-- U.S.-based Micron Technology Inc. is issuing new $1 billion
senior convertible notes due 2032.
-- It will use the proceeds from the notes will be used for general
corporate purposes, which may include capital expenditures, working capital,
acquisitions, joint ventures, and repayment of other debt.
-- We are assigning a 'BB-'issue rating and '3' recovery rating to Micron
Technology's new convertible notes. We are also affirming all ratings,
including the 'BB-' corporate credit rating. The recovery ratings remain
unchanged as a result of this new issue.
-- We are revising our outlook to negative from stable, reflecting weak
memory market conditions, potential acquisition spending, and increased
On April 12, 2012, Standard & Poor's Rating Services assigned a 'BB-'
issue-level rating to Boise, Idaho-based Micron Technology's new $1 billion
senior convertible notes due 2032. The recovery rating is '3', reflecting our
expectation for meaningful (50% to 70%) recovery in the event of default. All
other ratings were affirmed, including the 'BB-' corporate credit rating, and
we revised the outlook to negative from stable.
The outlook revision reflects weak memory market conditions, near-term
potential acquisition spending in support of industry consolidation, and
The rating on Micron Technology Inc. reflects Standard & Poor's Ratings
Services' expectation that the memory industry will remain highly volatile and
that the company's presence in DRAM and NAND memory markets will remain
largely unchanged, despite significant capital spending to increase capacity
in both segments. Micron develops and manufactures Dynamic RAM (DRAM), as well
as NAND and NOR (each a type of flash memory) semiconductors for the memory
industry. We view its business risk profile as "weak" and its financial
profile as "significant." Although credit protection measures continue to vary
widely through industry cycles, we expect Micron's investments in NAND flash
memory under its remaining joint venture partnership with Intel, its emphasis
on specialty product sales, and its memory product diversification across
DRAM, NAND, and NOR markets to support prospects for less severe earnings
volatility over time.
We view Micron's business risk profile as weak, reflecting capital intensity,
small market shares in key DRAM and NAND segments, and considerable
variability in operating performance. Strengths that partly offset these
weaknesses are a strong technology position and memory product diversity. The
memory industry requires significant capital investment in leading-edge
processes to remain cost-competitive, to maintain adequate supply, and to
sustain share. We expect Micron's capital expenditures to remain significant,
in excess of 20% of revenue for 2012. Although we believe that Micron is
well-positioned in leading-edge technology development, we also believe the
industry is susceptible to overexpansion, which can lead to rapid price
declines and eroding profitability for all participants.
We expect competition from larger peers to continue to constrain Micron's
prospects for significant market share gains. Micron's market shares in DRAM
and NAND are well behind industry leader Samsung Electronics Co. Ltd.
(A/Stable/--) and lag behind focused competitors such as SK Hynix Inc.
(BB-/Stable/--) and Toshiba Corp. (BBB/Stable/--). We believe that the
company's expansion plans in NAND and its source of DRAM supply from Inotera
Technology will modestly improve its market position. We also believe that
Micron's leading presence in embedded NOR markets will reduce earnings
volatility, despite the secular declines in wireless NOR markets.
We view the company's financial risk as significant, despite leverage metrics
that are currently strong for the rating category, due to its cash flow
characteristics. The ratio of debt to EBITDA pro forma for the new notes is
1.9x. Micron maintains a DRAM joint venture partnership with Inotera,
accounted for as an equity investment. Because Micron derives over 40% of its
DRAM wafers from Inotera and continues to invest in Inotera's leading edge
infrastructure, we believe that Micron has a strategic and economic basis for
providing continued support to Inotera. However, Micron has no legal
obligation to do so, its business is sufficiently diversified across memory
markets, and, as such, in a distressed scenario for Inotera, we believe that
it would discontinue its support. Therefore, even though we input support in
our analysis, we do not consolidate the Inotera's results with Micron's. Were
Inotera consolidated, leverage, based on current results, would increase to
about 2.3x. In the six months ended March 2012, Micron invested $170 million
in Inotera, increasing its equity ownership from about 29% to 39%, bringing
its total investment to date to about $570 million.
EBITDA has declined over 30% year over year to $2.1 billion for the 12 months
ended March 2012. We expect EBITDA to remain at this level for fiscal 2012 and
to recover much of the decline in 2013, supported by solid state drive (SSD)
spending, DRAM sector consolidation, recovery of the hard disk drive sector,
and industry inventory replacement. In line with our expectations for highly
variable operating trends, we expect credit measures to vary widely over a
cycle. For fiscal 2012, we anticipate a modest decline in revenues, capital
spending of nearly $2 billion, and free cash flow to be minimal to slightly
We view Micron's liquidity as "adequate." Cash on hand represented about $2
billion as of March 1, 2012. We expect current debt maturities to be modest,
at about $200 million this year. Micron purchased the remaining 18% stake of
the Intel Flash Singapore JV in April 2012 for $600 million, which it partly
funded with a prepayment for Intel's future service and a note to Intel,
collectively amounting to $365 million.
Our assessment of Micron's liquidity profile incorporates the following
expectations, assumptions, and factors:
-- We expect coverage of uses to be in excess of 1.2x for the next 12 to
-- We believe that net sources would be positive in the near term, even
with a 15% to 20% decline in EBITDA.
-- We note that higher EBITDA declines are not unusual--and from August
2008 to August 2009, the average decline was 48%. Although we believe sources
would exceed uses even with a 50% EBITDA decline, cash would be significantly
depleted in such a scenario.
-- Debt maturities are modest until fiscal 2014.
-- We would expect the company to moderate capital spending, in the event
of a slowdown in anticipated demand, to preserve liquidity.
See Standard & Poor's recovery report on Micron, published Aug. 4, 2011, on
We are revising Micron's rating outlook to negative from stable, reflecting
currently weak memory market conditions, potential near-term acquisition
spending, and increased leverage. If revenue and earnings performance
stabilize in the second half of 2012 and acquisition spending remains modest,
such that leverage does not increase materially from current levels, we could
revise the outlook to stable. Conversely, if acquisition spending materially
increases and weak market conditions do not improve, such that weak to
negative free cash flow persists and leverage approaches 3x or more, we could
lower the ratings.
Related Criteria And Research
-- Issuer Ranking: Global Technology Ratings, Strongest To Weakest, March
-- U.S. Technology Companies' Liquidity Is Higher, For Now, Jan. 18, 2012
-- Industry Economic Outlook: Slow Global IT Spending Growth Is Likely To
Continue Into 2012, Jan. 12, 2012
-- Issuer Ranking: Global Technology Ratings, Strongest To Weakest, Dec.
-- Reshuffling The Debt: Global High-Tech M&A Activity Accelerates, Oct.
-- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
-- Key Credit Factors: Methodology And Assumptions On Risks In The Global
High Technology Industry, Oct. 15, 2009
-- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded,
May 27, 2009
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
Ratings Affirmed; Outlook Action
Micron Technology Inc.
Corporate Credit Rating BB-/Negative/-- BB-/Stable/--
Micron Technology Inc.
US$500 mil sr nts ser 2032A due 2032 BB-
Recovery Rating 3
US$500 mil sr nts ser 2032B due 2032 BB-
Recovery Rating 3
Micron Technology Inc.
Senior Unsecured BB-
Recovery Rating 3
Complete ratings information is available to subscribers of RatingsDirect on
the Global Credit Portal at www.globalcreditportal.com. All ratings affected
by this rating action can be found on Standard & Poor's public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left