Micron strengthens its balance sheet
Micron Technology (MU) is a cyclical stock that falls into losses and negative free cash flow during a cyclical downturn, when memory prices fall, closing the gap between cost and selling price. A cyclical stock such as Micron should maintain low debt and high liquidity to withstand industry downturns.
Micron is currently facing an industry downturn after two years of an upturn. During the industry upturn, the company enjoyed windfall gains, which it used to reduce its debt and improve its cash reserve. The company also increased its spending on advanced nodes to reduce its production cost. A stronger balance sheet and cost-competitive products have placed Micron in a much better position to handle the industry downturn.
Cash and debt position
At the end of May, Micron had cash reserves of $7.9 billion and total debt of $4.9 billion, resulting in a net cash position of $3.0 billion. Its total debt fell sequentially as $1.4 billion worth of its Series G convertible notes were redeemed in the third quarter of fiscal 2019.
Micron recently announced that it was buying Intel’s (INTC) stake in the Intel Micron Flash Technologies joint venture and that the transaction would be completed by October 31. Micron will pay Intel $1.4 billion for its stake in the joint venture, and this will be reflected in Micron’s fiscal 2020 first-quarter earnings results.
Micron aims to maintain liquidity throughout the down cycle. At the end of May, its total liquidity exceeded $10 billion.