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How Was Micron’s Cash and Cash Flow Position in Fiscal 3Q15?

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Micron’s cash, debt, and cash flow position

In the prior part of the series, we discussed Micron’s margins. Micron (MU) generated an operating cash flow (or OCF) and free cash flow (or FCF) of $1.3 billion and $200 million, respectively, in fiscal 3Q15. As of fiscal 3Q15, the company holds cash and equivalents worth $4.86 billion.

Micron’s total debt stood at $7.55 billion. To fund its acquisition of Elpida, Micron primarily raised debt. The majority of this debt is convertible. Convertible bonds can be converted to Micron shares under specified conditions. The company doesn’t pay dividends.

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Investments in research and development

The semiconductor industry is shaped and defined by rapid technological change. A constant and high level of investment in research and development (R&D) is essential to retaining a competitive position in the space. Intel Corporation (INTC) leads the space.

As we can see from the list above, fabless suppliers like Nvidia (NVDA), Qualcomm (QCOM), and Broadcom (BRCM) had the highest R&D spending as a percent of sales ratios in 2014 at 31.3%, 28.5%, and 28.2%, respectively. Among its peers, Qualcomm showed the largest percentage increase with a 62% increase in its R&D spending in 2014. Micron‘s allocation towards its R&D has been only 8.5% of its sales, which is not good news for its investors and shareholders, as this industry requires a huge investment to remain competitive.

If you are bullish about Micron Technology, you can invest in the Technology Select SPDR (XLK). XLK invests about 0.77% in Micron.

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