Micron Technology, Inc. Research

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Corporate Headquarters: Boise, Idaho Industry: Semiconductors October 23rd, 2015 Current Statistics Micron Technology Exchange: NASDAQ Ticker: MU Price Initiating Coverage

Piotr Felusiak Price 23 October 2015 17.24 Senior Analyst 52-week range 13.50 – 36.59 [email protected] DCF price target 23.66 Allison Baehr Brittany Rich Junior Analyst Junior Analyst [email protected] [email protected] Stock Price Performance Business Description 40

Micron Technology, Inc., together with its subsidiaries, provides 35 semiconductor solutions worldwide. The company manufactures and 30 markets dynamic random access memory (DRAM), NAND flash, and NOR flash memory products; and packaging solutions and semiconductor 25 systems. It operates in four segments: Compute and Networking Business 20 Unit (CNBU), Mobile Business Unit (MBU), Storage Business Unit (SBU), and 15

Embedded Business Unit (EBU). The company markets its products to 10 original equipment manufacturers and retailers through its internal sales

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Mar-… force, independent sales representatives, and distributors; and through a May-… Web-based customer direct sales channel, and channel and distribution partners. Selected Financial Data Investment Positives  Duopoly: high barriers to entry in a fast growing market dominated by a few large players Market Cap $18,557.1M  Low Leverage: Debt/EBITDA 1.3x Enterprise Value $22,377.1M  Manufacturing Process: Industry leader in patents, own manufacturing Shares Outstanding $1,076.4M facilities around the world, strong partnerships with reputable brands Net Income $2,889.0M

Investment Risks EBITDA $5,803.0M  Decrease of demand in PC market EV/EBITDA 3.9x  Cost as the main differentiator between competitors leads to thinning Debt/EBITDA 1.3x profit margins P/B 1.5x  Capital intensive business that account for a large percentage of … EV/Revenue 1.4x

Catalyst  3DXPoint will be the first new class of memory since NAND flash was introduced in 25 years.  Industry consolidation  Reorganization of segments  Attractive LBO acquisition candidate

2015 Orange Value Fund, LLC All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local exchanges via CapitalIQ, Bloomberg and other vendors.

Micron Technology NASDAQ: MU The Orange Value Fund

Executive Summary

Founded in 1978, Micron has grown from a little known tech company finding its roots in Boise, Idaho into the last remaining U.S. based supplier of memory chips with international extent. The company manufactures and markets dynamic random-access memory (DRAM), NAND flash, and NOR flash memory products; and packaging solutions and semiconductor systems. It operates in four segments: Compute and Networking Business Unit, Mobile Business Unit, Storage Business Unit, and Embedded Business Unit. New generations of products offer improved performance characteristics such as higher data transfer rates, reduced package size, lower consumption, improved read/write reliability and increased memory density.

Growth has been driven by key managers with impressive career experiences with Micron and other reputable brands in the industry. Current Chief Executive Officer, Mark Durcan, held multiple leading roles within Micron’s top management positions over the past thirty years, including President, Chief Operating Officer, Chief Technology Officer, and more. Mark Durcan assumed his CEO responsibilities in 2012 after his predecessor was cited as failing to generate wealth or strategically diversify operations for shareholders. Micron’s Current Chief Financial Officer and Vice president of Finance holds an impressive professional background of top management positions working for similar companies, like Inotera Memories, Inc. These leaders are motivated to push improvement with a majority of their pay coming from incentive based programs. Micron’s growth is also driven by a greater emphasis on pursuing resource conversion activities, including mergers and acquisitions and asset restructurings, over the past few years. These strategic decisions lead to a stronger financial position which will permit similar moves in the near future.

Value-adding resources are widely available and are reflected through a manufacturing process that blends capital- intensive properties with intangible assets. Significant investments have been made to develop proprietary product and process technologies in their manufacturing facilities located around the world. Along with these properties, partnerships with strong companies have been able to increase manufacturing scale and product diversity.

Micron competes in a highly cyclical environment because of their sensitivity to the PC market. The PC market shows fluctuating demand in response to timely innovations of PC products, and that demand pattern carries over to the semiconductor industry. Major customers of semiconductors are at the bottom of their business cycles experiencing a decline in demand for computer and networking devices. In response to this decline, the nominal value of share prices have decreased by more than half since the beginning of 2015 and have experienced a more significant change compared to other players in the semiconductor industry. This slide is unwarranted when considering the assets that the company owns and the catalysts that will spur future growth for the company.

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Industry Analysis

Semiconductors are used in electronic circuits as they have a certain material makeup that is halfway between the resistances of insulators and metal. Therefore, it is semi-conductive, hence the name. Semiconductors are used in electronics because they are able to control the flow of electrons, without controlling the current. The semiconductor industry is very broad and can be divided into smaller sectors that focus on producing memory, microprocessors, transistors, microcontrollers, and other specialized products. These products have become commoditized overtime because computer hardware manufacturers depend on them to drive innovation in their technological devices. Companies strive to beat their competition and churn out chips that are smaller, faster, and cheaper. Many of these companies control both the design and the manufacturing of such chips to help ensure that their chips are on the cutting edge of technology.

Micron has found a market niche in the memory sector of the semiconductor industry. Memory chips are one of the four broad product categories that exist in the semiconductor industry. Memory chips temporarily store data, and are efficient when transferring data around the “brain” of an electronic system. Including Micron, the largest players in the memory space include Samsung Electronics Co. Ltd., SanDisk Corp., Sk Hynix Inc. and Toshiba Corporation. The semiconductor industry is expected to experience an increase in annualized revenue of 1.6% for the next five years. This will be due in part to the fact that so far in 2015, chip companies have announced the largest amount of mergers and acquisitions in the past ten years. The $100.6 billion of activity reported for 2015 dwarfs the $37.7 billion of M&A in 2014, even though less deals were made. Memory chips in general are experiencing severe industry consolidation in order to keep prices low on already thin profit margins. A majority of their profits are driven by PC demand, but will gradually expand into a broader range of everyday products that included cars, appliances and other needs.

The memory chip industry is highly sensitive to the business cycle of the computer hardware industry, seeing higher revenues during periods of PC demand growth. The annual EV/EBITDA correlates directly with the previous year performance in computer hardware sales. The computer hardware industry is one that manufactures and assembles desktop and laptop computers, as well as peripheral devices such as servers, modems, and routers. The computer hardware industry is expected to grow at a rate of .7% over the next five years due to the growth of the middle class in BRIC nations. Additionally, growth is expected to occur in response to other factors as well including the consumer sentiment index, expanding global internet usage, and the increase in number of students (and therefore technology used for teaching), the demand for hardware, and the memory chips that go with it. Major competitors in this industry include, Hewlett Packard and Dell.

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Micron Technology NASDAQ: MU The Orange Value Fund

DRAM Market Share 2010-2014

Source: http://www.statista.com/statistics/271726/global-market-share-held-by-dram-chip-vendors-since-2010/

The three major players in the DRAM space of semiconductors by revenue are Samsung, SK Hynix, and Micron. Elpida Memory is not reported during Q3 of 2013 because they were acquired by Micron on July 31, 2013. The acquisition of Elpida substantially increased Micron’s market share.

NAND Market Share 2010-2014

Source: http://www.statista.com/statistics/275886/market-share-held-by-leading-nand-flash-memory-manufacturers-worldwide/ Samsung, Toshiba, SanDisk, and Micron account for more than 80% of the market for NAND. Micron is much weaker in this area of the memory business coming in as the fourth largest manufacturer with a 13.7% market share according to revenue.

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Micron Technology NASDAQ: MU The Orange Value Fund

Products and Segments DRAM: 68%

 DRAM ( dynamic random-access memory) products are high-density, low-cost-per-bit, devices that provide high-speed data storage and retrieval with a variety of performance, pricing and other characteristics.  DDR3 DRAM offers high speed and high bandwidth at a relatively low cost. DDR3 products are primarily targeted at computers, servers, networking devices and communications equipment.  LPDRAM products offer lower power consumption relative to other DRAM products and are used primarily in mobile phones, tablets, embedded applications, ultra-thin laptop computers and other mobile consumer devices that require low power consumption.  They also offer other DRAM products targeted to specialty markets that are used for networking devices, servers, consumer electronics, communications equipment, computer peripherals, automotive and industrial applications as well as computer memory upgrades. NAND Flash Memory: 27%

 NAND Flash products are electronically re-writeable, non-volatile semiconductor memory devices that retain content when power is turned off.  NAND Flash is ideal for mass-storage devices due to its fast erase and write times, and have high density and low cost per bit relative to other solid-state memories. NAND Flash technology is used in mobile phones, SSDs, tablets, computers, industrial and automotive applications, networking and other personal and consumer applications.  Micron offers client and enterprise SSDs which feature higher performance, reduced-power consumption and enhanced reliability as compared to typical hard disk drives. Our client SSDs are targeted at notebooks, desktops, workstations and other consumer applications.  Through Micron’s Lexar® brand, they sell high-performance digital media products and other flash-based storage products through retail and OEM channels. NOR Flash Memory: 3%

 NOR Flash products are electrically re-writeable, non-volatile semiconductor memory devices that retain content when power is turned off, offer fast read times due to random access capability and enables processors to read NOR Flash without first accessing RAM.  Micron’s parallel NOR Flash products are constructed to meet the needs of the consumer electronics, industrial, wired and wireless communications, computing and automotive applications. Our serial NOR Flash products are designed to meet the needs of consumer electronics, industrial, automotive, wired and wireless communications and computing applications.

Revenue by Product

3% 2%

27%

68%

DRAM NAND Flash NOR Flash Other

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Segments Micron has four reportable business units. Segment information reported is consistent with how it is reviewed and evaluated by Micron’s chief operating decision makers.

Compute and Networking Business Unit ("CNBU"): Includes DRAM and NOR Flash products sold to the compute, networking, graphics, and cloud server markets. Mobile Business Unit ("MBU"): Includes DRAM, NAND Flash, and NOR Flash products sold to the smartphone, feature phone, and tablet mobile-device markets. Storage Business Unit ("SBU"): Includes NAND Flash components and SSDs sold into enterprise and client storage, cloud, and removable storage markets. SBU also includes NAND Flash products sold to Intel through our IMFT joint venture. Embedded Business Unit ("EBU"): Includes DRAM, NAND Flash, and NOR Flash products sold into automotive and industrial applications, as well as the connected home and consumer electronics markets.

Micron experienced exponential growth in CNBU and MBU segments between 2013 and 2014 due to their acquisition of Elpida in June, 2013. This deal made Micron the second largest manufacturer of memory chips. This deal not only gave Micron access to Elpida’s resources, but Elpida’s expertise in mobile DRAM. Elpida was the primary manufacturer of memory chips to Apple. This acquisition caused the revenue of their CNBU and MBU segments to increase 111% and 199% respectively.

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Manufacturing Process Partnering Arrangements

Micron has pursued partnering arrangements with other companies in the semiconductor industry to help lower cost by sharing resources. They are consolidated or recorded under the equity method within their balance based on their percent ownership interest.

The largest relationship with a 51% interest exists with Intel Corporation called IMFT. IM Flash Technologies was founded in 2006 in Lehi, UT to manufacture NAND Flash memory products. Micron consolidates the output from this joint venture in proportion to their investment. This agreement extends through 2024. MP Mask is the second largest investment at 50%. They share this entity with Photronics, Inc. and are able to terminate their relationship in May 2016 or in each five- year successive period following that date.

Equity method investments include Inotera and Tera Probe. The latter is a partnership arrangement with a number of other firms to provide semiconductor probe and wafer testing services. Micron owns 40% in this deal. Comparatively, the firm has a 33% ownership interest in Inotera and the other portion is owned by Nanya Technology Corporation. The deal was established in 2009 and will last through December 2016.

IMFT: Micron partners with Intel for design, development, and manufacturing purposes. Intel assists in creating NAND Flash and 3D XPoint memory products. MP Mask: Micron produces photomasks for next-generation semiconductors through MP Mask, a joint venture with Photronics. Inotera: Micron partners with Nanya in order to more efficiently manufacture DRAM products by Inotera, a Taiwan DRAM memory company. Tera Probe: Micron works with Tera Probe to provide semiconductor wafer testing and probe services to their products and others.

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Patents

Micron has been recognized as a leader in per capita and quality of patents issued.

 16,500 U.S. Patents  4,000 Foreign Patents  Thousands Pending Property The carrying value of property that Micron owned was $8.68 billion in 2014. DRAM, NAND Flash and NOR Flash products share a number of common manufacturing processes, enabling us to leverage our product and process technologies and manufacturing infrastructure across these product lines.

Location Principal Operations Boise, Idaho R&D including wafer fabrication; reticle manufacturing; test and module assembly Lehi, Utah Wafer Fabrication Manassas, Virginia Wafer Fabrication Singapore Three wafer fabrications facilties and a test, assembly and module assembly facility Aguadilla, Puerto Rico Module assembly and test Xi' an, China Module assembly and test Muar, Malaysia Assembly and test Taichung City, Taiwan Wafer Fabrication Hiroshima, Japan Wafer Fabrication Akita, Japan Module assembly and test

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Micron Technology NASDAQ: MU The Orange Value Fund

Management

Brian Shields as Vice President of Business Process Management Experience o 1986- Micron Technology Inc. Operator o Position progression from Production Manager, Fab Manager of Micron Italia, and Director of Manufacturing for the Networking and Communications Group. o March 2003 to June 2010- Vice President of Worldwide Wafer Fabrication at Micron Technology Inc. Education o Degree: Computer Science o Univeristy/College: Cardonald University in Scotland. Mr. D. Mark Durcan as Chief Executive Officer and Director Experience o 1984- Micron Technology Diffusion Engineer o February 2012- Chief Executive Officer at Micron Technology, Inc. o June 2007 to February 2012- President of Micron Technology Inc. o February 2006 to February 2012- Chief Operating Officer o June 1997 to February 2006- Chief Technical Officer and Vice President of Research and Development o June 1996 to June 1997- Vice President of Process Research and Development o He has been a Member of Advisory Board at Clear Metals Inc. since April 19, 2013. He serves as a Board Member of the Semiconductor Industry Association Board and the Tech CEO Council. Education o Degree: Bachelor of Science degree in Chemical Engineering and MChE in Chemical Engineering o University/College: Rice University Adams, Mark W. as President Experience o June 2006- Joined Micron Technology o August 2012- Present: President of Micron Technology Inc. o March 5, 2015 until June 1, 2015- Interim Chief Financial Officer o July 2008 to February 2012- Vice President of Worldwide Sales at Micron Technology Inc. Education o Degree: BA and MBA in Economics o University/ College: Boston College and Harvard University. Mr. Brian M. Shirley as Vice President of Memory Technology and Solutions

Experience o 1988- Joined Micron in 1988 as a member of the Dram product engineering team. o April 2014- Present: Vice President of Memory Technology and Solutions at Micron Technology Inc. o June 2010 – Present: Vice President of DRAM Solutions at Micron Technology Inc. o February 2006- Present: Vice President of Memory o He serves as a Director of Elpida Memory Inc. and he served as a Director at Inotera Memories Inc. until July 15, 2014. Education o Degree: Bachelor of Science in Electrical Engineering o University/ College: Stanford University

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Compensation of Top Management

Non-Equity Deferred Stock Option Name Position Year Salary Incentive Other Total Compensation Awards Awards Plan (%Total)

2014 $726,346 $3,180,960 $1,059,677 $1,552,171 $13,873 $6,533,027 64.91% Mark W. Adams President 2013 $600,000 $2,185,040 $1,311,303 - $13,379 $4,109,722 85.07% 2012 $535,961 $846,240 $749,612 $48,148 $13,130 $2,193,091 72.77% 2014 $1,005,289 $6,167,388 $1,833,340 $2,447,654 $25,437 $11,479,108 69.70% D. Mark Durcan CEO 2013 $900,000 $3,746,600 $2,250,077 - $13,641 $6,910,318 86.78% 2012 $791,135 $2,533,560 $2,248,837 $76,403 $14,018 $6,163,953 77.59% 2014 $581,708 $2,436,480 $813,414 $955,182 $13,698 $4,800,482 67.70% Brian M. Shirley VP of Memory 2013 $484,000 $1,246,960 $751,019 - $13,257 $2,495,236 80.07% 2012 $484,000 $846,240 $749,612 $136,246 $13,021 $2,304,119 69.26% Brian J. Shields VP of BPM 2014 $417,116 $1,049,040 $350,738 $541,270 $2,598,658 $4,956,822 28.24%

D. Mark Durcan, the company’s Chief Executive Officer and a member of its Board of Directors, requested a voluntary and temporary base salary reduction by 50% (drops to $525,000), effective as of October 18, 2015. With the exception of Brian J. Shields, deferred compensation accounted for over 60% of each manager’s total compensation.

Valuation Analysis

On the premise of safe and cheap, we have a positive outlook for Micron Technology. It has a strong balance sheet that shows stability in the current market and prospects for long term growth initiatives. The management team has been hired mostly internally, showcasing many years with the company and experience with resource conversion activities.

Wealth Creation Model BVPS + Share Book BV BV+Div BVPS Sh+Div Shares Year Div. BVPS Div Price/sh Price Div/Sh P/B value Growth Growth Growth Growth OUT Growth Growth 2008 $ 6,178 $ 8.1 $4.24 0.5x 761 2009 $ 4,953 $ - -20% -20% $ 5.8 -28% -28% $7.37 74% $ - 74% 1.3x 849 2010 $ 8,020 $ - 62% 62% $ 8.1 38% 38% $6.46 -12% $ - -12% 0.8x 995 2011 $ 8,470 $ - 6% 6% $ 8.6 7% 7% $5.91 -8% $ - -8% 0.7x 984 2012 $ 7,700 $ - -9% -9% $ 7.6 -12% -12% $6.21 5% $ - 5% 0.8x 1,018 2013 $ 9,142 $ - 19% 19% $ 8.8 16% 16% $13.57 119% $ - 119% 1.5x 1,044 2014 $10,771 $ - 18% 18% $ 10.0 15% 15% $32.60 140% $ - 140% 3.2x 1,073 2015 $12,302 $ - 14% 14% $ 11.6 16% 16% $16.41 -50% $ - -50% 1.4x 1,060

ACRR 10.3% 10.3% 5.2% 5.2% 21.3% 21.3% TR 74.3% 74.3% 43.0% 43.0% 287.0% 287.0%

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Micron Technology NASDAQ: MU The Orange Value Fund

Micron is the only manufacturer of memory chips in the U.S. and one of the largest players in the world. It has been able to accomplish this through a series of partnerships and acquisitions directed by a financially savvy management team. Over the past five years, the book value of equity has grown an average of 10% per year. Assets controlled by the company have increased in value in proportion to the liabilities needed to finance the operations of the company.

MU has a relatively low DEBT/EBITDA of 1.3x suggesting that it can service its debt in an appropriate manner and shows signs of picking up more leverage in the future. The acquisition of Elpida on July 31, 2013 has been accretive to the company’s earnings by increasing manufacturing capacity and its presence in Asia. Future resource conversion activities can be expected with a relatively low amount of debt at $7.34 billion and a healthy cash position of $3.52 billion.

Discounted Cash Flow Valuation

CAPEX + NWC $ 2,658.00 Price per share Oct. 23, 2015 $17.24

# of Shares outstanding (mm) 1,076.40 D&A $ 2,609.33 Sales $ 16,192.00 Float (%) 99% EBITDA $ 5,607.3 Unlevered cost of equity assumptions below EBIT $ 2,998.00 EBITDA*x Ajusted LT Debt $ 7,341.0 Multiple for n periods (Term I) 1.86x

LT Debt $ 7,341.00 PV of Terminal Multiple (Term II) 2.97x

$ 3,521.0 0.39x Surplus Cash Leverage Multiple (Term III) Mkt Cap $ 18,550.2 Estimated Multiple: M_ed 5.2x EV $ 22,370.2 Price per share at M_ed (GC): $20.38 Interest $ (336.0) Surplus Cash per share (RC): $3.27 Extra Borrowing $ - Total value per share $23.66

Anticipated M_d 1.31 Discount (Premium) 27.1%

Annual Rent $ - Number of growth years 5

Capitalized Leases $ - Unlevered cost of equity 10.0% EBITDAR Analysis? No Imput Growth in EBITDA 5.0%

The company is priced at a substantial discount in regards to historical information, valuation metrics executed, and other competitors. The stock is down 50.3% from the price it opened during the beginning of 2015. After analyzing growth in future earnings at an assumed 5% rate, the DCF calculates a target price of $23.66.

Micron’s current stock price is trading relatively close to the book value equity at 1.4x. This is the lowest it has been in the past 2 years and also amongst close competitors. The multiple is especially attractive when considering the amount of intangible assets in patents that the company possesses. In addition, the companies EV/EBITDA ratio of 1.2x shows a similar trend of being the lowest when compared to companies that participate in the same industry.

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Comparable Analysis

EV/Revenues EV/EBITDA EV/EBIT Price/BV

Intel Corp. 3.0x 7.1x 11.4x 3.9x SanDisk Corp. 2.9x 11.2x 19.5x 3.6x Broadcom Corp. 3.6x 15.5x 18.6x 5.9x Texas Instruments Inc. 4.7x 11.6x 14.7x 15.5x SK Hynix Inc. 1.2x 2.3x 3.7x 1.2x Nanya Technology Corp. 2.8x 3.9x 4.6x 2.0x

Micron Technology, Inc. 1.4x 3.9x 6.8x 1.5x

High 4.7x 15.5x 19.5x 15.5x Low 1.2x 2.3x 3.7x 1.2x Mean 3.0x 8.6x 13.1x 5.4x

Micron multiples are substantially lower than the industry average results.

Operating Margin Analysis

Company Revenues EBIT OM Samsung Electronics Co. LTD. $68,766.00 $8,040.70 11.69% SanDisk Corporation $5,757.00 $844.70 14.67% SK Hynix Inc. $16,915.80 $5,304.80 31.36% Micron Technology $16,192.00 $2,998.00 18.52%

Operating margins for the memory sector have a range between 11.69% and 31.36%. Micron has the second largest operating margin of 18.52% behind SK Hynix Inc margin of 31.36%. Samsung Electronics Co. LTD. best preforming segment is semiconductors so they would unwilling to decrease the selling price of their product. They can tolerate a lower margin because of their large market share.

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Segment Operating Margins

FY 2013 FY 2014 FY 2015 Compute and Networking Business Unit $130 $1,957 $1,481 % of CNBU Revenue 4% 27% 22% Mobile Business Unit ($266) $683 $1,126 % of MBU Revenue - 19% 30% Storage Business Unit $178 $255 ($89) % of SBU Revenue 6% 7% - Embedded Business Unit $252 $331 $435

% of EBU Revenue 20% 19% 22% OTHER ($58) $94 $45

Corporate $0 ($233) $0

TOTAL $236 $3,087 $2,998 % of Total Segment Revenue 3% 19% 19%

Margins look much more attractive when breaking it down to segment level. Every operating margin is equal to or greater than 22%. The one laggard is the Storage Business Segment that reported a loss in 2015.

Catalyst

ACTIVIST PARTICIPATION

Greenlight Capital, Inc. Historical Ownership of MU

60.0

50.0

40.0 34.26 35.01 32.95

30.0 27.13

23.66 20.0 19.00 21.75 17.47 Shares Shares Held (mm) 10.0

0.0 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Latest Quarterly

Greenlight Capital, Inc. opened a long position during the third quarter of 2013 reported by the 13F. The average share price at the end of that quarter was approximately $17.47. David Einhorn doubled his position

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Micron Technology NASDAQ: MU The Orange Value Fund

by the next quarter and started to decrease gradually over next year. He has been very timely with his trades accumulating shares at a relatively lower price and decreased his position as it reached what he believed to close to its fair price.

So far in 2015, Micron Technology is the second largest holding behind Apple Inc. accounting for 10% of Greenlight portfolio. Einhorn is a fearless control investor that challenged Apple Inc. to manage its large cash reserves in a more accretive manner for shareholders. This jab resulted in Apple ultimately launching one of the biggest share buybacks in history.

Greenlight has the largest stake of any activist investor currently holding 37.95 million shares or 3.53% of total shares outstanding. The Baupost Group, LLC. Is the second largest activist investor with 1.83% of total shares outstanding.

Einhorn seems to be committed to his bet on Micron as he has raised his stake by 14% over the summer of 2015 even as he watched the company tumble 23% during the first quarter of the calendar year. He continued his strong bullish outlook mentioning that Micron will be worth more than Netflix Inc. within the next few years in a letter to shareholders. Source: Wall Street Journal Industry Consolidation

In 2015, the semiconductor industry has experienced a historic aggregate amount of mergers and acquisitions. The $100.6 billion in deals reported has outpaced the activity in each of the past ten years and more consolidation should be expected in the near future. This is much higher than the total in 2014 of $37.7 billion, even though it took 96 less deals.

The higher total value accumulated with a lower number of deals suggests that more mature companies are being targeted. Established companies provide an advantage in a business environment that mainly competes on trimming costs in areas like manufacturing, sales and R&D. Consolidation will help ease this price competition and will allow companies to deliver greater value to customers. Also, another important fact to consider is that the cost of producing chips is getting more expensive. Expenses related to using more advanced technology to squeeze more circuitry is exponentially growing. Small to mid-market companies are almost forced to consolidate their resources in order to survive.

Micron is an attractive acquisitions target related to the steep discount it is currently trading at, superior knowledge of the industry from years of experience, and an impressive set of assets supported by strong financial position. State-owned Chinese chip maker Tsinghua Unigroup Ltd. recognized this value when they offered $23 billion to purchase Micron Technology Inc., the largest takeover attempt by a Chinese company of a foreign firm. Micron declined the $21 per share offer that would have amounted to a 19 percent premium over the current share price.

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Returns Analysis Terminal EBITDA $6,105.30 Exit Multiple 7.0x FM Enterprise Value (Whole) $42,737.08

(%) Subject to LBO 100%

FM Enterprise Value Tendered $42,737.08 Less: Net Debt $ (9,242.36) Equity Value at Exit Pre IPO $33,494.72 IPO fees 5% Equity Value at Exit Post IPO $31,819.98 Sponsor Ownership at Exit 100% Sponsor Equity Value at Exit $31,819.98

Sponsor Equity Value at Closing $7,467.28

IRR % 36.40%

Micron has participated in such resource conversion activities in the past and have the flexibility with their current financials to pursue similar plans in the future. An LBO analysis reflects a favorable IRR of 36.40%. This is considering the $23.66 target price DCF calculation which would translate to a share price 13% higher than Tsinghua offer. The higher premium may attract management to pursue this opportunity. From the acquirers perspective, they would be acquiring the company at a relatively low 4.0x EV/EBITDA multiple compared to the industry average. This has the potential to be a very lucrative deal assuming that they will be able to improve operations, expand the multiple to a historical average of 7.0x, and pay down the debt.

Micron was also in talks as a potential candidate to purchase SanDisk Corp as they looked to expand NAND.

Strategis Diversification of Operations

During the third quarter of fiscal year 2014, Micron determined a more focused strategic outlook by reorganizing its operating units. This commitment has renewed outdated terminology that failed to recognize the changing technological landscape. Rather than focusing a segment on DRAM or NAND alone, changes were made to shift each segment’s focus to a specific area in the market that their solutions are targeted towards. Prior to this change, the descriptions for each segment seemed cloudy with a faction characterized as ‘DRAM Solutions Group’, but finding similar product components in the ‘Wireless Solutions Group’.

Moving forward, this change cleans up the operating parts that will allow for an improved ability to facilitate product development. Also, the additional details associated with each segment helps to better understand what the company’s strategic outlook is with ideas that were not mentioned in 2013 and past years. These thoughts explore enterprise and client storage unadjacent to its major partnerships, a greater focal point on big data solutions supported by cloud technology, and regression from music players to a broader mobile market.

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2013:

DRAM Solutions Group ("DSG"): Includes DRAM products sold to the PC, consumer electronics, networking and server markets. NAND Solutions Group ("NSG"): Includes high-volume NAND Flash products sold into data storage, personal music players and the high-density computing market, as well as NAND Flash products sold to Intel Corporation ("Intel") through our IM Flash joint venture. Wireless Solutions Group ("WSG"): Includes DRAM, NAND Flash and NOR Flash products, including multi-chip packages, sold to the mobile device market. Embedded Solutions Group ("ESG"): Includes DRAM, NAND Flash and NOR Flash products sold into automotive and industrial applications, as well as NOR and NAND Flash sold to consumer electronics, networking, PC and server markets.

2014:

Compute and Networking Business Unit ("CNBU"): Includes DRAM and NOR Flash products sold to the compute, networking, graphics and cloud server markets. Mobile Business Unit ("MBU"): Includes DRAM, NAND Flash and NOR Flash products sold to the smartphone, feature phone and tablet mobile- device market. Storage Business Unit ("SBU"): Includes NAND Flash components and SSDs sold into enterprise and client storage, cloud and removable storage markets. SBU also includes NAND Flash products sold to Intel through our IMFT joint venture. Embedded Business Unit ("EBU"): Includes DRAM, NAND Flash and NOR Flash products sold into automotive and industrial applications, as well as the connected home and consumer electronics markets.

Capital expenditures doubled in 2014 when compared to the past year suggesting an expansion of manufacturing capacity. It was reported during the summer of 2015 that Micron has developed a new class of non-volatile memory in conjunction with their Intel partnership. We believe this can be a dominant growth opportunity considering that this is the first new memory category in 25 years and is supported by a company that has a strong reputation amongst customers.

3DXpoint Technology

Micron teams up with Intel in the design of their newest 3D memory chip product. Their new version will allow data to be retain even when devices are turned off, as well as faster and more reliable technology advances. The increased need to acquire faster technology and store more information will result in huge market potential for their product and is expected to help the company grow.

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