19.66 - 34.85

Volume: 25,545,368

Avg Vol (3m): 24,975,100

Market Cap: 36.82B

P/E (ttm): 13.50

EPS (ttm): 2.54

Div & Yield: N/A (N/A

Source: Yahoo Finance

Stock Quote(NASDAQ: MU)

Price:33.21

Change:+ 0.25

Day High:33.48

Day Low:32.50

Volume:13,594,300

Provided by eSignal.

Annual P/E 2010 2011 2012 2013

Micron 3.51 38.38 0 14.36

intel 26.36 10.42 10.15 9.66

Toshiba 0 13.02 22.34 25.76

Infineon Technologies AG 9.9 48.59 12.6 29.35

Texas Instruments 12.3 15.5 20.52 22.82

Average 10.41 25.18 13.12 20.39

HighlightsSource: Yahoo Finance

MU – Micron Technology

• I’m recommend to buy shares of Micron (NYSE:MU) with a target price of $47.52. Micron has become highly profitable and has increased sales over the past two years. In the past twelve months Micron has increased revenue by 80.3%, net margins are up 18.6% and diluted earnings per share have been increasing steadily over the past 24 months. The share price is currently undervalued because of their acquisitions that are starting to become more profitable. The newly acquired manufacturing firms have been slow to create revenue but as these firms develop there should be an increase in earnings.

• International sales and application market diversification will allow Micron to sustain growth. By reaching more end user markets, mobile phone, tablets, laptops, cars, servers,

and networking allow Micron to hedge against demand risk. Micron increased international

Micron (MU)

STOCK ANALYSIS

Adam Wren

Micron Technology Nov 2014sales to 83% of overall revenue which is sustainable by in part to developing/emerging market demand for technology. Developing technology that can be used in more than just personal computing is necessary due to stagnate sales domestically whereas other end use applications have been growing.

Exhibit 1: Volume and Price 2012-2014

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Micron Technology Nov 2014

Business DescriptionMicron (NYSE : MU) is a computer hardware maker and manufacturer specializing in semiconductors and memory components. Micron’s memory business includes DRAM (Dynamic random-access memory), SDRAM (Synchronous dynamic random access memory), flash memory, and SSD (Solid state drive). Micron is an international firm operating under the brands Crucial Technology and Lexar and has teamed up with Intel to create the brand IM Flash Technology which produces NAND flash memory. Micron is considered to be

ranked in the top 5 Semiconductor producing companies in the world. Foreign sales for Micron accounts for 83% of 2013 total sales with research and development accounting for 10.3% of sales that same year.

Micron’s DRAM products include DDR4, DDR3, and DDR2 (Double data rate fourth, third, and second generation synchronous dynamic random-access memory) which are SDRAM that offer double the bandwidth. They also produce DDR and DDR2 mobile low power DRAM, DDR, SDRAM meant for tablet and mobile phone applications. All of the DRAM products can be found in computers, servers, tablets, mobile phone, communication equipment, computer peripherals, industrial, automotive and other electronic devices. Micron’s NAND products include flash drives and other forms of memory storage directly suited for use with a computer. Micron markets its solid state drives, and other processors directly to manufacturers, not publicly. Many of the other flash drive components relating to personal computer memory storage are sold directly to the public as well as to manufacturers.

Exhibit 2: Business Segmentation by Revenue

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Exhibit 3: DRAM Market

Demand

Industry Overview and Competitive Positioning

The semiconductor industry is highly cyclical depending on the boom and bust demand on computing technology. Demand typically tracks end-market demand for personal computers, cell phones and other electronic equipment. Expansion for semiconductors use is almost limitless until everything has a microchip in it. Industry market share gains, higher profits, and higher performance are market drivers because within the industry requires long lead time due to the capital intensive nature of the manufacturing process. Any company that is able to

generate higher returns or performance has a sustainable competitive advantage because it takes time to design semiconductor products where demand can dry up rather quickly. Being on the cutting edge of the industry means companies assert themselves to substantial risk in order to stay competitive. Manufacturing facilities for this industry can cost millions upon billions of dollars which makes the market tailored to large multinational companies.

Research and development is a large portion of the semi/chip making process. R&D has always been a high cost to manufacturing but in the semiconductor industry it is the metric that separates the leaders from the followers. Throughout the industry R&D expenses have risen to a point where manufacturing has to be more efficient than almost any other industry. Creating the most innovative microchip/ semiconductor is no longer the only thing companies have to accomplish, firms must also design a manufacturing process that is more efficient than the competition in order to generate sustainable profit margins.. As the price per bit of memory goes down, the manufacturing process needs to be the most efficient it can be or Micron and other competitors will lose the minute competitive advantage they have with the design of their product. Micron has been able to acquire manufacturing firms internationally which has allowed for a tactical advantage for the time being. For Micron to establish itself as a leader in manufacturing efficiency then they will have to continue to acquire and optimize their current manufacturing process.

Another metric to assess the health of the semiconductor/ microchip industry is bookings-to-billings ratio. Since oversupply is a large force in this industry, bookings must be almost identical to billings but with a short turnaround time. The industry needs to be able to respond directly to demand because oversupply can bring the entire market to its knees. With such capital intensive

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Micron Technology Nov 2014manufacturing process semi firms must be able to meet market demand without oversupplying and sinking the price-per-byte. The semiconductor industry has been able to curtail oversupply by focusing more on meeting demand and limiting supply. Micron has a competitive advantage because they have been focusing on quick turnaround time with their production process so they can fill orders seamlessly and not overproduce. As Micron looks to diversify end application for their products it will allow for more flexibility with their supply/demand. A graph highlighting the industry’s bookings-to-billings ratio can be seen in Exhibit 6.

Exhibit 4: Micron Sales by

Region Exhibit 5: Mobile Shipments by CAGR

The metric that has the highest capacity for damage is price-per-bit which can be as variable as a gallon of gas. This volatility can cripple the entire industry because in order to manufacture any amount of chips or processors, it requires very large amounts of capital which require years of planning. The amount of money tied up in the manufacturing process is the most relevant reason why price-per bit has such a devastating impact on profitability industry wide. For a graph representing the industry price-per-byte growth see Exhibit 6.

The semiconductor industry has taken a shift from heavily weighted domestic revenue to a more internationally based revenue stream. Over the past decade countries in the Asian Pacific have increased their demand for semiconductors. As international demand increases there is a shift in focus from domestic to international sales which has been an emerging industry in developing countries. Asian economies have been on an upward swing for the past two decades which has increased consumption of tech products like computers, smartphones, and other electronic devices. With this increase in demand there have been an increasing number of firms in the tech sector in various Asian Pacific countries. With international tech industries increasing there has been an increased demand for semiconductors which has been extremely profitable for the few competitors in the industry. Ever since Asian countries have started to dominate demand in the semi industry there has been a steady growth over the worldwide average. Market saturation in Asian countries shouldn’t happen for a decade because there have been an increasing number of emerging economies in this region almost directly related to the tech industry.

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The increased memory in the DRAM with the low energy consumption makes it a very desirable system for mobile phone manufacturers to utilize. Mobile computing has changed its theme as well, going from mobile desktop to ultra-

portable minimalist designs. The introduction of the Apple Air started the IPad, Chromebook, surface, and netbooks; all of which rely on low power and high output often pushing the

bounds of size. With the introduction of solid state hard drives and other accompanying Micron products there is an increasing ability to store more in a smaller place and outperform bulkier processes. Memory demand for computers is always increasing which will help the demand side of Micron’s business. Applications for the auto industry should increase with the first wi-fi enabled car announced by GM which plans to utilize Verizon’s LTE network.

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Using Porter’s five forces; the threat of new entrants is very low because just to be a viable competitor a company would have to start with billions of dollars. Power of suppliers is very low because these international chip makers can rely on any number of suppliers who are supplying simple raw elements to manufacture their chips. The power of buyers is low because there is only a handful of semiconductor manufacturers most of which have partnerships with each other. The availability of substitutes is another driver it mostly pertains to intellectual property which manufacturers spend millions or billions on over many years.

Competition within the

market is the driving force behind the industry which drives technological advances yearly and even quarter. These research and development costs can sink a company and even after the initial production these designs can be stolen and reengineered in a different factory. The only caveat is that semiconductors tend to be replaced in terms of technological advances rather routinely over just a few years. The semiconductor industry is thriving as of last week, boasting average returns of 10.3%, boasting growth for almost every company within the industry. The Semiconductor Industry Association reported that, at $28.1 billion, the global semiconductor sales in July witnessed an increase of 10% over the prior year, the highest monthly posting ever.

Demographics

The technology industry has a myriad of people using their products in end use applications like cars, smartphones, televisions, solid state hard drives. Everything with memory is essentially end market application for NAND or DRAM the largest segments of Micron’s products. Smartphones on the whole are replacing ordinary mobile phones and the cell phone market is speculated to be completely smartphone within the next five years. With this replacement of the typical cell phone by the smartphone there will be an increased demand for mobile memory and processing power. The age for smartphone use has also reached the youngest consumers in the market. Children know how to utilize a smartphone which means that life without a smartphone will be unimaginable for the next generation of youth.

With the ever increasing need to be connected there is also the mobile computing segment which has grown with the introduction of netbooks and tablets. These two devices have been forecasted by many to overtake sales of PCs, increasing the demographics that utilize computers. The touch screen revolution has been a gateway for the older demographic. Typically touch screens are more simple in terms of operating system and intuitiveness which enables the older demographic to get connected. Tablets are also becoming a teaching aid as well as entertainment for children, applications have increased to encompass most demographics. All of these end use applications need Micron products to function.

Not only is the mobile computing helping shift demographics but a revolution is happen inside your computer. All computers are making a shift from primitive hard drives to solid state as the price of these drives goes down. Solid state are more reliable/durable so industrial and manufacturing capabilities have increased. SSD power consumption is lower and faster so mobile computing is making a shift also since there are no moving parts it is preferred to regular hard drives that can skip and lose memory or break. The market has been demanding mobile computing solutions as humanity is making the shift from stagnant computing to a mobile interconnected life.

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Exhibit 7: Stock Valuation ValuationUsing a weighted average of various valuation methods I have determined that the 2015 price target for Micron is to be at $43.20. This weighted average used both discounted dividend valuation, free cash

flow analysis, and multiples analysis. The more accurate and representative the valuation model the heavier weighted it is for the final target price.

Discounted Cash Flow ModelsThe dividend valuation model does not necessarily fit Micron because they have never paid out a dividend and much like the rest of the technology/semiconductor industry will not pay out a dividend. Although Micron does not disperse dividends, I calculated the dividends at a 40% payout ratio from the earnings per share (EPS). The dividend is then calculated at $1.02 for 2014 and based on the assumption that Micron’s EPS will grow at 8% indefinitely then the price target is $56.02. Using a two stage growth model, the price target is $40.94 over a three year initial growth rate of 24% then 7%. See appendix 2 for explination.

Revenue has grown from $9,073 to $16,358 million in 2014, an 80.3% increase in revenue since last year and growth of 10.2% the year before. With the loss of the former CEO and the new management structure there is little reason to believe that revenue won’t grow by at least 30% which is only a few percent over the 5-year average of 27.8%.

Micron should be able to achieve a EPS growth rate of 24% at the very least because their dividends have grown in excess of 300% since 2012. In the three year growth model, I used a four year periods with the initial growth rate at 30%, the second stage rate at 18%, and then on to 5%. The target price using the three stage models is $42.79. Both of these models are based on the assumption that Micron will expand into the international market with their new manufacturing operations in Taiwan and Japan.

Free Cash-Flow to the FirmMicron generated over $4 Billion in Free Cash Flow (FCF) to the firm in 2014 which is the first positive FCF since 2011 which was $1 million. Over the past three years Micron has been working out the details of their Inortia acquisition which is much of the reason why CFC has been so low up until this year. Operating Cash Flow has stayed relatively constant up until 2012 when OCF took a sharp decline which has now recovered to a stable range of $1,347-$1,507 over the past five quarters. OCF should continue to increase at around a 4% growth rate. Capital expenditures should increase because of the implementation of Micron Taiwan and Micron Japan manufacturing subsidiaries. FCF suffered over the past quarter but fourth quarter sales tend to be lower than other quarters for most of the semiconductor industry. See appendix 3 for explanation of valuation.

Using an estimated Free Cash Flow to the Firm (FCFF) of $4,354 which is 7% increase from the previous year’s FCFF. There are 1.198 Billion shares which puts the FCFF per share at $3.36. Using a constant growth rate of 3%, I calculated a price target of $50.50.

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Micron Technology Nov 2014Micron is positioned to capture a large portion of the international semiconductor market over the next five years. Micron’s acquisition and new products allow them to expand relative quickly into the fastest growing tech markets. Over the next five years Micron should be able to grow their FCFF per share by 5.5% and after they have captured the market a far smaller constant growth rate of 2% is factored in. After Micron’s rapid growth will come a more stable constant growth that will put their target price at $49.41.

Using a three-stage growth model I was able to account for a rapid initial growth rate of 9% over three years followed by another three year period at 6.5%. After this rapid growth over six years the constant growth rate would be much lower at 2% accounting for the conglomeration of much of the semiconductor market. The price target using the three stage model is $38.22 which most accurately captures the future of Micron.

Exhibit 8: P/E & EV/EBITDA Multiples AnalysisMicron’s price-to-earnings (P/E) ratio has been somewhat unstable over the past 5 years ranging from negative five up to thirty. Over the past year is has been at an average of 14.5 which has been relatively constant over the past five quarters. Using a forward EPS of $3.15 calculated with a 24% increase from 2014’s EPS and a target P/E ratio of 14, the price target is $43.96. See Appendix 4 for explanation of valuation

Using a P/E approach seems to be the most useful since we want to look at the overall earnings per share not just an assumed payout ratio. This model is more accurate than the dividend valuation model for the very fact that is takes complete EPS into account. It may but more accurate but is also very simple, using a low average over the past two years.

The second valuation using multiples analysis was the EV/EBITDA ratio which used an average of the last two years at a ratio of 9. I increased the EBITDA by 10% to $5,893 Million from last the previous year which was $5,357 million which has increased 34% and 147% the last two years respectively. Increasing the EBITDA 10% is very conservative considering the amount of increases over the past few years.

This valuation method is nearly as simple as the P/E analysis because it is only looking at enterprise value and earnings before interest, taxes, depreciation and amortization. This factors out debt obligation to some level, depreciation and taxes which can complicate valuation methods because of the accounting tactics a company might use to mute the effects of these values on the overall health of a company. It does take into account the enterprise value which is a more accurate value of the company because it includes debt.

Weighted Valuation MethodTo create an accurate target price, I used most of the target prices weighted in different ways. The valuation models that I believed were most relevant and accurate for Micron received a weight of 30% which are the P/E, EV/EBITDA, and 20% for Two stage growth models for both FCFF and Dividend Valuation. The models that are weighted at 10% are the two and three stage valuation methods. The weighted average price target for 2015 is $43.20 which is a relatively conservative estimate. See appendix 1 for explanation of cost of capital

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Financial Analysis

EarningsIn 2014 Micron earned $3.04 Billion with revenues of $16.4 Billion, giving Micron a 18% margin. Micron has generated constant and steady returns the entire year as well as most of 2013. Micron Technology reported revenues at $4.32 billion for the quarter; 6%, higher relative to the third quarter of FY2014 and 49% higher than those compared to Q4 2013. Their earnings per share has increased every quarter since 2012 when their CEO died in a plane crash. Under new management Micron has been able to post a profit after the correction from the former CEO’s passing. Non-GAAP net income was reported at $961 million for Q4, and was higher than the earnings of $913 million that were reported in the previous quarter.

Cash FlowMicron posted free cash flows at $7,644 million for the year 2014 which was $4,449 million creating an increase of 41.8%. These increases in free cash flows have increased by over 40% every year since 2012 so going forward Micron can be expected to increase their cash flows by around 40% and with the acquisition of Inortera which should be finalizing sometime within this next year, should create more cash flow streams. Also this year Micron announced the acquisition of Elpida, which is now known as Micron Memory Japan (MMJ) and Micron Memory Taiwan (MMT). These facilities have the capability of increasing Micron’s overall sales output which in turn should generate excess cash flows.

Balance Sheet and FinancingMicron looks to have way more equity/assets than debt due to the expanding nature of their business operations. With the recent acquisition of Elpida there has been a decrease in cash because an aggregate of $949 million in cash was paid to gain 89% of what is now MMJ and MMT. Micron currently has $4,534 million which beneficial when the average price per byte of memory is going down all while Micron is expanding into multinational markets. The recent acquisitions also create discrepancies in the balance sheet because of the requirements that Micron must follow in regards to their acquisitions. Micron has increased their overall debt to $6.6 billion which seems to be falling in line with their increase in equity. Micron is remaining balanced in their debt to equity ratio around 60% since the change in management in 2012. Their debt financing is going down with a plan to decrease their leverage and create higher levels of earnings for shareholders.

MultiplesMicron has seen positive price over earnings ratios which were at -5.74 in 2012 increasing to 15.52 and 13.48 last year. Micron has increased their EV/EBITDA ratio from 4.3 in 2012 up to 10 then 9 in 2014. There is very little evidence to say that these numbers will go down in the near future. According to their quarterly data they have stayed right around these averages and there is no indication that sales or bookings will slow down in the coming months. Although Micron’s multiple ratios might be a little lower than the competition, these ratios are stable which for a company growing as rapidly as Micron they are positive. Micron is growing to meet international demand and keeping stable ratios will increase their profitability in this expansion period.

Margins and ReturnsMicron’s margins have done a very good job at turning their margins around since the loss of their CEO in 2012.

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Micron Technology Nov 2014In 2014 Micron was able to achieve an operating margin of 18.9% which has been the highest operating margin since 2010. The recession took a toll on historic margins like return on assets which was -50% in 2009 and -10.7% in 2012 up to 30.1% in 2014. For Micron 2013 was the year they started increasing margins and bouncing back from a devastating 2012 which did not have a positive margin with exception to EBITDA. In 2013 and 2014 every margin increased to a considerable level of competition. Micron is also finalizing their acquisition of Inortia which should increase margins since Micron has spent millions acquiring and jumping through hoops to finally turn a profit on their venture.

Investment Summary

BUY Micron is undervalued and has great potential for growth

The best move for anyone would be to buy because Micron is trending up in every forecast I’ve read or made. The beta of the stock is high but that’s because both estimates given for beta account for the past five years. The company has gone through major transitions in the past three years with the death of their CEO in 2012, which has paved the way for their current CEO Dermot Durcan. Under the new CEO they have seen record growth and profits, Micron has become a new firm under Durcan; acquiring other tech firms and thriving in an ever changing market. With the implementation of Micron’s new products like solid state hard drives and their innovations on memory, Micron is the industry standard. Micron is growing and becoming the industry leader, their stock’s market price is much higher than any calculations on intrinsic value.

The reason their market price is much higher is because their acquisitions, which are still maturing. Micron has acquired Elpida a chip manufacturing firm which is part of the reason why Micron might look undervalued. Micron is looking to expand their manufacturing internationally but also making the firms that Micron’s acquired operate more efficiently, citing a decrease in workforce by 5% internationally. Micron is conglomerating a lot of tech hardware manufacturing firms in order to maintain their market share which reflects poorly on their intrinsic value and might create a seemingly overpriced market price.

Exhibit 9: Market Share of DRAM Market

Investment risks

Over the past two years price per bit has gone down thirteen percent and fifty percent the year prior. The price of memory is going down steadily but not consistently, this could prove detrimental to Micron if they cannot decrease their cost per bit production. The manufacturing costs can be decreased through improvements in the manufacturing process, including shrinking the die size. Shrinking the die is exactly what it sounds like, making the transistors smaller which have already been scaled down to microscopic level.

The increase in technological advances have pushed semiconductor manufacturing to the brink of known physics but there is always room for improvement. If Micron is able stay ahead of the competition with

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Micron Technology Nov 2014increasing R&D then Micron has the ability to stay viable in the semiconductor manufacturing market. Staying ahead of the rest of the market is another potential risk due to the size of the market which consists of a handful of internationally competitive firms.

Other firms are also more diversified than Micron, generating revenue from things other than just semiconductors. These competitors are also very large corporations or conglomerates that could potentially absorb downturns in the market where Micron may not be able to. The semiconductor market is also subject to over supply which on an international scale can decrease the per bit revenue all the while maintaining costs that could result in huge losses.

Micron’s debt obligation could also adversely affect the company’s wellbeing because the unforeseeable nature of supply and demand within the industry. The leveraging of Micron puts the company at risk of indebtedness if the economy turns for the worse. Cash might needed to be put into repayment of debt which will decrease the ability of Micron to pay for capital expenditures, R&D, acquisitions or other business activities. Debt obligations may decrease the ability for Micron to raise more capital, decrease credit rating, and increase vulnerability to economic industry conditions. Micron also may be unable to generate cash flows necessary to sustain business operations. Without these cash flows Micron might not be able to receive financing necessary for survival and may limit their ability to grow and stay competitive with the industry.

The acquisition of Inortia which has been broken into two subsidiaries, Micron Japan and Micron Taiwan which may be challenged by Qimonda. The Japanese courts have required Micron to pay $1 million to Inortia shareholders and been required to disclose information that Micron would have rather not shared. The risks of the acquisition go beyond insolvency hearings, Micron may not be able to maintain customer base or these subsidiaries may not be able to remain viable in the semiconductor industry due to competitor technological advances. Micron’s ability to create new partnerships or acquisitions may also pose a risk if Micron is unable to create synergies from these partnerships. Micron’s ability to develop new products might also be unsuccessful, product development is very expensive and can take years to develop. Micron’s ability to develop relevant products will make or break the future of the company.

There are risks inherently with my calculations, my inputs could be wrong and my sources may have led me to believe that my numbers are correct. I believe I underestimated much of the forecasts just to ensure there would still be a return if the figures were overinflated or valuations were too high because of a different error. The figures that had the most impact on final price tended to be the constant growth models, final stage in many of the valuations is constant growth. These were forecasted by other financial managers much higher and have the most impact on end value.

After doing a sensitivity analysis I was able to determine that more or less than a 5% change in the primary growth rates created unrealistic estimates and a change of 3% in secondary growth rates created very unrealistic forecasts. The multiples analysis was less prone to fluctuation and could be varied widely with still somewhat realistic results. Because of the sensitivity of the growth models I only utilized them at 40% of overall value weight. I mainly focused on the ratios analysis which were less sensitive to unrealistic forecasts.

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Appendix 1: Explanation of Assumptions used for DCF models

Explanation for the calculated cost of equity (Ke)

The method utilized to calculate the cost of equity was CAPM. The following are the assumptions that were used for different components of the CAPM equation:

I. Adjusted beta of 1.3 using weekly prices since Q1 2012 .II. Historical S&P 500 return of 9.96%

III. Historical US Treasury Bond (10-yr) of 5.4%a. This gave way to a historical market risk premium (MRP) of 4.2%1

IV. Since current interest rates are being held artificially low by the Fed (currently 2.45%), I utilize a much higher risk free rate (RF) of 4.5%.

Given the assumptions above, we find the following to be true:

K e=RF+ (MRP )Beta=¿4.5% + (4.2% x 1.3) = 9.96%

Explanation for WACC

kd = WACC =we x ke + wd x [kd (1-T)] MVe = 43,212$ million we = 0.83$ MVd = 9,045$ million wd = 0.17$

kd = WACC = 9.27% cash (current) 4,534$ net debt = 4,511$ 8.50%

30.00%

Appendix 2: Dividend Model Two Stage

For the two stage growth model I used a short time frame of three years since the ever increasing innovation in the etch sector.

My growth numbers were half that of value line just to ensure that even if Micron Tech underperformed they would still be profitable for the investors. Since innovation is a main focus for Micron I also put their constant growth rate at 7% because their product life cycle is for ten plus years.

Appendix 3: FCFF

Using a weighted quarterly average I was able to create a pro forma that put the earnings per share at $3.36 next year. I expect their FCFF to grow at 5.25% per year for five years since their product innovations come in cycles of around five years. Micron estimates their growth much higher than 5.25% but I was underestimating

to ensure a return under negative circumstances.

1 Note the S&P 500 and US Treasury Bond (10-yr) are geometric average annual returns for 85 years (1/1/26 – 12/31/10). This data is gathered from Jones, Investments, 12th edition, p. 161

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Two-Stage Growth ModelN = 3 g1 = 24.00%

g2 = 7.00%

Two-Stage Free Cash Flow Growth ModelN = 5 g1 = 5.25%

g2 = 2.00%


Appendix 4: Multiples Analysis

Using a quarterly weighted average over the past two and a half years I was able to create a target P/E and EV/EBITDA ratio that I was able to utilize with my pro forma. Using the earnings per share forecasted for 2015 I was able to plug in my target ratios and value the stock for next year. These are more stable estimates of value since they encompass the entire value of the firm not just cash flows or earnings.

Valuation Target Value

P/E Approach Forward EPS = 3.14$ 14 43.96$ EV/EBITDA Approach EBITDA = 5,893$ 9 42.55$

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Supplemental ExhibitsExhibit 1: Volume and Price 2012-2014

Exhibit 2: Business Segmentation by Revenue

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Exhibit 3: DRAM Market Demand

Exhibit 4: Micron Sales by Region

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Exhibit 5: Mobile Shipments by CAGR

Exhibit 5: Price per Gigabyte for NAND and DRAM

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Exhibit 7: Stock ValuationValuation Method Price Target Weight Total ValueConstant Growth Of Dividends 44.43$ 0% -$ Two Stage Dividend Valuation 40.94$ 20% 8.19$ Three Stage Dividend Valuation 42.79$ 0% -$ Constant Growth FCFF 50.50$ 0% -$ Two Stage Growth FCFF 49.41$ 20% 9.88$ Three Stage Growth FCFF 38.22$ 0% -$ P/E Approach 43.96$ 30% 13.19$ EV/EBITDA approach 42.55$ 30% 12.77$

Target Price 44.02$

Exhibit 8: P/E & EV/EBITDA

Multiples 2009 2010 2011 2012 2013 2014 2015P/E -3.5 4.1 30.4 -5.7 15.5 13.5 14.0EV/EBITDA 15.5 1.9 1.8 4.3 10.0 8.0 9.0

Exhibit 9: Market Share of DRAM Market17


Exhibit 10: Semiconductor Memory Revenue

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Exhibit 11: Research And Development for Semi Industry

Exhibit 12: Micron’s Annual Revenue/Net Margin Growth

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Exhibit 13: Semiconductor R&D to Revenue Ratios

Exhibit 14: Bookings -to- Billings Ratio

Exhibit 15A: Volume and Price 2yr Graph

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Exhibit 15B: Volume and Price 3yr

Exhibit 16: Explanation for Change in Net Working Capital (NWC)Assets 2008 2009 2010 2011 2012 2013 2014Cash 1362 1485 2913 2160 2459 2880 4534St invest 0 0 0 100 221 0Recievables 798 1531 1497 1289 2329 2906Inventory 987 1770 2080 1812 2649 2455R cash 0 0 0 0 556 0Other 74 119 95 98 276 350Current Assets 3379 3344 6333 5832 5758 8911 10245Change in Assets -35 2989 -501 -74 3153 1334Change in Cash 123 1428 -753 299 421 1654Net Change -158 1561 252 -373 2732 -320

Liabilities 2008 2009 2010 2011 2012 2013 2014Portion LTD 275 424 712 140 224 1585 1508Current Liabilities 1598 1898 2702 2480 2243 4125 4811Change in LTD 300 804 -222 -237 1882 686Change in Liabilities 149 288 -572 84 1361 -77Net Change 151 516 350 -321 521 763

Change in NWC -309 1045 -98 -52 2211 -1083

Exhibit 17: Annual Competition/Industry P/EAnnual P/E 2005 2006 2007 2008 2009 2010 2011 2012 2013

Micron 44.61 30.64 0 0 0 3.51 38.38 0 14.36

Intel 20.09 17.78 23.66 22.61 15.9 26.36 10.42 10.15 9.66

Toshiba 0 0 0 18.2 0 0 13.02 22.34 25.76

Infineon Technologies AG 0 0 0 0 0 9.9 48.59 12.6 29.35

Texas Instruments 22.91 10.54 18.05 10.76 22.66 12.3 15.5 20.52 22.82

Average 17.52 11.79 8.34 10.31 7.71 10.41 25.18 13.12 20.39

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Exhibit 18: Annual Competition/Industry P/E Graph

Exhibit 19: Quarterly Competition P/E Quarterly P/E Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014

Micron 0 0 0 0 0 14.36 13.93 10.06 9.39 12.81

Intel 11.29 9.89 9.66 10.9 13.07 12.36 13.78 13.85 15.27 16.55

Toshiba 22.34 22.52 14.29 12.41 25.76 21.27 25.2 30.34 47.35 44.85

Infineon Technologies AG 25.13 13.85 12.6 19.03 24.44 26.57 29.35 24.87 22.1 20.2

Texas Instruments 20.97 18.03 20.52 22.11 19.31 23.77 22.82 23.07 22.92 21.13

Average 15.95 12.86 11.41 12.89 16.52 19.67 21.02 20.44 23.41 23.11

Exhibit 20: Quarterly P/E Graph

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Exhibit 21: Quarterly Competitive EV/EBITDA ratiosEV/EBITDA Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014

Micron 4.24 4.94 5.75 8.55 9.44 5.41 6.32 5.76 5.65 7.29

Intel 5.28 4.67 4.32 5.19 6.09 5.65 6.26 6.26 7.07 7.18

Toshiba 10.11 7.26 6.8 9.5 11.91 8.39 9.52 9.93 15.25 15.34

Infineon Technologies AG 10.14 5.51 3.62 5.74 6.33 6.65 7.54 7.5 7.98 7.77

Texas Instruments 10.43 9.33 10.51 11.93 10.73 12.26 11.79 11.91 11.81 10.92

Average 8.04 6.34 6.20 8.18 8.90 7.67 8.29 8.27 9.55 9.70

Exhibit 22: Quarterly Competitive EV/EBITDA ratio Graph

Exhibit 23: Micron’s Goal for Value Segmentation

23


Exhibit 24: SSD Market Segmentation

Exhibit 25: NAND Market Application

24


Exhibit 26: Global Smartphone Sales by Operating System

Exhibit 27: DRAM Market Application

Exhibit 28: Personal Computer Sales

25


Exhibit 29: Auto industry Semiconductor Applications

26


Exhibit 30: Micron Quarterly Pro-Forma

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2012 1st Quarter

2013 2nd Quarter

2013 3rd Quarter

2013 4th Quarter

2013 1st Quarter

2014 2nd Quarter

2014 3rd Quarter

2014 4th Quarter

2014 1st Quarter

2015 2nd Quarter

2015 3rd Quarter

2015 4th Quarter

Net sales 1,834$ 2,078$ 2,318$ 2,843$ 4,042$ 4,107$ 3,982$ 4,227$ 4,385$ 4,483$ 4,560$ 4,718$ Cost of goods sold 1,617$ 1,712$ 1,762$ 2,135$ 2,761$ 2,704$ 2,614$ 2,842$ 2,937$ 2,978$ 3,032$ 3,151$ Gross margin 217$ 366$ 556$ 708$ 1,281$ 1,403$ 1,368$ 1,385$ 1,449$ 1,505$ 1,529$ 1,567$ Selling, general and administrative 119$ 123$ 127$ 193$ 176$ 177$ 174$ 180$ 189$ 193$ 197$ 203$ Research and development 224$ 214$ 226$ 267$ 320$ 344$ 349$ 358$ 366$ 379$ 389$ 399$ Restructure and asset impairments (21)$ 60$ 55$ 32$ (3)$ 12$ 9$ 22$ 11$ 14$ 14$ 17$ Other operating (income) expense, net (8)$ (8)$ (1)$ 9$ 237$ 1$ (3)$ (3)$ 75$ 23$ 22$ 27$ Operating income (97)$ (23)$ 149$ 207$ 551$ 869$ 839$ 828$ 808$ 895$ 907$ 921$ Interest income (expense), net (54)$ (53)$ (52)$ (58)$ (96)$ (77)$ (75)$ (81)$ (89)$ (87)$ (88)$ (92)$ Gain on MMJ Acquisition (3) -$ -$ -$ 1,484$ -$ -$ -$ -$ -$ -$ -$ -$ Other non-operating income (expense), net (59)$ (159)$ (45)$ 45$ (80)$ (122)$ 45$ 198$ 21$ 20$ 68$ 94$ Income tax (provision) benefit (13)$ 9$ 1$ (5)$ (80)$ (63)$ (5)$ 87$ (12)$ (7)$ 12$ 28$ Equity in net income (loss) of equity method investees (52)$ (58)$ (10)$ 37$ 86$ 134$ 37$ 119$ 102$ 109$ 94$ 114$ Net income attributable to noncontrolling interests -$ (2)$ -$ (2)$ (23)$ (10)$ (2)$ (1)$ (10)$ (7)$ (5)$ (6)$ Net income attributable to Micron (275)$ (286)$ 43$ 1,708$ 358$ 731$ 1,708$ 1,150$ 1,006$ 1,169$ 1,385$ 1,279$

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