Krause Fund Research Fall 2018

Technology (Beta) , Inc. (Nasdaq: MU)

Recommendation: BUY November 12, 2018

Analysts Current Price $37.44 Ivan Morales Target Price $54-63 [email protected]

Kameron Kopaska [email protected] MU Investment Highlights Yu Shen Lim [email protected]  Micron benefited from some of the top earnings in the semiconductor industry with an increase in revenues of 69.87%. Company Overview While decreasing their gross margin from 41.51% to 58.87%.

Micron Technology, Inc (MU) is a leader in the  Micron is the leader in the US of the production Dynamic semiconductor industry. They participate in the selling for Random Access Memory chips just behind Samsung and SK Dynamic Random Access Memory (DRAM) memory chips Hynix. DRAM chips saw an increase in sales volume and prices and NAND chips. These products are offered in many saw an increase of 37% in 2018. different products and applications such as cloud computing, smartphones, tablets, and automobiles. Micron  Due to Micron’s strong earnings and capital structure, is divided into four different business segments Compute Micron will be buying back stock starting in 2019. Micron will and Networking Business Unit (CNBU), Storage Business back 10 Billion dollars’ worth of stock using half of their free Unit (SBU), Mobile Business (MBU), and Embedded cash flows. Business Unit (EBU). Micron’s Fiscal year 2018 finished

August 31 where they reported revenue of 30.604 Billion up  Micron is investing in its intellectual property by buying out from 20.322 Billion. Net Income increased from 5.089 Intel in their joint venture IMFT for 1.5 Billion dollars to work Billion to 14.135 Billion. Micron raised their EPS share on the development of 3D XPoint technology. from $4.67 a share to $12.27 a share.

 With the growing demand in cloud computing and artificial Stock Performance Highlights intelligence, the reliance on semiconductors will continue to 52 week High $64.66 increase. 52 week Low $33.82 Beta Value 1.85  With being the largest market for Semiconductors Average Daily Volume 36.807 m and not having any companies headquartered there allows for more growth in the industry. Share Highlights Market Capitalization $43.703 b One Year Stock Performance Shares Outstanding 1.21 b Book Value per share $5.08 EPS (2018) $0.87 P/E Ratio 3.35 Dividend Yield 0% Dividend Payout Ratio 0%

Company Performance Highlights ROA 42.63% ROE 42.63% Sales $30.604 b

Financial Ratios Current Ratio 2.787 Source: Yahoo Finance17 Debt to Equity 13.98% 1

Economic Analysis

Real GDP

Real GDP is an economic measure which tracks the value of all goods and services produced in a given year. Q3 revealed real GDP of 3.5%, down 70 basis points from Q2’s four year high. The decrease seen from Q2 to Q3 was expected, however, Q3 GDP still beat market expectations of 3.3%. This surprise shows that the economy is still strong and should remain that way for Source: Statista9 2019 due to low unemployment and high consumer confidence. Although the U.S. has seen strong quarters as of late, we expect Silicon Production real GDP to normalize to an annualized rate of 2-3% in 2019 due to trade tensions with China. Silicon is a major input used in the production of semiconductors. China dominates the production of silicon followed by Russia and the U.S.

Source: Bureau of Economic Analysis8

Source: Statista9 Interest Rates We do not expect trade tensions to spill over to the Silicon When the FED increases the federal funds rate, it has an effect market. In March of 2018, the US International Trade on interest rates charged by banks. This helps reduce spending Commission blocked the President’s request to impose tariffs on to decelerate an overheating economy and keep inflation low. imports of silicon metal because the commission did not believe We expect to see another rate hike in December of 2018, and at silicon imports hurt U.S industries. least one more rate hike in 2019. This will hurt companies by Silicon Prices increasing their cost of debt, but will give the FED options should the economy spiral into a recession. Due to the correlation between interest rates and the strength of an Steady prices in Silicon translate to steady costs for economy, we believe rate hikes will not hurt Micron’s sales. semiconductor companies. We found the price of Silicon material has fluctuated over the years, but overall, has shown a decreasing trend. Inflation

Inflation measures the increase in prices and the decrease of purchasing power. In the U.S., there are two primary price indices: the consumer price index (CPI) and the producer price index (PPI). CPI measures inflation from the viewpoint of the buyer, while PPI measures inflation from the viewpoint of the seller. Jerome Powell believes contractionary monetary policy will keep the job market strong and keep inflation near 2% for the next several years. We believe inflation will remain near 2% in 2019.

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Forecasted Prices of Aluminum for semi-conductors tend to increase. However, when demand weakens, it causes the market to be flooded with an increased supply thus hurting sales for the industry. It is because of this trend that semi-conductor companies are known to be very cyclical. Although the industry is cyclical, it has outperformed the S&P 500 by a margin of 4.75% over the past three years, a margin of 8.51% over the past five years, and a margin of 4.47% over the past ten years10. YTD performance of the industry is trailing the benchmark by a margin of 6.56 percent, primarily due to 2018Q1 revenue declining 3.4% YoY and trade tension between China and the United States11.

Source: Bloomberg

The graph above shows the median consensus forecasts for aluminum. The price for aluminum is expected to remain stagnant until 2020, when the price is expected to increase by nearly five percent. Aluminum is widely used as a thin film to adhere to silicon to increase conductivity in semiconductors; an increase in the price of aluminum represents an operational risk. We incorporated this assumption into our model by increasing cost of goods sold by five percent in 2020. Forecasted Prices of Copper Source: SPIndices12

Copper is the second best conductor of electricity and is a Recent Developments common input for semiconductor companies. The price of copper is expected to increase by a CAGR of 2.7 percent. We The table below shows lead times for capacitors, resistors, and incorporated this assumption into our model by increasing cost discretes. Capacitors are used for the storage of electrical of goods sold by 2.7 percent until our CV year. charges, resistors are used in semiconductors to control the flow of current, and semiconductors that are not considered to be an integrated circuit is considered a discrete device. Supply has shifted from short lead times of 14 weeks or less to “highly constrained” lead times, resulting in squeezed supply and higher prices. Delayed delivery of products could result in loss of revenue and competitive positioning.

Source: Bloomberg

Industry Analysis

Semiconductor Industry

Semi-conductors produce current and are crucial to the technology sector. Semi-conductors are used as inputs in products such as, computers, cell-phones, televisions, and many others. Popular products sold in this industry include memory chips, microprocessors, commodity integrated circuits, and complex System on a Chip (SOC).

13 The semi-conductor industry is one that closely follows the Source: EPSNews macro-economy. During times of economic prosperity, demand 3

Micron’s Industry Position

Micron accounts for approximately 5% of all revenue generated by the industry, trailing only Intel (10.2%) and Semiconductor Manufacturing Company (5.22%). The figure below displays major players in the industry in terms of revenue.

Source: Statista

Trends

Companies in this industry tend to outperform the benchmark if their R&D is high relative to sales. We tracked this metric among the top six revenue producers in the industry as classified by Bloomberg Intelligence. The average among these six companies was 14.63 percent.

Source: Bloomberg Terminal

Micron generates a majority (57%) of their revenue in China, causing its main competition to be overseas with Samsung and Taiwan Semiconductor Manufacturing Company.

Segment Breakdown

Micron’s products consists of DRAM and NAND chips. In 2012, Micron held only 1.3% of DRAM sales. As of 2018Q2, they are responsible for over 17% of DRAM sales. This highlights Micron’s ability to remain competitive in the industry by transitioning research & development into sales.

Source: Bloomberg Terminal

Higher profit margins allow companies to absorb fluctuations in input prices and stymie losses inherited from the delayed delivery of products. It also measures manufacturing efficiency, a crucial metric considering manufacturing yields across the industry have increased from 10% in 1980 to 80% in 2018.

Source: Statista

Samsung is also the dominant player in the NAND market, accounting for roughly 36% of all revenues generated for this product. Micron’s market share for this product has remained stagnant since 2013Q4. The graph below displays major players in the NAND space. Source: Bloomberg

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Micron’s gross margin increased from 8.436 Billion to 17.891 Global internet usage has risen by just over 20% from 2014 to Billion. Micron saw Net Income grow from 5,089 to 14,138 2018 and is expected to rise just under 10% from 2018 to 2021. million from 2017 to 2018. Earnings per share increased from This bodes well for the industry as the Internet of Things (IoT) $4.67 to $12.27 per share. In 2018 Micron increased operating continues to revolutionize the world. From car manufacturers to cash flows from $8.153 B to $17.4 B. Micron increased total articles of clothing, producers are looking for new ways to assets from $35.336 B to $43.376 B. The strong financials are incorporate technology into their products. In 2010, the number attributable to demand for semiconductors and the increase in of connected devices was 5 B. In 2013, this figure grew by 80% prices for DRAM. to 9 B. Studies suggest the number of connected devices will Products and Segments increase to 20.6 B in 2020 and 1.0 T by 2025.19 Products MU produces memory and storage technologies; the main products are DRAM, NAND, and 3D XPoint technology. Micron also sells products such as, wafers, components, modules, and solid-state drive (SSD) & multiple chip packages that are a combination of DRAM, NAND, and 3D Xpoint technology. DRAM DRAM products are high-speed data storage and retrieval devices. DRAM is known as a commodity chip due to the simplicity of them. DRAM chips are inelastic and prone to Source: Statista14 changes in prices due to the cyclical changes of supply and General Information demand in the semiconductor markets. Sales of DRAM products were 70%, 64%, and 58% of total net sales in 2018, Overview and Business Description 2017 and 2016, respectively. Micron Technology, Inc. is a leader in the memory and storage Wafer, Component, and Module DRAM technologies. Micron operates internationally and has recently increased their production scale and product diversity through Products sold in this segment offer high-speed bandwidth for use strategic acquisitions. Micron faces extreme competition from in computers, servers, networking devices, communication other companies in the semiconductor market and must develop equipment, consumer electronics, automotive and industrial new technologies or decrease costs to stay competitive. applications. Low-Power DRAM LPDRAM products consume less energy than standard DRAM products. These devices are primarily used in smartphones, tablets, automotive and industrial applications. NAND NAND products are non-volatile semiconductor memory and storage devices that retain content when turned off1. NAND chips attempt to reduce the cost and increase the capacity for chips. Micron is trying to further develop this product to avoid the volatility in DRAM. Source: Wells Fargo Securities1 Trade NAND Life Cycle Trade NAND products consist of devices that combine both NAND and DRAM technologies. Trade NAND are chips that We believe MU is currently in a growth stage. They have Micron does not sell through joint ventures and agreements with exhibited moderate increases in their revenue streams YoY. competitors. MU’s two main types of products that they offer are Dynamic Random Access Memory (DRAM) and NAND. We expect demand for DRAM products to grow, especially as advancements occur in the field of Artificial Intelligence. Non-Trade NAND and Other Financial Summary of Recent Earnings Micron reported earnings on October 15th from 2017 to 2018 their revenue increased from 20.322 Billion to 30.391 Billion. 5

Non-Trade NAND consists primarily of 3D Xpoint devices. 3D Xpoint devices are manufactured through Micron’s and Intel’s former joint venture IMFT. NOR Flash NOR Flash is a cheaper version of NAND and has less memory capacity. The growth of smartphones use has decreased the need for NOR Flash devices. Products that still use NOR Flash include stand-alone devices and embedded applications2. Micron utilizes NOR Flash in its embedded business segment. 3D XPoint Memory 3D XPoint memory has 10 times the memory of DRAM and 1000 times the speed and capabilities of NAND. This product offers value to segments that DRAM and NAND cannot reach. The drivers for this unit are due to machine learning, data Source: MU 10K analytics, and artificial intelligence. MU is not expecting this product to generate revenue until 2019. The technology has been Storage Business Unit developed through a joint venture with Intel, which MU has The SBU segment includes memory devices sold to commercial recently bought out for $1.50 B3. and client markets. This unit includes SSD (Solid State Drive) Operating Segments which incorporates the products of NAND. The Enterprise and Cloud SSD segment has seen growth due to innovations in Micron separates its business operations into three different artificial intelligence and the clouds ability to analyze data. The segments: Compute and Networking Business Unit (“CNBU”), other uses for SSDs include the use of desktops, workstations, Storage Business Unit (“SBU”), Mobile Business Unit and other consumer applications. The SBU generated $5.022 (“MBU”), and Embedded Business Unit (“EBU”). Revenue has Billion in sales or ~17% of sales in 2018 with a growth of 11%. grown in all fields with CNBU leading the way and capturing roughly 50% of revenue.

Source: MU 10K

Mobile Business Unit Source: MU 10K The MBU includes memory products sold in mobile-device markets, such as smart-phones and tablets. The products sold in Compute and Networking Business Unit this section are a combination of DRAM and NAND products. The CNBU segment includes memory products sold in the cloud Higher performance and quality of smartphones has increased server, enterprise, client, graphics, and networking markets. The reliance on NAND products. The MBU produced $6.579 Billion main product sold to these markets was DRAM. The CNBU in sales or ~ 22% of sales in 2018 with a growth of 48.7%. accounted for 15.25 Billion or ~50% of all revenue generated in 2018. The revenue for the CNBU segment has seen a 77% increase from 2017. The increase in revenue is due to the increase in electronic devices’ ability to retrieve data, which increases the need for DRAM.

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Micron manufacturing plants are in the United States, , , and China. The United States locations including Idaho, Virginia, and Utah; the plant in Idaho is largely used for research and development. The Japan manufacturing facility is responsible for wafer fabrication. Micron has three facilities in Singapore, two of which focus on wafer fabrication, while the other, a test, assembly and module assembly facility. In China, Micron has four facilities which focus on design and manufacturing. The manufacturing of a semiconductor can be very costly due to the requirements of investing in complex facilities and equipment.

Raw Materials Source: MU 10K Micron requires the use of third-party services in order to Embedded Business Unit purchase raw materials. When using third parties, Micron must be certain that the raw materials are of a certain quality to make The EBU includes memory devices sold to automotive, it applicable to Micron’s products. This requirement of quality industrial and consumer electronics markets. The products sold causes shortages due to the difficulty of finding materials that to these segments are NAND and NOR Flash. The automotive work for Micron’s product. The transportation of raw materials industry is seeing growth due to the need for vehicle displays also causes the price of raw materials to increase due to and the growth of autonomous driving and driver assistance difficulties in delays that causes production to slow. Raw systems. Industrial markets utilize NAND to help with materials can be one of the strangleholds on the semiconductor surveillance video and storage. Consumer products are typically industry and can affect the cost of goods. seen in video cameras, home networking, and high definition televisions. The EBU produced $3.479 B in sales, or ~13% of Competition sales in 2018 and an increase in sales of 29%. The Semiconductor industry, has been dominated by large companies such as Intel and Samsung. These large companies have a greater number of resources to invest in new technology, grow, and withstand downturns in the economy. This can be seen in the world supply of microchips. As supply increases, demand could fall potentially causing a decrease in prices.

The size of industry leaders allows them to have strong relationships with foreign countries. China is the largest market for semiconductors and in the past has accounted for up to 50 Source: MU 10K percent of Microns revenue. China is trying to decrease their Catalysts for Growth reliance on imports of semiconductors by sponsoring and creating semiconductor companies. This has hurt Micron; June In 2017, the semiconductor industry recorded record high sales United Microelectronics Corp, a Chinese State-Owned company, and started 2018 on a strong foot. Although the industry has accused Micron of stealing patents. A Chinese court temporarily recently slowed down, revenues are still expected to rise 7% by banned the sales of Micron chips in China5. Recently the US year-end. This is likely a direct result from the industry’s justice department indicted UMD for stealing Microns increase in prices for DRAM and NAND products. intellectual property. Prior to UMD, no Chinese company made Earnings have been strong this year for MU, and this trend is DRAM chips. If the Chinese company is convicted, it will expected to continue. MU’s full-year revenue reached 30.391 drastically hurt China’s abilities to develop DRAM chips. China billion, a 69.87% increase from last year. The rapid increase in currently does not have the ability to manufacture and sell such growth can be credited to the increase in the price of DRAM, products5. rising 37% in the past year. Cost Structure MU is positioned for strong growth as demand for memory chips increases to keep pace with technological advancements. The purchase of the Joint Venture with Intel for $1.5 B, will see Specifically, discoveries in AI, autonomous vehicles, and Research and Development increase by $200 M. Micron’s five growing cloud computing needs are expected to increase year average of cost of goods sold is 62.79% of sales, a decrease 4 Micron’s Capital expenditures and revenues. of 38.67% from 2016. This reduction is due to the overall cost Micron manufacturing details change in microchips.

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Year DRAM (price NAND ability to withdraw up to another 2 billion dollars through an change) undrawn revolving credit facility (10k). From 2018 through (price change) 2017 Micron decreased their long-term debt and current portion of long-term debt by a total of 6,498 Million. With the decrease 2018-2017 37% (11)% in debt, it gives Micron more flexibility with their capital. It 2017-2016 19% (9)% decreases the stress of having to pay off debtholders and focus more on return of investments. 2016-2015 (35)% (20)% Capital Expenditures 2015-2014 (11)% (17)% Micron has released guidance that they will increase their capital Source: MU 10K expenditures by $10.5 B. Micron needs to capitalize on their investment in capital expenditures, to match competitors supply CNBU was the most efficient segment followed by MBU, EBU, and technological improvements. The increase of capital and SBU. The graph below shows COGS per business segment. expenditures will go towards upgrading and maintaining The reduction of COGS as a percentage of sales is due in part to facilities. the increase in demand for products, which has increased both the price of the products and sales. Over the past three years, Payout Policy CNBU has decreased their percentage by 64.6% the largest of any segment. Micron has not paid out a dividend since 1996 and does not plan to in the future. Not paying a dividend allows Micron to retain more capital. Micron has recently announced it will buy back $10 B worth of stock. This allows Micron to participate in buybacks to raise the price of the stock for investors. Strengths

Micron’s increased use of automation in its production process will combat high demand uncertainty in a highly cyclical industry. Automation enables Micron to scale its production up and down based on market conditions without compromising quality consistency or increasing labor costs. Most competitors like Analog Devices (ADI) are highly dependent on third-party contractors and cannot easily implement automation. These contractors are not incentivized to implement automation because costs can be pushed to the company contracting its Source: MU 10K manufacturing services. Foreign Currency Hedging Micron’s consistency has effectively made Micron’s products a While the revenue that Micron receives from a country is in the “go-to” commodity for computer manufacturing. USD, much of Micron’s costs, such as debt, operating expenditures and capital purchases are realized in other Despite heavy competition in the saturated DRAM market, currencies. The primary currencies are the euro, the Taiwan Micron maintains as the top U.S. manufacturer of DRAMs based dollar, Singapore dollar, and Yen. Micron has established a risk on market share. management program for assets and liabilities that are in foreign Weaknesses currencies. The strategy is to hedge against changes in fair value and volatility of changes in currency exchange rates. One of the Being in a highly cyclical industry, Micron’s revenues are strategies is utilizing currency forward projects to hedge and dependent on demand uncertainty and dynamic product reduce the risk. Micron does not participate in financial innovation. Micron’s key innovations are currently at odds with instruments to hedge for speculative purposes. Changes in the its short-term strategies. Micron’s ability to maintain and exchange rate can have large effects on cash flows. If a 10% develop intellectual property is dependent on retaining highly negative change occurred the previous fiscal year, Micron could skilled employees. There is high competition in the labor market have lost upwards of $78 M. With the number of facilities and for such highly skilled employees. To protect intellectual profit that come from outside of the United States, it remains property, Micron will realize high expenses due to labor costs in vital that Micron continues to hedge. periods of low demand.

Debt and Capital Structure Opportunities

Micron’s latest earning’s release revealed net working capital of Cloud computing, self-driving cars, and the convergence of $10,848 M, current value of debt of $4,636 M. Micron has the mobile memory into desktop-level memory are catalysts to keep 8

Micron’s demand above supply, but they are not exclusive to from the “mobile” and “storage” business units were forecasted Micron. The esports market, however, presents a niche to decline due to competitive pressure. opportunity to Micron. Nvidia (NVDA) controlled ~66.3% of the discrete GPU (graphics processing unit) market. The GPU Compute and Networking Business Unit (CNBU) market is experiencing massive growth, especially in recent This segment focuses on cloud server, enterprise, client, quarters, beating longer term trends like artificial intelligence graphics, and networking memory products. CNBU is Micron’s and self-driving cars. Nvidia uses Micron’s specialty DRAM in best performing segment; its revenues as a percentage of total its graphics cards and is expected to use them for next- revenues increased by 8% annually on average in the past 6 generation GPUs in the absence of viable alternatives. years. We forecasted CNBU revenues as a percentage of total Micron’s joint venture with Intel (INTC) to develop a new revenue to grow by 5.5% annually on average until CV. We memory technology beyond DRAM gives it a competitive forecasted CNBU revenues to grow by 7.9% annually until CV. advantage. The new memory technology, 3D XPoint, is Mobile Business Unit (MBU) produced jointly by Micron and Intel. As innovators of the product, the joint venture will not see direct competition in this The MBU is Micron’s third largest segment by revenue; it market in the near future. To avoid internal competition, Intel is generated 18% of total revenues on average in the past six years. focusing on computing chips while Micron would focus on This segment focuses on memory products for smartphones and server chips. other mobile devices. Micron’s innovative strength is in desktop, server, and enterprise memory markets. In the mobile market, Threats Micron faces intense competition from Samsung Electronics and Micron faces legal challenges based on product standards SK Hynix. We forecasted MBU revenues as a percentage of total fluctuations and patent infringements in different regions. revenue to decline by 16% annually on average until CV. We Chinese courts can enjoin Micron’s foreign-based subsidiaries also forecasted MBU revenues to decline by 14% annually until from manufacturing and importing DRAM products in China CV. under claims of patent infringement. These claims, validity Storage Business Unit (SBU) notwithstanding, are out of Micron’s control and will strongly affect revenues (51.1% in China’s case). Counterfeits and low- The SBU historically generated 25% of total revenues on quality imitation chips are a major threat to revenues and more average and is Micron’s second largest segment by revenue. The important, brand reputation. Micron faces intense competition SBU produces solid-state drives and 3D XPoint memory focused from major chipmakers like Western Digital (WDC), Analog on enterprise, cloud, and consumer markets. Micron faces heavy Devices (ADI), and Samsung Electronics. Competitors like competition in this segment from Samsung Electronics, Toshiba, Western Digital and Samsung have more comprehensive online and Western Digital. In addition to homogenous products, these sale solutions. Micron provides online sale solutions for its competitors have more comprehensive online sales solution. We “Crucial” brand; competitors can take advantage of Micron’s forecasted SBU revenues as a percentage of total revenue to weak online presence. decline by 5.9% annually on average until CV. We forecasted SBU revenues to decline by 3.8% annually until CV.

Embedded Business Unit (EBU)

Valuation Analysis The EBU is Micron’s smallest segment by revenue; it historically generated 13% of total revenues on average. The Revenue Decomposition EBU produces memory and storage products sold into We forecasted Micron’s total revenues from historical data with automotive, industrial, and consumer markets. Production for the regression analysis. We forecasted trend based on our estimation automotive market focuses on chips for autonomous driving of Micron’s future growth. Revenues were forecasted on a vehicles. Production for the industrial market focuses on the yearly frequency, so no seasonality adjustments are necessary. Internet of Things market, including factory automation, Predictor variables include real GDP, real GNP, consumer price transportation, and surveillance. We expect these markets served index, producer price index, consumer sentiment, import price by the EBU to grow, due in part to rising automation and index, unemployment rates and copper prices. We removed artificial intelligence trends. We forecasted EBU revenues as a insignificant predictors to avoid an overly complex model. A percentage of total revenues to grow by 0.6% annually on separate model based on ridge regression was also used to keep average until CV. We forecasted EBU revenues to grow by 2.9% multicollinearity in check. annually until CV.

Micron’s revenue is comprised of four segments (business Weighted Average Cost of Capital units). Based on factors like raw materials cost (global copper This is the rate that Micron is expected to pay its security prices), competitors’ focuses, and economic trends, we holders on average to finance its assets. Micron's capital forecasted revenues from the “compute and networking" and structure is 90% equity and 10% debt. Micron has a relatively "embedded” business units to improve throughout CV. Revenues 9 low debt-to-total capital ratio when compared to peers like Intel these commodities. This will increase Micron’s production costs, (27%) and Western Digital (48%). Going forward, Micron will and we forecasted Micron’s COGS as a percentage of revenues benefit from low debt-financing because 1) the reduction in to increase by 1.2% annually on average until CV. Additionally, effective tax rate reduces the benefits of debt financing, 2) the we forecasted COGS to increase by 6.7% annually until CV. expected rise in interest rates going forward will increase the cost of debt financing, 3) low debt levels will enhance credit President Donald Trump’s round of tariffs on Chinese imports is 7 ratings, thereby enabling Micron to secure low-interest loans or a factor guiding our rising expectations on Micron’s COGS . refinance its current loans to lower its cost of debt. Micron sources most of its rare earth minerals used in manufacturing from China, a major exporter of rare earth Beta minerals. Micron’s manufacturing processes depend on its relationships with third-party manufacturers, of which some are Beta represents the measure of Micron’s systematic risk in heavily dependent on China for raw materials. These third-party relation to the market. It is calculated using a linear intercept manufacturers will pass on additional costs such as executive model in which Micron’s returns are regressed on market tariffs to Micron, thereby reducing profit margins. While Micron returns. We used a 7-year weekly historical period as the may not be directly dependent on China for aluminum and timeframe and the SPDR S&P500 ETF Trust (SPY) index as the copper, but China is a top exporter of these metals and have proxy for market returns. We calculated Micron’s beta to be great influence on global prices. 1.85. Operating Expenses Cost of Equity Micron’s selling, general and administrative expense (SGA) is We use the CAPM model to determine Micron’s cost of equity. its largest operating expense until 2015, after which research and We used the 5-year U.S. Treasury Note yield (3.1% as of development (R&D) became the largest component. Micron has writing) as proxy for the risk-free rate, matching our forecast been increasing its R&D expense by 16% annually on average in time horizon of 5 years. We used the geometric mean of the past 7 years. SGA expense as a percentage of operating historical market returns to determine the market risk premium. expense has been decreasing by 6% annually on average. We Using the S&P500 index as proxy for the market and a 5-year expect this trend to continue into CV and forecasted R&D historical timeframe (matching our risk-free rate period), we expenses to increase by 5.4% annually on average until CV. calculated the market risk premium to be 5.74%. Incorporating the market risk premium, risk-free rate, and beta results in a Micron is increasing its spending on R&D to stay competitive in CAPM cost of equity of 13.8%. the memory chip market. One factor is its recent joint research arrangement with Intel to produce new “3D XPoint” chips which Cost of Debt both companies expect to be the successor of current technology Micron’s credit rating is Baa3 (Moody’s). We used Moody’s DRAM chips. Other related factors include the development of Bond Indices Corporate Baa (Bloomberg: MOODCBAA) as new generation DDR5 DRAMs, 3D mobile memory and storage proxy for the pre-tax cost of debt because Micron does not have systems. any long-term debt maturing at or after CV. Micron’s pre-tax Discounted Cash Flows (DCF) and Economic Profit (EP) cost of debt was determined to be 5.2%. The effective tax rate is Model 14%, which results in an after-tax cost of debt of 4.5%. We used the DCF model to derive Micron’s intrinsic stock value by discounting the present value of the company’s enterprise free cash flows (FCF). We assumed Micron’s continuing value Weights year to be 2022, when growth will be assumed to be stable. The Micron’s value of equity if the product of the current stock price basis of our free cash flow forecasts lies within our revenue, and the number of shares outstanding. The value of debt is the COGS, and capital structure forecasts. These metrics were sum of short-term debt, current portion of long-term debt, long- methodically forecasted from economic indicators, industry metrics, and Micron’s strategic position. Indicators and metrics term debt, and the present value of operating leases. Equity and provide initial forecasts with confidence intervals based on debt weights were obtained by respectively dividing the equity regression models. We then narrowed down forecasted and debt value by the sum of both equity and debt values. We confidence intervals based on qualitative analysis such as expect Micron to maintain a similar capital structure until CV. industry competition and future outlook. These forecasts were used to calculate net operating profits less adjusted taxes Margins (NOPLAT) and invested capital, resulting in FCF. We used Cost of Goods Sold (COGS) Micron’s weighted average cost of capital (WACC) as the FCF’s present value discount factor. In the process, we determined We forecasted Micron’s COGS based on its historical COGS-to- Micron’s terminal growth rate to be 6.7% and stable NOPLAT revenue ratio. Aluminum and copper are crucial manufacturing to be $434.8 million. Micron’s intrinsic stock value is calculated raw materials across all segments. We expect aluminum and to be $59.07. copper prices to rise in the short term, based on futures prices on 10

We also used the EP model to determine Micron’s intrinsic stock COGS vs R&D Growth value and projected economic profits. Using both DCF and EP models will provide checks against calculation errors. We In this sensitivity analysis, the increase percentage in COGS forecasted Micron’s economic profit at CV to be $255.6 million. increases more than the change in dollars of R&D. This can be credited to increasing the COGS by a percentage each year it compounds. As opposed to the dollar amount associated with the Dividend Discount Model (DDM) amount of R&D that is associated with the acquisition of IMFT. We used the DDM to calculate Micron’s stock price to be With the slight percentage increases and decreases it will result $38.52 which is much lower than the DCF/EP intrinsic in a bigger overall difference. value. Micron does not pay dividends on its stock, unlike CV ROIC vs. WACC comparable companies like Intel, AMD, and Texas Instruments. Micron does not intend to pay cash dividends When testing CV ROIC the sensitivity of CV ROIC it did not for the foreseeable future. The intrinsic value derived have a major effect on the stock price. Through a seven percent using this method is weak because we do not expect move on the lowest WACC of 10% it only moved .58 cents. Micron to achieve stable growth and profitability until Comparing that to the movement of WACC where a five percent 2023. The DDM is based on EPS, which can be change saw up to a 28 dollar move. CV ROIC is only relevant in temporarily manipulated and does not represent true the final year of the valuation. WACC has a much greater impact financial performance. The DCF/EP model is superior because controls how the stock grows and is discounted through because it takes actual cash flow into account. the future of the stock. Risk-Free Rate vs Pre-Tax Cost of Debt Relative Valuation When conducting the sensitivity analysis the changes in the risk- We compared Micron to seven comparable firms: Intel Corp. free rate will cause bigger movements in the price of Micron (INTC), Advanced Micro Devices (AMD), NVIDIA Corp. than the Pre-Tax Cost of Debt. This can be accustomed to (NVDA), and Texas Instruments (TXN), Seagate (STX), overall changes in the economy as more companies may shift Cypress Semiconductors (CY), and Semiconductor away from lending long term. Pre-tax cost of debt has a limited Manufacturing International (SMI). These firms were effect on their stock price because of the limited amounts of debt selected on the basis of evaluating their Price-Earnings (P/E) they have on their balance sheet. ratio and EPS estimates. Micron’s 2018 P/E ratio is about three times lower than the mean peer 2018 P/E ratio of 9.44. Market Risk Premium vs Effective Tax Rate We used our estimate of Micron’s EPS in 2018 and the mean P/E ratio of compared firms to calculate an implied relative In the sensitivity analysis, the market risk premium has a greater value of $115.85. This is Micron’s estimated stock price movement than the effective tax rate. The effective tax rate in using relative valuation. This is higher than our DCF/EP one percent movements has about a .63 cent move on the price model’s intrinsic value of $59.07. The DCF/EP model’s of Micron. The smaller increments are based on Micron’s intrinsic value is more representative of FLIR’s operational revenue and cost. While .25% in the market risk premium moves and financial performance because it is grounded in economic the stock price by about 2.50 dollars a share. The market risk and industry analysis with robust regression models. premium has a greater effect because it effects the WACC which in result affects how Micron is discounted in the future.

Sensitivity Analysis

CV Growth of NOPLAT vs Beta

When testing the sensitivity analysis of Beta and CV Growth of NOPLAT there is a bigger movement with beta than the growth rate. The movement bigger movement with the change in beta can be attributed to the volatility of beta. Beta also effects the cost of equity which goes into the WACC. Which dictates how financial models grow and are discounted. With the chosen growth rates for Micron being small, the movements are not going to very much compared to beta. This is due in part to the growth rates that lead up to the CV year have a bigger impact than the final year.

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Important Disclaimer 5. Stock Market News - Financial News. (n.d.). Retrieved from This report was created by students enrolled in the Security https://www.marketwatch.com/ Analysis (6F:112) class at the University of Iowa. The report 6. Chappell, C. (2018, September 21). was originally created to offer an internal investment recommendation for the University of Iowa Krause Fund and Micron shares tumble after chipmaker its advisory board. The report also provides potential says Trump's China tariffs will hit employers and other interested parties an example of the profitability. Retrieved November 12, students’ skills, knowledge and abilities. Members of the 2018, from Krause Fund are not registered investment advisors, brokers https://www.cnbc.com/2018/09/20/micr or officially licensed financial professionals. The investment advice contained in this report does not represent an offer or on-tumbles-after-cfo-says-trump- solicitation to buy or sell any of the securities mentioned. tariffs-will-hit-gross-margins.html Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not 7. Gross Domestic Product. (n.d.). Retrieved a complete compilation of data, and its accuracy is not November 12, 2018, from guaranteed. From time to time, the University of Iowa, its https://www.bea.gov/data/gdp/gross- faculty, staff, students, or the Krause Fund may hold a domestic-product financial interest in the companies mentioned in this report. 8. U.S. - projected inflation rate 2008-2023.

1. Forbes (2018). (n.d.). Retrieved November 12, 2018, from https://www.forbes.com/sites/greatspeculat https://www.statista.com/statistics/244983/ ions/2018/10/02/how-micron-is-looking-to- projected-inflation-rate-in-the-united- beat-the-nand-downturn/#260d3aa748f8 states/ 9. S&P Semiconductor Select Industry Index - S&P Dow Jones ... (n.d.). Retrieved November 12, 2018, from 2. Semiconductor Engineering (2018) https://us.spindices.com/indices/equity/sp- https://semiengineering.com/whats-next- semiconductors-select-industry-index for-nor-flash/ 10. June 28, 2018 | IHS Markit. (n.d.). Retrieved November 12, 2018, from http://ein.iconnect007.com/index.php/ar 3. /pages/Patrick-Seitz/416937568420857. ticle/111346/global-semiconductor- (2018, October 19). Micron Buying industry-down-34-to-1158-billion-in- Intel Stake In Flash Memory Joint q1-2018/111349/?skin=ein Venture. Retrieved November 12, 2018, from 11. S&P Dow Jones Indices. (n.d.). https://www.investors.com/research/ibd Retrieved November 12, 2018, from -industry-themes/micron-intel-flash- https://us.spindices.com/indices/equity/ memory-venture/ sp-semiconductors-select-industry- index 4. McLaughlin, D. , Strohm, C., Retreived November 12, 2018 12. Electronic Component shortages will https://www.bloomberg.com/news/artic worsen thorugh Q$ Jorgensen B. les/2018-07-03/micron-chip-sales- November 13, 2018 banned-in-china-on-patent-case-rival- https://epsnews.com/2018/08/30/compo umc- nent-shortages-worsen/ sayshttps://www.bloomberg.com/news/ 13. Global internet user penetration 2021 | articles/2018-11-01/u-s-says-china- Statistic. (n.d.). Retrieved November state-owned-co-stole-micron-trade- 12, 2018, from secrets https://www.statista.com/statistics/3257 06/global-internet-user-

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penetration/https://www.statista.com/statistics/32570 6/global-internet-user-penetration/ 14. MU 10K 15. Yahoo Finance - Business Finance, Stock Market, Quotes, News. (n.d.). Retrieved from https://finance.yahoo.com/ 16. Retrieved from https://www.bloomberg.com/ 17. Kashyap, S. (2018, April 30). 10 Real World Applications of Internet of Things (IoT) - Explained in Videos. Retrieved November 12, 2018, from https://www.analyticsvidhya.com/blog/ 2016/08/10-youtube-videos-explaining- the-real-world-applications-of-internet- of-things-iot/

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Micron Technology, Inc. Revenue Decomposition

Fiscal Years Ending Aug. 31 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E Revenue Compute and Networking (CNBU) 3462.0 7333.0 6725.0 4529.0 8624.0 15252.0 15937.5 17301.8 18866.0 20519.1 22289.2 YoY Growth 29.8% 111.8% -8.3% -32.7% 90.4% 76.9% 4.5% 8.6% 9.0% 8.8% 8.6% Storage (SBU) 2824.0 3480.0 3687.0 3262.0 4514.0 6579.0 6216.8 6018.6 5817.8 5617.1 5417.1 YoY Growth -0.6% 23.2% 5.9% -11.5% 38.4% 45.7% -5.5% -3.2% -3.3% -3.5% -3.6% Mobile (MBU) 1214.0 3627.0 3692.0 2569.0 4424.0 5022.0 4885.2 4479.8 3856.3 3128.5 2267.5 YoY Growth 3.2% 198.8% 1.8% -30.4% 72.2% 13.5% -2.7% -8.3% -13.9% -18.9% -27.5% Embedded (EBU) 1573.0 1918.0 2088.0 2039.0 2760.0 3538.0 3565.3 3674.7 3787.4 3898.5 4008.4 YoY Growth 1.5% 21.9% 8.9% -2.3% 35.4% 28.2% 0.8% 3.1% 3.1% 2.9% 2.8% Total Revenue 9073.0 16358.0 16192.0 12399.0 20322.0 30391.0 30604.7 31474.9 32327.6 33163.3 33982.2 YoY Growth 10.2% 80.3% -1.0% -23.4% 63.9% 49.5% 0.7% 2.8% 2.7% 2.6% 2.5%

% of Total Revenue CNBU 38.2% 44.8% 41.5% 36.5% 42.4% 50.2% 52.1% 55.0% 58.4% 61.9% 65.6% SBU 31.1% 21.3% 22.8% 26.3% 22.2% 21.6% 20.3% 19.1% 18.0% 16.9% 15.9% MBU 13.4% 22.2% 22.8% 20.7% 21.8% 16.5% 16.0% 14.2% 11.9% 9.4% 6.7% EBU 17.3% 11.7% 12.9% 16.4% 13.6% 11.6% 11.6% 11.7% 11.7% 11.8% 11.8% Total Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Micron Technology, Inc. Income Statement

Fiscal Years Ending Aug 31 2016 2017 2018 2019E 2020E 2021E 2022E 2023E Net sales 12,399.00 20,322.00 30,391.00 30,604.74 31,474.86 32,327.58 33,163.25 33,982.20 Cost of goods sold 9,894.00 11,886.00 16,361.00 13,140.07 13,900.88 14,705.74 15,557.20 16,457.97 Depreciation (2,980.00) (3,861.00) (3,861.00) (6,207.24) (7,332.88) (8,233.01) (8,968.54) (9,584.42) Gross margin 2,505.00 8,436.00 17,891.00 17,464.67 17,573.98 17,621.84 17,606.05 17,524.23

Selling, general, and administrative 659.00 743.00 813.00 1,277.79 1,786.24 2,319.55 2,876.96 3,457.73 Research and development 1,617.00 1,824.00 2,141.00 2401.50063 2668.59193 2942.44064 3223.21772 3511.09847 Restructure and asset impairments 67.00 18.00 - - - Other operating (income) expense, net (6.00) (17.00) (57.00) (26.67) (33.56) (39.07) (33.10) (35.24) Operating income 168.00 5,868.00 14,994.00 13,812.05 13,152.70 12,398.93 11,538.97 10,590.64

Interest income 42.00 41.00 120.00 67.67 76.22 87.96 77.28 80.49 Interest expense (437.00) (601.00) (342.00) (460.00) (467.67) (423.22) (450.30) (447.06) Gain on Acquisition - Other non-operating income (expense), net (54.00) (112.00) (465.00) (210.33) (262.44) (312.59) (261.79) (278.94) Total income (281.00) 5,196.00 14,307.00 13,209.38 12,498.81 11,751.07 10,904.17 9,945.13 Income tax (provision) benefit (19.00) (114.00) (168.00) (1,849.31) (1,749.83) (1,645.15) (1,526.58) (1,392.32)

Equity in net income (loss) of equity method investees 25.00 8.00 (1.00) - - - - - Net income (loss) (275.00) 5,090.00 14,138.00 11,360.07 10,748.98 10,105.92 9,377.59 8,552.81

Net (income) loss attributable to noncontrolling interests (1.00) (1.00) (3.00) (1.67) (1.89) (2.19) (1.91) (2.00) Net income (loss) attributable to Micron (276.00) 5,089.00 14,135.00 11,358.40 10,747.09 10,103.74 9,375.67 8,550.82

Earnings (loss) per share Basic -0.27 4.67 12.27 10.36 10.26 10.19 9.45 8.62

Weighted Average of Shares Outstanding Basic 1,036 1,089 1,152 1,097 1,047 992 992 992 -55 -50 -55 Micron Technology, Inc. Balance Sheet

Fiscal Years Ending Aug. 31 2016 2017 2018 2019E 2020E 2021E 2022E 2023E Assets Cash & equivalents 4,140 5,109 6,506 5,327 4,523 3,357 5,123 6,152 Short-term investments 258 319 296 373 353 331 307 282 Receivables 2,068 3,759 5,478 5,223 5,119 5,165 5,203 5,233 Inventories 2,889 3,123 3,595 3,553 3,690 3,828 3,967 4,105 Restricted cash ------Other current assets 140 147 164 112 116 119 122 125 Total Current Assets 9,495 12,457 16,039 14,588 13,801 12,800 14,721 15,897 Long-term marketable investments 414 617 473 895 903 748 583 409 Gross Property, plant & equipment Capital Expenditures 10,500 10,766 11,038 11,317 11,604 Property, plant & equipment, net 14,686 19,431 23,672 27,965 31,398 34,203 36,551 38,570 Equity method investments 1,364 16 ------Intangible assets, net 464 387 331 331 331 331 331 331 Deferred tax assets 657 766 1,022 815 815 815 815 815 Goodwill - 1,228 1,228 1,228 1,228 1,228 1,228 1,228 Other noncurrent assets 460 434 611 640 684 731 780 831 Total Assets 27,540 35,336 43,376 46,462 49,160 50,856 55,010 58,081

Liabilities and Shareholders' Equity Accounts payable & accrued expenses 3,879 3,664 4,611 4,551 4,586 4,616 4,641 4,660 Deferred income 200 408 284 243 262 283 304 328 Equipment purchase contracts Current debt 756 1,262 859 1,134 1,225 1,321 1,423 1,531 Total Current Liabilities 4,835 5,334 5,754 5,928 6,073 6,220 6,368 6,519 Long-term debt 9,154 9,872 3,777 5,928 5,190 4,684 4,142 3,565 Other noncurrent liabilities 623 639 581 509 555 602 651 701 Total Liabilities 14,612 15,845 10,112 12,364 11,818 11,506 11,161 10,785 Commitments and Contingencies ------Redeemable convertible note - 21 3 - - - - - Redeemable noncontrolling interest - - 97 - - - - - Microns shareholders' equity ------Common stock 109 112 117 96 60 23 (16) (58) Additional capital 7,736 8,287 8,201 2,806 (1,217) (5,465) (9,930) (14,605) Retained earnings (accumulated deficit) 5,299 10,260 24,395 32,307 39,954 46,604 55,980 64,531 Treasury stock, at cost (1,029) (67) (429) (1,976) (2,320) (2,678) (3,051) (3,437) Accumulated other comprehensive income (loss) (35) 29 10 10 10 10 10 10 Total Micron shareholders' equity 12,080 18,621 32,294 33,242 36,486 38,494 42,993 46,441 Noncontrolling interests in subsidiaries 848 849 870 856 856 856 856 856 Total Shareholders' Equity 12,928 19,470 33,164 34,098 37,342 39,349 43,849 47,297 Total Liabilities and Shareholders' Equity 27,540 35,336 43,376 46,462 49,160 50,856 55,010 58,081 1,482.30 4,435.24 3,968.93 9,886.47 All figures in millions of U.S. Dollar. 3,447 3,100.15 3,453.06 - Micron Technology, Inc. Cash Flow Statement

Fiscal Years Ending Aug. 31 2014 2015 2016 2017 2018 Cash Flows from Operating Activities Net income (loss) 3079 2899 -275 5090 14138

Depreciation expense & amortization of intangible assets 2103 2667 2980 3861 4759 Amortization of debt discount & other costs 167 138 126 125 101 Loss on debt prepayments, repurchases, & conversions - - - - 385 Stock-based compensation 115 168 191 215 198 Loss on restructure of debt 195 49 4 - - Loss on debt repurchases & conversions - - - 99 - Gain on remeasurement of previously-held equity interest in Memories, Inc. - - - -71 - Losses (gains) from currency hedges, net 27 64 -183 - - Equity in net loss (income) of equity method investees -474 -447 -25 -8 - Loss (gain) from Inotera Memories, Inc. issuance of shares -97 -3 - - - Loss (gain) from disposition of interest in Aptina Imaging Corporation -119 -1 - - - Noncash restructure & asset impairments -17 1 - - - Loss (gain) on acquisition of , Inc. - - - - - Loss (gain) on Micron Memory Japan, Inc. acquisition 33 - - - - Gain from disposition of Japan Fab - - - - - Provision to write-down inventories to estimate market values - - - - - Noncash restructure charges (benefits) - - - - - Loss (gain) from disposition of property, plant & equipment - - - - - Receivables -518 393 465 -1651 -1734 Inventories 194 116 -549 50 -472 Accounts payable & accrued expenses 671 -691 272 564 549 Payments attributed to intercompany balances with Inotera - - - -361 - Customer prepayments - - - - - Deferred income - - - 218 -265 Deferred income taxes, net 68 168 -15 - - Other noncurrent liabilities 243 -16 -63 - - Other cash flows from operating activities 29 -297 240 22 -259 Net cash provided by (used for) operating activities 5699 5208 3168 8153 17400

Expenditures for property, plant & equipment -2658 -4021 -5817 -4734 -8879 Acquisition of Inotera - - - -2634 - Purchases of available-for-sale securities -1063 -4392 -1026 -1239 -760 Payments to settle hedging activities -26 -132 -152 -274 -185 Decrease (increase) in restricted cash 536 -15 -23 - - Proceeds from sales & maturities of available-for-sale securities 557 2248 3690 970 - Additions to equity method investments - - - - - Cash acquired from acquisition of Elpida, net of cash paid - - - - - Proceeds from sales of property, plant & equipment - - - - - Proceeds from settlement of hedging activities - - 335 184 163 Proceeds from maturities of available-for-sale securities - - - - 320 Proceeds from sales of available-for-sale securities - - - - 604 Proceeds from government incentives - - - - 355 Cash received from disposition of interest in Aptina Imaging Corporation 105 1 6 - - Return of equity method investment - - - - - Acquisition of noncontrolling interests in TECH Semiconductor Singapore Pte. Ltd. - - - - - Other cash flows from investing activities 96 79 -81 190 166 Net cash provided by (used for) investing activities -2453 -6232 -3068 -7537 -8216

Proceeds from issuance of debt 2212 2212 2199 3311 1009 Proceeds from issuance of stock under equity plans 265 73 49 142 - Proceeds from equipment sale-leaseback transactions 14 291 765 - - Contributions from noncontrolling interests 102 142 37 - - Repayments of debt -3843 -2329 -870 -2558 -10194 Acquisition of noncontrolling interests -18 - -93 - - Payments on equipment purchase contracts -479 -95 -46 -519 -206 Proceeds from issuance of stock - - - - 1655 Cash paid to acquire treasury stock - -884 -148 -35 - Cash paid to purchase stock under equity plans -76 - - - - Cash received (paid) for capped call transactions - - - - - Cash paid to purchase common stock - - - - - Distributions to noncontrolling interests -10 - - - - Proceeds from issuance of common stock, net - - - - - Other cash flows from financing activities -115 -128 -148 8 -40 Net cash provided by (used for) financing activities -1948 -718 1745 349 -7776

Effect of changes in currency exchange rates on cash, cash equivalents, & restricted cash - - - - -37 Effect of changes in currency exchange rates on cash & cash equivalents -28 -121 8 -12 - Net increase (decrease) in cash & equivalents 1270 -1863 1853 953 1371 Cash & equivalents at beginning of period 2880 4150 2287 4263 5216 Cash & equivalents at end of period 4150 2287 4140 5216 6587

Supplemental discosures Income taxes paid, net 43 63 90 99 -226 Interest paid, net of amounts capitalized 163 226 267 468 -312 Micron Technology, Inc. Cash Flow Statement

Fiscal Years Ending Aug. 31 2019E 2020E 2021E 2022E 2023E Cash Flows from Operating Activities Net Income (loss) 11,358.40 10,747.09 10,103.74 9,375.67 8,550.82 Adjustments to reconcile net income (loss) to net cash from operating activities Change in deferred taxes 207.00 - - - - Changes in assets and liabilities: Accounts receivable 255.36 103.36 (45.52) (37.93) (30.54) Inventories 42.12 (137.55) (137.89) (138.23) (138.60) Other current assets 51.52 (3.20) (3.13) (3.07) (3.01) Accounts payable (60.44) 35.78 30.04 24.62 19.50 Deferred income (41.30) 19.38 20.56 21.80 23.12 Accrued expenses Net Cash Flows from Operating Activities 11,812.67 10,764.87 9,967.80 9,242.86 8,421.28

Investing Activities Payment for purchases of PPE (4,292.76) (3,432.77) (2,805.01) (2,348.74) (2,019.19) Other long-term assets (28.91) (44.52) (46.66) (48.90) (51.23) Capitalization of intangible assets - - - - - Decrease in goodwill - - - - - Long-term marketable investments (422.29) (8.00) 155.09 164.86 174.35 Equity method investments - - - - - Short-term investments (76.63) 19.98 21.85 23.67 25.43 Net Cash Flows from Investing Activities (4,820.60) (3,465.31) (2,674.72) (2,209.11) (1,870.64)

Financing Activities Other long-term liabilities (72.04) 45.95 47.36 48.73 50.06 Proceeds from issuance (payment) of long-term debt 2,150.64 (737.56) (505.94) (542.18) (577.36) Decrease in additional capital (5,394.81) (4,023.62) (4,247.55) (4,464.79) (4,675.49) Current maturities of long-term debt 275.38 90.58 96.09 101.91 108.04 Proceeds from issuance of common stock (21.32) (35.29) (37.40) (39.46) (41.45) Decrease in treasury stock (1,547.30) (343.84) (358.30) (372.32) (385.90) Decrease in AOCI - - - - - Increase in noncontrolling interest (14.33) - - - - Change in redeemable convertible note (3.00) - - - - Share Repurchases (3,446.79) (3,100.15) (3,453.06) - - Change in redeemable non-controlling interest (97.00) Net Cash Flows from Financing Activities (8,170.58) (8,103.93) (8,458.80) (5,268.10) (5,522.10)

Net increase (decrease) in cash and cash equivalents (1,178.51) (804.37) (1,165.72) 1,765.65 1,028.54 Cash and cash equivalents, beginning of year 6,506.00 5,327.49 4,523.11 3,357.39 5,123.04 Cash and cash equivalents, end of year 5,327.49 4,523.11 3,357.39 5,123.04 6,151.59 All figures in millions of U.S. Dollar. Micron Technology, Inc. Common Size Income Statement 2016 2017 2018 2019 2020 2021 2022 2023 Fiscal Years Ending Aug. 31 2016 2017 2018 2019E 2020E 2021E 2022E 2023E Net sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Cost of goods sold 79.80% 58.49% 53.84% 42.93% 44.17% 45.49% 46.91% 48.43% Gross margin 20.20% 41.51% 58.87% 57.07% 55.83% 54.51% 53.09% 51.57%

Selling, general, and administrative 5.31% 3.66% 2.68% 4.18% 5.68% 7.18% 8.68% 10.18% Research and development 13.04% 8.98% 7.04% 7.85% 8.48% 9.10% 9.72% 10.33% Restructure and asset impairments 0.54% 0.09% 0.00% 0.00% -0.09% -0.17% -0.25% -0.33% Other operating (income) expense, net -0.05% -0.08% -0.19% -0.35% -0.49% -0.62% -0.75% -0.89% Operating Income 1.35% 28.88% 49.34% 45.37% 52.71% 60.06% 67.40% 74.74%

Interest income 0.34% 0.20% 0.39% 0.39% 0.43% 0.47% 0.52% 0.56% Interest expense -3.52% -2.96% -1.13% -2.26% -2.23% -2.19% -2.16% -2.12% Gain on Acquisition 0.00% 0.00% 0.00% -2.34% -3.50% -4.66% -5.82% -6.98% Other non-operating income (expense), net -0.44% -0.55% -1.53% -1.06% -1.15% -1.25% -1.34% -1.44% Total other income -2.27% 25.57% 47.08% 40.11% 46.27% 52.43% 58.59% 64.75% Income tax (provision) benefit -0.15% -0.56% -0.55% -0.78% -0.88% -0.97% -1.06% -1.16%

Equity in net income (loss) of equity method investees 0.20% 0.04% 0.00% 1.62% 1.97% 2.33% 2.68% 3.03% Net Income (Loss) -2.22% 25.05% 46.52% 40.94% 47.36% 53.79% 60.21% 66.63%

Net (income) loss attributable to Noncontrolling interests -0.01% 0.00% -0.01% 0.00% 0.01% 0.02% 0.03% 0.04% Net income (loss) attributable to Micron -2.23% 25.04% 46.51% 40.94% 47.37% 53.81% 60.24% 66.67% All figures in percentage of sales. Micron Technology, Inc. Common Size Balance Sheet 2015 2016 2017 2018 2019 2020 2021 2022 2023 Fiscal Years Ending Aug. 31 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E Assets Cash & equivalents 14.12% 33.39% 25.14% 21.41% 17.41% 14.37% 10.39% 15.45% 18.10% Short-term investments 7.62% 2.08% 1.57% 0.97% 1.22% 1.12% 1.02% 0.93% 0.83% Receivables 15.48% 16.68% 18.50% 18.03% 17.06% 16.26% 15.98% 15.69% 15.40% Inventories 14.45% 23.30% 15.37% 11.83% 11.61% 11.72% 11.84% 11.96% 12.08% Restricted cash 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Other current assets 1.41% 1.13% 0.72% 0.54% 0.37% 0.37% 0.37% 0.37% 0.37% Total Current Assets 53.09% 76.58% 61.30% 52.78% 47.67% 43.85% 39.59% 44.39% 46.78% Long-term marketable investments 13.05% 3.34% 3.04% 1.56% 2.93% 2.87% 2.31% 1.76% 1.20% Property, plant & equipment, net 65.18% 118.45% 95.62% 77.89% 91.37% 99.75% 105.80% 110.22% 113.50% Equity method investments 8.52% 11.00% 0.08% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Intangible assets, net 2.77% 3.74% 1.90% 1.09% 1.08% 1.05% 1.02% 1.00% 0.97% Deferred tax assets 3.69% 5.30% 3.77% 3.36% 2.66% 2.59% 2.52% 2.46% 2.40% Restricted cash 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Goodwill 0.00% 0.00% 6.04% 4.04% 4.01% 3.90% 3.80% 3.70% 3.61% Other noncurrent assets 2.81% 3.71% 2.14% 2.01% 2.09% 2.17% 2.26% 2.35% 2.45% Total Assets 149.10% 222.11% 173.88% 142.73% 151.81% 156.19% 157.31% 165.88% 170.92%

Liabilities and Shareholders' Equity Accounts payable & accrued expenses 16.13% 31.28% 18.03% 15.17% 14.87% 14.57% 14.28% 13.99% 13.71% Deferred income 1.27% 1.61% 2.01% 0.93% 0.79% 0.83% 0.87% 0.92% 0.96% equipment purchase contracts 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Current debt 6.73% 6.10% 6.21% 2.83% 3.71% 3.89% 4.09% 4.29% 4.51% Total Current Liabilities 24.12% 39.00% 26.25% 18.93% 19.37% 19.30% 19.24% 19.20% 19.18% Long-term debt 38.61% 73.83% 48.58% 12.43% 18.49% 16.49% 14.49% 12.49% 10.49% Other noncurrent liabilities 4.31% 5.02% 3.14% 1.91% 1.66% 1.76% 1.86% 1.96% 2.06% Total Liabilities 67.04% 117.85% 77.97% 33.27% 40.40% 37.55% 35.59% 33.66% 31.74% Commitments and Contingencies 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Redeemable convertible note 0.30% 0.00% 0.10% 0.01% 0.00% 0.00% 0.00% 0.00% 0.00% Redeemable noncontrolling interest 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Microns shareholders' equity Common stock 0.67% 0.88% 0.55% 0.38% 0.31% 0.19% 0.07% -0.05% -0.17% Additional capital 46.16% 62.39% 40.78% 26.98% 9.17% -3.87% -16.90% -29.94% -42.98% Retained earnings (accumulated deficit) 34.51% 42.74% 50.49% 80.27% 105.56% 126.94% 144.16% 168.80% 189.90% Treasury stock, at cost -5.44% -8.30% -0.33% -1.41% -6.46% -7.37% -8.29% -9.20% -10.11% Accumulated other comprehensive income (loss) 0.08% -0.28% 0.14% 0.03% -0.62% -0.83% -1.04% -1.25% -1.46% Total Micron shareholders' equity 75.98% 97.43% 91.63% 106.26% 108.62% 115.92% 119.07% 129.64% 136.66% Noncontrolling interests in subsidiaries 5.79% 6.84% 4.18% 2.86% 2.80% 2.72% 2.65% 2.58% 2.52% Total Shareholders' Equity 81.76% 104.27% 95.81% 109.12% 111.41% 118.64% 121.72% 132.22% 139.18% Total Liabilities and Shareholders' Equity 149.10% 222.11% 173.88% 142.73% 151.81% 156.19% 157.31% 165.88% 170.92% All figures in percentage of sales. Micron Technology, Inc. Common Size Balance Sheet of Asseets 2016 2017 2018 2019 2020 2021 2022 2023 Fiscal Years Ending Aug. 31 2016 2017 2018 2019E 2020E 2021E 2022E 2023E Assets Cash & Cash Equivalents 15.03% 14.46% 15.00% 11.47% 9.20% 6.60% 9.31% 10.59% Short-term investments 0.94% 0.90% 0.68% 0.80% 0.72% 0.65% 0.56% 0.49% Receivables 7.51% 10.64% 12.63% 11.24% 10.41% 10.16% 9.46% 9.01% Inventories 10.49% 8.84% 8.29% 7.65% 7.51% 7.53% 7.21% 7.07% Restricted cash 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Other current assets 0.51% 0.42% 0.38% 0.24% 0.24% 0.23% 0.22% 0.22% Total current assets 34.48% 35.25% 36.98% 31.40% 28.07% 25.17% 26.76% 27.37% Long-Term Marketable Investments 1.50% 1.75% 1.09% 1.93% 1.63% 1.33% 1.03% 0.73% Property, Plant & Equipment, net 53.33% 54.99% 54.57% 60.19% 63.87% 67.25% 66.44% 66.41% Equity method investments 4.95% 0.05% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Intangible assets, net 1.68% 1.10% 0.76% 0.71% 0.67% 0.65% 0.60% 0.57% Deferred tax assets 2.39% 2.17% 2.36% 1.75% 1.66% 1.60% 1.48% 1.40% Restricted Cash 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Goodwill 0.00% 3.48% 2.83% 2.64% 2.50% 2.41% 2.23% 2.11% Other noncurrent assets 1.67% 1.23% 1.41% 1.38% 1.39% 1.44% 1.42% 1.43% Total assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Liabilities and Shareholders' equiy Accounts payable & accrued expenses 14.08% 10.37% 10.63% 9.79% 9.33% 9.08% 8.44% 8.02% Deferred income 0.73% 1.15% 0.65% 0.52% 0.53% 0.56% 0.55% 0.56% Equipment Purchase Contracts 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Current Debt 2.75% 3.57% 1.98% 2.44% 2.49% 2.60% 2.59% 2.64% Total Current Liabilities 17.56% 15.10% 13.27% 12.76% 12.35% 12.23% 11.58% 11.22% Long-term debt 33.24% 27.94% 8.71% 12.76% 10.56% 9.21% 7.53% 6.14% Other noncurrent liabilities 2.26% 1.81% 1.34% 1.10% 1.13% 1.18% 1.18% 1.21% Total liabilities 53.06% 44.84% 23.31% 26.61% 24.04% 22.63% 20.29% 18.57% Redeemable convertible note 0.00% 0.06% 0.01% 0.00% 0.00% 0.00% 0.00% 0.00% Microns shareholders' equity 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Common stock 0.40% 0.32% 0.27% 0.21% 0.12% 0.05% -0.03% -0.10% Additional capital 28.09% 23.45% 18.91% 6.04% -2.48% -10.75% -18.05% -25.15% Retained earnings (accumulated deficit) 19.24% 29.04% 56.24% 69.53% 81.27% 91.64% 101.76% 111.10% Treasury stock, at cost -3.74% -0.19% -0.99% -4.25% -4.72% -5.27% -5.55% -5.92% Accumulated other comprehensive income (loss) -0.13% 0.08% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% Total Micron Shareholders' Equity 43.86% 52.70% 74.45% 71.55% 74.22% 75.69% 78.15% 79.96% Noncontrolling interests in subsidiaries 3.08% 2.40% 2.01% 1.84% 1.74% 1.68% 1.56% 1.47% Total Shareholders' Equity 46.94% 55.10% 76.46% 73.39% 75.96% 77.37% 79.71% 81.43% Total Liabilities and Shareholders' Equity 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% All figures in percentage of total assets. Micron Technology, Inc. Weighted Average Cost of Capital (WACC) Estimation

Cost of Equity Beta 1.85 Risk Free 3.190% Market Risk Premium 5.740% Cost of Equity 13.81%

Cost of Debt Pre-tax 5.200% Tax Rate 14.000% After-tax Cost of Debt 4.472%

Market Value of Equity Share Price $ 37.44 Shares Outstanding $ 1,089.00 Market Value of Equity $ 40,772.16

Market Value of Debt STD & Current Portion of LTD $ 859.00 LTD $ 3,777.00 PV of Operating Leases $ 411.04 Market Value of Debt $ 5,047.04

Market Weights % Equity 89% % Debt 11%

WACC 12.7805% Micron Technology, Inc. Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs: CV Growth 0.50% CV ROIC 19.80% WACC 12.78% Cost of Equity 13.81%

Fiscal Years Ending August 31 2019E 2020E 2021E 2022E 2023E DCF Model NOPLAT 11,724.98 11,190.76 10,597.17 9,897.81 9,135.78 Beg. Invested Capital 34,681.04 37,535.54 40,136.36 41,904.08 46,146.86 ROIC 33.81% 29.81% 26.40% 23.62% 19.80%

NOPLAT 11,724.98 11,190.76 10,597.17 9,897.81 9,135.78 Less Capital Expenditures 2,854.50 2,600.82 1,767.72 4,242.78 3,104.99 FCF 8,870.48 8,589.94 8,829.45 5,655.02 6,030.79 CV (T=4) 72,513.62

CF to Discount Periods to Discount 1 2 3 4 4 Discount Factor 1.13 1.27 1.43 1.62 1.62 PV of Cash Flows 7,865.26 6,753.39 6,155.05 3,495.41 44,821.17

Value of Operating Assets 69,090.29 + Excess Cash 104.85 - PV of Operating Leases 411.04 - ESOP 30.17 + Long Term Marketable Investments 473.00 - Current Debt 859.00 - Long-term Debt 3,777.00 + Short-term Investments 296.00 - Redeemable convertible note 3.00 - Redeemable noncontrolling interest 97.00

Value of Equity 64,786.92 Shares Outstanding 1,097 Intrinsic Value $ 59.07 Intrinsic value as of 11/7/18 $ 60.53 Shares Outstanding 1,096.81 1,047.17 991.87 992.00 992.00

EP Model NOPLAT 11,724.98 11,190.76 10,597.17 9,897.81 9,135.78 Invested Captal 34,681.04 37,535.54 40,136.36 41,904.08 46,146.86 ROIC 33.81% 29.81% 26.40% 23.62% 19.80% WACC 12.78% 12.78% 12.78% 12.78% 12.78% EP 7,292.56 6,393.53 5,467.54 4,542.25 3,237.97 CV (T=4) 26,366.76

Cash Flow to Discount 7,292.56 6,393.53 5,467.54 4,542.25 26,366.76 Periods to Discount 1 2 3 4 4 Discount Factor 1.13 1.27 1.43 1.62 1.62 PV of Cash Flows 6,466.15 5,026.58 3,811.44 2,807.59 16,297.48

Value of Economic Profit 34,409.25 Add Beginning Invested Capital (T=0) 34,681.04

Value of Operating Assets 69,090.29 + Excess Cash 104.85 - PV of Operating Leases 411.04 - ESOP 30.17 + Long Term Marketable Investments 473.00 - Current Debt 859.00 - Long-term Debt 3,777.00 + Short-term Investments 296.00 - Redeemable convertible note 3.00 - Redeemable noncontrolling interest 97.00 Value of Equity 64,786.92 Shares Outstanding 1,097 Intrinsic Value 59.07 Intrinsic value as of 11/7/18 60.53 Micron Technology, Inc. Dividend Discount Model (DDM) or Fundamental P/E Valuation Model

Fiscal Years Ending August 31 2019E 2020E 2021E 2022E 2023E

EPS 10.36 10.26 10.19 9.45 8.62

Key Assumptions CV growth 0.50% CV ROE 18.08% Cost of Equity 13.81% payout ratio 97.24% Future Cash Flows P/E Multiple (CV Year) 7.31 EPS (CV Year) 8.62 Future Stock Price 62.98 Dividends Per Share $ - $ - $ - $ - $ 8.38 Future Cash Flows $ - $ - $ - $ - $ 62.98

Discounted Cash Flows 0 0 0 0 37.54

Intrinsic Value $ 37.54 Intrinsic value as of 11/12/18 38.52 For Discounting: Number of Periods 1 2 3 4 5

Model Date 11/12/2018 Next FYE 8/31/2019 Last FYE 8/31/2018 Days in FY 365 Days to FYE 73 Elapsed Fraction 0.2 Micron Technology, Inc. Relative Valuation Models

EPS EPS Ticker Company Price 2018E 2019E P/E 18 P/E 19 INTC Intel $45.61 $4.50 $4.52 10.14 10.09 AMD Advanced Micro Devices $17.02 $0.46 $0.65 37.00 26.18 NVDA NVIDA Corporation $188.76 $7.33 $8.06 25.75 23.42 WDC Western Digital Corporation $43.57 $6.19 $6.01 7.04 7.25 QCOM Qualcomm $55.29 $2.80 $4.32 19.75 12.80 TXN Texas Instruments $90.61 $5.58 $5.59 16.24 16.21 Average 19.32 15.99

MU Micron Technology, Inc. $37.44 $12.27 $10.36 3.1 3.6

Implied Relative Value: P/E (EPS18) $ 237.04 P/E (EPS19) $ 165.61 Micron Technology, Inc. Key Management Ratios

Fiscal Years Ending Definitions 2016 2017 2018 2019E 2020E 2021E 2022E 2023E

Liquidity Ratios Current Ratio Current Assets/Current Liab. 1.964 2.335 2.787 2.461 2.272 2.058 2.312 2.438 Quick Ratio (Cash+ other liquid assets)/Current Liab. 1.284 1.663 2.083 1.780 1.588 1.370 1.621 1.746 Operating Cash Flow Ratio Cash flows from operations/ Current Liab. 0.217 0.515 1.721 1.993 1.772 1.603 1.451 1.292

Activity or Asset-Management Ratios Inventory Turnover Ratio COGS/Average Inventory 4.292 6.507 8.454 8.614 8.529 8.444 8.361 8.278 Receivable Turnover Revenue/Avg. Accounts Recievables 5.996 5.406 5.548 5.860 6.148 6.259 6.374 6.494 Total Asset Turnover Revenue/Avg. Total Assets 0.450 0.575 0.701 0.659 0.640 0.636 0.603 0.585

Financial Leverage Ratios Debt to Equity Ratio Total Liabilities/ Shareholders Equity 0.767 0.572 0.140 0.207 0.172 0.153 0.127 0.108 Equity Multiplier Total Assets/ Total Liabilities 2.130 1.815 1.308 1.363 1.316 1.292 1.255 1.228 Interest Coverage Earnings Before Taxes/Interest Expense (0.64) 8.65 41.83 28.716 26.726 27.766 24.216 22.246

Profitability Ratios Profit Margin Net Income/ Net Sales -2.22% 25.05% 46.52% 37.12% 34.15% 31.26% 28.28% 25.17% ROE Net Income/AVG Total Equity -2.13% 26.14% 42.63% 33.32% 28.79% 25.68% 21.39% 18.08% ROA Net Income/AVG Total Assets -1.00% 14.40% 32.59% 24.45% 21.87% 19.87% 17.05% 14.73%

Payout Policy Ratios Dividend Payout Ratio Dividend Per Share/EPS 0% 0% 0% 0% 0% 0% 0% 0% Total Payout (Dividends+Repurchases)/Net Income 0% 0% 0% 0% 0% 0% 0% 0% Beta COGS Share price $ 60.53 1.55 1.65 1.75 1.85 1.95 2.05 2.15 Share price $ 60.53 4.50% 5% 5.50% 5.79% 6.50% 7% 7.50% -1.00% 66.96 64.04 61.36 58.87 56.56 54.42 52.42 $ 150.00 64.92 63.71 62.48 61.76 59.97 58.68 57.38 -0.50% 67.79 64.75 61.96 59.38 57.00 54.78 52.73 $ 170.00 64.49 63.27 62.04 61.32 59.53 58.24 56.94 0.00% 68.70 65.52 62.61 59.93 57.46 55.17 53.05 $ 190.00 64.05 62.84 61.61 60.88 59.09 57.81 56.50 CV Growth 0.50% 69.69 66.36 63.32 60.53 57.96 55.60 53.40 R&D Grow $ 206.33 63.69 62.48 61.25 60.53 58.73 57.45 56.15 1.00% 70.78 67.27 64.09 61.17 58.50 56.05 53.78 $ 230.00 63.17 61.96 60.73 60.01 58.22 56.93 55.63 1.50% 71.98 68.28 64.93 61.88 59.09 56.54 54.19 $ 250.00 62.74 61.52 60.29 59.57 57.78 56.50 55.19 2% 73.32 69.39 65.85 62.65 59.73 57.07 54.63 $ 270.00 62.30 61.09 59.86 59.13 57.34 56.06 54.76

CV ROIC Risk Free Rate Share price $ 60.53 16.00% 17.00% 18.00% 19.80% 21.00% 22.00% 23.00% Share price $ 60.53 2.90% 3% 3.10% 3.19% 3.30% 3% 3.50% 10% 79.00 79.11 79.21 79.36 79.45 79.52 79.58 3.70% 62.65 62.16 61.67 61.24 60.72 60.25 59.79 11% 71.11 71.21 71.30 71.43 71.51 71.57 71.62 4.20% 62.40 61.91 61.43 61.00 60.48 60.02 59.57 12% 64.61 64.69 64.77 64.89 64.96 65.01 65.05 4.70% 62.15 61.67 61.19 60.76 60.25 59.79 59.34 WACC 12.78% 60.27 60.35 60.42 60.53 60.59 60.64 60.68 Pre-Tax Co 5.20% 61.91 61.42 60.95 60.53 60.02 59.56 59.12 13% 59.15 59.22 59.29 59.40 59.46 59.50 59.55 5.70% 61.66 61.18 60.71 60.29 59.79 59.34 58.89 14% 54.50 54.57 54.63 54.73 54.78 54.82 54.86 6.20% 61.42 60.95 60.48 60.06 59.56 59.11 58.67 15% 50.50 50.56 50.62 50.70 50.75 50.79 50.82 6.70% 61.18 60.71 60.24 59.83 59.34 58.89 58.45

Market Risk Premium Share pric $ 60.53 5.00% 5.25% 5.50% 5.74% 6.00% 6.25% 6.50% 11.00% 69.42 66.79 64.34 62.14 59.92 57.92 56.04 12.00% 68.82 66.21 63.78 61.60 59.40 57.42 55.56 13.00% 68.21 65.63 63.22 61.07 58.88 56.92 55.07 Effective T14.00% 67.61 65.05 62.66 60.53 58.36 56.42 54.59 15.00% 67.00 64.46 62.10 59.99 57.84 55.92 54.11 16.00% 66.40 63.88 61.54 59.45 57.33 55.42 53.62 17.00% 65.79 63.30 60.99 58.91 56.81 54.91 53.14 Micron Technology, Inc. Key Assumptions of Valuation Model

Ticker Symbol MU Current Share Price $ 37.44 Current Model Date 11/13/2018 FY End (month/day) 31-Aug

Pre-Tax Cost of Debt 5.20% Beta 1.850 Risk-Free Rate 3.19% Equity Risk Premium 5.74% CV Growth of NOPLAT 0.50% CV Growth of EPS 0.50% Current Dividend Yield 0 Marginal Tax Rate 14.00% Effective Tax Rate 14.00% Cost of Equity 13.81% WACC 12.78% CV ROIC 19.80% DCF Price $ 60.53 EP Price $ 60.53 DDM Price $ 38.52 Inflation 2.53% SG&A growth 1.50% R&D 206.33 COGS 5.79% Relative PE 18 $ 237.04 Relative PE 19 $ 165.61 Present Value of Operating Lease Obligations (2018) Present Value of Operating Lease Obligations (2017) Present Value of Operating Lease Obligations (2016)

Operating Operating Operating Fiscial Years Ending 8/31 Leases Fiscal Years Ending Dec. 31 Leases Fiscal Years Ending Dec. 31 Leases 2019 37 2018 29 2017 419 2020 43 2019 28 2018 400 2021 50 2020 23 2019 127 2022 50 2021 19 2020 15 2023 45 2022 17 2021 11 Thereafter 391 Thereafter 38 Thereafter 29 Total Minimum Payments 616 Total Minimum Payments 154 Total Minimum Payments 1001 Less: Interest 205 Less: Interest 29 Less: Interest 103 PV of Minimum Payments 411 PV of Minimum Payments 125 PV of Minimum Payments 898

Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases

Pre-Tax Cost of Debt 6.00% Pre-Tax Cost of Debt 6.00% Pre-Tax Cost of Debt 6.00% Number Years Implied by Year 6 Payment 8.7 Number Years Implied by Year 6 Payment 2.2 Number Years Implied by Year 6 Payment 2.6

Lease PV Lease Lease PV Lease Lease PV Lease Year Commitment Payment Year Commitment Payment Year Commitment Payment 1 37 34.9 1 29 27.4 1 419 395.3 2 43 38.3 2 28 24.9 2 400 356.0 3 50 42.0 3 23 19.3 3 127 106.6 4 50 39.6 4 19 15.0 4 15 11.9 5 45 33.6 5 17 12.7 5 11 8.2 6 & beyond 45 222.6 6 & beyond 17 25.9 6 & beyond 11 19.5 PV of Minimum Payments 411.0 PV of Minimum Payments 125.2 PV of Minimum Payments 897.5 VALUATION OF OPTIONS GRANTED IN ESOP

Ticker Symbol MU Current Stock Price $ 37.44 Risk Free Rate 3.19% Current Dividend Yield 0.00% Annualized St. Dev. of Stock Returns 49.05%

Average Average B-S Value Range of Number Exercise Remaining Option of Options Outstanding Options of Shares Price Life (yrs) Price Granted Range 1 146,150 $ 5.07 2.24 $ 32.73 $ 4,782,929.78 Range 2 56,000 $ 8.99 5.40 $ 30.50 $ 1,707,771.53 Range 3 228,100 $ 10.34 4.35 $ 29.08 $ 6,632,382.43 Range 4 301,700 $ 11.45 6.40 $ 29.45 $ 8,886,539.20 Range 5 283,500 $ 14.89 8.24 $ 28.80 $ 8,165,131.68 Total 1,015,450 $ 11.11 5.80 $ 29.34 $ 30,174,754.62 Micron Technology, Inc. Value Driver Estimation 2016 2017 2018 2019 2020 2021 2022 2023 Fiscal Years Ending Aug. 31 2016 2017 2018 2019E 2020E 2021E 2022E 2023E NOPLAT Sales 12,399.00 20,322.00 30,391.00 30,604.75 31,474.86 32,327.58 33,163.25 33,982.20 Cost of Goods Sold 9,894.00 11,886.00 16,361.00 13,140.07 13,900.88 14,705.74 15,557.20 16,457.97 SG&A Expenses 659.00 743.00 813.00 1,277.79 1,786.24 2,319.55 2,876.96 3,457.73 Research and Development 1,617.00 1,824.00 2,141.00 2,401.50 2,668.59 2,942.44 3,223.22 3,511.10 Interest on PV operating leases 31.32 46.67 6.51 21.37 16.98 18.86 20.93 23.23 EBITA 266.32 5,932.67 11,139.51 13,836.21 13,172.87 12,422.47 11,563.45 10,617.69 Income Tax Provision 19.00 114.00 168.00 1,849.31 1,749.83 1,645.15 1,526.58 1,392.32 -Tax Shield on Interest Income 5.88 5.74 16.80 9.47 10.67 12.31 10.82 11.27 +Tax Shield on Interest Expense 61.18 84.14 47.88 64.40 65.47 59.25 63.04 62.59 -Tax Shield on Non-Operating Income (Expense), n (7.56) (15.68) (65.10) (29.45) (36.74) (43.76) (36.65) (39.05) +Tax Shield on Restructure and Asset Impairment 9.38 2.52 ------Tax Shield on Gains and Acquisitions ------Other operating (income) Expense, net (6.00) (17.00) (57.00) (29.45) (36.74) (43.76) (36.65) (39.05) +tax shield on operating lease interest 4.38 6.53 0.91 2.99 2.38 2.64 2.93 3.25 Total Adjusted Taxes 89.62 200.13 208.09 1,907.23 1,807.01 1,694.73 1,581.74 1,446.89 Changes in Deferred Taxes (202.00) (306.00) (588.00) (204.00) (175.09) (130.57) (83.91) (35.01) NOPLAT (25.30) 5,426.54 10,343.42 11,724.98 11,190.76 10,597.17 9,897.81 9,135.78 Invested Capital Normal Cash 3,075.66 5,041.02 6,506.00 5,327.49 4,523.11 3,357.39 5,123.04 6,151.59 Accounts Receivable 2,068.00 3,759.00 5,478.00 5,222.64 5,119.27 5,164.79 5,202.72 5,233.26 Inventory 2,889.00 3,123.00 3,595.00 3,552.88 3,690.43 3,828.31 3,966.55 4,105.14 Other 140.00 147.00 164.00 112.48 115.67 118.81 121.88 124.89 Accounts Payable 3,879.00 3,664.00 4,611.00 4,550.56 4,586.34 4,616.38 4,641.00 4,660.49 Deferred Revenue 200.00 408.00 284.00 242.70 262.08 282.64 304.44 327.55 Net Working Capital 4,093.66 7,998.02 10,848.00 9,422.22 8,600.07 7,570.29 9,468.75 10,626.83 Net Ppe 14,686.00 19,431.00 23,672.00 27,964.76 31,397.54 34,202.54 36,551.29 38,570.47 Intangible Assets 464.00 387.00 331.00 331.00 331.00 331.00 331.00 331.00 PV of Operating Leases 897.52 125.20 411.04 326.51 362.65 402.51 446.82 424.61 Other Non-Current Liabilities 623.00 639.00 581.00 508.96 554.91 602.27 651.00 701.06 Invested Capital 19,518.18 27,302.22 34,681.04 37,535.54 40,136.36 41,904.08 46,146.86 49,251.85

ROIC -0.16% 27.80% 37.88% 33.81% 29.81% 26.40% 23.62% 19.80% FCF (4,090.18) (2,357.50) 2,964.60 8,870.48 8,589.94 8,829.45 5,655.02 6,030.79 EP (2,000.32) 2,932.01 6,854.05 7,292.56 6,393.53 5,467.54 4,542.25 3,237.97 Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding

Number of Options Outstanding (shares): 1,015,450 Average Time to Maturity (years): 5.80 Expected Annual Number of Options Exercise 175,098

Current Average Strike Price: $ 11.11 Cost of Equity: 13.81% Current Stock Price: $37.44

2018E 2019E 2020E 2021E 2022E 2023E Increase in Shares Outstanding: 175,098 175,098 175,098 175,098 175,098 175,098 Average Strike Price: $ 11.11 $ 11.11 $ 11.11 $ 11.11 $ 11.11 $ 11.11 Increase in Common Stock Account: 1,944,837 1,944,837 1,944,837 1,944,837 1,944,837 1,944,837

Change in Treasury Stock 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 Expected Price of Repurchased Shares: $ 37.44 $ 42.61 $ 48.49 $ 55.19 $ 62.81 $ 71.49 Number of Shares Repurchased: 80,128 70,406 61,863 54,357 47,762 41,966

Shares Outstanding (beginning of the year) 50,000,000 50,094,970 50,199,661 50,312,896 50,433,637 50,560,973 Plus: Shares Issued Through ESOP 175,098 175,098 175,098 175,098 175,098 175,098 Less: Shares Repurchased in Treasury 80,128 70,406 61,863 54,357 47,762 41,966 Shares Outstanding (end of the year) 50,094,970 50,199,661 50,312,896 50,433,637 50,560,973 50,694,104