Micron Final

11/19/2014
Adam Wren
FIN 443 ANALYST
MICRON (MU)
STOCK ANALYSIS

Micron Technology Nov 2014
1
Western Washington University Student Research
Micron Technology (MU)
Date: 17/11/2014 Current Price: 33.23 (USD) Recommendation: BUY
Ticker: MU (NYSE) Target Price: 47.52
Day's Range: 33.52 - 34.39
52wk Range: 19.66 - 34.85
Volume: 25,545,368
Avg Vol (3m): 24,975,100
Market Cap: 36.82B
P/E (ttm): 13.50
EPS (ttm): 2.54
Div & Yield: N/A (N/A
Source: Yahoo Finance
Stock Quote
(NASDAQ: MU)
Price:
33.21
Change:
+ 0.25
Day High:
33.48
Day Low:
32.50
Volume:
13,594,300
Provided by eSignal.
Annual P/E 2010 2011 2012 2013
Micron 3.51 38.38 0 14.36
intel 26.36 10.42 10.15 9.66
Toshiba 0 13.02 22.34 25.76
Infineon Technologies AG 9.9 48.59 12.6 29.35
Texas Instruments 12.3 15.5 20.52 22.82
Average 10.41 25.18 13.12 20.39
Highlights
Source: Yahoo Finance
MU – Micron Technology
• I’m recommend to buy shares of Micron (NYSE:MU) with a target price of $47.52. Micron has
become highly profitable and has increased sales over the past two years. In the past twelve months
Micron has increased revenue by 80.3%, net margins are up 18.6% and diluted earnings per share have
been increasing steadily over the past 24 months. The share price is currently undervalued because of
their acquisitions that are starting to become more profitable. The newly acquired manufacturing firms
have been slow to create revenue but as these firms develop there should be an increase in earnings.
• International sales and application market diversification will allow Micron to sustain growth. By
reaching more end user markets, mobile phone, tablets, laptops, cars, servers, and networking allow
Micron to hedge against demand risk. Micron increased international sales to 83% of overall revenue
which is sustainable by in part to developing/emerging market demand for technology. Developing
technology that can be used in more than just personal computing is necessary due to stagnate sales
domestically whereas other end use applications have been growing.
Exhibit 1: Volume and Price 2012-2014


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Business Description
Micron (NYSE : MU) is a computer hardware maker and manufacturer specializing in
semiconductors and memory components. Micron’s memory business includes DRAM
(Dynamic random-access memory), SDRAM (Synchronous dynamic random access
memory), flash memory, and SSD (Solid state drive). Micron is an international firm
operating under the brands Crucial Technology and Lexar and has teamed up with Intel to
create the brand IM Flash Technology which produces NAND flash memory. Micron is
considered to be ranked in the top 5 Semiconductor producing companies in the world.
Foreign sales for Micron accounts for 83% of 2013 total sales with research and
development accounting for 10.3% of sales that same year.
Micron’s DRAM products include DDR4, DDR3, and DDR2 (Double data rate fourth, third,
and second generation synchronous dynamic random-access memory) which are SDRAM
that offer double the bandwidth. They also produce DDR and DDR2 mobile low power
DRAM, DDR, SDRAM meant for tablet and mobile phone applications. All of the DRAM
products can be found in computers, servers, tablets, mobile phone, communication
equipment, computer peripherals, industrial, automotive and other electronic devices.
Micron’s NAND products include flash drives and other forms of memory storage directly
suited for use with a computer. Micron markets its solid state drives, and other
processors directly to manufacturers, not publicly. Many of the other flash drive
components relating to personal computer memory storage are sold directly to the public
as well as to manufacturers.
Exhibit 2: Business Segmentation by Revenue

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Exhibit 3: DRAM Market Demand Industry Overview and Competitive Positioning
The semiconductor industry is highly cyclical
depending on the boom and bust demand on
computing technology. Demand typically tracks
end-market demand for personal computers, cell
phones and other electronic equipment.
Expansion for semiconductors use is almost
limitless until everything has a microchip in it.
Industry market share gains, higher profits, and
higher performance are market drivers because
within the industry requires long lead time due
to the capital intensive nature of the
manufacturing process. Any company that is able
to generate higher returns or performance has a
sustainable competitive advantage because it
takes time to design semiconductor products
where demand can dry up rather quickly. Being
on the cutting edge of the industry means
companies assert themselves to substantial risk
in order to stay competitive. Manufacturing
facilities for this industry can cost millions upon
billions of dollars which makes the market
tailored to large multinational companies.
Research and development is a large portion of the semi/chip making process. R&D has
always been a high cost to manufacturing but in the semiconductor industry it is the metric
that separates the leaders from the followers. Throughout the industry R&D expenses have
risen to a point where manufacturing has to be more efficient than almost any other industry.
Creating the most innovative microchip/ semiconductor is no longer the only thing companies
have to accomplish, firms must also design a manufacturing process that is more efficient
than the competition in order to generate sustainable profit margins.. As the price per bit of
memory goes down, the manufacturing process needs to be the most efficient it can be or
Micron and other competitors will lose the minute competitive advantage they have with the
design of their product. Micron has been able to acquire manufacturing firms internationally
which has allowed for a tactical advantage for the time being. For Micron to establish itself as
a leader in manufacturing efficiency then they will have to continue to acquire and optimize
their current manufacturing process.
Another metric to assess the health of the semiconductor/ microchip industry is bookings-to-
billings ratio. Since oversupply is a large force in this industry, bookings must be almost
identical to billings but with a short turnaround time. The industry needs to be able to
respond directly to demand because oversupply can bring the entire market to its knees. With
such capital intensive manufacturing process semi firms must be able to meet market
demand without oversupplying and sinking the price-per-byte. The semiconductor industry
has been able to curtail oversupply by focusing more on meeting demand and limiting supply.
Micron has a competitive advantage because they have been focusing on quick turnaround
time with their production process so they can fill orders seamlessly and not overproduce. As
Micron looks to diversify end application for their products it will allow for more flexibility
with their supply/demand. A graph highlighting the industry’s bookings-to-billings ratio can
be seen in Exhibit 6.

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Exhibit 4: Micron Sales by Region
Exhibit 5: Mobile Shipments by
CAGR
The metric that has the highest capacity for damage is price-per-bit which can be as variable
as a gallon of gas. This volatility can cripple the entire industry because in order to
manufacture any amount of chips or processors, it requires very large amounts of capital
which require years of planning. The amount of money tied up in the manufacturing process
is the most relevant reason why price-per bit has such a devastating impact on profitability
industry wide. For a graph representing the industry price-per-byte growth see Exhibit 6.
The semiconductor industry has taken a shift from heavily weighted domestic revenue to a
more internationally based revenue stream. Over the past decade countries in the Asian
Pacific have increased their demand for semiconductors. As
international demand increases there is a shift in focus from
domestic to international sales which has been an emerging
industry in developing countries. Asian economies have been on
an upward swing for the past two decades which has increased
consumption of tech products like computers, smartphones, and
other electronic devices. With this increase in demand there
have been an increasing number of firms in the tech sector in
various Asian Pacific countries. With international tech industries
increasing there has been an increased demand for
semiconductors which has been extremely profitable for the few
competitors in the industry. Ever since Asian countries have
started to dominate demand in the semi industry there has been
a steady growth over the worldwide average. Market saturation
in Asian countries shouldn’t happen for a decade because there have been an increasing
number of emerging economies in this region almost directly related to the tech industry.
The increased memory in the DRAM with the low
energy consumption makes it a very desirable
system for mobile phone manufacturers to utilize.
Mobile computing has changed its theme as well,
going from mobile desktop to ultra-portable
minimalist designs. The introduction of the Apple
Air started the IPad, Chromebook, surface, and
netbooks; all of which rely on low power and high
output often pushing the bounds of size. With the
introduction of solid state hard drives and other
accompanying Micron products there is an
increasing ability to store more in a smaller place
and outperform bulkier processes. Memory
demand for computers is always increasing which
will help the demand side of Micron’s business.
Applications for the auto industry should increase
with the first wi-fi enabled car announced by GM
which plans to utilize Verizon’s LTE network.

5
Using Porter’s five forces; the threat of new entrants is very low because just to be a viable
competitor a company would have to start with billions of dollars. Power of suppliers is very
low because these international chip makers can rely on any number of suppliers who are
supplying simple raw elements to manufacture their chips. The power of buyers is low because
there is only a handful of semiconductor manufacturers most of which have partnerships with
each other. The availability of substitutes is another driver it mostly pertains to intellectual
property which manufacturers spend millions or billions on over many years.
Competition within the market is the driving force behind the industry which drives
technological advances yearly and even quarter. These research and development costs can
sink a company and even after the initial production these designs can be stolen and
reengineered in a different factory. The only caveat is that semiconductors tend to be replaced
in terms of technological advances rather routinely over just a few years. The semiconductor
industry is thriving as of last week, boasting average returns of 10.3%, boasting growth for
almost every company within the industry. The Semiconductor Industry Association reported
that, at $28.1 billion, the global semiconductor sales in July witnessed an increase of 10% over
the prior year, the highest monthly posting ever.
Demographics
The technology industry has a myriad of people using their products in end use applications
like cars, smartphones, televisions, solid state hard drives. Everything with memory is
essentially end market application for NAND or DRAM the largest segments of Micron’s
products. Smartphones on the whole are replacing ordinary mobile phones and the cell phone
market is speculated to be completely smartphone within the next five years. With this
replacement of the typical cell phone by the smartphone there will be an increased demand
for mobile memory and processing power. The age for smartphone use has also reached the
youngest consumers in the market. Children know how to utilize a smartphone which means
that life without a smartphone will be unimaginable for the next generation of youth.
With the ever increasing need to be connected there is also the mobile computing segment
which has grown with the introduction of netbooks and tablets. These two devices have been
forecasted by many to overtake sales of PCs, increasing the demographics that utilize
computers. The touch screen revolution has been a gateway for the older demographic.
Typically touch screens are more simple in terms of operating system and intuitiveness which
enables the older demographic to get connected. Tablets are also becoming a teaching aid as
well as entertainment for children, applications have increased to encompass most
demographics. All of these end use applications need Micron products to function.
Not only is the mobile computing helping shift demographics but a revolution is happen inside
your computer. All computers are making a shift from primitive hard drives to solid state as the
price of these drives goes down. Solid state are more reliable/durable so industrial and
manufacturing capabilities have increased. SSD power consumption is lower and faster so
mobile computing is making a shift also since there are no moving parts it is preferred to
regular hard drives that can skip and lose memory or break. The market has been demanding
mobile computing solutions as humanity is making the shift from stagnant computing to a
mobile interconnected life.

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Exhibit 7: Stock Valuation Valuation
Using a weighted average of various valuation
methods I have determined that the 2015 price
target for Micron is to be at $43.20. This
weighted average used both discounted
dividend valuation, free cash flow analysis, and
multiples analysis. The more accurate and
representative the valuation model the heavier
weighted it is for the final target price.
Discounted Cash Flow Models
The dividend valuation model does not necessarily fit Micron because they have never
paid out a dividend and much like the rest of the technology/semiconductor industry
will not pay out a dividend. Although Micron does not disperse dividends, I calculated
the dividends at a 40% payout ratio from the earnings per share (EPS). The dividend is
then calculated at $1.02 for 2014 and based on the assumption that Micron’s EPS will
grow at 8% indefinitely then the price target is $56.02. Using a two stage growth
model, the price target is $40.94 over a three year initial growth rate of 24% then 7%.
See appendix 2 for explination.
Revenue has grown from $9,073 to $16,358 million in 2014, an 80.3% increase in
revenue since last year and growth of 10.2% the year before. With the loss of the
former CEO and the new management structure there is little reason to believe that
revenue won’t grow by at least 30% which is only a few percent over the 5-year
average of 27.8%.
Micron should be able to achieve a EPS growth rate of 24% at the very least because
their dividends have grown in excess of 300% since 2012. In the three year growth
model, I used a four year periods with the initial growth rate at 30%, the second stage
rate at 18%, and then on to 5%. The target price using the three stage models is
$42.79. Both of these models are based on the assumption that Micron will expand
into the international market with their new manufacturing operations in Taiwan and
Japan.
Free Cash-Flow to the Firm
Micron generated over $4 Billion in Free Cash Flow (FCF) to the firm in 2014 which is
the first positive FCF since 2011 which was $1 million. Over the past three years
Micron has been working out the details of their Inortia acquisition which is much of
the reason why CFC has been so low up until this year. Operating Cash Flow has stayed
relatively constant up until 2012 when OCF took a sharp decline which has now
recovered to a stable range of $1,347-$1,507 over the past five quarters. OCF should
continue to increase at around a 4% growth rate. Capital expenditures should increase
because of the implementation of Micron Taiwan and Micron Japan manufacturing
subsidiaries. FCF suffered over the past quarter but fourth quarter sales tend to be
lower than other quarters for most of the semiconductor industry. See appendix 3 for
explanation of valuation.
Using an estimated Free Cash Flow to the Firm (FCFF) of $4,354 which is 7% increase
from the previous year’s FCFF. There are 1.198 Billion shares which puts the FCFF per
share at $3.36. Using a constant growth rate of 3%, I calculated a price target of
$50.50.
Micron is positioned to capture a large portion of the international semiconductor
market over the next five years. Micron’s acquisition and new products allow them to
expand relative quickly into the fastest growing tech markets. Over the next five years
Micron should be able to grow their FCFF per share by 5.5% and after they have
captured the market a far smaller constant growth rate of 2% is factored in. After

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Micron’s rapid growth will come a more stable constant growth that will put their
target price at $49.41.
Using a three-stage growth model I was able to account for a rapid initial growth rate
of 9% over three years followed by another three year period at 6.5%. After this rapid
growth over six years the constant growth rate would be much lower at 2% accounting
for the conglomeration of much of the semiconductor market. The price target using
the three stage model is $38.22 which most accurately captures the future of Micron.
Exhibit 8: P/E & EV/EBITDA Multiples Analysis
Micron’s price-to-earnings (P/E) ratio has been somewhat
unstable over the past 5 years ranging from negative five up to
thirty. Over the past year is has been at an average of 14.5 which
has been relatively constant over the past five quarters. Using a
forward EPS of $3.15 calculated with a 24% increase from 2014’s
EPS and a target P/E ratio of 14, the price target is $43.96. See
Appendix 4 for explanation of valuation
Using a P/E approach seems to be the most useful since we want
to look at the overall earnings per share not just an assumed
payout ratio. This model is more accurate than the dividend
valuation model for the very fact that is takes complete EPS into
account. It may but more accurate but is also very simple, using a
low average over the past two years.
The second valuation using multiples analysis was the EV/EBITDA ratio which used an
average of the last two years at a ratio of 9. I increased the EBITDA by 10% to $5,893
Million from last the previous year which was $5,357 million which has increased 34%
and 147% the last two years respectively. Increasing the EBITDA 10% is very
conservative considering the amount of increases over the past few years.
This valuation method is nearly as simple as the P/E analysis because it is only looking
at enterprise value and earnings before interest, taxes, depreciation and amortization.
This factors out debt obligation to some level, depreciation and taxes which can
complicate valuation methods because of the accounting tactics a company might use
to mute the effects of these values on the overall health of a company. It does take
into account the enterprise value which is a more accurate value of the company
because it includes debt.
Weighted Valuation Method
To create an accurate target price, I used most of the target prices weighted in
different ways. The valuation models that I believed were most relevant and accurate
for Micron received a weight of 30% which are the P/E, EV/EBITDA, and 20% for Two
stage growth models for both FCFF and Dividend Valuation. The models that are
weighted at 10% are the two and three stage valuation methods. The weighted
average price target for 2015 is $43.20 which is a relatively conservative estimate. See
appendix 1 for explanation of cost of capital

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Financial Analysis
Earnings
In 2014 Micron earned $3.04 Billion with revenues of $16.4 Billion, giving Micron a 18%
margin. Micron has generated constant and steady returns the entire year as well as
most of 2013. Micron Technology reported revenues at $4.32 billion for the quarter; 6%,
higher relative to the third quarter of FY2014 and 49% higher than those compared to
Q4 2013. Their earnings per share has increased every quarter since 2012 when their
CEO died in a plane crash. Under new management Micron has been able to post a
profit after the correction from the former CEO’s passing. Non-GAAP net income was
reported at $961 million for Q4, and was higher than the earnings of $913 million that
were reported in the previous quarter.
Cash Flow
Micron posted free cash flows at $7,644 million for the year 2014 which was $4,449
million creating an increase of 41.8%. These increases in free cash flows have increased
by over 40% every year since 2012 so going forward Micron can be expected to increase
their cash flows by around 40% and with the acquisition of Inortera which should be
finalizing sometime within this next year, should create more cash flow streams. Also
this year Micron announced the acquisition of Elpida, which is now known as Micron
Memory Japan (MMJ) and Micron Memory Taiwan (MMT). These facilities have the
capability of increasing Micron’s overall sales output which in turn should generate
excess cash flows.
Balance Sheet and Financing
Micron looks to have way more equity/assets than debt due to the expanding nature of
their business operations. With the recent acquisition of Elpida there has been a
decrease in cash because an aggregate of $949 million in cash was paid to gain 89% of
what is now MMJ and MMT. Micron currently has $4,534 million which beneficial when
the average price per byte of memory is going down all while Micron is expanding into
multinational markets. The recent acquisitions also create discrepancies in the balance
sheet because of the requirements that Micron must follow in regards to their
acquisitions. Micron has increased their overall debt to $6.6 billion which seems to be
falling in line with their increase in equity. Micron is remaining balanced in their debt to
equity ratio around 60% since the change in management in 2012. Their debt financing
is going down with a plan to decrease their leverage and create higher levels of earnings
for shareholders.
Multiples
Micron has seen positive price over earnings ratios which were at -5.74 in 2012
increasing to 15.52 and 13.48 last year. Micron has increased their EV/EBITDA ratio from
4.3 in 2012 up to 10 then 9 in 2014. There is very little evidence to say that these
numbers will go down in the near future. According to their quarterly data they have
stayed right around these averages and there is no indication that sales or bookings will
slow down in the coming months. Although Micron’s multiple ratios might be a little
lower than the competition, these ratios are stable which for a company growing as
rapidly as Micron they are positive. Micron is growing to meet international demand
and keeping stable ratios will increase their profitability in this expansion period.
Margins and Returns
Micron’s margins have done a very good job at turning their margins around since the loss of
their CEO in 2012. In 2014 Micron was able to achieve an operating margin of 18.9% which has
been the highest operating margin since 2010. The recession took a toll on historic margins like
return on assets which was -50% in 2009 and -10.7% in 2012 up to 30.1% in 2014. For Micron
2013 was the year they started increasing margins and bouncing back from a devastating 2012
which did not have a positive margin with exception to EBITDA. In 2013 and 2014 every margin
increased to a considerable level of competition. Micron is also finalizing their acquisition of
Inortia which should increase margins since Micron has spent millions acquiring and jumping
through hoops to finally turn a profit on their venture.

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Investment Summary
BUY Micron is undervalued and has great potential for growth
The best move for anyone would be to buy because Micron is trending up in every forecast
I’ve read or made. The beta of the stock is high but that’s because both estimates given for
beta account for the past five years. The company has gone through major transitions in the
past three years with the death of their CEO in 2012, which has paved the way for their
current CEO Dermot Durcan. Under the new CEO they have seen record growth and profits,
Micron has become a new firm under Durcan; acquiring other tech firms and thriving in an
ever changing market. With the implementation of Micron’s new products like solid state
hard drives and their innovations on memory, Micron is the industry standard. Micron is
growing and becoming the industry leader, their stock’s market price is much higher than any
calculations on intrinsic value.
The reason their market price is much higher is because their acquisitions, which are still
maturing. Micron has acquired Elpida a chip manufacturing firm which is part of the reason
why Micron might look undervalued. Micron is looking to expand their manufacturing
internationally but also making the firms that Micron’s acquired operate more efficiently,
citing a decrease in workforce by 5% internationally. Micron is conglomerating a lot of tech
hardware manufacturing firms in order to maintain their market share which reflects poorly
on their intrinsic value and might create a seemingly overpriced market price.
Exhibit 9: Market Share of DRAM Market

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Investment risks
Over the past two years price per bit has gone down thirteen percent and fifty percent the
year prior. The price of memory is going down steadily but not consistently, this could prove
detrimental to Micron if they cannot decrease their cost per bit production. The
manufacturing costs can be decreased through improvements in the manufacturing process,
including shrinking the die size. Shrinking the die is exactly what it sounds like, making the
transistors smaller which have already been scaled down to microscopic level.
The increase in technological advances have pushed semiconductor manufacturing to the
brink of known physics but there is always room for improvement. If Micron is able stay
ahead of the competition with increasing R&D then Micron has the ability to stay viable in the
semiconductor manufacturing market. Staying ahead of the rest of the market is another
potential risk due to the size of the market which consists of a handful of internationally
competitive firms.
Other firms are also more diversified than Micron, generating revenue from things other than
just semiconductors. These competitors are also very large corporations or conglomerates
that could potentially absorb downturns in the market where Micron may not be able to. The
semiconductor market is also subject to over supply which on an international scale can
decrease the per bit revenue all the while maintaining costs that could result in huge losses.
Micron’s debt obligation could also adversely affect the company’s wellbeing because the
unforeseeable nature of supply and demand within the industry. The leveraging of Micron
puts the company at risk of indebtedness if the economy turns for the worse. Cash might
needed to be put into repayment of debt which will decrease the ability of Micron to pay for
capital expenditures, R&D, acquisitions or other business activities. Debt obligations may
decrease the ability for Micron to raise more capital, decrease credit rating, and increase
vulnerability to economic industry conditions. Micron also may be unable to generate cash
flows necessary to sustain business operations. Without these cash flows Micron might not be
able to receive financing necessary for survival and may limit their ability to grow and stay
competitive with the industry.
The acquisition of Inortia which has been broken into two subsidiaries, Micron Japan and
Micron Taiwan which may be challenged by Qimonda. The Japanese courts have required
Micron to pay $1 million to Inortia shareholders and been required to disclose information
that Micron would have rather not shared. The risks of the acquisition go beyond insolvency
hearings, Micron may not be able to maintain customer base or these subsidiaries may not be
able to remain viable in the semiconductor industry due to competitor technological
advances. Micron’s ability to create new partnerships or acquisitions may also pose a risk if
Micron is unable to create synergies from these partnerships. Micron’s ability to develop new
products might also be unsuccessful, product development is very expensive and can take
years to develop. Micron’s ability to develop relevant products will make or break the future
of the company.
There are risks inherently with my calculations, my inputs could be wrong and my sources
may have led me to believe that my numbers are correct. I believe I underestimated much of
the forecasts just to ensure there would still be a return if the figures were overinflated or
valuations were too high because of a different error. The figures that had the most impact on
final price tended to be the constant growth models, final stage in many of the valuations is
constant growth. These were forecasted by other financial managers much higher and have
the most impact on end value.
After doing a sensitivity analysis I was able to determine that more or less than a 5% change in
the primary growth rates created unrealistic estimates and a change of 3% in secondary
growth rates created very unrealistic forecasts. The multiples analysis was less prone to
fluctuation and could be varied widely with still somewhat realistic results. Because of the
sensitivity of the growth models I only utilized them at 40% of overall value weight. I mainly
focused on the ratios analysis which were less sensitive to unrealistic forecasts.

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Appendix 1: Explanation of Assumptions used for DCF models
Explanation for the calculated cost of equity (Ke)
The method utilized to calculate the cost of equity was CAPM. The following are the assumptions that were
used for different components of the CAPM equation:
I. Adjusted beta of 1.3 using weekly prices since Q1 2012 .
II. Historical S&P 500 return of 9.96%
III. Historical US Treasury Bond (10-yr) of 5.4%
a. This gave way to a historical market risk premium (MRP) of 4.2%1
IV. Since current interest rates are being held artificially low by the Fed (currently 2.45%), I utilize a much
higher risk free rate (RF) of 4.5%.
Given the assumptions above, we find the following to be true:
𝐾𝑒 = 𝑅𝐹 + (𝑀𝑅𝑃)𝐵𝑒𝑡𝑎 = 4.5% + (4.2% x 1.3) = 9.96%
Explanation for WACC
Appendix 2: Dividend Model Two Stage
For the two stage growth model I used a short time frame of three years since the ever increasing innovation in
the etch sector.
My growth numbers were half that of value line just to ensure that even if Micron Tech underperformed they
would still be profitable for the investors. Since innovation is a main focus for Micron I also put their constant
growth rate at 7% because their product life cycle is for ten plus years.
Appendix 3: FCFF
Using a weighted quarterly average I was able to create a pro forma that put the earnings per share at $3.36
next year. I expect their FCFF to grow at 5.25% per year for five years since their product innovations come in
cycles of around five years. Micron estimates their growth much higher than 5.25% but I was underestimating
to ensure a return under negative circumstances.
Appendix 4: Multiples Analysis
1
Note the S&P 500 and US Treasury Bond (10-yr) are geometric average annual returns for 85 years (1/1/26 –
12/31/10). This data is gathered from Jones, Investments, 12th
edition, p. 161
kd = WACC =we x ke + wd x [kd (1-T)] MVe = 43,212$ million we = 0.83$
MVd = 9,045$ million wd = 0.17$
kd = WACC = 9.27% cash (current) 4,534$
net debt = 4,511$ 8.50%
30.00%
Two-Stage Growth Model
N = 3 g1 = 24.00%
g2 = 7.00%
Two-Stage Free Cash Flow Growth Model
N = 5 g1 = 5.25%
g2 = 2.00%

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Using a quarterly weighted average over the past two and a half years I was able to create a target P/E and
EV/EBITDA ratio that I was able to utilize with my pro forma. Using the earnings per share forecasted for 2015
I was able to plug in my target ratios and value the stock for next year. These are more stable estimates of
value since they encompass the entire value of the firm not just cash flows or earnings.
Valuation Target Value
P/E Approach Forward EPS = 3.14$ 14 43.96$
EV/EBITDA Approach EBITDA = 5,893$ 9 42.55$

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Supplemental Exhibits
Exhibit 1: Volume and Price 2012-2014
Exhibit 2: Business Segmentation by Revenue

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Exhibit 3: DRAM Market Demand
Exhibit 4: Micron Sales by Region

15
Exhibit 5: Mobile Shipments by CAGR
Exhibit 5: Price per Gigabyte for NAND and DRAM

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Exhibit 7: Stock Valuation
Exhibit 8: P/E & EV/EBITDA
Valuation Method Price Target Weight Total Value
Constant Growth Of Dividends 44.43$ 0% -$
Two Stage Dividend Valuation 40.94$ 20% 8.19$
Three Stage Dividend Valuation 42.79$ 0% -$
Constant Growth FCFF 50.50$ 0% -$
Two Stage Growth FCFF 49.41$ 20% 9.88$
Three Stage Growth FCFF 38.22$ 0% -$
P/E Approach 43.96$ 30% 13.19$
EV/EBITDA approach 42.55$ 30% 12.77$
Target Price 44.02$
Multiples 2009 2010 2011 2012 2013 2014 2015
P/E -3.5 4.1 30.4 -5.7 15.5 13.5 14.0
EV/EBITDA 15.5 1.9 1.8 4.3 10.0 8.0 9.0

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Exhibit 9: Market Share of DRAM Market
Exhibit 10: Semiconductor Memory Revenue

18
Exhibit 11: Research And Development for Semi Industry
Exhibit 12: Micron’s Annual Revenue/Net Margin Growth

19
Exhibit 13: Semiconductor R&D to Revenue Ratios
Exhibit 14: Bookings -to- Billings Ratio
Exhibit 15A: Volume and Price 2yr Graph

20
Exhibit 15B: Volume and Price 3yr
Exhibit 16: Explanation for Change in Net Working Capital
(NWC)
Exhibit 17: Annual Competition/Industry P/E
Assets 2008 2009 2010 2011 2012 2013 2014
Cash 1362 1485 2913 2160 2459 2880 4534
St invest 0 0 0 100 221 0
Recievables 798 1531 1497 1289 2329 2906
Inventory 987 1770 2080 1812 2649 2455
R cash 0 0 0 0 556 0
Other 74 119 95 98 276 350
Current Assets 3379 3344 6333 5832 5758 8911 10245
Change in Assets -35 2989 -501 -74 3153 1334
Change in Cash 123 1428 -753 299 421 1654
Net Change -158 1561 252 -373 2732 -320
Liabilities 2008 2009 2010 2011 2012 2013 2014
Portion LTD 275 424 712 140 224 1585 1508
Current Liabilities 1598 1898 2702 2480 2243 4125 4811
Change in LTD 300 804 -222 -237 1882 686
Change in Liabilities 149 288 -572 84 1361 -77
Net Change 151 516 350 -321 521 763
Change in NWC -309 1045 -98 -52 2211 -1083
Annual P/E 2005 2006 2007 2008 2009 2010 2011 2012 2013
Micron 44.61 30.64 0 0 0 3.51 38.38 0 14.36
Intel 20.09 17.78 23.66 22.61 15.9 26.36 10.42 10.15 9.66
Toshiba 0 0 0 18.2 0 0 13.02 22.34 25.76
Infineon Technologies AG 0 0 0 0 0 9.9 48.59 12.6 29.35
Texas Instruments 22.91 10.54 18.05 10.76 22.66 12.3 15.5 20.52 22.82
Average 17.52 11.79 8.34 10.31 7.71 10.41 25.18 13.12 20.39

21
Exhibit 18: Annual Competition/Industry P/E Graph
Exhibit 19: Quarterly Competition P/E
Exhibit 20: Quarterly P/E Graph
Quarterly P/E Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014
Micron 0 0 0 0 0 14.36 13.93 10.06 9.39 12.81
Intel 11.29 9.89 9.66 10.9 13.07 12.36 13.78 13.85 15.27 16.55
Toshiba 22.34 22.52 14.29 12.41 25.76 21.27 25.2 30.34 47.35 44.85
Infineon Technologies AG 25.13 13.85 12.6 19.03 24.44 26.57 29.35 24.87 22.1 20.2
Texas Instruments 20.97 18.03 20.52 22.11 19.31 23.77 22.82 23.07 22.92 21.13
Average 15.95 12.86 11.41 12.89 16.52 19.67 21.02 20.44 23.41 23.11

22
Exhibit 21: Quarterly Competitive EV/EBITDA ratios
Exhibit 22: Quarterly Competitive EV/EBITDA ratio Graph
Exhibit 23: Micron’s Goal for Value Segmentation
EV/EBITDA Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014
Micron 4.24 4.94 5.75 8.55 9.44 5.41 6.32 5.76 5.65 7.29
Intel 5.28 4.67 4.32 5.19 6.09 5.65 6.26 6.26 7.07 7.18
Toshiba 10.11 7.26 6.8 9.5 11.91 8.39 9.52 9.93 15.25 15.34
Infineon Technologies AG 10.14 5.51 3.62 5.74 6.33 6.65 7.54 7.5 7.98 7.77
Texas Instruments 10.43 9.33 10.51 11.93 10.73 12.26 11.79 11.91 11.81 10.92
Average 8.04 6.34 6.20 8.18 8.90 7.67 8.29 8.27 9.55 9.70

23
Exhibit 24: SSD Market Segmentation
Exhibit 25: NAND Market Application

24
Exhibit 26: Global Smartphone Sales by Operating System
Exhibit 27: DRAM Market Application
Exhibit 28: Personal Computer Sales

25
Exhibit 29: Auto industry Semiconductor Applications

26
Exhibit 30: Micron Quarterly Pro-Forma
2012 1st
Quarter
2013 2nd
Quarter
2013 3rd
Quarter
2013 4th
Quarter
2013 1st
Quarter
2014 2nd
Quarter
2014 3rd
Quarter
2014 4th
Quarter
2014 1st
Quarter
2015 2nd
Quarter
2015 3rd
Quarter
2015 4th
Quarter
Net sales 1,834$ 2,078$ 2,318$ 2,843$ 4,042$ 4,107$ 3,982$ 4,227$ 4,385$ 4,483$ 4,560$ 4,718$
Cost of goods sold 1,617$ 1,712$ 1,762$ 2,135$ 2,761$ 2,704$ 2,614$ 2,842$ 2,937$ 2,978$ 3,032$ 3,151$
Gross margin 217$ 366$ 556$ 708$ 1,281$ 1,403$ 1,368$ 1,385$ 1,449$ 1,505$ 1,529$ 1,567$
Selling, general and administrative 119$ 123$ 127$ 193$ 176$ 177$ 174$ 180$ 189$ 193$ 197$ 203$
Research and development 224$ 214$ 226$ 267$ 320$ 344$ 349$ 358$ 366$ 379$ 389$ 399$
Restructure and asset impairments (21)$ 60$ 55$ 32$ (3)$ 12$ 9$ 22$ 11$ 14$ 14$ 17$
Other operating (income) expense, net (8)$ (8)$ (1)$ 9$ 237$ 1$ (3)$ (3)$ 75$ 23$ 22$ 27$
Operating income (97)$ (23)$ 149$ 207$ 551$ 869$ 839$ 828$ 808$ 895$ 907$ 921$
Interest income (expense), net (54)$ (53)$ (52)$ (58)$ (96)$ (77)$ (75)$ (81)$ (89)$ (87)$ (88)$ (92)$
Gain on MMJ Acquisition (3) -$ -$ -$ 1,484$ -$ -$ -$ -$ -$ -$ -$ -$
Other non-operating income (expense), net (59)$ (159)$ (45)$ 45$ (80)$ (122)$ 45$ 198$ 21$ 20$ 68$ 94$
Income tax (provision) benefit (13)$ 9$ 1$ (5)$ (80)$ (63)$ (5)$ 87$ (12)$ (7)$ 12$ 28$
Equity in net income (loss) of equity method investees (52)$ (58)$ (10)$ 37$ 86$ 134$ 37$ 119$ 102$ 109$ 94$ 114$
Net income attributable to noncontrolling interests -$ (2)$ -$ (2)$ (23)$ (10)$ (2)$ (1)$ (10)$ (7)$ (5)$ (6)$
Net income attributable to Micron (275)$ (286)$ 43$ 1,708$ 358$ 731$ 1,708$ 1,150$ 1,006$ 1,169$ 1,385$ 1,279$

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