MICRON TECHNOLOGY: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-K)
This discussion should be read in conjunction with the consolidated financial statements and accompanying notes for the year ended
September 2, 2021. All period references are to our fiscal periods unless otherwise indicated. Our fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. Fiscal 2021 contained 52 weeks, fiscal 2020 contained 53 weeks, and fiscal 2019 contained 52 weeks. Our fourth quarter of fiscal 2020 contained 14 weeks and all other fiscal quarters in the years presented contained 13 weeks. All tabular dollar amounts are in millions, except per share amounts. For an overview of our business and certain related trends, see "Part I - Item 1. Business - Overview." Results of Operations Consolidated Results For the year ended 2021 2020 2019 Revenue $ 27,705100 % $ 21,435100 % $ 23,406100 % Cost of goods sold 17,282 62 % 14,883 69 % 12,704 54 % Gross margin 10,423 38 %
6,552 31% 10,702 46%
Research and development 2,663 10 % 2,600 12 % 2,441 10 % Selling, general, and administrative 894 3 % 881 4 % 836 4 % Restructure and asset impairments 488 2 % 60 - % (29) - % Other operating (income) expense, net 95 - % 8 - % 78 - % Operating income 6,283 23 %
3,003 14% 7,376 32%
Interest income (expense), net (146) (1) % (80) - % 77 - % Other non-operating income (expense), net 81 - % 60 - % (405) (2) % Income tax (provision) benefit (394) (1) % (280) (1) % (693) (3) % Equity in net income (loss) of equity method investees 37 - % 7 - % 3 - % Net income attributable to noncontrolling interests - - % (23) - % (45) - % Net income attributable to Micron
$ 5,86121 %
Total revenue: Total revenue for 2021 increased by 29% compared to 2020, mainly due to increased sales of DRAM and NAND. DRAM product sales for 2021 increased by 38% compared to 2020, mainly due to the growth of
[[Image Removed: mu-20210902_g5.jpg]] 39 -------------------------------------------------------------------------------- bit shipments in the high-20% range and a high single-digit percent increase in average selling prices. Sales of NAND products for 2021 increased 14% as compared to 2020 primarily due to increases in bit shipments in the high-20% range, partially offset by a low-10% range decline in average selling prices. In the first quarter of 2022, we expect that our bit shipments may be adversely impacted as some customers are adjusting their memory and storage purchases due to shortages of non-memory components and due to constraints within our supply chain for certain IC components. Total revenue for 2020 decreased 8% as compared to 2019 primarily due to a decline in DRAM sales partially offset by an increase in NAND sales. Sales of DRAM products for 2020 decreased 14% as compared to 2019 as average selling prices declined in the mid-30% range due to challenging market conditions, partially offset by growth in bit shipments in the low-30% range driven by cloud server, enterprise server, and mobile markets. Sales of NAND products for 2020 increased 14% as compared to 2019 primarily due to increases in bit shipments in the mid-20% range driven by sales of SSDs to data center customers and sales of managed NAND products, partially offset by a high-single-digit percent decline in average selling prices. Overall Gross Margin: Our overall gross margin percentage increased to 38% for 2021 from 31% for 2020, primarily due to the increases in DRAM average selling prices and cost reductions resulting from strong execution in delivering products featuring advanced technologies, partially offset by the declines in NAND average selling prices. Our gross margins included the impact of underutilization costs at MTU of
$335 millionfor 2021, $557 millionfor 2020, and $384 millionfor 2019. Underutilization costs at MTU declined in 2021 primarily due to the plan to sell MTU's Lehifacility and classification of assets as held for sale at the end of the second quarter of 2021, which resulted in the cessation of depreciation on those assets (See "Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Lehi, UtahFab and 3D XPoint"). Effective as of the beginning of the second quarter of 2021, we changed our method of inventory costing from average cost to first-in, first-out ("FIFO"). Concurrently, as of the beginning of the second quarter of 2021, we modified our inventory cost absorption processes used to estimate inventory values, which affects the timing of when costs are recognized. These changes resulted in a one-time increase to cost of goods sold of approximately $293 millionin 2021. Our overall gross margin percentage decreased to 31% for 2020 from 46% for 2019, primarily due to declines in average selling prices, partially offset by the effect of decreases in non-cash depreciation expense from the revision in estimated useful lives of equipment in our NAND wafer fabrication facilities, cost reductions resulting from strong execution in delivering products featuring advanced technologies, and continuous improvement initiatives to reduce production costs. Based on our assessment of planned technology node transitions, capital spending, and re-use rates, we revised the estimated useful lives of the existing equipment in our NAND wafer fabrication facilities and our research and development facilities from five years to seven years as of the beginning of the first quarter of 2020. The revision in estimated useful lives reduced NAND manufacturing depreciation expense and benefited cost of goods sold by approximately $400 millionfor 2020.
Revenue by Business Unit
For the year ended 2021 2020 2019 CNBU
$ 12,28044 % $ 9,18443 % $ 9,96843 % MBU 7,203 26 % 5,702 27 % 6,403 27 % SBU 3,973 14 % 3,765 18 % 3,826 16 % EBU 4,209 15 % 2,759 13 % 3,137 13 % All Other 40 - % 25 - % 72 - % $ 27,705 $ 21,435 $ 23,406
Percentages of total revenue may not add up to 100% due to rounding.
The evolution of the turnover of each business unit for 2021 compared to 2020 is as follows:
•CNBU revenue increased 34% primarily due to broad-based increases in bit shipments across markets and higher average selling prices for DRAM. •MBU revenue increased 26% primarily due to increases in bit shipments for high-value mobile MCP products. 40 | 2021 10-K -------------------------------------------------------------------------------- •SBU revenue increased 6% as increases in bit shipments for NAND products outpaced declines in average selling prices. •EBU revenue increased 53% primarily due to increases in bit shipments driven by strong demand growth in automotive, industrial, and consumer markets and improved pricing in industrial and consumer markets.
The evolution of the turnover of each business unit in 2020 compared to 2019 is as follows:
•CNBU revenue decreased 8% primarily due to DRAM price declines driven by imbalances in supply and demand, partially offset by bit sales growth across key markets, particularly in the cloud server and graphics markets. In addition, in the second quarter of 2020, we determined that the 3D XPoint technology and product roadmap were more closely aligned with our CNBU strategy than our SBU strategy and 3D XPoint became an integral part of CNBU. Accordingly, we began to report all 3D XPoint activities within CNBU from that date. •MBU revenue decreased 11% primarily due to price declines, partially offset by bit sales growth for high-value mobile MCP products. •SBU revenue decreased 2% primarily due to the decline in 3D XPoint revenue in SBU after the first quarter of 2020 as noted above and NAND selling price declines, partially offset by bit sales growth for SSDs. SBU revenue included products manufactured and sold to Intel under a long-term supply agreement at prices approximating cost, which included 3D XPoint memory and NAND, aggregating
$124 millionfor 2020 and $682 millionfor 2019. •EBU revenue decreased 12% primarily due to price declines resulting from the impact of the global COVID-19 pandemic on automotive, industrial, and consumer segments partially offset by bit sales growth from transitions to an increasing mix of high-density DRAM and NAND products.
Operating profit (loss) per business unit
For the year ended 2021 2020 2019 CNBU
$ 4,29535 % $ 2,01022 % $ 4,64547 % MBU 2,173 30 % 1,074 19 % 2,606 41 % SBU 173 4 % 36 1 % (386) (10) % EBU 1,006 24 % 301 11 % 923 29 % All Other 20 50 % (2) (8) % 13 18 % $ 7,667 $ 3,419 $ 7,801
Percentages reflect operating profit (loss) as a percentage of sales for each business unit.
The variations in the operating result of each business unit for 2021 compared to 2020 are as follows:
•CNBU operating income increased primarily due to increases in bit shipments, higher average selling prices, manufacturing cost reductions, and lower MTU underutilization costs. •MBU operating income increased primarily due to increases in sales of high-value MCP products, manufacturing cost reductions for low-power DRAM, and increases in DRAM bit shipments. •SBU operating income increased primarily due to lower manufacturing costs and increases in bit shipments, partially offset by decreases in selling prices and higher R&D costs. •EBU operating income increased primarily due to improved pricing in industrial and consumer markets, cost reductions from an increasing mix of leading edge bits, and higher bit shipments.
The change in operating income for each business unit in 2020 compared to 2019 is as follows:
•CNBU operating income decreased primarily due to declines in DRAM pricing and MTU underutilization costs in 2020 related to 3D XPoint. •MBU operating income decreased primarily due to declines in low-power DRAM and NAND pricing, partially offset by increases in sales of high-value MCP products and manufacturing cost reductions. •SBU operating margin improved primarily due to lower 3D XPoint underutilization costs, manufacturing cost reductions, increases in sales volumes, and improved product mix, partially offset by declines in selling prices. [[Image Removed: mu-20210902_g5.jpg]] 41 --------------------------------------------------------------------------------
• EBU’s operating result decreased due to lower prices, partially offset by higher sales volumes in the automotive and industrial markets.
Operating and other expenses
Research and Development: R&D expenses vary primarily with the number of development and pre-qualification wafers processed, the cost of advanced equipment dedicated to new product and process development, and personnel costs. Because of the lead times necessary to manufacture our products, we typically begin to process wafers before completion of performance and reliability testing. Development of a product is deemed complete when it is qualified through internal reviews and tests for performance and reliability. R&D expenses can vary significantly depending on the timing of product qualification. R&D expenses for 2021 increased 2% as compared to 2020 primarily due to increases in employee compensation and depreciation expense resulting from higher capital spending, partially offset by lower volumes of development and prequalification wafers. R&D expenses for 2020 were 7% higher as compared to 2019 primarily due to increases in volumes of development and pre-qualification wafers, a reduction of R&D reimbursements from our partners, increases in employee compensation, and increases in subcontractor expense, partially offset by lower depreciation expense from the revision of the estimated useful lives of equipment. Selling, General, and Administrative: SG&A expenses for 2021 were relatively unchanged as compared to 2020. SG&A expenses for 2020 were 5% higher as compared to 2019 due to increases in employee compensation and legal costs, partially offset by a reduction in consulting fees. Restructure and Asset Impairments: In 2021, we ceased development of 3D XPoint technology and classified our
Lehifacility assets as held for sale. We recognized a restructure charge of $435 millionto write down the assets held for sale to the expected consideration to be received under our agreement with TI. For further discussion see "Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Lehi, UtahFab and 3D XPoint."
Other operating and non-operating income (expenses): see “section 8. Financial statements and additional data – Notes to the consolidated financial statements – Other operating (income), net” and “- Other income (expense) excluding ‘exploitation), net. “
Interest Income (Expense): Net interest expense for 2021 increased by
$66 millionas compared to 2020 primarily due a decrease of $77 millionin interest income as a result of decreases in interest rates on our cash and investments. Net interest expense for 2020 was $80 million, as compared to $77 millionof net interest income for 2019 (a change of $157 million), primarily due to (1) a $91 milliondecrease in interest income as a result of decreases in interest rates, partially offset by higher average levels of cash and investment balances and (2) a $66 millionincrease in interest expense primarily due to an increase in our average debt outstanding and a reduction in the amount of interest expense capitalized in 2020.
Income taxes: Our income tax benefit (provision) consisted of the following: For the year ended
2021 2020 2019 Income before taxes
$ 6,218 $ 2,983 $ 7,048
Income tax benefit (provision) (394) (280) (693) Effective tax rate
6.3 % 9.4 % 9.8 %
Our effective tax rate decreased in 2021 compared to 2020, mainly due to a
in charge of writing the
We operate in a number of jurisdictions outside
the United States, including Singapore, where we have tax incentive arrangements. These incentives expire, in whole or in part, at various dates through 2034 and are conditional, in part, upon meeting certain business operations and employment thresholds. The effect of tax incentive 42 | 2021 10-K -------------------------------------------------------------------------------- arrangements reduced our tax provision by $758 million(benefiting our diluted earnings per share by $0.66) for 2021, by $215 million( $0.19per diluted share) for 2020, and by $756 million( $0.66per diluted share) for 2019.
See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Income Taxes”.
Liquidity and capital resources
Our primary sources of liquidity are cash generated from operations and financing obtained from capital markets and financial institutions. Cash generated from operations is highly dependent on selling prices for our products, which can vary significantly from period to period. We are continuously evaluating alternatives for efficiently funding our capital expenditures and ongoing operations. We expect, from time to time, to engage in a variety of financing transactions for such purposes, including the issuance of securities. As of
September 2, 2021, $2.50 billionwas available to draw under our Revolving Credit Facility. We expect to receive $900 millionof proceeds from the sale of our Lehifacility to TI in the first quarter of 2022. Cash and marketable investments totaled $10.40 billionas of September 2, 2021and $9.19 billionas of September 3, 2020. Our investments consist primarily of bank deposits, money market funds, and liquid investment-grade, fixed-income securities, which are diversified among industries and individual issuers. To mitigate credit risk, we invest through high-credit-quality financial institutions and by policy generally limit the concentration of credit exposure by restricting the amount of investments with any single obligor. As of September 2, 2021, $3.69 billionof our cash and marketable investments was held by our foreign subsidiaries. To develop new product and process technology, support future growth, achieve operating efficiencies, and maintain product quality, we must continue to invest in manufacturing technologies, facilities and equipment, and R&D. We estimate capital expenditures in 2022 for property, plant, and equipment, net of partner contributions, to be between $11 billionand $12 billion, and we expect the timing of our capital expenditures to be weighted more toward the first half of 2022. Capital expenditures for 2022 are driven by our continued 176-layer NAND transition, pilot line enablement for next generation NAND and DRAM, and continued infrastructure and prepayments to support the introduction of EUV lithography. Actual amounts for 2022 will vary depending on market conditions. As of September 2, 2021, we had purchase obligations of approximately $2.87 billionfor the acquisition of property, plant, and equipment, of which approximately $2.56 billionis expected to be paid within one year. For a description of contractual obligations, such as debt, leases, and purchase obligations, see "Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Debt," " - Leases," and " - Commitments." Our Board of Directors has authorized the discretionary repurchase of up to $10 billionof our outstanding common stock through open-market purchases, block trades, privately-negotiated transactions, derivative transactions, and/or pursuant to a Rule 10b5-1 trading plan. The repurchase authorization has no expiration date, does not obligate us to acquire any common stock, and is subject to market conditions and our ongoing determination of the best use of available cash. Through September 2, 2021, we have repurchased an aggregate of $4.04 billionof the authorized amount. See "Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Equity." On August 2, 2021, we announced that our Board of Directors had declared a quarterly dividend of $0.10per share, payable in cash on October 18, 2021, to shareholders of record as of the close of business on October 1, 2021. The declaration and payment of any future cash dividends are at the discretion and subject to the approval of our Board of Directors. Our Board of Directors' decisions regarding the amount and payment of dividends will depend on many factors, such as our financial condition, results of operations, capital requirements, business conditions, debt service obligations, contractual restrictions, industry practice, legal requirements, regulatory constraints, and other factors that our Board of Directors may deem relevant.
We expect that our cash and investments, cash flow from operations and available funding will be sufficient to meet our needs at least over the next 12 months and beyond for the foreseeable future.
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Cash Flows: For the year ended 2021 2020 2019 Net cash provided by operating activities
$ 12,468 $ 8,306 $ 13,189Net cash provided by (used for) investing activities (10,589) (7,589) (10,085) Net cash provided by (used for) financing activities (1,781) (317) (2,438) Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash 41 11 26 Net increase in cash, cash equivalents, and restricted cash $ 139 $ 411 $ 692Operating Activities: Cash provided by operating activities reflects net income adjusted for certain non-cash items, including depreciation expense, amortization of intangible assets, asset impairments, and stock-based compensation, and the effects of changes in operating assets and liabilities. The increase in cash provided by operating activities for 2021 as compared to 2020 was primarily due to higher net income adjusted for non-cash items compared with the prior period and the effect of lower inventories, partially offset by an increase in receivables due to a higher level of sales. The decrease in cash provided by operating activities for 2020 compared with 2019 was primarily due to lower net income and changes in working capital. Investing Activities: For 2021, net cash used for investing activities consisted primarily of $10.03 billionof expenditures for property, plant, and equipment, partially offset by inflows of $502 millionof partner contributions for capital expenditures, and $1.06 billionof net outflows from purchases, sales, and maturities of available-for-sale securities. For 2020, net cash used for investing activities consisted primarily of $8.22 billionof expenditures for property, plant, and equipment, partially offset by inflows of $272 millionof partner contributions for capital expenditures, and $415 millionof net inflows from purchases, sales, and maturities of available-for-sale securities. For 2019, net cash used for investing activities consisted primarily of $9.78 billionof expenditures for property, plant, and equipment, partially offset by inflows of $754 millionof partner contributions for capital expenditures. Net cash used for investing activities also included $1.17 billionof net outflows from purchases, sales, and maturities of available-for-sale securities. Financing Activities: For 2021, net cash used for financing activities consisted primarily of $1.20 billionfor the acquisition of 15.6 million shares of our common stock under our $10 billionshare repurchase authorization, $295 millionof payments on equipment purchase contracts, $185 millionof cash payments to settle conversions of our 2032D Notes, and $147 millionof repayments of finance leases and other debt. In addition, we received proceeds of $1.19 billionunder an unsecured 2024 Term Loan A and used the proceeds to repay the $1.19 billionExtinguished 2024 Term Loan A. For 2020, net cash used for financing activities consisted primarily of $4.37 billionof cash payments to reduce our debt, including $2.50 billionto pay down borrowings under our Revolving Credit Facility, $621 millionfor repayments of IMFT's debt obligations to Intel, $534 millionto prepay our 2025 Notes, $266 millionto settle conversions of notes, and $248 millionfor scheduled repayment of finance leases; $744 millionfor the acquisition of Intel's noncontrolling interest in IMFT; and $176 millionfor the acquisition of 3.6 million shares of our common stock under our share repurchase authorization. Cash used for financing activities was partially offset by proceeds of $2.50 billionfrom our Revolving Credit Facility, $1.25 billionfrom the 2023 Notes, and $1.25 billionfrom the Extinguished 2024 Term Loan A. For 2019, net cash used for financing activities consisted primarily of $2.66 billionfor the acquisition of 67 million shares of treasury stock under our share repurchase authorization and cash payments to reduce our debt, including $1.65 billionto settle conversions of notes, $728 millionto prepay the 2022 Term Loan B, $316 millionfor repayments of IMFT's debt obligations to Intel, and $643 millionfor scheduled repayment of other notes and capital leases. Cash used for financing activities was partially offset by net proceeds of $3.53 billionfrom the aggregate issuance of the 2024 Notes, 2026 Notes, 2027 Notes, 2029 Notes, and 2030 Notes.
See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Debt”.
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Critical accounting estimates
The preparation of financial statements and related disclosures in conformity with
U.S.GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. Estimates and judgments are based on historical experience, forecasted events, and various other assumptions that we believe to be reasonable under the circumstances. Estimates and judgments may vary under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis. Our management believes the accounting policies below are critical in the portrayal of our financial condition and results of operations and require management's most difficult, subjective, or complex judgments. Contingencies: We are subject to the possibility of losses from various contingencies. Significant judgment is necessary to estimate the probability and amount of a loss, if any, from such contingencies. An accrual is made when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated. In accounting for the resolution of contingencies, significant judgment may be necessary to estimate amounts pertaining to periods prior to the resolution that are charged to operations in the period of resolution and amounts related to future periods. Goodwill: We test goodwill for impairment in our fourth quarter each year, or more frequently if indicators of an impairment exist, to determine whether it is more likely than not that the fair value of the reporting unit with goodwill is less than its carrying value. For reporting units for which this assessment concludes that it is more likely than not that the fair value is more than its carrying value, goodwill is considered not impaired and we are not required to perform the goodwill impairment test. Qualitative factors considered in this assessment include industry and market considerations, overall financial performance, and other relevant events and factors affecting the fair value of the reporting unit. For reporting units for which this assessment concludes that it is more likely than not that the fair value is below the carrying value, goodwill is tested for impairment by determining the fair value of each reporting unit and comparing it to the carrying value of the net assets assigned to the reporting unit. If the fair value of the reporting unit exceeds its carrying value, goodwill is considered not impaired. If the carrying value of the reporting unit exceeds its fair value, we would record an impairment loss up to the difference between the carrying value and implied fair value. For 2021, our qualitative assessment indicated that the fair value for all of our reporting units substantially exceeded their carrying value and that a quantitative assessment was unnecessary. Determining when to test for impairment, the reporting units, the assets and liabilities of the reporting unit, and the fair value of the reporting unit requires significant judgment and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates, forecasted manufacturing costs, and other expenses and are developed as part of our long-range planning process. The same estimates are used in business planning, forecasting, and capital budgeting as part of our long-term manufacturing capacity analysis. We test the reasonableness of the output of our long-range planning process by calculating an implied value per share and comparing that to current stock prices, analysts' consensus pricing, and management's expectations. These estimates and assumptions are used to calculate projected future cash flows for the reporting unit, which are discounted using a risk-adjusted rate to estimate a fair value. The discount rate requires determination of appropriate market comparables. We base fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. Income taxes: We are required to estimate our provision for income taxes and amounts ultimately payable or recoverable in numerous tax jurisdictions around the world. These estimates involve significant judgment and interpretations of regulations and are inherently complex. Resolution of income tax treatments in individual jurisdictions may not be known for many years after completion of the applicable year. We are also required to evaluate the realizability of our deferred tax assets on an ongoing basis in accordance with U.S.GAAP, which requires the assessment of our performance and other relevant factors. Realization of deferred tax assets is dependent on our ability to generate future taxable income. Our income tax provision or benefit is dependent, in part, on our ability to forecast future taxable income in Japan, the United States, and other jurisdictions. Such forecasts are inherently difficult and involve significant judgments including, among others, projecting future average selling prices and sales volumes, manufacturing and overhead costs, levels of capital spending, and other factors that significantly impact our analyses of the amount of net deferred tax assets that are more likely than not to be realized.
Inventories: Inventories are valued at the lower of cost or net realizable value, the cost being determined on a FIFO basis. As of the start of the second quarter of 2021, we have changed our inventory method
[[Image Removed: mu-20210902_g5.jpg]] 45 -------------------------------------------------------------------------------- costing from average cost to FIFO. Cost includes depreciation, labor, material, and overhead costs, including product and process technology costs. Determining net realizable value of inventories involves significant judgments, including projecting future average selling prices and future sales volumes. To project average selling prices and sales volumes, we review recent sales volumes, existing customer orders, current contract prices, industry analyses of supply and demand, seasonal factors, general economic trends, and other information. Actual selling prices and volumes may vary significantly from projected prices and volumes due to the volatile nature of the semiconductor memory and storage markets. When these analyses reflect estimated net realizable values below our manufacturing costs, we record a charge to cost of goods sold in advance of when inventories are actually sold. As a result, the timing of when product costs are charged to costs of goods sold can vary significantly. Differences in forecasted average selling prices used in calculating lower of cost or net realizable value adjustments can result in significant changes in the estimated net realizable value of product inventories and accordingly the amount of write-down recorded. For example, a 5% variance in the estimated selling prices would have changed the estimated net realizable value of our inventory by approximately
$301 millionas of September 2, 2021. Due to the volatile nature of the semiconductor memory and storage markets, actual selling prices and volumes often vary significantly from projected prices and volumes; as a result, the timing of when product costs are charged to operations can vary significantly. U.S.GAAP provides for products to be grouped into categories in order to compare costs to net realizable values. The amount of any inventory write-down can vary significantly depending on the determination of inventory categories. We review the major characteristics of product type and markets in determining the unit of account for which we perform the lower of average cost or net realizable value analysis and categorize all inventories (including DRAM, NAND, and other memory) as a single group. Property, plant, and equipment: We periodically assess the estimated useful lives of our property, plant, and equipment based on technology node transitions, capital spending, and equipment re-use rates. We also review the carrying value of property, plant, and equipment for impairment when events and circumstances indicate that the carrying value of an asset or group of assets may not be recoverable from the estimated future cash flows expected to result from its use and/or disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to the amount by which the carrying value exceeds the estimated fair value of the assets. The estimate of future cash flows involves numerous assumptions which require significant judgment by us, including, but not limited to, future use of the assets for our operations versus sale or disposal of the assets, future selling prices for our products, and future production and sales volumes. In addition, significant judgment is required in determining the groups of assets for which impairment tests are separately performed. Revenue recognition: Revenue is primarily recognized at a point in time when control of the promised goods is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods. Contracts with our customers are generally short-term in duration at fixed, negotiated prices with payment generally due shortly after delivery. We estimate a liability for returns using the expected value method based on historical returns. In addition, we generally offer price protection to our distributors, which is a form of variable consideration that decreases the transaction price. We use the expected value method, based on historical price adjustments and current pricing trends, to estimate the amount of revenue recognized from sales to distributors. Differences between the estimated and actual amounts are recognized as adjustments to revenue.
Recently adopted accounting standards
See “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Recently Adopted Accounting Standards”.
Recently published accounting standards
No material element.
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