Micron’s cash flow
Micron Technology’s (MU) earnings have grown significantly over the past 12 months, which has also resulted in high cash flows. Its operating cash flow rose threefold from $1.4 billion in fiscal Q2 2017 to $4.3 billion in fiscal Q2 2018.
After deducting capex, it had FCF (free cash flow) of $2.1 billion in fiscal Q2 2018, with its FCF totaling $3.8 billion in the first half of fiscal 2018.
Over the past few years, Micron has made several acquisitions, including its acquisitions of Inotera and Elpida, which increased its total debt to $11.1 billion in fiscal Q4 2017. It used its strong FCF to reduce its debt to $9.3 billion and increase its cash reserve to $8.7 billion in fiscal Q2 2018. It aims to become net cash positive by the end of fiscal 2018, which ends in August.
What Micron plans to do with its cash reserves
At Micron’s 2018 Investor Day event, its CFO, David Zinsner, stated that the company would use $6 billion—more than 100% of its FCF for the second half of fiscal 2018—to improve its balance sheet. It would use $4.7 billion cash to repay undesirable debt—debt that is secured, carries high coupons, or is in a foreign currency that requires hedging.
Zinsner stated that Micron would use the remaining $1.2 billion to redeem convertible debt. As this debt is convertible into equity, it can dilute shareholder value. By redeeming this debt, the company aims to reduce its future outstanding shares.
What net cash position implies
With these efforts, Micron aims to become net cash positive by August 2018. NVIDIA (NVDA) is among the few semiconductor companies that are net cash positive.
A net cash position improves a company’s credit rating, enabling it to restructure its costly debt. It also puts excess cash in the hands of the company to invest in future growth opportunities or to give returns to shareholders.
Next, we’ll see what Micron aims to do with its excess cash.
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