Summary of MICRON TECHNOLOGY INC

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion contains trend information and other forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements include, but are not limited to, statements such as those made in "Overview" regarding the Company's DRAM development costs relative to Nanya, Inotera's transition to the Company's stack process technology and manufacturing plans for CMOS image sensors; in "Net Sales" regarding production levels for the third quarter of 2009 and future increases in NAND production; in "Gross Margin" regarding the effects of production slowdowns on costs for the third quarter of 2009 and future charges for inventory write-downs; in "Research and Development" regarding research and development expenses for the third quarter of 2009; in "Restructure" regarding the remaining costs of restructure plans; in "Liquidity and Capital Resources" regarding capital spending in 2009, future distributions from IM Flash to Intel and capital contributions to TECH; and in "Recently Issued Accounting Standards" regarding the impact from the adoption of new accounting standards. The Company's actual results could differ materially from the Company's historical results and those discussed in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, those identified in "PART II. OTHER INFORMATION
- Item 1A. Risk Factors." This discussion should be read in conjunction with the Consolidated Financial Statements and accompanying notes and with the Company's Annual Report on Form 10-K for the year ended August 28, 2008. All period references are to the Company's fiscal periods unless otherwise indicated. The Company's fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. The Company's fiscal 2009, which ends on September 3, 2009, contains 53 weeks. All production data reflects production of the Company and its consolidated joint ventures.

Overview

The Company is a global manufacturer of semiconductor devices, principally semiconductor memory products (including DRAM and NAND Flash) and CMOS image sensors. The Company operates in two segments: Memory and Imaging. Its products are used in a broad range of electronic applications including personal computers, workstations, network servers, mobile phones and other consumer applications including Flash memory cards, USB storage devices, digital still cameras, MP3/4 players and in automotive applications. The Company markets its products through its internal sales force, independent sales representatives and distributors primarily to original equipment manufacturers and retailers located around the world. The Company's success is largely dependent on the market acceptance of a diversified portfolio of semiconductor memory products, efficient utilization of the Company's manufacturing infrastructure, successful ongoing development of advanced process technologies and generation of sufficient return on research and development investments.

The Company has made significant investments to develop proprietary product and process technology that is implemented in its worldwide manufacturing facilities and through its joint ventures to enable the production of semiconductor products with increasing functionality and performance at lower costs. The Company generally reduces the manufacturing cost of each generation of product through advancements in product and process technology such as its leading-edge line-width process technology and innovative array architecture. The Company continues to introduce new generations of products that offer improved performance characteristics, such as higher data transfer rates, reduced package size, lower power consumption and increased memory density and megapixel count. To leverage its significant investments in research and development, the Company has formed strategic joint ventures under which the costs of developing memory product and process technologies are shared with its joint venture partners. In addition, from time to time, the Company has also sold and/or licensed technology to other parties. The Company is pursuing additional opportunities to recover its investment in intellectual property through partnering and other arrangements.

The semiconductor memory industry is experiencing a severe downturn due to a significant oversupply of products. The downturn has been exacerbated by global economic conditions which have adversely affected demand for semiconductor memory products. Average selling prices per gigabit for the Company's DRAM and NAND Flash products for the second quarter of 2009 decreased 30% and 13%, respectively, compared to the first quarter of 2009 after decreasing 34% and 24%, respectively, for the first quarter of 2009 as compared to the fourth quarter of 2008. Average selling prices per gigabit for the Company's DRAM and NAND Flash products in 2008 were down 51% and 67%, respectively, compared to 2007 and down 63% and 85%, respectively, compared to 2006. These declines significantly outpaced the long-term historical trend. As a result of these market conditions, the Company and other semiconductor memory manufacturers have reported negative gross margins and substantial losses in recent periods. In the first six months of 2009, the Company reported a net loss of $1.5 billion after reporting a net loss of $1.6 billion for 2008.

In response to these market conditions, the Company initiated restructure plans in 2009, primarily attributable to the Company's Memory segment. In the first quarter of 2009, IM Flash, a joint venture between the Company and Intel, terminated its agreement with the Company to obtain NAND Flash memory supply from the Company's Boise facility, reducing the Company's NAND Flash production by approximately 35,000 200mm wafers per month. In addition, the Company and Intel agreed to suspend tooling and the ramp of NAND Flash production at IM Flash's Singapore wafer fabrication facility. On February 23, 2009, the Company announced that it will phase out all remaining 200mm wafer manufacturing operations at its Boise, Idaho, facility, reducing employment there by as many as 2,000 positions by the end of 2009. The Company has also undertaken additional cost savings measures to increase its competitiveness, including reductions in executive and employee salary and bonuses, a continued hiring freeze, suspension of matching contributions under the Company's 401(k) employee savings plan and reduction of other discretionary costs such as outside services, travel and overtime.

The effects of the worsening global economy and the tightening credit markets are also making it increasingly difficult for semiconductor memory manufacturers to obtain external sources of financing to fund their operations. Although the Company believes that it is better positioned than some of its peers, it faces challenges in the current and near-term that require it to continue to make significant improvements in its competitiveness. Additionally, the Company is pursuing further financing alternatives, further reducing capital expenditures and implementing further cost reduction initiatives.

DRAM joint ventures with Nanya Technology Corporation ("Nanya"): The Company has a partnering arrangement with Nanya Technology Corporation ("Nanya") pursuant to which the Company and Nanya jointly develop process technology and designs to manufacture stack DRAM products. Each party generally bears its own development costs and the Company's development costs are expected to exceed Nanya's development costs by a significant amount. In addition, the Company has transferred and licensed certain intellectual property related to the manufacture of stack DRAM products to Nanya and licensed certain intellectual property from Nanya. As a result, the Company is to receive an aggregate of $207 million from Nanya through 2010. The Company recognized $26 million and $54 million of license revenue from this agreement in the second quarter and first six months of 2009, respectively, and since May 2008 through March 5, 2009 has recognized $90 million of cumulative license revenue. In addition, the Company expects to receive royalties in future periods from Nanya for stack DRAM products manufactured by or for Nanya.

The Company has also partnered with Nanya in investments in two Taiwan DRAM memory companies: Inotera Memories, Inc. ("Inotera") and MeiYa Technology Corporation ("MeiYa"). As of March 5, 2009, the ownership of Inotera was held 35.6% by Nanya, 35.5% by the Company and the balance was publicly held. As of March 5, 2009, the ownership of MeiYa was held 50% by Nanya and 50% by the Company. The Company accounts for its interests using the equity method of accounting and does not consolidate these entities.

Inotera and MeiYa each have fiscal years that end on December 31. As these fiscal years differ from that of the Company's fiscal year, the Company recognizes its share of Inotera's and MeiYa's quarterly earnings or losses for the calendar quarter that ends within the Company's fiscal quarter. This results in the recognition of the Company's share of earnings or losses from these entities for a period that lags the Company's fiscal periods by approximately two months.

Inotera: In the first quarter of 2009, the Company acquired a 35.5% ownership interest in Inotera, a publicly-traded entity in Taiwan, from Qimonda AG ("Qimonda") for $398 million. The interest in Inotera was acquired for cash, a portion of which was funded from proceeds of a $200 million two-year term loan received by the Company from Nan Ya Plastics Corporation, an affiliate of Nanya, and an $85 million six-month term loan received from Inotera. The loans were recorded at their fair values, which reflect an aggregate discount of $31 million from their face amounts. This aggregate discount was recorded as a reduction of the Company's basis in the investment in Inotera. The Company also capitalized $10 million of costs and other fees incurred in connection with the acquisition. As a result of the above transactions, total consideration for the Company's equity investment in Inotera was $377 million. The Company's results of operations for the second quarter of 2009 reflect a $56 million net loss on equity method investments for the Company's share of Inotera's loss from the acquisition date to December 31, 2008.

The Company has rights and obligations to purchase up to 50% of Inotera's wafer production. Inotera's actual wafer production will vary from time to time based on market and other conditions. In connection with the acquisition of the shares in Inotera, the Company and Nanya entered into a supply agreement with Inotera (the "Supply Agreement") pursuant to which Inotera will sell to the Company and Nanya trench and stack DRAM products manufactured by Inotera. Inotera's current trench production capacity is expected to transition to the Company's stack process technology. Inotera will sell to the Company and Nanya all of the trench DRAM products manufactured by Inotera other than trench DRAM products that were to be sold by Inotera to Qimonda pursuant to a separate supply agreement between Inotera and Qimonda (the "Qimonda Supply Agreement"). Under the Qimonda Supply Agreement, Qimonda was obligated to purchase trench DRAM products resulting from wafers started for it by Inotera through July 2009 in accordance with a ramp down schedule specified in the Qimonda Supply Agreement. Under the Supply Agreement, with respect to trench DRAM products, the Company will purchase the products resulting from 50% of Inotera's aggregate trench DRAM production less the trench DRAM products contemplated to be purchased by Qimonda pursuant to the Qimonda Supply Agreement. Under the supply agreement, with respect to stack DRAM products, the Company will purchase the products resulting from 50% of the aggregate stack DRAM production. Under the Supply Agreement, the pricing formula that determines the amounts to be paid by the Company for DRAM products includes manufacturing costs and margins associated with the products purchased.

In the second quarter of 2009, Qimonda filed for bankruptcy and defaulted on its obligations to purchase trench products from Inotera under the Qimonda Supply Agreement. Pursuant to the Company's obligations under the Supply Agreement, the Company recorded $51 million in cost of goods sold in the second quarter of 2009 for its obligations to Inotera as a result of Qimonda's default.

MeiYa: In the fourth quarter of 2008, the Company and Nanya formed MeiYa to manufacture stack DRAM products and sell such products exclusively to the Company and Nanya. In addition, during the first quarter of 2009, the Company received $50 million from MeiYa, half of which was accounted for as a technology transfer fee and half as a reduction of the Company's investment in MeiYa. In connection with the purchase of its ownership interest in Inotera, the Company entered into a series of agreements with Nanya pursuant to which both parties will cease future funding of, and resource commitments to, MeiYa.

(See "Item 1. Financial Statements - Notes to Consolidated Financial Statements
- Supplemental Balance Sheet Information - Equity Method Investments")

Aptina Imaging Business: The Company is exploring partnering arrangements with outside parties regarding the sale of Aptina in which the Company could retain a minority ownership interest. To that end, the Company began operating Aptina as a separate wholly-owned subsidiary in October 2008. Under the arrangements being considered, the Company expects that it will continue to manufacture CMOS image sensors for some period of time.

Inventory Write-Downs: The Company's results of operations for the second and first quarters of 2009 and fourth, second and first quarters of 2008 included charges of $234 million, $369 million, $205 million, $15 million and $62 million, respectively, to write down the carrying value of work in process and finished goods inventories of memory products (both DRAM and NAND Flash) to their estimated market values.

Results of Operations

                                       Second Quarter                                  First Quarter                                     Six Months
                 2009       % of net sales      2008        % of net sales      2009        % of net sales       2009        % of net sales       2008        % of net sales
                                                                  (amounts in millions and as a percent of net sales)
Net sales:
Memory          $  910              92     %   $ 1,224              90     %   $ 1,222              87     %   $  2,132              89     %   $  2,590              89     %
Imaging             83               8     %       135              10     %       180              13     %        263              11     %        304              11     %
                $  993             100     %   $ 1,359             100     %   $ 1,402             100     %   $  2,395             100     %   $  2,894             100     %

Gross margin:
Memory          $ (269 )           (30 )   %   $   (76 )            (6 )   %   $  (502 )           (41 )   %   $   (771 )           (36 )   %   $   (115 )            (4 )   %
Imaging              2               2     %        33              24     %        53              29     %         55              21     %         77              25     %
                $ (267 )           (27 )   %   $   (43 )            (3 )   %   $  (449 )           (32 )   %   $   (716 )           (30 )   %   $    (38 )            (1 )   %

SG&A            $   90               9     %   $   120               9     %   $   102               7     %   $    192               8     %   $    232               8     %
R&D                168              17     %       180              13     %       178              13     %        346              14     %        343              12     %
Restructure        105              11     %         8               1     %       (66 )            (5 )   %         39               2     %         21               1     %
Goodwill
impairment          58               6     %       463              34     %        --              --               58               2     %        463              16     %
Other
operating
(income)
expense, net        20               2     %       (42 )            (3 )   %         9               1     %         29               1     %        (65 )            (2 )   %
Net income
(loss)            (751 )           (76 )   %      (777 )           (57 )   %      (706 )           (50 )   %     (1,457 )           (61 )   %     (1,039 )           (36 )   %

The Company's second quarter of 2009, which ended March 5, 2009, contained 13 weeks as compared to 14 weeks for the first quarter of 2009 and 13 weeks for the second quarter of 2008.

Net Sales

Total net sales for the second quarter of 2009 decreased 29% as compared to the first quarter of 2009 primarily due to a 26% decrease in Memory sales and a 54% decrease in Imaging sales. Memory sales for the second quarter of 2009 reflect significant declines in per gigabit average selling prices as compared to the first quarter of 2009. Memory sales were 92% of total net sales for the second quarter of 2009 as compared to 87% and 90%, respectively, for the first quarter of 2009 and second quarter of 2008. Total net sales for the second quarter of 2009 decreased 27% as compared to the second quarter of 2008 primarily due to a 26% decrease in Memory sales and a 39% decrease in Imaging sales. Total net sales for the first six months of 2009 decreased 17% as compared to the first six months of 2008 primarily due to an 18% decrease in Memory sales and a 13% decrease in Imaging sales.

In response to adverse market conditions, the Company shut down production of NAND for IM Flash at the Company's Boise fabrication facility in the second quarter of 2009 and announced that it would shut down the remainder of its production at the Boise fabrication facility by the end of 2009. In addition, the Company implemented temporary production slowdowns at some of its manufacturing facilities during the second quarter of 2009. The shutdown of the Company's Boise fabrication facility and slowdowns at other facilities reduced production output for Memory and Imaging products for the second quarter of 2009 and are expected to reduce production output for the remainder of 2009.

The Company has formed partnering arrangements under which it has sold and/or licensed technology to other parties. The Company recognized royalty and license revenue of $33 million in the second quarter of 2009, $36 million in the first quarter of 2009 and $5 million in the second quarter of 2008.

Memory: Memory sales for the second quarter of 2009 decreased 26% from the first quarter of 2009 as sales of DRAM products decreased by 30% and sales of NAND Flash products decreased 20%.

Sales of DRAM products for the second quarter of 2009 decreased from the first quarter of 2009 primarily due to a 30% decline in average selling prices. Gigabit production of DRAM products decreased approximately 8% for the second quarter of 2009 as compared to the first quarter of 2009, primarily due to production slowdowns implemented at several facilities and one less week in the quarter, mitigated by efficiencies from improvements in product and process technologies. Sales of DDR2 and DDR3 DRAM products were 26% of the Company's total net sales in the second quarter of 2009, as compared to 25% for the first quarter of 2009 and 28% for the second quarter of 2008.

Sales of NAND Flash products for the second quarter of 2009 decreased from the first quarter of 2009 primarily due to a 13% decline in average selling prices per gigabit and an 8% decrease in gigabits sold as a result of production decreases. Gigabit production of NAND Flash products decreased 5% for the second quarter of 2009 as compared to the first quarter of 2009 primarily due to the shutdown of NAND Flash production for IM Flash at the Company's Boise wafer fabrication facility near the end of the first quarter of 2009 and one less week in the quarter, mitigated by production efficiencies achieved by transitions to higher density, advanced geometry devices. The Company expects that its gigabit production of NAND Flash products will increase at a slower rate in 2009 than in 2008 primarily due to the completion of production ramps at new 300mm manufacturing facilities in 2008 and the shutdown of NAND Flash production at the Boise fabrication facility. Sales of NAND Flash products represented 43% of the Company's total net sales for the second quarter of 2009 as compared to 38% for the first quarter of 2009 and 36% for the second quarter of 2008.

Memory sales for the second quarter of 2009 decreased 26% from the second quarter of 2008 as sales of DRAM products decreased by 34% and sales of NAND Flash products decreased 13%. The decrease in sales of DRAM products for the second quarter of 2009 from the second quarter of 2008 was primarily the result of a 57% decline in average selling prices mitigated by a 43% increase in gigabits sold. Gigabit production of DRAM products increased 43% for the second quarter of 2009 as compared to the second quarter of 2008, primarily due to production efficiencies from improvements in product and process technologies as well as the additional week in the quarter. Sales of NAND Flash products for the second quarter of 2009 decreased 13% from the second quarter of 2008 primarily due to a 57% decline in average selling prices mitigated by a 102% increase in gigabits sold. The significant increase in gigabit sales of NAND Flash products was primarily due to an 89% increase in production primarily as a result of the continued ramp of NAND Flash products at the Company's 300mm fabrication facilities and transitions to higher density, advanced geometry devices.

Memory sales for the first six months of 2009 decreased 18% from the first six months of 2008 as sales of DRAM products decreased by 27% and sales of NAND Flash products decreased 3%. The decrease in sales of DRAM products for the first six months of 2009 from the first six months of 2008 was primarily the result of a 52% decline in average selling prices mitigated by a 43% increase in gigabits sold. Gigabit production of DRAM products increased 49% for the first six months of 2009 as compared to the first six months of 2008, primarily due to production efficiencies from improvements in product and process technologies as well as the additional week in the quarter. Sales of NAND Flash products for the first six months of 2009 decreased 3% from the first six months of 2008 primarily due to a 61% decline in average selling prices mitigated by a 146% increase in gigabits sold. The significant increase in gigabit sales of NAND Flash products was primarily due to a 117% increase in production primarily as a result of the continued ramp of NAND Flash products at the Company's 300mm fabrication facilities and transitions to higher density, advanced geometry devices.

Imaging: Imaging sales for the second quarter of 2009 decreased 54% as compared to the first quarter of 2009 primarily due to decreases in unit sales stemming from weakness in the mobile phone markets. Imaging sales for the second quarter and first six months of 2009 decreased by 39% and 13%, respectively, from the corresponding periods of 2008 primarily due to decreased units sales, particularly for products with 2-megapixel or lower resolution, and declines in average selling prices. Imaging sales were approximately 8% of the Company's total net sales for the second quarter of 2009 as compared to 13% for the first quarter of 2009 and 10% for the second quarter of 2008.

Gross Margin

The Company's overall gross margin percentage for the second quarter of 2009 improved to negative 27% from negative 32% for the first quarter of 2009, primarily due to an improvement in the gross margin for Memory partially offset by a decline in the gross margin for Imaging. Production slowdowns implemented at some of the Company's manufacturing facilities during the second quarter of 2009 adversely affected per megabit costs of Memory products and per unit costs of Imaging products and the continuation of these slowdowns is expected to have an adverse effect on costs for the third quarter of 2009. The Company's overall gross margin percentage in the second quarter of 2009 declined from negative 3% for the second quarter of 2008 due to a decline in the gross margin percentage for Memory, primarily as a result of significant decreases in average selling prices mitigated by cost reductions, as well as a decline in the gross margin for Imaging. The Company's overall gross margin percentage declined from negative 1% for the first six months of 2008 to negative 30% for the first six months of 2009 primarily due to a decline in the gross margin for Memory, primarily as a result of significant decreases in average selling prices and inventory write-downs, as well as a decline in the gross margin for Imaging.

Memory: The Company's gross margin percentage for Memory products improved to negative 30% for the second quarter of 2009 from negative 41% for the first quarter of 2009 primarily due to an improvement in the gross margin for NAND Flash products partially offset by a slight decline in the gross margin for DRAM products. Gross margins for DRAM and NAND Flash products for the second quarter of 2009 were adversely affected by declines in average selling prices, mitigated by reductions in manufacturing costs. Gross margins for Memory products for the second quarter of 2009 were also adversely impacted by idle facility charges of approximately $60 million, primarily from Inotera and IM Flash's Singapore facility.

The Company's gross margins for Memory in 2009 and 2008 were impacted by charges to write down inventories to their estimated market values as a result of the significant decreases in average selling prices for both DRAM and NAND Flash products. The impact of inventory write-downs on gross margins for all periods reflects the period-end inventory write-down less the estimated net effect of prior period write-downs. The effects of inventory write-downs on gross margin by period were as follows:

                                  Second Quarter    First Quarter      Six Months
                                  2009      2008        2009         2009      2008
                                                (amounts in millions)

     Period-end inventory        $(234 )   $(15 )   $(369 )         $(603 )   $(77 )
     write-downs
     Estimated net effect of      277       50       157             434       64
     previous write-downs
     Net effect of inventory     $43       $35      $(212 )         $(169 )   $(13 )
     write-downs

As charges to write down inventories are recorded in advance of when inventories are sold, gross margins in subsequent periods are higher than they would be absent the effect of the previous write-downs. In future periods, the Company will be required to record additional inventory write-downs if estimated average selling prices of products held in finished goods and work in process inventories at a quarter-end date are below the manufacturing cost of those products.

The Company's gross margin for NAND Flash products for the second quarter of 2009 improved from the first quarter of 2009, despite the 13% decrease in average selling prices per gigabit, primarily due to the effects of inventory write-downs and a reduction in manufacturing costs per gigabit. Costs of NAND Flash products were also reduced as a result of lower prices for products purchased for sale under the Company's Lexar brand. The Company's NAND Flash costs per gigabit were 31% lower in the second quarter of 2009 compared to the . . .