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School of BusinessInvestment Program

Hunter Beaudoin European EconomistNick Sutton Asian EconomistRob Solomon Real Assets Manager

September 25, 2018

Micron Technology


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


▪ 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


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


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


● 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


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


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


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Growth Drivers

Micron Technology


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.


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


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


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


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


Chart published by TradingView

Technical AnalysisMicron Technology


16Target prices derived by a 2 year estimate, 5 year projection DCF model.

Valuation - Operating ScenariosMicron Technology


17Target prices derived by a 2 year estimate, 5 year projection DCF model.

Valuation - Scenario AnalysisMicron Technology


Valuation Overview - Multiples AnalysisMicron Technology

Prices derived from multiples and discounted cash flow analysis.


Analyst Opinions and Price SummaryMicron Technology


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


RecommendationMicron Technology

Purchase 227 shares of MU at $45.16Total investment of $10,251.32


Thank you for your time. We would like to invite questions.


Appendix


1

Micron TechnologyMonte Carlo Simulation Price Target Verification

Script obtained from Mark Wold (Quant Wizard)


Data Center / AI Workload GrowthMicron Technology


DRAM / NAND Historical ASPsMicron Technology


IoT Industry GrowthMicron Technology


More Financial HighlightsMicron Technology


“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


Chart published by TradingView

Technical AnalysisMicron Technology


Recent DeleveragingMicron Technology


Revenue by MeasureMicron Technology


Revenue by GeographyMicron Technology

micron technology - college of charlestonsb.cofc.edu/academics/specialty-programs/investment... ·...

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