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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(Mark One) |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 3, 2020
OR

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
Commission file number 1-10658
Micron Technology, Inc.
(Exact name of registrant as specified in its charter)

Delaware |  |  |  | 75-1618004
(State or other jurisdiction of incorporation or organization) |  |  |  | (IRS Employer Identification No.)
8000 S. Federal Way, Boise, Idaho |  |  |  | 83716-9632
(Address of principal executive offices) |  |  |  | (Zip Code)
Registrant’s telephone number, including area code |  |  |  | (208) 368-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |  | Trading Symbol |  | Name of each exchange on which registered
Common Stock, par value $0.10 per share |  | MU |  | Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. | Yes | ☒ | No | ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). | Yes | ☒ | No | ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | Accelerated Filer | Non-Accelerated Filer | Smaller Reporting Company | Emerging Growth Company
☒ | ☐ | ☐ | ☐ | ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | Yes | ☐ | No | ☒

The number of outstanding shares of the registrant’s common stock as of January 4, 2021 was 1,118,671,492.

Micron Company Profile |  |
Founded over 40 years ago on October 5, 1978 Headquartered in Boise, Idaho, USA 4th Largest semiconductor company in the world, excluding IP/software revenue* 134 On the 2020 Fortune 500 44,000 Patents granted and growing** 17 Countries** 13 Manufacturing sites and 14 customer labs** 40,000 Team members** |  | It’s All About Data
| Data is today’s new business currency, and memory and storage are emerging as strategic differentiators which will redefine how we extract value from data to learn, explore, communicate, and navigate our world.
| Who We Are
| Micron designs, develops, and manufactures industry-leading memory and storage products. By creating rapid advancements in artificial intelligence, 5G, machine learning, and autonomous vehicles, we unlock innovation in key market segments like mobile, data center, healthcare, automotive, and cloud networking. Our technology and expertise are central to cutting-edge computing applications and new business models which disrupt and advance the industry.
| Our Vision
| As a global leader in memory and storage solutions, we are transforming how the world uses information to enrich life for all. By advancing technologies to collect, store, and manage data with unprecedented speed and efficiency, we continue to lead the transformation of information intelligence. In a world of change, we remain nimble, allowing our products to continue inspiring the world to learn, communicate, and advance faster than ever.
| Our Commitment
| The world has come to expect our commitment to innovative solutions and people depend on our integrity. We rededicate ourselves daily to demonstrating our environmental conscience, an inclusive team culture where all voices are heard and respected, and sharing our philanthropic social giving for good.
*Gartner Market Share: Semiconductors by End Market, Worldwide, 2019 (April 2020) **Micron data as of September 3, 2020. |
Media Inquiries mediarelations@micron.com Government Inquiries govaffairs@micron.com Investor Inquiries investorrelations@micron.com |  | Global Product Portfolio
| DRAM | NAND | 3D XPoint TM Memory | NOR | Solid-State Drives High Bandwidth Memory (HBM) | Multichip Packages | AI Accelerators
| Connect with us on micron.com

© 2021 Micron Technology, Inc. Micron, the Micron logo, the M orbit logo, Intelligence Accelerated TM, and other Micron trademarks are the property of Micron Technology, Inc. All other trademarks are the property of their respective owners. Products and specifications are subject to change without notice. Rev 01/21 CCMMD-1707390403-3712

Table of Contents

Introduction | 2
Part I. Financial Statements |
Item 1. | Financial Statements: |
| Consolidated Statements of Operations | 3
| Consolidated Statements of Comprehensive Income | 4
| Consolidated Balance Sheets | 5
| Consolidated Statements of Changes in Equity | 6
| Consolidated Statements of Cash Flows | 7
| Notes to Consolidated Financial Statements | 8
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22
| Results of Operations | 25
| Liquidity and Capital Resources | 28
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 30
Item 4. | Controls and Procedures | 30
Part II. Other Information |
Item 1. | Legal Proceedings | 30
Item 1A. | Risk Factors | 30
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 48
Item 6. | Exhibits | 49
Signatures |  | 50

1

Definitions of Commonly Used Terms
As used herein, “we,” “our,” “us,” and similar terms include Micron Technology, Inc. and its consolidated subsidiaries, unless the context indicates otherwise. Abbreviations, terms, or acronyms are commonly used or found in multiple locations throughout this report and include the following:

Term | Definition |  | Term | Definition
2023 Notes | 2.497% Senior Notes due 2023 |  | GDDR | Graphics Double Data Rate
2024 Notes | 4.640% Senior Notes due 2024 |  | IMFT | IM Flash Technologies, LLC
2024 Term Loan A | Senior Term Loan A due 2024 |  | Inotera | Inotera Memories, Inc.
2025 Notes | 5.500% Senior Notes due 2025 |  | Intel | Intel Corporation
2026 Notes | 4.975% Senior Notes due 2026 |  | MCP | Multi-Chip Package
2027 Notes | 4.185% Senior Notes due 2027 |  | Micron | Micron Technology, Inc. (Parent Company)
2029 Notes | 5.327% Senior Notes due 2029 |  | MMJ | Micron Memory Japan, G.K.
2030 Notes | 4.663% Senior Notes due 2030 |  | MTU | Micron Technology Utah, LLC
2032D Notes | 3.125% Convertible Senior Notes due 2032 |  | Revolving Credit Facility | $2.5 billion Revolving Credit Facility due July 2023
DDR | Double Data Rate |  | SSD | Solid State Drive

Micron Technology, Inc., including its consolidated subsidiaries, is an industry leader in innovative memory and storage solutions. Through our global brands — Micron® and Crucial® — our broad portfolio of high-performance memory and storage technologies, including DRAM, NAND, 3D XPoint TM memory, and NOR, is transforming how the world uses information to enrich life for all. Backed by more than 40 years of technology leadership, our memory and storage solutions enable disruptive trends, including artificial intelligence, 5G, machine learning, and autonomous vehicles, in key market segments like mobile, data center, client, consumer, industrial, graphics, automotive, and networking.
Micron, Crucial, any associated logos, and all other Micron trademarks are the property of Micron. Intel and 3D XPoint are trademarks of Intel Corporation or its subsidiaries. Other product names or trademarks that are not owned by Micron are for identification purposes only and may be the trademarks of their respective owners.
Available Information
Investors and others should note that we announce material financial information about our business and products through a variety of means, including our investor relations website (investors.micron.com), filings with the U.S. Securities and Exchange Commission (the “SEC”), press releases, public conference calls, and webcasts. We use these channels to achieve broad, non-exclusionary distribution of information to the public and for complying with our disclosure obligations under Regulation FD. Therefore, we encourage investors, the media, and others interested in our company to review the information we post on such channels.
Forward-Looking Statements
This Form 10-Q contains trend information and other forward-looking statements that involve a number of risks and uncertainties. Such forward-looking statements may be identified by words such as "anticipate," "expect," "intend," "pledge," "committed," "plans," "opportunities," "future," "believe," "target," "on track," "estimate," "continue," "likely," "may," "will," "would," "should," "could," and variations of such words and similar expressions. Specific forward-looking statements include, but are not limited to, statements such as those made regarding the impact of coronavirus disease 2019 (“COVID-19”) to our business; underutilization of MTU manufacturing capacity; the effect of a switch to the FIFO inventory accounting method and changes in our inventory cost absorption process in the second quarter of 2021; the sufficiency of our cash and investments; and capital spending in 2021. Our actual results could differ materially from our historical results and those discussed in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, those identified in “Part II. Other Information – Item 1A. Risk Factors.”
2 | 2021 Q1 10-Q

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Micron Technology, Inc.
Consolidated Statements of Operations
(In millions, except per share amounts)
(Unaudited)

Three months ended | December 3, 2020 | November 28, 2019
Revenue | $ | 5,773 |  | $ | 5,144 |
Cost of goods sold | 4,037 |  | 3,778 |
Gross margin | 1,736 |  | 1,366 |
Research and development | 647 |  | 640 |
Selling, general, and administrative | 214 |  | 211 |
Other operating (income) expense, net | 9 |  | (3) |
Operating income | 866 |  | 518 |
Interest income | 10 |  | 44 |
Interest expense | (48) |  | (47) |
Other non-operating income (expense), net | 13 |  | 46 |
| 841 |  | 561 |
Income tax (provision) benefit | (51) |  | (55) |
Equity in net income (loss) of equity method investees | 13 |  | 2 |
Net income | 803 |  | 508 |
Net income attributable to noncontrolling interests | — |  | (17) |
Net income attributable to Micron | $ | 803 |  | $ | 491 |
Earnings per share |  |
Basic | $ | 0.72 |  | $ | 0.44 |
Diluted | 0.71 |  | 0.43 |
Number of shares used in per share calculations |  |
Basic | 1,115 |  | 1,107 |
Diluted | 1,135 |  | 1,129 |

See accompanying notes to consolidated financial statements.
3

Micron Technology, Inc.
Consolidated Statements of Comprehensive Income
(In millions)
(Unaudited)

Three months ended | December 3, 2020 | November 28, 2019
Net income | $ | 803 |  | $ | 508 |
Other comprehensive income (loss), net of tax |  |
Gains (losses) on derivative instruments | 40 |  | 3 |
Gains (losses) on investments | (1) |  | (5) |
Pension liability adjustments | — |  | (1) |
Other comprehensive income (loss) | 39 |  | (3) |
Total comprehensive income | 842 |  | 505 |
Comprehensive income attributable to noncontrolling interests | — |  | (17) |
Comprehensive income attributable to Micron | $ | 842 |  | $ | 488 |

See accompanying notes to consolidated financial statements.
4 | 2021 Q1 10-Q

Micron Technology, Inc.
Consolidated Balance Sheets
(In millions, except par value amounts)
(Unaudited)

As of | December 3, 2020 | September 3, 2020
Assets |  |
Cash and equivalents | $ | 5,985 |  | $ | 7,624 |
Short-term investments | 1,047 |  | 518 |
Receivables | 3,691 |  | 3,912 |
Inventories | 5,521 |  | 5,607 |
Other current assets | 285 |  | 304 |
Total current assets | 16,529 |  | 17,965 |
Long-term marketable investments | 1,264 |  | 1,048 |
Property, plant, and equipment | 32,229 |  | 31,031 |
Operating lease right-of-use assets | 577 |  | 584 |
Intangible assets | 336 |  | 334 |
Deferred tax assets | 726 |  | 707 |
Goodwill | 1,228 |  | 1,228 |
Other noncurrent assets | 802 |  | 781 |
Total assets | $ | 53,691 |  | $ | 53,678 |
Liabilities and equity |  |
Accounts payable and accrued expenses | $ | 4,856 |  | $ | 5,817 |
Current debt | 273 |  | 270 |
Other current liabilities | 559 |  | 548 |
Total current liabilities | 5,688 |  | 6,635 |
Long-term debt | 6,356 |  | 6,373 |
Noncurrent operating lease liabilities | 529 |  | 533 |
Noncurrent unearned government incentives | 656 |  | 643 |
Other noncurrent liabilities | 555 |  | 498 |
Total liabilities | 13,784 |  | 14,682 |
Commitments and contingencies |  |
Shareholders’ equity |  |
Common stock, $0.10 par value, 3,000 shares authorized, 1,198 shares issued and 1,117 outstanding (1,194 shares issued and 1,113 outstanding as of September 3, 2020) | 120 |  | 119 |
Additional capital | 9,034 |  | 8,917 |
Retained earnings | 34,138 |  | 33,384 |
Treasury stock, 81 shares held (81 shares held as of September 3, 2020) | (3,495) |  | (3,495) |
Accumulated other comprehensive income (loss) | 110 |  | 71 |
Total equity | 39,907 |  | 38,996 |
Total liabilities and equity | $ | 53,691 |  | $ | 53,678 |

See accompanying notes to consolidated financial statements.
5

Micron Technology, Inc.
Consolidated Statements of Changes in Equity
(In millions)
(Unaudited)

| Common Stock | Additional Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income (Loss) | Total Shareholders’ Equity
| Number of Shares | Amount
Balance at September 3, 2020 | 1,194 |  | $ | 119 |  | $ | 8,917 |  | $ | 33,384 |  | $ | (3,495) |  | $ | 71 |  | $ | 38,996 |
Net income | — |  | — |  | — |  | 803 |  | — |  | — |  | 803 |
Other comprehensive income (loss), net | — |  | — |  | — |  | — |  | — |  | 39 |  | 39 |
Stock issued under stock plans | 5 |  | 1 |  | 33 |  | — |  | — |  | — |  | 34 |
Stock-based compensation expense | — |  | — |  | 92 |  | — |  | — |  | — |  | 92 |
Repurchase of stock | (1) |  | — |  | (8) |  | (49) |  | — |  | — |  | (57) |
Balance at December 3, 2020 | 1,198 |  | $ | 120 |  | $ | 9,034 |  | $ | 34,138 |  | $ | (3,495) |  | $ | 110 |  | $ | 39,907 |

| Micron Shareholders |  |
| Common Stock | Additional Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income (Loss) | Total Micron Shareholders’ Equity | Noncontrolling Interest in Subsidiary | Total Equity
| Number of Shares | Amount
Balance at August 29, 2019 | 1,182 |  | $ | 118 |  | $ | 8,214 |  | $ | 30,761 |  | $ | (3,221) |  | $ | 9 |  | $ | 35,881 |  | $ | 889 |  | $ | 36,770 |
Net income | — |  | — |  | — |  | 491 |  | — |  | — |  | 491 |  | 15 |  | 506 |
Other comprehensive income (loss), net | — |  | — |  | — |  | — |  | — |  | (3) |  | (3) |  | — |  | (3) |
Stock issued under stock plans | 3 |  | 1 |  | 31 |  | — |  | — |  | — |  | 32 |  | — |  | 32 |
Stock-based compensation expense | — |  | — |  | 72 |  | — |  | — |  | — |  | 72 |  | — |  | 72 |
Repurchase of stock | — |  | — |  | (6) |  | (34) |  | (50) |  | — |  | (90) |  | — |  | (90) |
Acquisition of noncontrolling interest | — |  | — |  | 123 |  | — |  | — |  | — |  | 123 |  | (904) |  | (781) |
Cash settlement of convertible notes | — |  | — |  | (6) |  | — |  | — |  | — |  | (6) |  | — |  | (6) |
Balance at November 28, 2019 | 1,185 |  | $ | 119 |  | $ | 8,428 |  | $ | 31,218 |  | $ | (3,271) |  | $ | 6 |  | $ | 36,500 |  | $ | — |  | $ | 36,500 |

See accompanying notes to consolidated financial statements.
6 | 2021 Q1 10-Q

Micron Technology, Inc.
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)

Three months ended | December 3, 2020 | November 28, 2019
Cash flows from operating activities |  |
Net income | $ | 803 |  | $ | 508 |
Adjustments to reconcile net income to net cash provided by operating activities |  |
Depreciation expense and amortization of intangible assets | 1,487 |  | 1,296 |
Amortization of debt discount and other costs | 7 |  | 10 |
Stock-based compensation | 92 |  | 72 |
(Gain) loss on debt prepayments, repurchases, and conversions | — |  | (42) |
Change in operating assets and liabilities |  |
Receivables | 251 |  | (208) |
Inventories | 86 |  | 175 |
Accounts payable and accrued expenses | (753) |  | 178 |
Deferred income taxes, net | (24) |  | 19 |
Other | 18 |  | 3 |
Net cash provided by operating activities | 1,967 |  | 2,011 |
Cash flows from investing activities |  |
Expenditures for property, plant, and equipment | (2,738) |  | (1,943) |
Purchases of available-for-sale securities | (1,002) |  | (407) |
Proceeds from maturities of available-for-sale securities | 216 |  | 163 |
Proceeds from sales of available-for-sale securities | 45 |  | 988 |
Proceeds from government incentives | 40 |  | 22 |
Other | 21 |  | (12) |
Net cash provided by (used for) investing activities | (3,418) |  | (1,189) |
Cash flows from financing activities |  |
Payments on equipment purchase contracts | (97) |  | (11) |
Repayments of debt | (84) |  | (1,415) |
Acquisition of noncontrolling interest in IMFT | — |  | (744) |
Proceeds from issuance of debt | — |  | 1,250 |
Other | (33) |  | (72) |
Net cash provided by (used for) financing activities | (214) |  | (992) |
Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash | 27 |  | (14) |
Net increase (decrease) in cash, cash equivalents, and restricted cash | (1,638) |  | (184) |
Cash, cash equivalents, and restricted cash at beginning of period | 7,690 |  | 7,279 |
Cash, cash equivalents, and restricted cash at end of period | $ | 6,052 |  | $ | 7,095 |

See accompanying notes to consolidated financial statements.
7

Micron Technology, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tabular amounts in millions, except per share amounts)
(Unaudited)
Basis of Presentation
The accompanying consolidated financial statements include the accounts of Micron and our consolidated subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America consistent in all material respects with those applied in our Annual Report on Form 10-K for the year ended September 3, 2020. In the opinion of our management, the accompanying unaudited consolidated financial statements contain all necessary adjustments, consisting of a normal recurring nature, to fairly state the financial information set forth herein. Certain reclassifications have been made to prior period amounts to conform to current period presentation.
Our fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. Fiscal 2021 contains 52 weeks and our fiscal 2020 contained 53 weeks. The first quarters of fiscal 2021 and 2020 each contained 13 weeks. All period references are to our fiscal periods unless otherwise indicated. These interim financial statements 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 September 3, 2020.
Through October 31, 2019, IMFT was a consolidated variable interest entity. We acquired Intel’s noncontrolling interest in IMFT on October 31, 2019, at which time IMFT, now known as MTU, became a wholly-owned subsidiary.
Recently Adopted Accounting Standards
In November 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-18 – Collaborative Arrangements, which clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue when the collaborative arrangement participant is a customer in the context of a unit of account and precludes recognizing as revenue consideration received from a collaborative arrangement participant if the participant is not a customer. We adopted ASU 2018-18 in the first quarter of 2021 under the retrospective adoption method to the date we adopted ASC 606, which was August 31, 2018. The adoption of this ASU did not have a significant impact on our financial statements.
In June 2016, the FASB issued ASU 2016-13 – Measurement of Credit Losses on Financial Instruments, which requires a financial asset (or a group of financial assets) measured on the basis of amortized cost to be presented at the net amount expected to be collected. This ASU requires that the income statement reflect the measurement of credit losses for newly recognized financial assets as well as the increases or decreases of expected credit losses that have taken place during the period. This ASU requires that credit losses of debt securities designated as available-for-sale be recorded through an allowance for credit losses and limits the credit loss to the amount by which fair value is below amortized cost. We adopted ASU 2016-13 in the first quarter of 2021 under the modified retrospective adoption method. The adoption of this ASU did not have a significant impact on our financial statements.
Recently Issued Accounting Standards
In August 2020, the FASB issued ASU 2020-06 – Debt - Debt with Conversion and Other Options and Derivatives and Hedging - Contracts in Entity’s Own Equity, which simplifies the accounting for convertible debt instruments by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. This ASU requires a convertible debt instrument to be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and
8 | 2021 Q1 10-Q

recognition as derivatives. This ASU requires an entity to use the if-converted method in the diluted earnings per share calculation for convertible instruments. This ASU will be effective for us in the first quarter of 2023, with early adoption permitted beginning in the first quarter of 2022, and permits the use of either the modified retrospective or fully retrospective method of transition. We are evaluating the timing and effects of our adoption of this ASU on our financial statements.
Cash and Investments
Substantially all of our marketable debt and equity investments were classified as available-for-sale as of the dates noted below. Cash and equivalents and the fair values of our available-for-sale investments, which approximated amortized costs, were as follows:

| December 3, 2020 |  | September 3, 2020
As of | Cash and Equivalents | Short-term Investments | Long-term Marketable Investments(1) | Total Fair Value |  | Cash and Equivalents | Short-term Investments | Long-term Marketable Investments(1) | Total Fair Value
Cash | $ | 3,082 |  | $ | — |  | $ | — |  | $ | 3,082 |  |  | $ | 3,996 |  | $ | — |  | $ | — |  | $ | 3,996 |
Level 1(2) |  |  |  |  |  |  |  |  |
Money market funds | 699 |  | — |  | — |  | 699 |  |  | 1,828 |  | — |  | — |  | 1,828 |
Level 2(3) |  |  |  |  |  |  |  |  |
Certificates of deposit | 2,155 |  | 431 |  | — |  | 2,586 |  |  | 1,740 |  | 10 |  | 2 |  | 1,752 |
Corporate bonds | — |  | 249 |  | 746 |  | 995 |  |  | 3 |  | 266 |  | 592 |  | 861 |
Government securities | 3 |  | 217 |  | 220 |  | 440 |  |  | 6 |  | 115 |  | 243 |  | 364 |
Asset-backed securities | — |  | 36 |  | 298 |  | 334 |  |  | 1 |  | 31 |  | 211 |  | 243 |
Commercial paper | 46 |  | 114 |  | — |  | 160 |  |  | 50 |  | 96 |  | — |  | 146 |
| 5,985 |  | $ | 1,047 |  | $ | 1,264 |  | $ | 8,296 |  |  | 7,624 |  | $ | 518 |  | $ | 1,048 |  | $ | 9,190 |
Restricted cash(4) | 67 |  |  |  |  |  | 66 |  |  |  |
Cash, cash equivalents, and restricted cash | $ | 6,052 |  |  |  |  |  | $ | 7,690 |  |  |  |

(1)The maturities of long-term marketable securities range from one to four years.
(2)The fair value of Level 1 securities is measured based on quoted prices in active markets for identical assets.
(3)The fair value of Level 2 securities is measured using information obtained from pricing services, which obtain quoted market prices for similar instruments, non-binding market consensus prices that are corroborated by observable market data, or various other methodologies, to determine the appropriate value at the measurement date. We perform supplemental analysis to validate information obtained from these pricing services. No adjustments were made to the fair values indicated by such pricing information as of December 3, 2020 or September 3, 2020.
(4)Restricted cash is included in other noncurrent assets and primarily relates to certain government incentives received prior to being earned and for which restrictions lapse upon achieving certain performance conditions.
Gross realized gains and losses from sales of available-for-sale securities were not significant for any period presented.
9

Receivables

As of | December 3, 2020 | September 3, 2020
Trade receivables | $ | 3,182 |  | $ | 3,494 |
Income and other taxes | 295 |  | 232 |
Other | 214 |  | 186 |
| $ | 3,691 |  | $ | 3,912 |

Inventories

As of | December 3, 2020 | September 3, 2020
Finished goods | $ | 878 |  | $ | 1,001 |
Work in process | 3,878 |  | 3,854 |
Raw materials and supplies | 765 |  | 752 |
| $ | 5,521 |  | $ | 5,607 |

Property, Plant, and Equipment

As of | December 3, 2020 | September 3, 2020
Land | $ | 352 |  | $ | 352 |
Buildings | 14,447 |  | 13,981 |
Equipment(1) | 50,291 |  | 48,525 |
Construction in progress(2) | 1,814 |  | 1,600 |
Software | 919 |  | 873 |
| 67,823 |  | 65,331 |
Accumulated depreciation | (35,594) |  | (34,300) |
| $ | 32,229 |  | $ | 31,031 |

(1)Included costs related to equipment not placed into service of $2.41 billion as of December 3, 2020 and $1.63 billion as of September 3, 2020.
(2)Included building-related construction, tool installation, and software costs for assets not placed into service.
Intangible Assets and Goodwill

| December 3, 2020 |  | September 3, 2020
As of | Gross Amount | Accumulated Amortization |  | Gross Amount | Accumulated Amortization
Product and process technology | $ | 628 |  | $ | (292) |  |  | $ | 616 |  | $ | (282) |
Goodwill | 1,228 |  |  |  | 1,228 |  |

In the first quarters of 2021 and 2020, we capitalized $22 million and $12 million, respectively, for product and process technology with weighted-average useful lives of 10 years and 11 years, respectively. Expected
10 | 2021 Q1 10-Q

amortization expense is $57 million for the remainder of 2021, $60 million for 2022, $53 million for 2023, $47 million for 2024, and $26 million for 2025.
Leases
Short-term and variable lease expenses were not significant and are presented within operating lease costs in the table below. Sublease income was not significant in the first quarters of 2021 or 2020. The components of lease expense are presented below:

Three months ended | December 3, 2020 | November 28, 2019
Finance lease cost |  |
Amortization of right-of-use assets | $ | 16 |  | $ | 40 |
Interest on lease liabilities | 5 |  | 6 |
Operating lease cost | 27 |  | 24 |
| $ | 48 |  | $ | 70 |

Other information related to our leases was as follows:

Three months ended | December 3, 2020 | November 28, 2019
Cash flows used for operating activities |  |
Finance leases | $ | 6 |  | $ | 6 |
Operating leases | 27 |  | 17 |
Cash flows used for financing activities from financing leases | 21 |  | 64 |
Noncash acquisitions of right-of-use assets |  |
Finance leases | 61 |  | — |
Operating leases | 7 |  | 13 |

As of | December 3, 2020 | September 3, 2020
Finance lease right-of-use assets (included in property, plant, and equipment) | $ | 471 |  | $ | 426 |
Weighted-average remaining lease term (in years) |  |  |  |  |  |
Finance leases | 5 |  |  | 5 |  |
Operating leases | 7 |  |  | 7 |  |
Weighted-average discount rate |  |  |  |  |  |
Finance leases | 4.13 | % | 4.51 | %
Operating leases | 2.66 | % | 2.67 | %

11

Maturities of lease liabilities existing as of December 3, 2020 were as follows:

For the year ending | Finance Leases | Operating Leases
Remainder of 2021 | $ | 71 |  | $ | 53 |
2022 | 97 |  | 71 |
2023 | 85 |  | 67 |
2024 | 59 |  | 59 |
2025 | 44 |  | 48 |
2026 and thereafter | 282 |  | 402 |
Less imputed interest | (107) |  | (116) |
| $ | 531 |  | $ | 584 |

The table above excludes any lease liabilities for leases that have been executed but have not yet commenced. As of December 3, 2020, we had such lease liabilities relating to 1) operating lease payment obligations of $152 million for the initial 10-year lease term for a building, which may, at our election, be terminated after 3 years or extended for an additional 10 years, and 2) finance lease obligations of $812 million over a weighted-average period of 15 years for leases embedded in gas supply arrangements. We will recognize right-of-use assets and associated lease liabilities at the time such assets become available for our use.
Accounts Payable and Accrued Expenses

As of | December 3, 2020 | September 3, 2020
Accounts payable | $ | 1,656 |  | $ | 2,191 |
Property, plant, and equipment | 2,180 |  | 2,374 |
Salaries, wages, and benefits | 636 |  | 849 |
Income and other taxes | 180 |  | 237 |
Other | 204 |  | 166 |
| $ | 4,856 |  | $ | 5,817 |

12 | 2021 10-Q

Debt

| December 3, 2020 |  | September 3, 2020
|  |  | Net Carrying Amount |  | Net Carrying Amount
As of | Stated Rate | Effective Rate | Current | Long-Term | Total |  | Current | Long-Term | Total
Finance lease obligations | N/A | 4.13 | % | $ | 78 |  | $ | 453 |  | $ | 531 |  |  | $ | 76 |  | $ | 410 |  | $ | 486 |
2023 Notes | 2.497 | % | 2.64 | % | — |  | 1,246 |  | 1,246 |  |  | — |  | 1,245 |  | 1,245 |
2024 Notes | 4.640 | % | 4.76 | % | — |  | 598 |  | 598 |  |  | — |  | 598 |  | 598 |
2024 Term Loan A | 1.400 | % | 1.45 | % | 62 |  | 1,124 |  | 1,186 |  |  | 62 |  | 1,186 |  | 1,248 |
2026 Notes | 4.975 | % | 5.07 | % | — |  | 498 |  | 498 |  |  | — |  | 498 |  | 498 |
2027 Notes | 4.185 | % | 4.27 | % | — |  | 896 |  | 896 |  |  | — |  | 895 |  | 895 |
2029 Notes | 5.327 | % | 5.40 | % | — |  | 696 |  | 696 |  |  | — |  | 696 |  | 696 |
2030 Notes | 4.663 | % | 4.73 | % | — |  | 845 |  | 845 |  |  | — |  | 845 |  | 845 |
2032D Notes | 3.125 | % | 6.33 | % | 132 |  | — |  | 132 |  |  | 131 |  | — |  | 131 |
MMJ Creditor Payments | N/A | N/A | 1 |  | — |  | 1 |  |  | 1 |  | — |  | 1 |
|  |  | $ | 273 |  | $ | 6,356 |  | $ | 6,629 |  |  | $ | 270 |  | $ | 6,373 |  | $ | 6,643 |

Revolving Credit Facility
As of December 3, 2020, no amounts were outstanding under the Revolving Credit Facility and $2.50 billion was available to us. Any amounts outstanding under the Revolving Credit Facility would mature in July 2023 and we may repay amounts borrowed any time without penalty. The Revolving Credit Facility bears interest at a rate equal to LIBOR plus 1.25% based on our current corporate credit rating and leverage ratio.
2032D Convertible Senior Notes
The closing price of our common stock exceeded 130% of the conversion price for the 2032D Notes for at least 20 trading days in the 30 consecutive trading days ended on December 31, 2020. As a result, the 2032D Notes are convertible by the holders through March 31, 2021. As of December 3, 2020, based on the $69.90 trading price of our common stock and the $9.98 conversion price, the aggregate conversion value of $936 million exceeded the aggregate principal amount of $134 million by $802 million.
Contingencies
Patent Matters
As is typical in the semiconductor and other high-tech industries, from time to time, others have asserted, and may in the future assert, that our products or manufacturing processes infringe upon their intellectual property rights.
On August 12, 2014, MLC Intellectual Property, LLC filed a patent infringement action against Micron in the U.S. District Court for the Northern District of California. The complaint alleges that Micron infringes a single U.S. patent and seeks damages, attorneys’ fees, and costs.
On November 21, 2014, Elm 3DS Innovations, LLC (“Elm”) filed a patent infringement action against Micron; Micron Semiconductor Products, Inc.; and Micron Consumer Products Group, Inc. in the U.S. District Court for the District of Delaware. On March 27, 2015, Elm filed an amended complaint against the same entities. The amended complaint alleges that unspecified semiconductor products of ours that incorporate multiple stacked die infringe 13 U.S. patents and seeks damages, attorneys’ fees, and costs.
13

On December 15, 2014, Innovative Memory Solutions, Inc. (“IMS”) filed a patent infringement action against Micron in the U.S. District Court for the District of Delaware. The complaint alleges that a variety of our NAND products infringe eight U.S. patents and seeks damages, attorneys’ fees, and costs. Subsequently, six patents were invalidated or withdrawn, leaving two asserted patents in the District Court.
On March 19, 2018, Micron Semiconductor (Xi’an) Co., Ltd. (“MXA”) was served with a patent infringement complaint filed by Fujian Jinhua Integrated Circuit Co., Ltd. (“Jinhua”) in the Fuzhou Intermediate People’s Court in Fujian Province, China (the “Fuzhou Court”). On April 3, 2018, Micron Semiconductor (Shanghai) Co. Ltd. (“MSS”) was served with the same complaint. The complaint alleges that MXA and MSS infringe a Chinese patent by manufacturing and selling certain Crucial DDR4 DRAM modules. The complaint seeks an order requiring MXA and MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China; to stop manufacturing, using, selling, and offering for sale the accused products in China; and to pay damages of 98 million Chinese yuan plus court fees incurred.
On March 21, 2018, MXA was served with a patent infringement complaint filed by United Microelectronics Corporation (“UMC”) in the Fuzhou Court. On April 3, 2018, MSS was served with the same complaint. The complaint alleges that MXA and MSS infringe a Chinese patent by manufacturing and selling certain Crucial DDR4 DRAM modules. The complaint seeks an order requiring MXA and MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China; to stop manufacturing, using, selling, and offering for sale the accused products in China; and to pay damages of 90 million Chinese yuan plus court fees incurred.
On April 3, 2018, MSS was served with another patent infringement complaint filed by Jinhua and two additional complaints filed by UMC in the Fuzhou Court. The three additional complaints allege that MSS infringes three Chinese patents by manufacturing and selling certain Crucial MX300 SSDs and certain GDDR5 memory chips. The two complaints filed by UMC each seek an order requiring MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China; to stop manufacturing, using, selling, and offering for sale the accused products in China; and to pay damages for each complaint of 90 million Chinese yuan plus court fees incurred. The complaint filed by Jinhua seeks an order requiring MSS to destroy inventory of the accused products and equipment for manufacturing the accused products in China; to stop manufacturing, using, selling, and offering for sale the accused products in China; and to pay damages of 98 million Chinese yuan plus court fees incurred. On October 9, 2018, UMC withdrew its complaint that alleged MSS infringed a Chinese patent by manufacturing and selling certain GDDR5 memory chips.
On July 5, 2018, MXA and MSS were notified that the Fuzhou Court granted a preliminary injunction against those entities that enjoins them from manufacturing, selling, or importing certain Crucial and Ballistix-branded DRAM modules and solid-state drives in China. The affected products made up slightly more than 1% of our annualized revenue in 2018. We are complying with the ruling and have requested the Fuzhou Court to reconsider or stay its decision.
On May 4, 2020, Flash-Control, LLC (“Flash-Control”) filed a patent infringement action against Micron in the U.S. District Court for the Western District of Texas. The complaint alleges that four U.S. patents are infringed by unspecified DDR4 SDRAM, NVRDIMM, NVDIMM, 3D XPoint TM, and/or SSD products that incorporate memory controllers and flash memory. The complaint seeks damages, attorneys’ fees, and costs.
Among other things, the above lawsuits pertain to substantially all of our DRAM, NAND, and other memory and storage products we manufacture, which account for substantially all of our revenue.
Qimonda
On January 20, 2011, Dr. Michael Jaffé, administrator for Qimonda’s insolvency proceedings, filed suit against Micron and Micron Semiconductor B.V. (“Micron B.V.”), in the District Court of Munich, Civil Chamber. The complaint seeks to void, under Section 133 of the German Insolvency Act, a share purchase agreement between Micron B.V. and Qimonda signed in fall 2008, pursuant to which Micron B.V. purchased substantially all of Qimonda’s shares of Inotera (the “Inotera Shares”), representing approximately 18% of Inotera’s outstanding shares at that time, and seeks an order requiring us to re-transfer those shares to the Qimonda estate. The complaint also seeks, among other things, to recover damages for the alleged value of the joint venture relationship with Inotera and to terminate,
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under Sections 103 or 133 of the German Insolvency Code, a patent cross-license between us and Qimonda entered into at the same time as the share purchase agreement.
Following a series of hearings with pleadings, arguments, and witnesses on behalf of the Qimonda estate, on March 13, 2014, the court issued judgments: (1) ordering Micron B.V. to pay approximately $1 million in respect of certain Inotera Shares sold in connection with the original share purchase; (2) ordering Micron B.V. to disclose certain information with respect to any Inotera Shares sold by it to third parties; (3) ordering Micron B.V. to disclose the benefits derived by it from ownership of the Inotera Shares, including in particular, any profits distributed on the Inotera Shares and all other benefits; (4) denying Qimonda’s claims against Micron for any damages relating to the joint venture relationship with Inotera; and (5) determining that Qimonda’s obligations under the patent cross-license agreement are canceled. In addition, the court issued interlocutory judgments ordering, among other things: (1) that Micron B.V. transfer to the Qimonda estate the Inotera Shares still owned by Micron B.V. and pay to the Qimonda estate compensation in an amount to be specified for any Inotera Shares sold to third parties; and (2) that Micron B.V. pay the Qimonda estate as compensation an amount to be specified for benefits derived by Micron B.V. from ownership of the Inotera Shares. The interlocutory judgments had no immediate, enforceable effect and Micron, accordingly, has been able to continue to operate with full control of the Inotera Shares subject to further developments in the case. On April 17, 2014, Micron and Micron B.V. filed a notice of appeal with the German Appeals Court challenging the District Court’s decision. After opening briefs, the Appeals Court held a hearing on the matter on July 9, 2015, and thereafter appointed an independent expert to perform an evaluation of Dr. Jaffé’s claims that the amount Micron paid for Qimonda was less than fair market value. On January 25, 2018, the court-appointed expert issued a report concluding that the amount paid by Micron was within an acceptable fair-value range. The Appeals Court held a subsequent hearing on April 30, 2019, and on May 28, 2019, the Appeals Court remanded the case to the expert for supplemental expert opinion. On March 31, 2020, the expert presented a revised opinion to the Appeals Court which reaffirmed the earlier view that the amount paid by Micron was still within an acceptable range of fair value.
Antitrust Matters
On April 27, 2018, a complaint was filed against Micron and other DRAM suppliers in the U.S. District Court for the Northern District of California. Subsequently, two substantially identical cases were filed in the same court. The lawsuits purported to be on behalf of a nationwide class of indirect purchasers of DRAM products. On September 3, 2019, the District Court granted Micron’s motion to dismiss and allowed the plaintiffs the opportunity to file a consolidated, amended complaint. On October 28, 2019, the plaintiffs filed a consolidated amended complaint that purported to be on behalf of a nationwide class of indirect purchasers of DRAM products. The amended complaint asserted claims based on alleged price-fixing of DRAM products under federal and state law during the period from June 1, 2016 to at least February 1, 2018, and sought treble monetary damages, costs, interest, attorneys’ fees, and other injunctive and equitable relief. On December 21, 2020, the District Court dismissed the plaintiffs’ claims and entered judgment against them.
On June 26, 2018, a complaint was filed against Micron and other DRAM suppliers in the U.S. District Court for the Northern District of California. Subsequently, four substantially identical cases were filed in the same court. On October 28, 2019, the plaintiffs filed a consolidated, amended complaint. The consolidated complaint purports to be on behalf of a nationwide class of direct purchasers of DRAM products. The consolidated complaint asserts claims based on alleged price-fixing of DRAM products under federal and state law during the period from June 1, 2016 through at least February 1, 2018, and seeks treble monetary damages, costs, interest, attorneys’ fees, and other injunctive and equitable relief. On December 21, 2020, the District Court granted Micron’s motion to dismiss and granted the plaintiffs permission to file an amended complaint.
Additionally, six cases have been filed in the following Canadian courts: Superior Court of Quebec, the Federal Court of Canada, the Ontario Superior Court of Justice, and the Supreme Court of British Columbia. The substantive allegations in these cases are similar to those asserted in the cases filed in the United States.
On May 15, 2018, the Chinese State Administration for Market Regulation (“SAMR”) notified Micron that it was investigating potential collusion and other anticompetitive conduct by DRAM suppliers in China. On May 31, 2018, SAMR made unannounced visits to our sales offices in Beijing, Shanghai, and Shenzhen to seek certain information as part of its investigation. We are cooperating with SAMR in its investigation.
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Securities Matter
On March 5, 2019, a derivative complaint was filed by a shareholder against certain current and former officers and directors of Micron, allegedly on behalf of and for the benefit of Micron, in the U.S. District Court for the District of Delaware alleging securities fraud, breaches of fiduciary duties, and other violations of law involving misrepresentations about purported anticompetitive behavior in the DRAM industry. The complaint seeks damages, fees, interest, costs, and other appropriate relief.
Other
On December 5, 2017, Micron filed a complaint against UMC and Jinhua in the U.S. District Court for the Northern District of California. The complaint alleges that UMC and Jinhua violated the Defend Trade Secrets Act, the civil provisions of the Racketeer Influenced and Corrupt Organizations Act, and California’s Uniform Trade Secrets Act by misappropriating Micron’s trade secrets and other misconduct. Micron’s complaint seeks damages, restitution, disgorgement of profits, injunctive relief, and other appropriate relief.
On June 13, 2019, current Micron employee, Chris Manning, filed a putative class action lawsuit on behalf of Micron employees subject to the Idaho Wage Claim Act who earned a performance-based bonus after the conclusion of 2018 whose performance rating was calculated based upon a mandatory percentage distribution range of performance ratings. On July 12, 2019, Manning and three other Company employees filed an amended complaint as putative class action representatives. On behalf of themselves and the putative class, Manning and the three other plaintiffs assert claims for violation of the Idaho Wage Claim Act, breach of contract, breach of the covenant of good faith and fair dealing, and fraud. On June 24, 2020, the court entered judgment in favor of Micron based on the statute of limitations, and the plaintiffs filed a notice of appeal on July 23, 2020.
On July 31, 2020, Micron and Intel entered into a binding arbitration agreement under which the parties agreed to present to an arbitral panel various financial disputes related to the IMFT joint venture between Micron and Intel, which ended October 31, 2019, and to other agreements relating to the joint development, production, and sale of non-volatile memory products. Each party alleges that the other owes damages relating to allegations of breach of one or more agreements.
On July 13, 2015, Allied Telesis, Inc. and Allied Telesis International (Asia) Pte Ltd. filed a complaint against Micron in the Superior Court of California in Santa Clara alleging breach of implied and express warranties and fraudulent inducement to contract arising from plaintiffs’ purchase of certain allegedly defective DDR1 products between 2008 and 2010. Through subsequent amendments to the complaint, the plaintiffs substituted Allied Telesis K.K. as plaintiff, withdrew the warranty claims, and added claims of fraudulent concealment, negligent misrepresentation, negligence, and strict products liability. The plaintiff’s amended complaint seeks an unspecified award of damages, including punitive damages and lost profits. On September 3, 2020, the Superior Court granted summary judgment dismissing the claims for negligence and strict products liability and denied summary judgment as to the claims for negligent misrepresentation, fraudulent concealment, and fraudulent inducement to contract. No trial date has been set; however, trial is expected to occur in the first half of calendar 2021.
In the normal course of business, we are a party to a variety of agreements pursuant to which we may be obligated to indemnify another party. It is not possible to predict the maximum potential amount of future payments under these types of agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement. Historically, our payments under these types of agreements have not had a material adverse effect on our business, results of operations, or financial condition.
We are unable to predict the outcome of the patent matters, Qimonda matter, antitrust matters, securities matter, binding arbitration with Intel, or any other matters noted above, and cannot make a reasonable estimate of the potential loss or range of possible losses. A determination that our products or manufacturing processes infringe the intellectual property rights of others or entering into a license agreement covering such intellectual property could result in significant liability and/or require us to make material changes to our products and/or manufacturing processes. Any of the foregoing, as well as the resolution of any other legal matter noted above, could have a material adverse effect on our business, results of operations, or financial condition.
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We are currently a party to legal actions other than those described in this note arising from the normal course of business, none of which are expected to have a material adverse effect on our business, results of operations, or financial condition.
Equity
Micron Shareholders’ Equity
Accumulated Other Comprehensive Income: Changes in accumulated other comprehensive income by component for the three months ended December 3, 2020 were as follows:

| Gains (Losses) on Derivative Instruments | Pension Liability Adjustments | Unrealized Gains (Losses) on Investments | Cumulative Foreign Currency Translation Adjustment | Total
As of September 3, 2020 | $ | 45 |  | $ | 19 |  | $ | 8 |  | $ | (1) |  | $ | 71 |
Other comprehensive income before reclassifications | 47 |  | — |  | (2) |  | — |  | 45 |
Amount reclassified out of accumulated other comprehensive income | (1) |  | — |  | — |  | — |  | (1) |
Tax effects | (6) |  | — |  | 1 |  | — |  | (5) |
Other comprehensive income (loss) | 40 |  | — |  | (1) |  | — |  | 39 |
As of December 3, 2020 | $ | 85 |  | $ | 19 |  | $ | 7 |  | $ | (1) |  | $ | 110 |

Fair Value Measurements
The estimated fair values and carrying values of our outstanding debt instruments (excluding the carrying value of equity components of our convertible notes) were as follows:

| December 3, 2020 |  | September 3, 2020
As of | Fair Value | Carrying Value |  | Fair Value | Carrying Value
Notes | $ | 6,701 |  | $ | 5,966 |  |  | $ | 6,710 |  | $ | 6,026 |
Convertible notes | 939 |  | 132 |  |  | 634 |  | 131 |

The fair values of our convertible notes were determined based on Level 2 inputs, including the trading price of our convertible notes when available, our stock price, and interest rates based on similar debt issued by parties with credit ratings similar to ours. The fair values of our other debt instruments were estimated based on Level 2 inputs, including discounted cash flows, the trading price of our notes when available, and interest rates based on similar debt issued by parties with credit ratings similar to ours.
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Derivative Instruments

| Gross Notional Amount | Fair Value of
Assets(1) | Liabilities(2)
As of December 3, 2020 |  |  |
Derivative instruments with hedge accounting designation |  |  |
Cash flow currency hedges | $ | 3,618 |  | $ | 57 |  | $ | (2) |
Derivative instruments without hedge accounting designation |  |  |
Non-designated currency hedges | 1,331 |  | 5 |  | (3) |
|  | $ | 62 |  | $ | (5) |
As of September 3, 2020 |  |  |
Derivative instruments with hedge accounting designation |  |  |
Cash flow currency hedges | $ | 1,845 |  | $ | 41 |  | $ | (2) |
Derivative instruments without hedge accounting designation |  |  |
Non-designated currency hedges | 1,587 |  | 4 |  | (1) |
|  | $ | 45 |  | $ | (3) |

(1)Included in receivables – other and other noncurrent assets.
(2)Included in accounts payable and accrued expenses – other and other noncurrent liabilities.
Derivative Instruments with Hedge Accounting Designation
We utilize currency forward contracts that generally mature within two years to hedge our exposure to changes in currency exchange rates. Currency forward contracts are measured at fair value based on market-based observable inputs including currency exchange spot and forward rates, interest rates, and credit-risk spreads (Level 2). We do not use derivative instruments for speculative purposes.
Cash Flow Hedges: We utilize cash flow hedges for our exposure from changes in currency exchange rates for certain capital expenditures and manufacturing costs. We recognized gains of $47 million and $3 million for the first quarters of 2021 and 2020, respectively, in accumulated other comprehensive income from cash flow hedges. Neither the amount excluded from hedge effectiveness nor the reclassifications from accumulated other comprehensive income to earnings was significant in the first quarters of 2021 or 2020. As of December 3, 2020, we expect to reclassify $60 million of pre-tax gains related to cash flow hedges from accumulated other comprehensive income into earnings in the next 12 months.
Derivative Instruments without Hedge Accounting Designation
Currency Derivatives: We generally utilize a rolling hedge strategy with currency forward contracts that mature within three months to hedge our exposures of monetary assets and liabilities from changes in currency exchange rates. At the end of each reporting period, monetary assets and liabilities denominated in currencies other than the U.S. dollar are remeasured into U.S. dollars and the associated outstanding forward contracts are marked to market. Currency forward contracts are valued at fair values based on the middle of bid and ask prices of dealers or exchange quotations (Level 2). Realized and unrealized gains and losses on derivative instruments without hedge accounting designation as well as the changes in the underlying monetary assets and liabilities from changes in currency exchange rates are included in other non-operating income (expense), net. For derivative instruments without hedge accounting designation, we recognized gains of $11 million and $5 million for the first quarters of 2021 and 2020, respectively.
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Equity Plans
As of December 3, 2020, 71 million shares of our common stock were available for future awards under our equity plans.
Restricted Stock and Restricted Stock Units (“Restricted Stock Awards”)
Restricted Stock Awards activity is summarized as follows:

Three months ended | December 3, 2020 | November 28, 2019
Restricted stock award shares granted | 10 | 8
Weighted-average grant-date fair value per share | $ | 50.78 |  | $ | 46.16 |

Stock-based Compensation Expense

Three months ended | December 3, 2020 | November 28, 2019
Stock-based compensation expense by caption |  |
Cost of goods sold | $ | 41 |  | $ | 31 |
Selling, general, and administrative | 27 |  | 22 |
Research and development | 24 |  | 19 |
| $ | 92 |  | $ | 72 |
Stock-based compensation expense by type of award |  |
Restricted stock awards | $ | 77 |  | $ | 57 |
Employee stock purchase plan | 12 |  | 8 |
Stock options | 3 |  | 7 |
| $ | 92 |  | $ | 72 |

As of December 3, 2020, $891 million of total unrecognized compensation costs for unvested awards, before the effect of any future forfeitures, was expected to be recognized through the first quarter of 2025, resulting in a weighted-average period of 1.5 years.
Revenue and Customer Contract Liabilities
Revenue By Technology

Three months ended | December 3, 2020 | November 28, 2019
DRAM | $ | 4,056 |  | $ | 3,469 |
NAND | 1,574 |  | 1,422 |
Other (primarily 3D XPoint memory and NOR) | 143 |  | 253 |
| $ | 5,773 |  | $ | 5,144 |

See “Segment and Other Information” for disclosure of disaggregated revenue by market segments.
Contract Liabilities
Our contract liabilities from customer advances are for advance payments received from customers to secure product in future periods. Other contract liabilities consist of amounts received in advance of satisfying performance
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obligations. These balances are reported within other current liabilities and other noncurrent liabilities. The following table presents contract liabilities:

As of | December 3, 2020 | September 3, 2020
Contract liabilities from customer advances | $ | 44 |  | $ | 40 |
Other contract liabilities | 23 |  | 25 |
| $ | 67 |  | $ | 65 |

Revenue recognized during the first quarter of 2021 from the ending balance of 2020 included $41 million from meeting performance obligations of other contract liabilities and shipments against customer advances.
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. Substantially all contracts with our customers are short-term in duration at fixed, negotiated prices with payment generally due shortly after delivery. From time to time, we have contracts with initial terms that include performance obligations that extend, in some cases, beyond one year. As of December 3, 2020, we expect future revenue related to these longer-term contracts of approximately $413 million, of which approximately 87% relates to performance obligations and product shipments we expect to satisfy within the next 12 months and 13% beyond 12 months.
As of December 3, 2020 and September 3, 2020, other current liabilities included $480 million and $466 million, respectively, for estimates of consideration payable to customers, including estimates for pricing adjustments and returns.
Other Non-Operating Income (Expense), Net

Three months ended | December 3, 2020 | November 28, 2019
Gain (loss) on debt prepayments, repurchases, and conversions | $ | — |  | $ | 42 |
Other | 13 |  | 4 |
| $ | 13 |  | $ | 46 |

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

Three months ended | December 3, 2020 | November 28, 2019
Income before taxes | $ | 841 |  | $ | 561 |
Income tax (provision) benefit | (51) |  | (55) |
Effective tax rate | 6.1 | % | 9.8 | %

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 $56 million (benefiting our diluted earnings per share by $0.05) for the first quarter of 2021 and were not significant to our tax provision for the first quarter of 2020.
As of December 3, 2020, gross unrecognized tax benefits were $415 million, substantially all of which would affect our effective tax rate in the future, if recognized. Amounts accrued for interest and penalties related to uncertain tax positions were not significant for any period presented.
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Earnings Per Share

Three months ended | December 3, 2020 | November 28, 2019
Net income attributable to Micron – Basic | $ | 803 |  | $ | 491 |
Assumed conversion of debt | — |  | (4) |
Net income attributable to Micron – Diluted | $ | 803 |  | $ | 487 |
Weighted-average common shares outstanding – Basic | 1,115 |  | 1,107 |
Dilutive effect of equity plans and convertible notes | 20 |  | 22 |
Weighted-average common shares outstanding – Diluted | 1,135 |  | 1,129 |
Earnings per share |  |
Basic | $ | 0.72 |  | $ | 0.44 |
Diluted | 0.71 |  | 0.43 |

Antidilutive potential common stock shares that could dilute basic earnings per share in the future were 2 million and 6 million for the first quarters of 2021 and 2020, respectively.
Segment and Other Information
Segment information reported herein is consistent with how it is reviewed and evaluated by our chief operating decision maker. We have the following four business units, which are our reportable segments:
Compute and Networking Business Unit (“CNBU”): Includes memory products sold into client, cloud server, enterprise, graphics, and networking markets.
Mobile Business Unit (“MBU”): Includes memory and storage products sold into smartphone and other mobile-device markets.
Storage Business Unit (“SBU”): Includes SSDs and component-level solutions sold into enterprise and cloud, client, and consumer storage markets, and other discrete storage products sold in component and wafer form.
Embedded Business Unit (“EBU”): Includes memory and storage products sold into automotive, industrial, and consumer markets.
Certain operating expenses directly associated with the activities of a specific segment are charged to that segment. Other indirect operating income and expenses are generally allocated to segments based on their respective percentage of cost of goods sold or forecasted wafer production. We do not identify or report internally our assets (other than goodwill) or capital expenditures by segment, nor do we allocate gains and losses from equity method investments, interest, other non-operating income or expense items, or taxes to segments.
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Three months ended | December 3, 2020 | November 28, 2019
Revenue |  |
CNBU | $ | 2,546 |  | $ | 1,979 |
MBU | 1,501 |  | 1,457 |
SBU | 911 |  | 968 |
EBU | 809 |  | 734 |
All Other | 6 |  | 6 |
| $ | 5,773 |  | $ | 5,144 |
Operating income (loss) |  |
CNBU | $ | 483 |  | $ | 401 |
MBU | 370 |  | 295 |
SBU | 4 |  | (217) |
EBU | 116 |  | 113 |
All Other | — |  | 2 |
| 973 |  | 594 |
Unallocated |  |
Stock-based compensation | (92) |  | (72) |
Restructure and asset impairments | (8) |  | 4 |
Other | (7) |  | (8) |
| (107) |  | (76) |
Operating income | $ | 866 |  | $ | 518 |

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 September 3, 2020. 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 2021 contains 52 weeks and our fiscal 2020 contained 53 weeks. Our first quarters of 2020 and 2021 each contained 13 weeks and our fourth quarter of fiscal 2020 contained 14 weeks. All tabular dollar amounts are in millions, except per share amounts.
Overview
Micron Technology, Inc., including its consolidated subsidiaries, is an industry leader in innovative memory and storage solutions. Through our global brands — Micron® and Crucial® — our broad portfolio of high-performance memory and storage technologies, including DRAM, NAND, 3D XPoint memory, and NOR, is transforming how the world uses information to enrich life for all. Backed by more than 40 years of technology leadership, our memory and storage solutions enable disruptive trends, including artificial intelligence, 5G, machine learning, and autonomous vehicles, in key market segments like mobile, data center, client, consumer, industrial, graphics, automotive, and networking.
We manufacture our products at wholly-owned facilities and also utilize subcontractors to perform certain manufacturing processes. In recent years, we have increased our manufacturing scale and product diversity through strategic acquisitions, expansion, and various partnering arrangements.
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We make significant investments to develop proprietary product and process technology, which are implemented in our manufacturing facilities, and generally increase the density per wafer and reduce manufacturing costs of each generation of product through advancements in product and process technology, such as our leading-edge line-width process technology and 3D NAND architecture. 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. A significant portion of our revenues are from sales of managed NAND and SSD products, which incorporate NAND, a controller, and firmware. An increasing portion of our SSDs incorporate proprietary controllers and firmware that we have developed. Development of advanced technologies enables us to diversify our product portfolio toward a richer mix of differentiated, high-value solutions and to target high-growth markets.
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. Our success is largely dependent on obtaining returns on our research and development (“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 return-driven capital spending.
Impact of COVID-19 on Our Business
Events surrounding the ongoing COVID-19 outbreak have resulted in a reduction in economic activity across the globe. The ultimate severity and duration of these economic repercussions, including any resulting impact on our business, remain largely unknown and ultimately will depend on many factors. As a result, we have experienced volatility in the markets that our products are sold into, driven by the move to a stay-at-home economy and fluctuations in consumer and business spending, which has affected demand for certain of our products. The ultimate extent to which COVID-19 will impact demand for our products depends on future developments, which are highly uncertain and very difficult to predict, including the effectiveness and utilization of vaccines and other treatments for COVID-19 and new information that may emerge concerning the severity of COVID-19 and actions to contain and treat its impacts.
From the start of the COVID-19 outbreak, we proactively implemented preventative protocols intended to safeguard our team members, contractors, suppliers, customers, distributors, and communities, and to ensure business continuity in the event government restrictions or severe outbreaks impact our operations at certain sites. While all our global manufacturing sites are currently operating with close to full staff and at normal capacity levels, our facilities could be required to temporarily curtail production levels or temporarily cease operations based on government mandates. We may be required to, or deem it to be in the best interest of our employees, customers, partners, suppliers, and stakeholders, to alter our business operations in order to maintain a healthy and safe environment. It is not clear what potential effects any such alterations or modifications may have on our business, including effects on our customers, employees, and prospects, or on our financial results. We are following government policies and recommendations designed to slow the spread of COVID-19 and remain committed to the health and safety of our team members, contractors, suppliers, customers, distributors, and communities.
Our efforts to respond to the COVID-19 outbreak include the following:
•In locations experiencing continued community COVID-19 infections, we have prohibited onsite visitors and are generally requiring team members to work from home where possible. Where work from home is not possible, all on-site team members must complete health questionnaires, pass through thermal scanning equipment to ensure they do not have an elevated body temperature, wear a mask at all times while on site, and adhere to physical distancing requirements and team member separation protocols. We have also enhanced our contact tracing, significantly decreased business travel, and where possible, made ventilation and other health and safety enhancements at our facilities and provided COVID-19 testing for our team members.
•To respond to changing market conditions, we have shifted some supply from markets which have experienced declines in demand to markets that have experienced demand increases.
•We have evaluated our supply chain and communicated with our suppliers to identify supply gaps and taken steps to ensure continuity. In some cases, we have added alternative suppliers and increased our on-hand inventory of raw materials needed in our operations.
•We have added assembly and test capacity to provide redundant manufacturing capability through our network of captive operations and external partners.
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•We have evaluated all our construction projects across our global manufacturing operations and enacted protocols to enhance the safety of our team members, suppliers, and contractors.
•We have developed strategies and implemented measures to respond to a variety of potential economic scenarios, such as limitations on new hiring and business travel and reductions of discretionary spending.
•We are working with government authorities in the jurisdictions where we operate, and continuing to monitor our operations in an effort to ensure we follow government requirements, relevant regulations, industry standards, and best practices to help safeguard our team members, while safely continuing operations at our sites across the globe.
We believe these actions are appropriate and prudent to safeguard our team members, contractors, suppliers, customers, and communities, while allowing us to safely continue operations. We cannot predict how the steps we, our team members, government entities, suppliers, or customers take in response to the COVID-19 outbreak will ultimately impact our business, outlook, or results of operations.
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, 3D XPoint memory, NOR, and other technologies. We sell our products into various markets through our business units in numerous forms, including wafers, components, modules, SSDs, managed NAND, and MCP products. Our system-level solutions, including SSDs, managed NAND, and MCPs, typically include a controller and firmware and in some cases combine DRAM, NAND, and/or NOR.
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. Low-power DRAM (“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, and consumer markets.
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, and consumer 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.
3D XPoint: 3D XPoint is a new class of non-volatile technology between DRAM and NAND in the memory and storage hierarchy, offering higher capacity and non-volatility over DRAM along with lower latency and higher endurance as compared to NAND. 3D XPoint technology is ideal for data center and other markets requiring high-bandwidth storage and low-latency performance.
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.
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Results of Operations
Consolidated Results

| First Quarter | Fourth Quarter | First Quarter
| 2021 | 2020 | 2020
Revenue | $ | 5,773 |  | 100% | $ | 6,056 |  | 100% | $ | 5,144 |  | 100%
Cost of goods sold | 4,037 |  | 70% | 3,988 |  | 66% | 3,778 |  | 73%
Gross margin | 1,736 |  | 30% | 2,068 |  | 34% | 1,366 |  | 27%
Research and development | 647 |  | 11% | 630 |  | 10% | 640 |  | 12%
Selling, general, and administrative | 214 |  | 4% | 231 |  | 4% | 211 |  | 4%
Other operating (income) expense, net | 9 |  | —% | 50 |  | 1% | (3) |  | —%
Operating income | 866 |  | 15% | 1,157 |  | 19% | 518 |  | 10%
Interest income (expense), net | (38) |  | (1)% | (37) |  | (1)% | (3) |  | —%
Other non-operating income (expense), net | 13 |  | —% | 5 |  | —% | 46 |  | 1%
Income tax (provision) benefit | (51) |  | (1)% | (136) |  | (2)% | (55) |  | (1)%
Equity in net income (loss) of equity method investees | 13 |  | —% | 1 |  | —% | 2 |  | —%
Net income attributable to noncontrolling interests | — |  | —% | (2) |  | —% | (17) |  | —%
Net income attributable to Micron | $ | 803 |  | 14% | $ | 988 |  | 16% | $ | 491 |  | 10%

On August 17, 2020, the U.S. Bureau of Industry and Security (“BIS”) announced broad trade restrictions with respect to Huawei Technologies Co. Ltd. (“Huawei”) (which represented approximately 10% of our revenue in the fourth quarter of 2020 and 12% in 2019) that took effect on September 15, 2020 and currently prevent us from shipping products to Huawei. The effects of these restrictions are included in our consolidated and business unit results discussed below.
Total Revenue: Total revenue for the first quarter of 2021 decreased 5% as compared to the fourth quarter of 2020 primarily due to the additional week in the fourth quarter of 2020. In addition, declines in selling prices in the first quarter of 2021 were substantially offset by increases in NAND sales volumes due to higher production and market demand. Sales of DRAM products for the first quarter of 2021 decreased 7% as compared to the fourth quarter of 2020 as average selling prices declined by a mid-single-digit percent and bit shipments decreased by a low-single digit percent due primarily to the additional week in the fourth quarter of 2020. Sales of NAND products for the first quarter of 2021 increased 3% as compared to the fourth quarter of 2020 primarily due to a high-teens percent increase in bit shipments, despite the additional week in the fourth quarter of 2020, driven by higher sales of components and SSDs in consumer markets and of managed NAND products in mobile markets, partially offset by a low-teens percent decline in average selling prices.
Total revenue for the first quarter of 2021 increased 12% as compared to the first quarter of 2020 primarily due to increases in DRAM and NAND sales. Sales of DRAM products for the first quarter of 2021 increased 17% as compared to the first quarter of 2020 primarily due to growth in bit shipments in the low-20% range driven by graphics, client, and cloud server markets, partially offset by a low-single-digit percent decline in average selling prices. Sales of NAND products for the first quarter of 2021 increased 11% as compared to the first quarter of 2020 primarily due to increases in bit shipments in the low-20% range driven by higher sales to consumer and mobile markets, partially offset by an upper-single-digit percent decline in average selling prices.
Overall Gross Margin: Our overall gross margin percentage decreased to 30% for the first quarter of 2021 from 34% for the fourth quarter of 2020, primarily due to continuing declines in average selling prices. Our gross margins included the impact of underutilization costs at MTU of $113 million for the first quarter of 2021, $135 million for the fourth quarter of 2020, and $125 million for the first quarter of 2020. We expect underutilization costs at MTU to gradually decline through 2021 as we redeploy equipment and continue to right-size our capacity.
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Our overall gross margin percentage increased to 30% for the first quarter of 2021 from 27% for the first quarter of 2020 primarily due to manufacturing cost reductions resulting from strong execution in delivering products featuring advanced technologies and from continuous improvement initiatives to reduce production costs, partially offset by declines in average selling prices.
At the beginning of the second quarter of 2021, we began using a first-in, first-out (“FIFO”) inventory accounting method as opposed to the moving average method that we used historically. Concurrently, at the beginning of the second quarter of 2021, we implemented changes in our inventory cost absorption processes. These changes are aligned with general industry practice and result in a better, more accurate measure of inventories and cost of goods sold. These changes will accelerate the recognition of certain costs, and as a result, we expect a one-time increase to cost of goods sold of approximately $300 million in the second quarter of 2021.
Revenue by Business Unit

| First Quarter | Fourth Quarter | First Quarter
| 2021 | 2020 | 2020
CNBU | $ | 2,546 |  | 44% | $ | 3,020 |  | 50% | $ | 1,979 |  | 38%
MBU | 1,501 |  | 26% | 1,462 |  | 24% | 1,457 |  | 28%
SBU | 911 |  | 16% | 913 |  | 15% | 968 |  | 19%
EBU | 809 |  | 14% | 654 |  | 11% | 734 |  | 14%
All Other | 6 |  | —% | 7 |  | —% | 6 |  | —%
| $ | 5,773 |  |  | $ | 6,056 |  |  | $ | 5,144 |  |

Percentages of total revenue may not total 100% due to rounding.
Changes in revenue for each business unit for the first quarter of 2021 as compared to the fourth quarter of 2020 were as follows:
•CNBU revenue decreased 16% primarily due to declines in sales to cloud and enterprise markets and DRAM price declines, partially offset by growth in sales to the graphics and client markets.
•MBU revenue increased 3% primarily due to increases in bit sales of high-value mobile MCP products driven by demand growth in smartphone markets despite declines in Huawei sales, partially offset by price declines.
•SBU revenue was substantially unchanged as strong growth in bit sales driven by consumer markets was offset by price declines.
•EBU revenue increased 24% primarily due to bit shipment increases driven by strong demand growth in automotive as demand growth recovered from pandemic related shutdowns and growth in consumer markets.
Changes in revenue for each business unit for the first quarter of 2021 as compared to the first quarter of 2020 were as follows:
•CNBU revenue increased 29% primarily due to bit sales growth across key markets, particularly in client, graphics, and cloud server markets. In addition, in the second quarter of 2020, we determined that the 3D XPoint technology and product roadmap are more closely aligned with our CNBU strategy than our SBU strategy and 3D XPoint became an integral part of CNBU. Accordingly, we began to report all 3D XPoint activities within CNBU from that date.
•MBU revenue increased 3% primarily due to bit sales growth for high-value mobile MCP products partially offset by price declines.
•SBU revenue decreased 6% primarily due to the decline in 3D XPoint revenue in SBU after the first quarter of 2020 as noted above, partially offset by bit sales growth for NAND products driven by consumer markets.
•EBU revenue increased 10% primarily due to bit sales growth in consumer and automotive markets from transitions to an increasing mix of high-density DRAM and NAND products partially offset by price declines.
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Operating Income (Loss) by Business Unit

| First Quarter | Fourth Quarter | First Quarter
| 2021 | 2020 | 2020
CNBU | $ | 483 |  | 19% | $ | 878 |  | 29% | $ | 401 |  | 20%
MBU | 370 |  | 25% | 301 |  | 21% | 295 |  | 20%
SBU | 4 |  | —% | 78 |  | 9% | (217) |  | (22)%
EBU | 116 |  | 14% | 45 |  | 7% | 113 |  | 15%
All Other | — |  | —% | — |  | —% | 2 |  | 33%
| $ | 973 |  |  | $ | 1,302 |  |  | $ | 594 |  |

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 2021 as compared to the fourth quarter of 2020 were as follows:
•CNBU operating income decreased primarily due to declines in bit shipments and DRAM pricing.
•MBU operating income increased primarily due to manufacturing cost reductions partially offset by declines in low-power DRAM and NAND pricing.
•SBU operating income decreased primarily due to declines in NAND selling prices.
•EBU operating income increased primarily due to increases in sales volumes to automotive and consumer markets and lower R&D costs.
Changes in operating income or loss for each business unit for the first quarter of 2021 as compared to the first quarter of 2020 were as follows:
•CNBU operating income increased primarily due to increases in bit shipments and cost reductions, partially offset by CNBU MTU underutilization costs related to 3D XPoint in the first quarter of 2021 not present in the first quarter of 2020, and higher R&D costs.
•MBU operating income increased primarily due to increases in sales of high-value MCP products and manufacturing cost reductions for low-power DRAM, partially offset by declines in low-power DRAM and NAND pricing.
•SBU operating margin improved primarily due to SBU 3D XPoint underutilization costs in the first quarter of 2020 not present in the first quarter of 2021, manufacturing cost reductions, and increases in sales volumes.
•EBU operating income was substantially unchanged as declines in pricing were offset by increases in sales volumes, NAND cost reductions, and lower R&D costs.
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 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 2021 were 3% higher as compared to the fourth quarter of 2020 primarily due to increases in employee compensation, partially offset by the additional week in the fourth quarter of 2020. R&D expenses for the first quarter of 2021 were relatively unchanged as compared to the first quarter of 2020 as increases in employee compensation and depreciation expense resulting from higher capital spending were substantially offset by reductions in volumes of development and pre-qualification wafers.
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Selling, General, and Administrative: SG&A expenses for the first quarter of 2021 were 7% lower as compared to the fourth quarter of 2020 primarily due to higher charitable contributions in the fourth quarter of 2020 and the additional week in the fourth quarter of 2020, partially offset by increases in employee compensation. SG&A expenses for the first quarter of 2021 were relatively unchanged as compared to the first quarter of 2020.
Income Taxes: Our income tax (provision) benefit consisted of the following:

| First Quarter | Fourth Quarter | First Quarter
| 2021 | 2020 | 2020
Income before taxes | $ | 841 |  | $ | 1,125 |  | $ | 561 |
Income tax (provision) benefit | (51) |  | (136) |  | (55) |
Effective tax rate | 6.1 | % | 12.1 | % | 9.8 | %

Our effective tax rate for the first quarter of 2021 decreased as compared to the fourth and first quarters of 2020 primarily as a result of the geographic mix of our earnings.
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 $56 million (benefiting our diluted earnings per share by $0.05) for the first quarter of 2021, by $137 million ($0.12 per diluted share) for the fourth quarter of 2020, and were not significant to our tax provision for the first quarter of 2020.
See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Income Taxes.”
Other: Interest expense and interest income for the first quarter of 2021 were relatively unchanged as compared to the fourth quarter of 2020.
Interest expense for the first quarter of 2021 was relatively unchanged as compared to the first quarter of 2020. Interest income for the first quarter of 2021 decreased 77% as compared to the first quarter of 2020 as a result of decreases in interest rates.
Further discussion of other operating and non-operating income and expenses can be found in “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Equity Plans,” and “– Other Non-Operating Income (Expense), Net.”
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. 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 December 3, 2020, $2.50 billion was available to draw under our Revolving Credit Facility. 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.
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 2021 for property, plant, and equipment, net of partner contributions, to be approximately $9 billion, focused on technology transitions and product enablement, and expect the timing of our capital expenditures to be more heavily weighted toward the first half of 2021. Actual amounts for 2021 will vary depending on market conditions. As of December 3, 2020, we had purchase obligations of approximately $2.6 billion for the acquisition of property, plant, and equipment, of which approximately $2.4 billion is expected to be paid within one year.
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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 a Rule 10b5-1 trading plan. 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 December 3, 2020, we had repurchased an aggregate of $2.84 billion of the authorized amount.
Cash and marketable investments totaled $8.30 billion as of December 3, 2020 and $9.19 billion as of September 3, 2020. Our 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 December 3, 2020, $2.41 billion of our cash and marketable investments was held by our foreign subsidiaries.
Cash Flows:

| First Quarter
| 2021 | 2020
Net cash provided by operating activities | $ | 1,967 |  | $ | 2,011 |
Net cash provided by (used for) investing activities | (3,418) |  | (1,189) |
Net cash provided by (used for) financing activities | (214) |  | (992) |
Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash | 27 |  | (14) |
Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | (1,638) |  | $ | (184) |

Operating Activities: Cash provided by operating activities reflects net income 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. Cash provided by operating activities for the first quarter of 2021 was relatively unchanged as compared to the first quarter of 2020.
Investing Activities: For the first quarter of 2021, net cash used for investing activities consisted primarily of $2.69 billion of expenditures for property, plant, and equipment (net of partner contributions) and $741 million of net outflows from purchases, sales, and maturities of available-for-sale securities.
For the first quarter of 2020, net cash used for investing activities consisted primarily of $1.93 billion of expenditures for property, plant, and equipment (net of partner contributions) partially offset by $744 million of net inflows from sales, maturities, and purchases of available-for-sale securities.
Financing Activities: For the first quarter of 2021, net cash used for financing activities consisted primarily of $97 million for payments on equipment purchase contracts and $84 million for repayments of debt.
For the first quarter of 2020, net cash used for financing activities consisted primarily of $1.42 billion of cash payments to reduce our debt, including $621 million for IMFT Member Debt repayments, $534 million to prepay the 2025 Notes, $196 million to settle conversions of notes, and $64 million for scheduled repayment of finance leases; $744 million for the acquisition of noncontrolling interest in IMFT; and $50 million for the acquisition of 1 million shares of treasury stock under our $10 billion share repurchase authorization. Cash used for financing activities was partially offset by net proceeds of $1.25 billion from borrowing the 2024 Term Loan A.
See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Debt.”
Potential Settlement Obligations of Convertible Notes: See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Debt – 2032D Convertible Senior Notes.”
Contractual Obligations: See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Leases” and – Debt.”
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Recently Adopted Accounting Standards
See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Recently Adopted Accounting Standards.”
Recently Issued Accounting Standards
See “Item 1. Financial Statements – Notes to Consolidated Financial Statements – Recently Issued Accounting Standards.”
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are affected by changes in currency exchange and interest rates. For further discussion about market risk and sensitivity analysis related to changes in currency exchange rates, see “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended September 3, 2020.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, the principal executive officer and principal financial officer concluded that those disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including the principal executive officer and principal financial officer, to allow timely decision regarding disclosure.
During the first quarter of 2021, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a discussion of legal proceedings, see “Part I – Item 3. Legal Proceedings” of our Annual Report on Form 10-K for the year ended September 3, 2020 and “Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies” and “Item 1A. Risk Factors” herein.
SEC regulations require disclosure of certain proceedings related to environmental matters unless we reasonably believe that the related monetary sanctions, if any, will be less than a specified threshold. We use a threshold of $1 million for this purpose.
ITEM 1A. RISK FACTORS
In addition to the factors discussed elsewhere in this Form 10-Q, this section discusses important factors which could cause actual results or events to differ materially from those contained in any forward-looking statements made by us. The order of presentation is not necessarily indicative of the level of risk that each factor poses to us.
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Any of these factors could have a material adverse effect on our business, results of operations, financial condition, or stock price. Our operations could also be affected by other factors that are presently unknown to us or not considered significant.
Risk Factor Summary
Risks Related to Our Business, Operations, and Industry
•the effects of the COVID-19 outbreak;
•volatility in average selling prices of our products;
•our ability to maintain or improve gross margins;
•the highly competitive nature of our industry;
•our ability to develop and produce new memory and storage technologies, products, and markets;
•dependency on specific customers, concentration of revenue with a select number of customers, and customers who are located internationally;
•our international operations;
•limited availability and quality of materials, supplies, and capital equipment, and dependency on third-party service providers;
•products that fail to meet specifications, are defective, or incompatible with end uses;
•disruptions to our manufacturing processes;
•breaches of our security systems or those of our customers, suppliers, or business partners;
•attracting, retaining, and motivating highly skilled employees;
•achieving or maintaining certain performance obligations associated with incentives from various governments;
•future acquisitions and/or alliances;
•restructure charges;
•customer responsible sourcing requirements and related regulations; and
•a downturn in the world-wide economy.
Risks Related to Intellectual Property and Litigation
•protecting our intellectual property and retaining key employees who are knowledgeable of and develop our intellectual property;
•legal proceedings and claims;
•allegations of anticompetitive conduct;
•risks associated with our former IMFT joint venture with Intel;
•claims that our products or manufacturing processes infringe or otherwise violate the intellectual property rights of others or failure to obtain or renew license agreements covering such intellectual property; and
•alleged patent infringement complaints in Chinese courts.
Risks Related to Laws and Regulations
•tariffs, trade restrictions, and/or trade regulations;
•tax expense and tax laws in key jurisdictions; and
•laws, regulations, or industry standards.
Risks Related to Capitalization and Financial Markets
•our ability to generate sufficient cash flows or obtain access to external financing;
•our debt obligations;
•changes in foreign currency exchange rates;
•counterparty default risk;
•volatility in the trading price of our common stock; and
•fluctuations in the amount and timing of our common stock repurchases and resulting impacts.
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Risks Related to Our Business, Operations, and Industry
The effects of the COVID-19 outbreak could adversely affect our business, results of operations, and financial condition.
The effects of the public health crisis caused by the COVID-19 outbreak and the measures being taken to limit COVID-19’s spread are uncertain and difficult to predict, but may include, and in some cases, have included and may continue to include:
•A decrease in short-term and/or long-term demand and/or pricing for our products and a global economic recession or depression that could further reduce demand and/or pricing for our products, resulting from actions taken by governments, businesses, and/or the general public in an effort to limit exposure to and the spreading of COVID-19, such as travel restrictions, quarantines, and business shutdowns or slowdowns;
•Negative impacts to our operations, including:
◦reductions in production levels, R&D activities, product development, technology transitions, yield enhancement activities, and qualification activities with our customers, resulting from our efforts to mitigate the impact of COVID-19 through physical-distancing measures we have enacted at our locations around the world in an effort to protect our employees’ and contractors’ health and well-being, including working from home, limiting the number of meeting attendees, reducing the number of people in certain of our sites at any one time, quarantines of team members, contractors, or vendors who are at risk of contracting, or have contracted, COVID-19, and limiting employee travel;
◦increased costs resulting from our efforts to mitigate the impact of COVID-19 through physical distancing measures, working from home, upgrades to our sites, COVID-19 testing, enhanced cleaning measures, and the increased use of personal protective equipment at our sites;
◦increased costs for, or unavailability of, transportation, raw materials, or other inputs necessary for the operation of our business;
◦reductions in, or cessation of. operations at any site or in any jurisdiction resulting from government restrictions on movement and/or business operations or our failure to prevent and/or adequately mitigate spread of COVID-19 at one or more of our sites;
◦our inability to continue or resume construction projects due to delays in obtaining materials, equipment, labor, engineering services, government permits, or any other essential aspect of projects, which could impact our ability to introduce new technologies, reduce costs, or meet customer demand;
◦disruptions to our supply chain in connection with the sourcing and transportation of materials, equipment and engineering support, and services from or in geographic areas that have been impacted by COVID-19 and by efforts to contain the spread of COVID-19; and
•Deterioration of worldwide credit and financial markets that could: limit our ability to obtain external financing to fund our operations and capital expenditures; result in losses on our holdings of cash and investments due to failures of financial institutions and other parties; or result in a higher rate of losses on our accounts receivables due to credit defaults.
While certain COVID-19 vaccines have recently been approved and have become available for use in the United States and certain other countries, we are unable to predict when those vaccines will become widely available, how widely utilized the vaccines will be, whether they will be effective in preventing the spread of COVID-19, and when or if normal economic activity and business operations will resume.
These effects, alone or taken together, could have a material adverse effect on our business, results of operations, legal exposure, or financial condition. A sustained, prolonged, or recurring outbreak could exacerbate the adverse impact of such measures.
Volatility in average selling prices for our semiconductor memory and storage products may adversely affect our business.
We have experienced significant volatility in our average selling prices, including dramatic declines as noted in the table below, and may continue to experience such volatility in the future. In some prior periods, average selling prices for our products have been below our manufacturing costs and we may experience such circumstances in
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the future. Average selling prices for our products that decline faster than our costs could have a material adverse effect on our business, results of operations, or financial condition.

| DRAM | NAND
| (percentage change in average selling prices)
2020 from 2019 | (34) | % | (9) | %
2019 from 2018 | (30) | % | (47) | %
2018 from 2017 | 36 | % | (13) | %
2017 from 2016 | 18 | % | (10) | %
2016 from 2015 | (34) | % | (16) | %

We may be unable to maintain or improve gross margins.
Our gross margins are dependent, in part, upon continuing decreases in per gigabit manufacturing costs achieved through improvements in our manufacturing processes and product designs, including, but not limited to, process line-width, additional 3D memory layers, additional bits per cell (i.e., cell levels), architecture, number of mask layers, number of fabrication steps, and yield. In future periods, we may be unable to reduce our per gigabit manufacturing costs at sufficient levels to maintain or improve gross margins. Factors that may limit our ability to maintain or reduce costs include, but are not limited to, strategic product diversification decisions affecting product mix, the increasing complexity of manufacturing processes, difficulties in transitioning to smaller line-width process technologies, 3D memory layers, NAND cell levels, process complexity including number of mask layers and fabrication steps, manufacturing yield, technological barriers, changes in process technologies, and new products that may require relatively larger die sizes.
Many factors may result in a reduction of our output or a delay in ramping production, which could lead to underutilization of our production assets. These factors may include, among others, a weak demand environment, industry oversupply, inventory surpluses, our ramp of emerging technologies, declining selling prices, and changes in supply agreements. A significant portion of our manufacturing costs are fixed and do not vary proportionally with changes in production output. As a result, lower utilization and corresponding increases in our per gigabit manufacturing costs may adversely affect our gross margins, business, results of operations, or financial condition.
In addition, per gigabit manufacturing costs may also be affected by a broader product portfolio, which may have smaller production quantities and shorter product lifecycles. Our business and the markets we serve are subject to rapid technological changes and material fluctuations in demand based on end-user preferences. As a result, we may have work in process or finished goods inventories that could become obsolete or in amounts that are in excess of our customers’ demand. Consequently, we may incur charges in connection with obsolete or excess inventories, which could have a material adverse effect on our business, results of operations, or financial condition. In addition, due to the customized nature of certain of the products we manufacture, we may be unable to sell certain finished goods inventories to alternative customers or manufacture in-process inventory to different specifications, which may result in excess and obsolescence charges in future periods. Our inability to maintain or improve gross margins could have a material adverse effect on our business, results of operations, or financial condition.
The semiconductor memory and storage markets are highly competitive.
We face intense competition in the semiconductor memory and storage markets from a number of companies, including Intel; Samsung Electronics Co., Ltd.; SK Hynix Inc.; Kioxia Holdings Corporation; and Western Digital Corporation. Some of our competitors are large corporations or conglomerates that may have greater resources to invest in technology, capitalize on growth opportunities, and withstand downturns in the semiconductor markets in which we compete. Consolidation of industry competitors could put us at a competitive disadvantage as our competitors may benefit from increased manufacturing scale and a stronger product portfolio. In addition, some governments may provide, or have provided and may continue to provide, significant assistance, financial or otherwise, to some of our competitors or to new entrants and may intervene in support of national industries and/or competitors. In particular, we face the threat of increasing competition as a result of significant investment in the semiconductor industry by the Chinese government and various state-owned or affiliated entities that is intended to advance China’s stated national policy objectives. In addition, the Chinese government may restrict us from participating in the China market or may prevent us from competing effectively with Chinese companies. Some of our competitors may use aggressive pricing to obtain market share or take business of our key customers.
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Our competitors generally seek to increase wafer capacity, improve yields, and reduce die size in their product designs which may result in significant increases in worldwide supply and downward pressure on prices. Increases in worldwide supply of semiconductor memory and storage also result from fabrication capacity expansions, either by way of new facilities, increased capacity utilization, or reallocation of other semiconductor production to semiconductor memory and storage production. Our competitors may increase capital expenditures resulting in future increases in worldwide supply. We, and some of our competitors, have plans to ramp, or are constructing or ramping, production at new fabrication facilities. Increases in worldwide supply of semiconductor memory and storage, if not accompanied by commensurate increases in demand, could lead to further declines in average selling prices for our products and could materially adversely affect our business, results of operations, or financial condition. If competitors are more successful at developing or implementing new product or process technology, their products could have cost or performance advantages.
The competitive nature of our industry could have a material adverse effect on our business, results of operations, or financial condition.
Our future success depends on our ability to develop and produce competitive new memory and storage technologies.
Our key semiconductor memory and storage products and technologies face technological barriers to continue to meet long-term customer needs. These barriers include potential limitations on stacking additional 3D memory layers, increasing bits per cell (i.e., cell levels), meeting higher density requirements, and improving power consumption and reliability. We may face technological barriers to continue to shrink our products at our current or historical rate, which has generally reduced per-unit cost. We have invested and expect to continue to invest in R&D for new and existing products, which involves significant risk and uncertainties. We may be unable to recover our investment in R&D or otherwise realize the economic benefits of reducing die size or increasing memory and storage densities. Our competitors are working to develop new memory and storage technologies that may offer performance and/or cost advantages to existing technologies and render existing technologies obsolete. Accordingly, our future success may depend on our ability to develop and produce viable and competitive new memory and storage technologies. There can be no assurance of the following:
•that we will be successful in developing competitive new semiconductor memory and storage technologies;
•that we will be able to cost-effectively manufacture new products;
•that we will be able to successfully market these technologies; and
•that margins generated from sales of these products will allow us to recover costs of development efforts.
We develop and produce advanced memory technologies, including 3D XPoint memory, a new class of non-volatile technology. There is no assurance that our efforts to develop and market new product technologies will be successful. Unsuccessful efforts to develop new memory and storage technologies could have a material adverse effect on our business, results of operations, or financial condition.
A significant portion of our revenue is concentrated with a select number of customers.
In each of the last three years, approximately one-half of our total revenue was from our top ten customers. A disruption in our relationship with any of these customers could adversely affect our business. We could experience fluctuations in our customer base or the mix of revenue by customer as markets and strategies evolve. In addition, any consolidation of our customers could reduce the number of customers to whom our products may be sold. Our inability to meet our customers’ requirements or to qualify our products with them could adversely impact our revenue. Meaningful change in the inventory strategy of our customers, particularly those in China, could impact our industry bit demand growth outlook. The loss of, or restrictions on our ability to sell to, one or more of our major customers, such as those relating to Huawei described herein, or any significant reduction in orders from, or a shift in product mix by, customers could have a material adverse effect on our business, results of operations, or financial condition.
We face risks associated with our international sales and operations that could materially adversely affect our business, results of operations, or financial condition.
In 2020, 52% of our revenue was from sales to customers who have headquarters located outside the United States. We ship our products to the locations specified by our customers. Customers with global supply chains and
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operations may request we deliver products to countries where they own or operate production facilities or to countries where they utilize third-party subcontractors or warehouses. As a result, 88% of our revenue in 2020 was from products shipped to customer locations outside the United States.
A substantial portion of our operations are conducted in Taiwan, Singapore, Japan, China, Malaysia, and India, and many of our customers, suppliers, and vendors also operate internationally. Our operations, and the global supply chain of the technology industry, are subject to a number of risks, including the effects of actions and policies of various governments across our global operations and supply chain. For example, political, economic, or other actions from China could impact Taiwan and its economy, and may adversely affect our operations in Taiwan, our customers, and the technology industry supply chain. In addition, the U.S. government has in the past restricted American firms from selling products and software to certain of our customers and may in the future impose similar bans or other restrictions on sales to one or more of our significant customers. These restrictions may not prohibit our competitors from selling similar products to our customers, which may result in our loss of sales and market share. Even when such restrictions are lifted, financial or other penalties or continuing export restrictions imposed with respect to our customers could have a continuing negative impact on our future revenue and results of operations, and we may not be able to recover any customers or market share we lose while complying with such restrictions.
Our international sales and operations are subject to a variety of risks, including:
•export and import duties, changes to import and export regulations, customs regulations and processes, and restrictions on the transfer of funds;
•imposition of bans on sales of goods or services to one or more of our significant foreign customers;
•public health issues (for example, an outbreak of a contagious disease such as COVID-19, Severe Acute Respiratory Syndrome (“SARS-CoV”), avian and swine influenza, measles, or Ebola);
•compliance with U.S. and international laws involving international operations, including the Foreign Corrupt Practices Act of 1977, as amended, export and import laws, and similar rules and regulations;
•theft of intellectual property;
•political and economic instability, including the effects of disputes between China and Taiwan;
•government actions or civil unrest preventing the flow of products, including delays in shipping and obtaining products, cancellation of orders, or loss or damage of products;
•problems with the transportation or delivery of products;
•issues arising from cultural or language differences and labor unrest;
•longer payment cycles and greater difficulty in collecting accounts receivable;
•compliance with trade, technical standards, and other laws in a variety of jurisdictions;
•contractual and regulatory limitations on the ability to maintain flexibility with staffing levels;
•disruptions to manufacturing or R&D activities as a result of actions imposed by foreign governments;
•changes in economic policies of foreign governments; and
•difficulties in staffing and managing international operations.
If we or our customers, suppliers, or vendors are impacted by these risks, it could have a material adverse effect on our business, results of operations, or financial condition.
Our business, results of operations, or financial condition could be adversely affected by the limited availability and quality of materials, supplies, and capital equipment, or the dependency on third-party service providers.
Our supply chain and operations are dependent on the availability of materials that meet exacting standards and the use of third parties to provide us with components and services. We generally have multiple sources of supply for our materials and services. However, only a limited number of suppliers are capable of delivering certain materials and services that meet our standards and, in some cases, materials, components, or services are provided by a single supplier. Various factors could reduce the availability of materials or components such as chemicals, silicon wafers, gases, photoresist, controllers, substrates, lead frames, printed circuit boards, targets, and reticle glass blanks. Shortages or increases in lead times have occurred in the past and may occur from time to time in the future. Our manufacturing processes are also dependent on our relationships with third-party manufacturers of controllers used in a number of our products and with outsourced semiconductor assembly and test providers, contract manufacturers, logistic carriers, and other service providers. Although we have certain long-term contracts with some of our third-party service providers, most of these contracts do not provide for long-term capacity commitments. To the extent we do not have firm commitments from our third-party service providers over a specific
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time period or for any specific quantity, our service providers may allocate capacity to their other customers. Accordingly, capacity for our products may not be available when we need it or at reasonable prices.
Certain materials are primarily available in a limited number of countries, including rare earth elements, minerals, and metals available primarily from China. Trade disputes or other political conditions, economic conditions, or public health issues, such as COVID-19, may limit our ability to obtain such materials. Although these rare earth and other materials are generally available from multiple suppliers, China is the predominant producer of certain of these materials. If China were to restrict or stop exporting these materials, our suppliers’ ability to obtain such supply may be constrained and we may be unable to obtain sufficient quantities, or obtain supply in a timely manner, or at a commercially reasonable cost. Constrained supply of rare earth elements, minerals, and metals may restrict our ability to manufacture certain of our products and make it difficult or impossible to compete with other semiconductor memory manufacturers who are able to obtain sufficient quantities of these materials from China.
We and/or our suppliers and service providers could be affected by tariffs, embargoes, or other trade restrictions, as well as laws and regulations enacted in response to concerns regarding climate change, conflict minerals, responsible sourcing practices, public health crises, contagious disease outbreaks, or other matters, which could limit the supply of our materials and/or increase the cost. Environmental regulations could limit our ability to procure or use certain chemicals or materials in our operations or products. In addition, disruptions in transportation lines could delay our receipt of materials. Lead times for the supply of materials have been extended in the past. Our ability to procure components to repair equipment essential for our manufacturing processes could also be negatively impacted by various restrictions or disruptions in supply chains, among other items. The disruption of our supply of materials, components, services, or the extension of our lead times could have a material adverse effect on our business, results of operations, or financial condition.
Our operations are dependent on our ability to procure advanced semiconductor manufacturing equipment that enables the transition to lower cost manufacturing processes. For certain key types of equipment, including photolithography tools, we are sometimes dependent on a single supplier. From time to time, we have experienced difficulties in obtaining some equipment on a timely basis due to suppliers’ limited capacity. Our inability to obtain equipment on a timely basis could adversely affect our ability to transition to next generation manufacturing processes and reduce our costs. Delays in obtaining equipment could also impede our ability to ramp production at new facilities and could increase our overall costs of a ramp. Our inability to obtain advanced semiconductor manufacturing equipment in a timely manner could have a material adverse effect on our business, results of operations, or financial condition.
New product and market development may be unsuccessful.
We are developing new products, including system-level memory and storage products and solutions, which complement our traditional products or leverage their underlying design or process technology. We have made significant investments in product and process technology and anticipate expending significant resources for new semiconductor product and system-level solution development over the next several years. Additionally, we are increasingly differentiating our products and solutions to meet the specific demands of our customers, which increases our reliance on our customers’ ability to accurately forecast the needs and preferences of their customers. As a result, our product demand forecasts may be impacted significantly by the strategic actions of our customers.
For certain of our markets, it is important that we deliver products in a timely manner with increasingly advanced performance characteristics at the time our customers are designing and evaluating samples for their products. If we do not meet their product design schedules, our customers may exclude us from further consideration as a supplier for those products. The process to develop new products requires us to demonstrate advanced functionality and performance, often well in advance of a planned ramp of production, in order to secure design wins with our customers. The effects of the public health crisis caused by the COVID-19 outbreak and the measures being taken to limit COVID-19’s spread could negatively impact our ability to meet anticipated timelines and/or expected or required quality standards with respect to the development of certain of our products. In addition, some of our components have long lead-times, requiring us to place orders several months in advance of anticipated demand. Such long lead-times increase the risk of excess inventory or loss of sales in the event our forecasts vary substantially from actual demand. There can be no assurance that:
•our product development efforts will be successful;
•we will be able to cost-effectively manufacture new products;
•we will be able to successfully market these products;
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•we will be able to establish or maintain key relationships with customers, or that we will not be prohibited from working with certain customers, for specific chip set or design requirements;
•we will be able to introduce new products into the market and qualify them with our customers on a timely basis; or
•margins generated from sales of these products will allow us to recover costs of development efforts.
Our unsuccessful efforts to develop new products and solutions could have a material adverse effect on our business, results of operations, or financial condition.
Increases in sales of system solutions may increase our dependency upon specific customers and our costs to develop and qualify our system solutions.
Our development of system-level memory and storage products is dependent, in part, upon successfully identifying and meeting our customers’ specifications for those products. Developing and manufacturing system-level products with specifications unique to a customer increases our reliance upon that customer for purchasing our products at sufficient volumes and prices in a timely manner. If we fail to identify or develop products on a timely basis, or at all, that comply with our customers’ specifications or achieve design wins with our customers, we may experience a significant adverse impact on our revenue and margins. Even if our products meet customer specifications, our sales of system-level solutions are dependent upon our customers choosing our products over those of our competitors and purchasing our products at sufficient volumes and prices. Our competitors’ products may be less costly, provide better performance, or include additional features when compared to our products. Our long-term ability to sell system-level memory and storage products is reliant upon our customers’ ability to create, market, and sell their products containing our system-level solutions at sufficient volumes and prices in a timely manner. If we fail to successfully develop and market system-level products, our business, results of operations, or financial condition may be materially adversely affected.
Even if we are successful in selling system-level solutions to our customers in sufficient volume, we may be unable to generate sufficient profit if our per-unit manufacturing costs exceed our per-unit selling prices. Manufacturing system-level solutions to customer specifications requires a longer development cycle, as compared to discrete products, to design, test, and qualify, which may increase our costs. Additionally, some of our system solutions are increasingly dependent on sophisticated firmware that may require significant customization to meet customer specifications, which increases our costs and time to market. Additionally, we may need to update our firmware or develop new firmware as a result of new product introductions or changes in customer specifications and/or industry standards, which increases our costs. System complexities and extended warranties for system-level products could also increase our warranty costs. Our failure to cost-effectively manufacture system-level solutions and/or firmware in a timely manner may result in reduced demand for our system-level products and could have a material adverse effect on our business, results of operations, or financial condition.
Products that fail to meet specifications, are defective, or that are otherwise incompatible with end uses could impose significant costs on us.
Products that do not meet specifications or that contain, or are perceived by our customers to contain, defects or that are otherwise incompatible with end uses could impose significant costs on us or otherwise materially adversely affect our business, results of operations, or financial condition. From time to time, we experience problems with nonconforming, defective, or incompatible products after we have shipped such products. In recent periods, we have further diversified and expanded our product offerings, which could potentially increase the chance that one or more of our products could fail to meet specifications in a particular application. Our products and solutions may be deemed fully or partially responsible for functionality in our customers’ products and may result in sharing or shifting of product or financial liability from our customers to us for costs incurred by the end user as a result of our customers’ products failing to perform as specified. In addition, if our products and solutions perform critical functions in our customers’ products or are used in high-risk consumer end products, such as autonomous driver assistance programs, home and enterprise security, smoke and noxious gas detectors, medical monitoring equipment, or wearables for child and elderly safety, our potential liability may increase. We could be adversely affected in several ways, including the following:
•we may be required or agree to compensate customers for costs incurred or damages caused by defective or incompatible products and to replace products;
•we could incur a decrease in revenue or adjustment to pricing commensurate with the reimbursement of such costs or alleged damages; and
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•we may encounter adverse publicity, which could cause a decrease in sales of our products or harm our reputation or relationships with existing or potential customers.
Any of the foregoing items could have a material adverse effect on our business, results of operations, or financial condition.
If our manufacturing process is disrupted by operational issues, natural disasters, or other events, our business, results of operations, or financial condition could be materially adversely affected.
We and our subcontractors manufacture products using highly complex processes that require technologically advanced equipment and continuous modification to improve yields and performance. Difficulties in the manufacturing process or the effects from a shift in product mix can reduce yields or disrupt production and may increase our per gigabit manufacturing costs. We and our subcontractors maintain operations and continuously implement new product and process technology at manufacturing facilities, which are widely dispersed in multiple locations in several countries including the United States, Singapore, Taiwan, Japan, Malaysia, and China. As a result of the necessary interdependence within our network of manufacturing facilities, an operational disruption at one of our or a subcontractor’s facilities may have a disproportionate impact on our ability to produce many of our products.
From time to time, there have been disruptions in the manufacturing process as a result of power outages, improperly functioning equipment, disruptions in supply of raw materials or components, or equipment failures. We have manufacturing and other operations in locations subject to natural occurrences such as severe weather and geological events, including earthquakes or tsunamis, that could disrupt operations. In addition, our suppliers and customers also have operations in such locations. Additionally, other events including political or public health crises, such as an outbreak of contagious diseases like COVID-19, SARS-CoV, avian and swine influenza, measles, or Ebola, may affect our production capabilities or that of our suppliers, including as a result of quarantines, closures of production facilities, lack of supplies, or delays caused by restrictions on travel or shipping. For example, in 2020, the government of Malaysia announced measures to restrict movement in that country in an effort to suppress the number of COVID-19 cases. Those restrictions temporarily limited our ability to fully operate our manufacturing facilities in that country. The events noted above have occurred from time to time in the past and may occur in the future. As a result, in addition to disruptions to operations, our insurance premiums may increase or we may not be able to fully recover any sustained losses through insurance.
If production is disrupted for any reason, manufacturing yields may be adversely affected, or we may be unable to meet our customers’ requirements and they may purchase products from other suppliers. This could result in a significant increase in manufacturing costs, loss of revenue, or damage to customer relationships, any of which could have a material adverse effect on our business, results of operations, or financial condition.
Breaches of our security systems, or those of our customers, suppliers, or business partners, could expose us to losses.
We maintain a system of controls over the physical security of our facilities. We also manage and store various proprietary information and sensitive or confidential data relating to our operations. In addition, we process, store, and transmit large amounts of data relating to our customers and employees, including sensitive personal information. Unauthorized persons or employees may gain access to our facilities or network systems to steal trade secrets or other proprietary information, compromise confidential information, create system disruptions, or cause shutdowns. These parties may also be able to develop and deploy viruses, worms, and other malicious software programs that disrupt our operations and create security vulnerabilities. Breaches of our physical security and attacks on our network systems, or breaches or attacks on our customers, suppliers, or business partners who have confidential or sensitive information regarding us and our customers and suppliers, could result in significant losses and damage our reputation with customers and suppliers and may expose us to litigation if the confidential information of our customers, suppliers, or employees is compromised. The foregoing could have a material adverse effect on our business, results of operations, or financial condition.
We must attract, retain, and motivate highly skilled employees.
To remain competitive, we must attract, retain, and motivate executives and other highly skilled employees, as well as effectively manage or plan for succession for key employees. Competition for experienced employees in our industry can be intense. Hiring and retaining qualified executives, engineers, technical staff, and sales
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representatives is critical to our business. Our inability to attract, retain, or effectively manage or plan for succession of key employees may inhibit our ability to maintain or expand our business operations. Additionally, changes to immigration policies in the numerous countries in which we operate, including the United States, as well as restrictions on global travel as a result of local or global public health crises requiring quarantines or other precautions to limit exposure to infectious diseases, may limit our ability to hire and/or retain talent in, or transfer talent to, specific locations. If our total compensation programs and workplace culture cease to be viewed as competitive, our ability to attract, retain, and motivate employees could be weakened, which could have a material adverse effect on our business, results of operations, or financial condition.
Our incentives from various governments are conditional upon achieving or maintaining certain performance obligations and are subject to reduction, termination, or clawback.
We have received, and may in the future continue to receive, benefits and incentives from national, state, and local governments in various regions of the world designed to encourage us to establish, maintain, or increase investment, workforce, or production in those regions. These incentives may take various forms, including grants, loan subsidies, and tax arrangements, and typically require us to perform or maintain certain levels of investment, capital spending, employment, technology deployment, or research and development activities to qualify for such incentives. We cannot guarantee that we will successfully achieve performance obligations required to qualify for these incentives or that the granting agencies will provide such funding. These incentive arrangements typically provide the granting agencies with rights to audit our performance with their terms and obligations. Such audits could result in modifications to, or termination of, the applicable incentive program. The incentives we receive could be subject to reduction, termination, or clawback, and any decrease or clawback of government incentives could have a material adverse effect on our business, results of operations, or financial condition.
We may make future acquisitions and/or alliances, which involve numerous risks.
Acquisitions and the formation or operation of alliances, such as joint ventures and other partnering arrangements, involve numerous risks, including the following:
•integrating the operations, technologies, and products of acquired or newly formed entities into our operations;
•increasing capital expenditures to upgrade and maintain facilities;
•increased debt levels;
•the assumption of unknown or underestimated liabilities;
•the use of cash to finance a transaction, which may reduce the availability of cash to fund working capital, capital expenditures, R&D expenditures, and other business activities;
•diverting management’s attention from daily operations;
•managing larger or more complex operations and facilities and employees in separate and diverse geographic areas;
•hiring and retaining key employees;
•requirements imposed by government authorities in connection with the regulatory review of a transaction, which may include, among other things, divestitures or restrictions on the conduct of our business or the acquired business;
•inability to realize synergies or other expected benefits;
•failure to maintain customer, vendor, and other relationships;
•inadequacy or ineffectiveness of an acquired company’s internal financial controls, disclosure controls and procedures, compliance programs, and/or environmental, health and safety, anti-corruption, human resource, or other policies or practices; and
•impairment of acquired intangible assets, goodwill, or other assets as a result of changing business conditions, technological advancements, or worse-than-expected performance of the acquired business.
The global memory and storage industry has experienced consolidation and may continue to consolidate. We engage, from time to time, in discussions regarding potential acquisitions and similar opportunities. To the extent we are successful in completing any such transactions, we could be subject to some or all of the risks described above, including the risks pertaining to funding, assumption of liabilities, integration challenges, and increases in debt that may accompany such transactions. Acquisitions of, or alliances with, technology companies are inherently risky and may not be successful and could have a material adverse effect on our business, results of operations, or financial condition.
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We may incur restructure charges in future periods.
From time to time, we have, and may in the future, enter into restructure initiatives in order to, among other items, streamline our operations; respond to changes in business conditions, our markets, or product offerings; or to centralize certain key functions. We may not realize expected savings or other benefits from our restructure activities and may incur additional restructure charges or other losses in future periods associated with other initiatives. In connection with any restructure initiatives, we could incur restructure charges, loss of production output, loss of key personnel, disruptions in our operations, and difficulties in the timely delivery of products, which could have a material adverse effect on our business, results of operations, or financial condition.
Compliance with customer responsible sourcing requirements and related regulations could limit the supply and increase the cost of certain materials, supplies, and services used in manufacturing our products.
Many of our customers have adopted responsible sourcing programs that require us to periodically report on our supply chain and responsible sourcing efforts to ensure we source the materials, supplies, and services we use and incorporate into the products we sell in a manner that is consistent with their programs. Some of our customers may elect to disqualify us as a supplier or reduce purchases from us if we are unable to verify that our products meet the specifications of their responsible sourcing programs. Meeting customer requirements may limit the sourcing and availability of some of the materials, supplies, and services we use, particularly when the availability of such materials, supplies, and services is concentrated to a limited number of suppliers. This may affect our ability and/or the cost to obtain sufficient quantities of materials, supplies, and services necessary for the manufacture of our products.
Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and its implementing SEC regulations impose supply chain due diligence and disclosure requirements for certain manufacturers of products containing specific minerals that may originate in or near the Democratic Republic of the Congo and finance or benefit local armed groups. These conflict minerals are commonly found in materials used in the manufacture of semiconductors.
Our inability to comply with customers’ requirements for responsible sourcing or with related regulations could have a material adverse effect on our business, results of operations, or financial condition.
A downturn in the worldwide economy may harm our business.
The health crisis caused by COVID-19 has adversely affected economic conditions and caused a downturn in the worldwide economy. Downturns in the worldwide economy have harmed our business in the past and the current downturn has adversely affected our business. As a result, demand for certain of our products used in smartphones, consumer electronics, and automotive, has been volatile. Reduced demand for these or other products could result in significant decreases in our average selling prices and product sales. If these adverse conditions persist or worsen, we could experience additional reduction in demand for our products and/or devices that incorporate our products. Future downturns could also adversely affect our business. In addition, to the extent our customers or distributors have elevated inventory levels, we may experience a decrease in short-term and/or long-term demand and/or pricing for our products.
A deterioration of conditions in worldwide credit markets could limit our ability to obtain external financing to fund our operations and capital expenditures. In addition, we may experience losses on our holdings of cash and investments due to failures of financial institutions and other parties. Difficult economic conditions may also result in a higher rate of losses on our accounts receivable due to credit defaults. As a result, downturns in the worldwide economy could have a material adverse effect on our business, results of operations, or financial condition.
Risks Related to Intellectual Property and Litigation
We may be unable to protect our intellectual property or retain key employees who are knowledgeable of and develop our intellectual property.
We maintain a system of controls over our intellectual property, including U.S. and foreign patents, trademarks, copyrights, trade secrets, licensing arrangements, confidentiality procedures, non-disclosure agreements with
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employees, consultants, and vendors, and a general system of internal controls. Despite our system of controls over our intellectual property, it may be possible for our current or future competitors to obtain, copy, use, or disclose, illegally or otherwise, our product and process technology or other proprietary information. The laws of some foreign countries may not protect our intellectual property to the same degree as do U.S. laws and our confidentiality, non-disclosure, and non-compete agreements may be unenforceable or difficult and costly to enforce.
Additionally, our ability to maintain and develop intellectual property is dependent upon our ability to attract, develop, and retain highly skilled employees. Global competition for such skilled employees in our industry is intense. A decline in our operating results and/or stock price may adversely affect our ability to retain key employees whose compensation is dependent, in part, upon the market price of our common stock, achieving certain performance metrics, levels of company profitability, or other financial or company-wide performance. If our competitors or future entrants into our industry are successful in hiring our employees, they may directly benefit from the knowledge these employees gained while they were under our employment.
Our inability to protect our intellectual property or retain key employees who are knowledgeable of and develop our intellectual property could have a material adverse effect on our business, results of operations, or financial condition.
Legal proceedings and claims could have a material adverse effect on our business, results of operations, or financial condition.
From time to time we are subject to various legal proceedings and claims that arise out of the ordinary conduct of our business or otherwise, both domestically and internationally. See “Part II. Other Information – Item 1. Legal Proceedings.” Any claim, with or without merit, could result in significant legal fees that could negatively impact our financial results, disrupt our operations, and require significant attention from our management. We could be subject to litigation or arbitration disputes arising from our relationships with vendors or customers, supply agreements, or contractual obligations with our subcontractors or business partners. We may also be associated with and subject to litigation arising from the actions of our vendors, subcontractors, or business partners. We may also be subject to litigation or claims as a result of our indemnification obligations, including obligations to defend our customers against third-party claims asserting infringement of certain intellectual property rights, which may include patents, trademarks, copyrights, or trade secrets. We may also be subject to claims or litigation arising from the terms of our product warranties or from product liability claims. As we continue to focus on developing system solutions with manufacturers of consumer products, including autonomous driving, augmented reality, and others, we may be exposed to greater potential for personal liability claims against us as a result of consumers’ use of those products. We, our officers, or our directors could also be subject to claims of alleged violations of securities laws. There can be no assurance that we are adequately insured to protect against all claims and potential liabilities, and we may elect to self-insure with respect to certain matters. Exposures to various legal proceedings and claims could lead to significant costs and expenses as we defend claims, are required to pay damage awards, or enter into settlement agreements, any of which could have a material adverse effect on our business, results of operations, or financial condition.
We are subject to allegations of anticompetitive conduct.
On April 27, 2018, a complaint was filed against Micron and other DRAM suppliers in the U.S. District Court for the Northern District of California. Subsequently, two substantially identical cases were filed in the same court. The lawsuits purported to be on behalf of a nationwide class of indirect purchasers of DRAM products. On September 3, 2019, the District Court granted Micron’s motion to dismiss and allowed the plaintiffs the opportunity to file a consolidated, amended complaint. On October 28, 2019, the plaintiffs filed a consolidated amended complaint that purported to be on behalf of a nationwide class of indirect purchasers of DRAM products. The amended complaint asserted claims based on alleged price-fixing of DRAM products under federal and state law during the period from June 1, 2016 to at least February 1, 2018, and sought treble monetary damages, costs, interest, attorneys’ fees, and other injunctive and equitable relief. On December 21, 2020, the District Court dismissed the plaintiffs’ claims and entered judgment against them.
On June 26, 2018, a complaint was filed against Micron and other DRAM suppliers in the U.S. District Court for the Northern District of California. Subsequently, four substantially identical cases were filed in the same court. On October 28, 2019, the plaintiffs filed a consolidated, amended complaint. The consolidated complaint purports to be on behalf of a nationwide class of direct purchasers of DRAM products. The consolidated complaint asserts claims based on alleged price-fixing of DRAM products under federal and state law during the period from June 1, 2016
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through at least February 1, 2018, and seeks treble monetary damages, costs, interest, attorneys’ fees, and other injunctive and equitable relief. On December 21, 2020, the District Court granted Micron’s motion to dismiss and granted the plaintiffs permission to file an amended complaint.
Additionally, six cases have been filed in the following Canadian courts: Superior Court of Quebec, the Federal Court of Canada, the Ontario Superior Court of Justice, and the Supreme Court of British Columbia. The substantive allegations in these cases are similar to those asserted in the cases filed in the United States.
On May 15, 2018, the Chinese State Administration for Market Regulation (“SAMR”) notified Micron that it was investigating potential collusion and other anticompetitive conduct by DRAM suppliers in China. On May 31, 2018, SAMR made unannounced visits to our sales offices in Beijing, Shanghai, and Shenzhen to seek certain information as part of its investigation. We are cooperating with SAMR in its investigation.
We are unable to predict the outcome of these matters and cannot make a reasonable estimate of the potential loss or range of possible losses. The final resolution of these matters could result in significant liability and could have a material adverse effect on our business, results of operations, or financial condition. See “Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies.”
We face risks associated with our former IMFT joint venture with Intel.
On October 31, 2019, we purchased Intel’s noncontrolling interest in the IMFT joint venture, now known as MTU. Our acquisition involves risks including, but not limited to, continued underutilization of the MTU facility. We also face risks from our arbitration proceeding with Intel, in which we and Intel have made claims against each other for damages relating to the joint venture. For information regarding the arbitration proceeding, see “Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies.” The foregoing could have a material adverse effect on our business, results of operations, or financial condition.
Claims that our products or manufacturing processes infringe or otherwise violate the intellectual property rights of others, or failure to obtain or renew license agreements covering such intellectual property, could materially adversely affect our business, results of operations, or financial condition.
As is typical in the semiconductor and other high technology industries, from time to time others have asserted, and may in the future assert, that our products or manufacturing processes infringe upon, misappropriate, misuse, or otherwise violate their intellectual property rights. We are unable to predict the outcome of these assertions made against us. Any of these types of claims, regardless of the merits, could subject us to significant costs to defend or resolve such claims and may consume a substantial portion of management’s time and attention. As a result of these claims, we may be required to:
•pay significant monetary damages, fines, royalties, or penalties;
•enter into license or settlement agreements covering such intellectual property rights;
•make material changes to or redesign our products and/or manufacturing processes; and/or
•cease manufacturing, having made, selling, offering for sale, importing, marketing, or using products and/or manufacturing processes in certain jurisdictions.
We may not be able to take any of the actions described above on commercially reasonable terms and any of the foregoing results could have a material adverse effect on our business, results of operations, or financial condition. See “Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies.”
We have a number of intellectual property license agreements. Some of these license agreements require us to make one-time or periodic payments. We may need to obtain additional licenses or renew existing license agreements in the future. We are unable to predict whether these license agreements can be obtained or renewed on terms acceptable to us. The failure to obtain or renew licenses as necessary could have a material adverse effect on our business, results of operations, or financial condition.
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We have been served with complaints in Chinese courts alleging patent infringement.
We have been served with complaints in Chinese courts alleging that we infringe certain Chinese patents by manufacturing and selling certain products in China. The complaints seek orders requiring us to destroy inventory of the accused products and equipment for manufacturing the accused products in China; to stop manufacturing, using, selling, and offering for sale the accused products in China; and to pay damages plus court fees.
We are unable to predict the outcome of these assertions of infringement made against us and cannot make a reasonable estimate of the potential loss or range of possible losses. A determination that our products or manufacturing processes infringe the intellectual property rights of others or entering into a license agreement covering such intellectual property could result in significant liability and/or require us to make material changes to our operations in China, products, and/or manufacturing processes. Any of the foregoing could have a material adverse effect on our business, results of operations, or financial condition. See “Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies.”
The acquisition of our ownership interest in Inotera from Qimonda AG (“Qimonda”) has been challenged by the administrator of the insolvency proceedings for Qimonda.
In January 2011, Dr. Michael Jaffé, administrator for Qimonda’s insolvency proceedings, filed suit against Micron and Micron Semiconductor B.V. (“Micron B.V.”), in the District Court of Munich, Civil Chamber. The complaint seeks to void a share purchase agreement between Micron B.V. and Qimonda signed in 2008, pursuant to which Micron B.V. purchased substantially all of Qimonda’s shares of Inotera, representing approximately 18% of Inotera’s outstanding shares at that time, and seeks an order requiring us to re-transfer those shares to the Qimonda estate. The complaint also seeks, among other things, to recover damages for the alleged value of the joint venture relationship with Inotera and to terminate a patent cross-license between us and Qimonda entered into at the same time as the share purchase agreement. See “Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies” for further information regarding the matter.
We are unable to predict the outcome of the matter and cannot make a reasonable estimate of the potential loss or range of possible losses. The final resolution of this lawsuit could result in the loss of the Inotera shares or monetary damages, unspecified damages based on the benefits derived by Micron B.V. from the ownership of the Inotera shares, and/or the termination of the patent cross-license, which could have a material adverse effect on our business, results of operations, or financial condition.
Risks Related to Laws and Regulations
Increases in tariffs or other trade restrictions or taxes on our or our customers’ products or equipment and supplies could have an adverse impact on our operations.
In 2020, 88% of our revenue was from products shipped to customer locations outside the United States. We also purchase a significant portion of equipment and supplies from suppliers outside the United States. Additionally, a significant portion of our facilities are located outside the United States, including in Taiwan, Singapore, Japan, and China.
The United States and other countries have levied tariffs and taxes on certain goods. General trade tensions between the United States and China have been escalating since 2018, with U.S. tariffs on Chinese goods and retaliatory Chinese tariffs on U.S. goods. Some of our products are included in these tariffs. Higher duties on existing tariffs and further rounds of tariffs have been announced or threatened by U.S. and Chinese leaders. Additionally, the United States has threatened to impose tariffs on goods imported from other countries, which could also impact certain of our customers’ or our operations. If the United States were to impose current or additional tariffs on components that we or our suppliers source, our cost for such components would increase. We may also incur increases in manufacturing costs and supply chain risks due to our efforts to mitigate the impact of tariffs on our customers and our operations. Additionally, tariffs on our customers’ products could impact their sales of such end products, resulting in lower demand for our products.
We cannot predict what further actions may ultimately be taken with respect to tariffs or trade relations between the United States and other countries, what products may be subject to such actions, or what actions may be taken by
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other countries in retaliation. Further changes in trade policy, tariffs, additional taxes, restrictions on exports or other trade barriers, or restrictions on supplies, equipment, and raw materials including rare earth minerals, may limit our ability to produce products, increase our selling and/or manufacturing costs, decrease margins, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase necessary equipment and supplies, which could have a material adverse effect on our business, results of operations, or financial condition.
Trade regulations have restricted our ability to sell our products to several customers, could restrict our ability to sell our products to other customers or in certain markets, or could otherwise restrict our ability to conduct operations.
International trade disputes have led, and may continue to lead, to new and increasing trade barriers and other protectionist measures that can increase our manufacturing costs, make our products less competitive, reduce demand for our products, limit our ability to sell to certain customers or markets, limit our ability to procure components or raw materials, impede or slow the movement of our goods across borders, impede our ability to perform R&D activities, or otherwise restrict our ability to conduct operations. Increasing protectionism, economic nationalism, and national security concerns may lead to further changes in trade policy, domestic sourcing initiatives, or other formal and informal measures that could make it more difficult to sell our products in, or restrict our access to, some markets and/or customers.
Escalating tensions between the United States and China have led to increased trade restrictions and have affected customer ordering patterns. For example, the BIS has recently enacted increasingly broad trade restrictions with respect to Huawei (which represented approximately 10% of our revenue in the fourth quarter of 2020 and 12% in 2019), culminating with restrictions that took effect on September 15, 2020 and that currently prevent us and many other companies from shipping products to Huawei. We cannot predict the duration these restrictions will remain in place, whether the BIS will grant us or others licenses to ship products to Huawei, or whether the BIS or other U.S. or foreign government entities will enact similar restrictions with respect to other customers, markets, or products. We may not be able to replace the lost revenue opportunities associated with such restrictions.
The United States has also imposed other restrictions on the export of U.S. regulated products and technology to certain Chinese technology companies, including certain of our customers. These restrictions have reduced our sales, and continuing or future restrictions could adversely affect our financial results, result in reputational harm to us due to our relationship with such companies, or lead such companies to develop or adopt technologies that compete with our products. It is difficult to predict what further trade-related actions governments may take, and we may be unable to quickly and effectively react to such actions. For example, U.S. legislation has expanded the power of the U.S. Department of Commerce to restrict the export of “emerging and foundational technologies” yet to be identified, which could impact our current or future products.
Trade disputes and protectionist measures, or continued uncertainty about such matters, could result in declining consumer confidence and slowing economic growth or recession, and could cause our customers to reduce, cancel, or alter the timing of their purchases with us. Sustained trade tensions could lead to long-term changes in global trade and technology supply chains, which could adversely affect our business and growth prospects. Trade restrictions that may be imposed by the United States, China, or other countries may impact our business in ways we cannot reasonably quantify, including that some of our customers’ products which incorporate our solutions may also be impacted. Restrictions on our ability to sell and ship our products to Huawei have had, and may continue to have, an adverse effect on our business, results of operations, or financial condition. In addition, further increases in trade restrictions or barriers may negatively impact our revenue with Huawei or other customers, and any licenses we have received or could receive in the future could be rendered ineffective. Any such changes may have a further adverse effect on our business, results of operations, or financial condition.
The technology industry is subject to intense media, political, and regulatory scrutiny, which can increase our exposure to government investigations, legal actions, and penalties. Although we have policies, controls, and procedures designed to help ensure compliance with applicable laws, there can be no assurance that our employees, contractors, suppliers, or agents will not violate such laws or our policies. Violations of trade laws, restrictions, or regulations can result in fines; criminal sanctions against us or our officers, directors, or employees; prohibitions on the conduct of our business; and damage to our reputation.
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We may incur additional tax expense or become subject to additional tax exposure.
We operate in a number of locations outside the United States, including Singapore, where we have tax incentive arrangements that are conditional, in part, upon meeting certain business operations and employment thresholds. Our domestic and international taxes are dependent upon the geographic mix of our earnings among these jurisdictions. Our provision for income taxes and cash tax liabilities in the future could be adversely affected by numerous factors, including challenges by tax authorities to our tax positions and intercompany transfer pricing arrangements, failure to meet performance obligations with respect to tax incentive agreements, expanding our operations in various countries, and changes in tax laws and regulations. Additionally, we file income tax returns with the U.S. federal government, various U.S. states, and various other jurisdictions throughout the world and certain tax returns may remain open to examination for several years. The results of audits and examinations of previously filed tax returns and continuing assessments of our tax exposures may have an adverse effect on our provision for income taxes and cash tax liability. The foregoing items could have a material adverse effect on our business, results of operations, or financial condition.
A change in tax laws in key jurisdictions could materially increase our tax expense.
We are subject to income taxes in the United States and many foreign jurisdictions. Changes to income tax laws and regulations, or the interpretation of such laws, in any of the jurisdictions in which we operate could significantly increase our effective tax rate and ultimately reduce our cash flows from operating activities and otherwise have a material adverse effect on our financial condition. For example, our effective tax rate increased from 1.2% for 2018 to 9.8% for 2019 primarily as a result of the Tax Cuts and Jobs Act enacted in December 2017 by the United States. Additionally, various levels of government are increasingly focused on tax reform and other legislative actions to increase tax revenue, and President-Elect Biden’s campaign proposals included increasing the U.S. corporate income tax rate from 21% to 28%. Further changes in the tax laws of foreign jurisdictions could arise as a result of the base erosion and profit shifting project undertaken by the Organisation for Economic Co-operation and Development, which represents a coalition of member countries and recommended changes to numerous long-standing tax principles. If implemented by taxing authorities, such changes, as well as changes in U.S. federal and state tax laws or in taxing jurisdictions’ administrative interpretations, decisions, policies, and positions, could have a material adverse effect on our business, results of operations, or financial condition.
We and others are subject to a variety of laws, regulations, or industry standards that may have a material adverse effect on our business, results of operations, or financial condition.
The manufacturing of our products requires the use of facilities, equipment, and materials that are subject to a broad array of laws and regulations in numerous jurisdictions in which we operate. Additionally, we are subject to a variety of other laws and regulations relative to the construction, maintenance, and operations of our facilities. Any changes in laws, regulations, or industry standards could cause us to incur additional direct costs, as well as increased indirect costs related to our relationships with our customers and suppliers, and otherwise harm our operations and financial condition. Any failure to comply with laws, regulations, or industry standards could adversely impact our reputation and our financial results. Additionally, we engage various third parties as sales channel partners or to represent us or otherwise act on our behalf who are also subject to a broad array of laws, regulations, and industry standards. Our engagement with these third parties may also expose us to risks associated with their respective compliance with laws and regulations. As a result of these items, we could experience the following:
•suspension of production or sales of our products;
•remediation costs;
•alteration of our manufacturing processes;
•regulatory penalties, fines, and legal liabilities; and
•reputational challenges.
Compliance with, or our failure, or the failure of our third-party sales channel partners or agents, to comply with, laws, regulations, or industry standards could have a material adverse effect on our business, results of operations, or financial condition.
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Risks Related to Capitalization and Financial Markets
We may be unable to generate sufficient cash flows or obtain access to external financing necessary to fund our operations, make scheduled debt payments, and make adequate capital investments.
Our cash flows from operations depend primarily on the volume of semiconductor memory and storage products sold, average selling prices, and manufacturing costs. To develop new product and process technology, support future growth, achieve operating efficiencies, and maintain product quality, we must make significant capital investments in manufacturing technology, capital equipment, facilities, R&D, and product and process technology.
We estimate capital expenditures in 2021 for property, plant, and equipment, net of partner contributions, will be approximately $9 billion, focused on technology transitions and product enablement. Investments in capital expenditures may not generate expected returns or cash flows. Delays in completion and ramping of new production facilities could significantly impact our ability to realize expected returns on our capital expenditures, which could have a material adverse effect on our business, results of operations, or financial condition.
In the past we have utilized external sources of financing when needed. As a result of our debt levels, expected debt amortization, and general economic conditions, it may be difficult for us to obtain financing on terms acceptable to us or at all. We have experienced volatility in our cash flows and operating results and may continue to experience such volatility in the future, which may negatively affect our credit rating. Our credit rating may also be affected by our liquidity, financial results, economic risk, or other factors, which may increase the cost of future borrowings and make it difficult for us to obtain financing on terms acceptable to us or at all. In addition, if our credit rating declines below a certain level, our credit facility will be required to become secured by certain of our assets, which may limit the amount or increase the cost of future financings. There can be no assurance that we will be able to generate sufficient cash flows, access capital or credit markets, or find other sources of financing to fund our operations, make debt payments, and make adequate capital investments to remain competitive in terms of technology development and cost efficiency. Our inability to do any of the foregoing could have a material adverse effect on our business, results of operations, or financial condition.
Debt obligations could adversely affect our financial condition.
We have incurred in the past, and expect to incur in the future, debt to finance our capital investments, business acquisitions, and to restructure our capital structure, including the refinancing of existing debt. As of December 3, 2020, we had debt with a carrying value of $6.63 billion. As of December 3, 2020, $2.50 billion of our Revolving Credit Facility was available to us. As of December 3, 2020, the conversion value in excess of principal of our convertible notes was $802 million, based on the trading price of our common stock of $69.90 per share on such date.
Our debt obligations could adversely impact us. For example, these obligations could:
•require us to use a large portion of our cash flow to pay principal and interest on debt, which will reduce the amount of cash flow available to fund working capital, capital expenditures, acquisitions, R&D expenditures, and other business activities;
•require us to use cash and/or issue shares of our common stock to settle any conversion obligations of our convertible notes;
•result in certain of our debt instruments being accelerated to be immediately due and payable or being deemed to be in default if certain terms of default are triggered, such as applicable cross payment default and/or cross-acceleration provisions;
•adversely impact our credit rating, which could increase future borrowing costs;
•limit our future ability to raise funds for capital expenditures, strategic acquisitions or business opportunities, R&D, and other general corporate requirements;
•restrict our ability to incur specified indebtedness, create or incur certain liens, and enter into sale-leaseback financing transactions;
•increase our vulnerability to adverse economic and semiconductor memory and storage industry conditions;
•increase our exposure to interest rate risk from variable rate indebtedness;
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•continue to dilute our earnings per share as a result of the conversion provisions in our convertible notes; and
•require us to continue to pay cash amounts substantially in excess of the principal amounts upon settlement of our convertible notes to minimize dilution of our earnings per share.
Our ability to meet our payment obligations under our debt instruments depends on our ability to generate significant cash flows or obtain external financing in the future. This, to some extent, is subject to market, economic, financial, competitive, legislative, and regulatory factors as well as other factors that are beyond our control. There can be no assurance that our business will generate cash flow from operations, or that additional capital will be available to us, in amounts sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs. Additionally, events and circumstances may occur which would cause us to not be able to satisfy applicable draw-down conditions and utilize our revolving credit facility. In 2019, we suspended the security interest in the collateral under our credit facility; however, if our corporate credit rating were to decline below a certain level, the security interest would be automatically reinstated, which may limit the amount or increase the cost of future financings. If we are unable to generate sufficient cash flows to service our debt payment obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we are unable to implement one or more of these alternatives, we may be unable to meet our debt payment obligations, which could have a material adverse effect on our business, results of operations, or financial condition.
Changes in foreign currency exchange rates could materially adversely affect our business, results of operations, or financial condition.
Across our global operations, significant transactions and balances are denominated in currencies other than the U.S. dollar (our reporting currency), primarily the euro, Singapore dollar, New Taiwan dollar, and yen. In addition, a significant portion of our manufacturing costs are denominated in foreign currencies. Exchange rates for some of these currencies against the U.S. dollar have been volatile and may be volatile in future periods. If these currencies strengthen against the U.S. dollar, our manufacturing costs could significantly increase. Exchange rates for the U.S. dollar that adversely change against our foreign currency exposures could have a material adverse effect on our business, results of operations, or financial condition.
We are subject to counterparty default risks.
We have numerous arrangements with financial institutions that subject us to counterparty default risks, including cash deposits, investments, and derivative instruments. Additionally, we are subject to counterparty default risk from our customers for amounts receivable from them. As a result, we are subject to the risk that the counterparty will default on its performance obligations. A counterparty may not comply with its contractual commitments which could then lead to its defaulting on its obligations with little or no notice to us, which could limit our ability to mitigate our exposure. Additionally, our ability to mitigate our exposures may be constrained by the terms of our contractual arrangements or because market conditions prevent us from taking effective action. If one of our counterparties becomes insolvent or files for bankruptcy, our ability to recover any losses suffered as a result of that counterparty’s default may be limited by the liquidity of the counterparty or the applicable laws governing the bankruptcy proceedings. In the event of such default, we could incur significant losses, which could have a material adverse effect on our business, results of operations, or financial condition.
The trading price of our common stock has been and may continue to be volatile.
Our common stock has experienced substantial price volatility in the past and may continue to do so in the future. Additionally, we, the technology industry, and the stock market as a whole have on occasion experienced extreme stock price and volume fluctuations that have affected stock prices in ways that may have been unrelated to the specific operating performance of individual companies. The trading price of our common stock may fluctuate widely due to various factors, including, but not limited to, actual or anticipated fluctuations in our financial condition and operating results, changes in financial estimates by us or financial estimates and ratings by securities analysts, changes in our capital structure, including issuance of additional debt or equity to the public, interest rate changes, regulatory changes, news regarding our products or products of our competitors, and broad market and industry fluctuations. For these reasons, investors should not rely on recent or historical trends to predict future trading prices of our common stock, financial condition, results of operations, or cash flows. Investors in our common stock may not realize any return on their investment in us and may lose some or all of their investment. Volatility in the
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trading price of our common stock could also result in the filing of securities class action litigation matters, which could result in substantial costs and the diversion of management time and resources.
The amount and frequency of our share repurchases may fluctuate, and we cannot guarantee that we will fully consummate our share repurchase authorization, or that it will enhance long-term shareholder value. Share repurchases could also increase the volatility of the trading price of our stock and will diminish our cash reserves.
The amount, timing, and execution of our share repurchases pursuant to our share repurchase authorization may fluctuate based on our operating results, cash flows, and priorities for the use of cash for other purposes. For example, we repurchased 66.4 million shares for $2.66 billion in 2019, 3.6 million shares for $176 million in 2020, and did not repurchase any shares in the first quarter of 2021. These other purposes include, but are not limited to, operational spending, capital spending, acquisitions, and repayment of debt. Other factors, including changes in tax laws, could also impact our share repurchases. Although our Board of Directors has authorized share repurchases of up to $10 billion of our outstanding common stock, the authorization does not obligate us to repurchase any common stock.
We cannot guarantee that our share repurchase authorization will be fully consummated or that it will enhance long-term shareholder value. The repurchase authorization could affect the trading price of our stock and increase volatility, and any announcement of a pause in, or termination of, this program may result in a decrease in the trading price of our stock. In addition, this program will diminish our cash reserves.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In May 2018, we announced that our Board of Directors 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. During the quarter ended December 3, 2020, we did not repurchase common stock under the authorization and as of December 3, 2020, $7.16 billion of the authorization remained available for the repurchase of common stock.
Shares of common stock withheld as payment of withholding taxes and exercise prices in connection with the vesting or exercise of equity awards are also treated as common stock repurchases. Those withheld shares of common stock are not considered common stock repurchases under an authorized common stock repurchase plan.
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Item 6. Exhibits

Exhibit Number | Description of Exhibit | Filed Herewith | Form | Period Ending | Exhibit/ Appendix | Filing Date
31.1 | Rule 13a-14(a) Certification of Chief Executive Officer | X |  |  |  |
31.2 | Rule 13a-14(a) Certification of Chief Financial Officer | X |  |  |  |
32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350 | X |  |  |  |
32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350 | X |  |  |  |
101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | X |  |  |  |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | X |  |  |  |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | X |  |  |  |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | X |  |  |  |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | X |  |  |  |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | X |  |  |  |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | X |  |  |  |

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

|  |  | Micron Technology, Inc.
|  |  | (Registrant)
Date: | January 8, 2021 | By: | /s/ David A. Zinsner
|  |  | David A. Zinsner
|  |  | Senior Vice President and Chief Financial Officer
|  |  | (Principal Financial Officer)
|  |  | /s/ Scott Allen
|  |  | Scott Allen
|  |  | Corporate Vice President and Chief Accounting Officer
|  |  | (Principal Accounting Officer)

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