Is Micron Financially Well-Positioned to Withstand Headwinds?
Micron's Fiscal 2Q16 Suffered from Weakness in the Memory Market
Micron continues to invest in technology
So far, we’ve seen that Micron Technology (MU) reported losses in fiscal 2Q16, largely due to a slowdown in the PC (personal computer) space and falling DRAM (dynamic random access memory) prices. Fiscal 2015 was also not a strong year for the company.
Even in such turbulent times, the company is investing in memory technology, manufacturing processes, and acquisitions. Let’s look at the financial position of the company and its ability to withstand headwinds.
Cash position
In fiscal 2Q16, Micron earned $763 million in cash from operating activities and spent $1.2 billion in capital expenditure. As of March 3, 2016, the company’s cash reserves stood at $4 billion, and its long-term debt stood at $6.5 billion. This indicates that the company does not have sufficient cash to fund its future debt obligations and has lower resistance to headwinds.
Micron’s R&D joint ventures
Despite this, the company is investing in R&D (research and development) through joint ventures. Intel (INTC) is Micron’s joint venture partner for memory technology, and the two jointly developed a breakthrough technology called 3D XPoint. Micron plans to spend $5.5 billion in fiscal 2016 on capital expenditure after excluding its partner’s share.
A similar methodology has been adopted by SanDisk (SNDK). It has developed a storage class memory in collaboration with Hewlett-Packard (HPQ).
Acquisitions
Recently, Micron acquired a Taiwanese (EWT) joint venture partner, Inotera, for $3.2 billion. The company plans to fund the acquisition by taking on new debt of $2.5 billion. The acquisition is expected to bring $600 million worth of incremental cash flow annually for Micron.
Many analysts are concerned that Micron may not be able to generate positive free cash flow if the current business environment does not improve.
In the next part of the series, we’ll see what Micron expects from its fiscal 3Q16 earnings.
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