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 costs and impact of restructure plans, the Company's DRAM development costs relative to Nanya, royalty payments from Inotera production, capital commitments for the Company's joint ventures with Nanya Technology Corporation, the supply of DRAM wafers from Inotera Memories, Inc. and manufacturing plans for CMOS image sensors; in "Net Sales" regarding increases in NAND Flash memory production; in "Gross Margin" regarding future charges for inventory write-downs; in "Restructure" regarding the costs and impact of restructure plans; in "Stock-based Compensation" regarding future stock-based compensation costs; in "Liquidity and Capital Resources" regarding capital spending in 2009, plans to pay off certain debt, future distributions from IM Flash to Intel and future contributions to joint ventures; 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 "Item 1A. Risk Factors." This discussion should be read in conjunction with the Consolidated Financial Statements and accompanying notes 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. All tabular dollar amounts are in millions. 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.

In 2008 and 2007 the semiconductor memory industry experienced a severe downturn due to a significant oversupply of products. Average selling prices per gigabit for the Company's DRAM products and NAND Flash products in 2008 were down approximately 50% and 65%, respectively, as compared to 2007 and down approximately 65% and 85%, respectively, as compared to 2006. 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 2008, the Company reported a net loss $1.6 billion and many of its competitors reported negative cash flows from operations. In response to these market conditions, on October 9, 2008 the Company announced a plan to restructure its memory operations. The Company's IM Flash joint venture with Intel Corporation will discontinue production of 200mm wafer NAND flash memory at Micron's Boise facility. The NAND Flash production shutdown will reduce IM Flash'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 plant. As part of the restructuring, the Company plans to reduce its global workforce by approximately 15 percent during 2009 and 2010. Cash costs for restructuring and other related expenses incurred in connection with this restructuring are anticipated to be approximately $60 million, and the benefit to the Company's cash operating results for 2009 is expected to exceed $175 million.

The effects of the worsening global economy and the tightening credit market 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 financing alternatives, delaying capital expenditures and implementing further cost-cutting initiatives.

The Company is focused on improving its competitiveness by developing new products, advancing its technology and reducing costs. In addition, the Company increased its manufacturing capacity in 2008 and 2007 by ramping NAND Flash production at two 300mm wafer fabrication facilities and converting another facility to 300mm DRAM wafer fabrication. To reduce costs, the Company implemented restructure initiatives aimed at reducing manufacturing and overhead costs through outsourcing, relocation of operations and workforce reductions.

The Company makes significant ongoing 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 third parties. The Company is pursuing further opportunities to recover its investment in intellectual property through partnering and other arrangements.

DRAM Joint Ventures with Nanya Technology Corporation ("Nanya"): In the third quarter of 2008, the Company and Nanya formed MeiYa, a joint venture to manufacture stack DRAM and sell those products exclusively to the Company and Nanya. As part of this transaction, the Company transferred and licensed certain intellectual property related to the manufacture of stack DRAM products to Nanya and licensed certain intellectual property from Nanya. The Company and Nanya also agreed to jointly develop process technology and designs to manufacture stack DRAM products with each party bearing its own development costs until such time that the development costs exceed a specified amount, following which such costs would be shared. The Company's development costs are expected to exceed Nanya's development costs by a significant amount. Under this arrangement, the Company is to receive an aggregate of $232 million from Nanya and MeiYa through 2010 for licensing and technology transfer fees, of which the Company realized $40 million of revenue in 2008. The Company will also receive royalties from Nanya on the sale of stack DRAM products manufactured by or for Nanya.

On October 12, 2008, the Company announced that it had entered into an agreement to acquire Qimonda AG's 35.6% ownership stake in Inotera Memories, Inc. ("Inotera"), a Taiwanese DRAM memory manufacturer, for $400 million in cash. The Company received commitments for $285 million of term loans to fund this acquisition in part. Inotera is expected to implement the Company's stack DRAM process technology, and it is anticipated that the Company will receive royalties on the sale of Inotera's production that is delivered to Nanya, a 35.6% stakeholder in Inotera. The Company will eventually gain access to approximately 60,000 300mm DRAM wafers per month, 50% of Inotera's output. In connection with this acquisition, the Company expects to enter into a series of agreements with Nanya to restructure MeiYa. It is anticipated that both parties will cease future resource commitments to MeiYa and redirect those resources to Inotera. (See "Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Joint Ventures - DRAM Joint Ventures with Nanya Technology Corporation.")

Aptina Imaging Business: The Company is exploring partnering arrangements with outside parties regarding the separation of its CMOS image sensor business, operating under the name "Aptina," to an independent entity in which the Company would retain a significant minority ownership interest. To that end, the Company began operating its Imaging business 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.

Goodwill Impairment: In the second quarter of 2008, the Company recorded a noncash impairment charge of $463 million to the goodwill recorded in its Memory segment. (See "Item 8. Financial Statements - Notes to Consolidated Financial Statements - Supplemental Balance Sheet Information - Goodwill.")

Inventory Write-Downs: The Company's results of operations for the fourth, second and first quarters of 2008 and the fourth quarter of 2007 included charges of $205 million, $15 million, $62 million and $20 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

                              2008                          2007                          2006
                                         (in millions and as a percent of net sales)

Net sales:
Memory               $   5,188            89   %   $   5,001            88   %   $   4,523            86   %
Imaging                    653            11   %         687            12   %         749            14   %
                     $   5,841           100   %   $   5,688           100   %   $   5,272           100   %

Gross margin
Memory               $    (241 )          (5 ) %   $     845            17   %   $     878            19   %
Imaging                    186            28   %         233            34   %         322            43   %
                     $     (55 )          (1 ) %   $   1,078            19   %   $   1,200            23   %

Selling, general
and administrative   $     455             8   %   $     610            11   %   $     460             9   %
Research and
development                680            12   %         805            14   %         656            12   %
Goodwill
impairment                 463             8   %          --            --              --            --
Restructure                 33             1   %          19             0   %          --            --
Other operating
(income) expense,

The Company's fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31.

Net Sales

Total net sales for 2008 increased 3% as compared to 2007 primarily due to a 4% increase in Memory sales partially offset by a 5% decrease in Imaging sales. Memory sales for 2008 reflect significant increases in gigabits sold partially offset by significant declines in per gigabit average selling prices as compared to 2007. Memory sales were 89% of total net sales for 2008, 88% for 2007 and 86% for 2006. Imaging sales for 2008 decreased 5% from 2007 primarily reflecting pricing pressure. Total net sales for 2007 increased 8% as compared to 2006 primarily due to an 11% increase in Memory sales partially offset by an 8% decline in Imaging sales.

Memory: Memory sales for 2008 increased 4% from 2007 primarily due to a 55% increase in sales of NAND Flash products offset by a 15% decrease in sales of DRAM products.

Sales of NAND Flash products for 2008 increased from 2007 primarily due to an increase of approximately 370% in gigabits sold as a result of production increases partially offset by a decline of approximately 65% in average selling prices per gigabit. Gigabit production of NAND Flash products increased approximately 350% for 2008 as compared to 2007, primarily due to the continued ramp of NAND Flash products at the Company's 300mm fabrication facilities and transitions to higher density, advanced geometry devices. Sales of NAND Flash products represented approximately 35% of the Company's total net sales for 2008 as compared to approximately 25% for 2007 and approximately 5% for 2006. The Company expects that its gigabit production of NAND Flash products will continue to increase in 2009 but at a slower rate than 2008.

Sales of DRAM products for 2008 decreased from 2007 primarily due to a decline of approximately 50% in average selling prices (which included the effects of a $50 million charge to revenue in the first quarter of 2007 as a result of a settlement agreement with a class of direct purchasers of certain DRAM products), mitigated by an increase in gigabits sold of approximately 70%. Gigabit production of DRAM products increased approximately 70% for 2008, primarily due to production efficiencies from improvements in product and process technologies, including TECH's conversion to 300mm wafer fabrication. Sales of DDR2 and DDR3 DRAM, the Company's highest volume products, were approximately 30% of the Company's total net sales for 2008 and 2007 and approximately 25% for 2006.

Memory sales for 2007 increased 11% from 2006 primarily due to a 287% increase in sales of NAND Flash products offset by an 11% decrease in sales of DRAM products. Sales of NAND Flash products for 2007 increased from 2006 primarily due to significant increases in gigabit production and the Company's acquisition of Lexar Media, Inc. (which occurred in the fourth quarter of 2006), partially offset by a 56% decline in average selling prices per gigabit. Gigabit production of NAND Flash products increased over 800% for 2007 as compared to 2006, primarily due to the ramp of NAND Flash products at the Company's 300mm fabrication facilities and transitions to higher density, advanced geometry devices. Sales of DRAM products for 2007 decreased from 2006 primarily due to a 23% decline in average selling prices (which included the effects of a $50 million charge to revenue in the first quarter of 2007 as a result of a settlement agreement with a class of direct purchasers of certain DRAM products), which was partially mitigated by a 16% increase in gigabits sold. Gigabit production of DRAM products increased 23% for 2007, primarily due to transitions to higher density, advanced geometry devices.

Imaging: Imaging sales for 2008 decreased 5% from 2007 primarily due to significant declines in average selling prices by product type partially offset by a shift in product mix from products with 1-megapixel or lower resolution to products with 3-megapixel or higher resolution, which had higher average selling prices per unit. Imaging sales were 11% of the Company's total net sales in 2008 as compared to 12% for 2007 and 14% for 2006. Imaging sales for 2007 decreased 8% from 2006 primarily due to declines in average selling prices as a result of industry softness in mobile handset sales and pricing pressure. Declines in average selling prices for 2007 were mitigated by increased sales of higher resolution products.

Gross Margin

The Company's overall gross margin percentage declined from 19% for 2007 to negative 1% for 2008 primarily due to a decrease in the gross margin percentage for Memory as a result of the significant declines in per gigabit average selling prices. The Company's overall gross margin percentage for 2007 declined to 19% from 23% for 2006 due to a decrease in both the gross margin percentages for Memory and Imaging products.

Memory: The Company's gross margin percentage for Memory products declined from 17% for 2007 to negative 5% for 2008 primarily due to the significant decreases in average selling prices and the shift in product mix to NAND Flash products (which had a significantly lower gross margin than DRAM products in 2008), mitigated by cost reductions.

The Company's gross margins for Memory in 2008 were reduced by a $205 million charge in the fourth quarter of 2008 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 Company's inventory write-downs of $15 million and $62 million in the second and first quarters of 2008, respectively, did not significantly impact 2008 gross margins as a substantial portion of the written-down inventory was sold in 2008. Gross margins for 2007 were reduced by a $20 million inventory write-down in the fourth quarter of 2007. In future periods the Company would 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 these products.

The Company's gross margin for DRAM products for 2008 declined from 2007, primarily due to the decrease in average selling prices per gigabit of approximately 50% mitigated by a reduction in costs per gigabit. The Company achieved cost reductions for DRAM products through transitions to higher-density, advanced-geometry devices. Cost reductions in 2008 for DRAM products were partially offset by the inventory write-downs. Excluding the inventory write-downs, the Company reduced its DRAM costs per gigabit by approximately 35% for 2008 as compared to 2007.

The Company's gross margin for NAND Flash products for 2008 declined from 2007 primarily due to the decrease in average selling prices per gigabit of approximately 65% mitigated by a reduction in costs per gigabit. Cost reductions in 2008 primarily reflect lower manufacturing costs and lower costs of NAND Flash products purchased for sale under the Company's Lexar brand. The Company achieved manufacturing cost reductions for NAND Flash products primarily through increased production of higher-density, advanced-geometry devices at the Company's 300mm fabrication facilities. NAND Flash costs for 2008 were also reduced by a recovery of $70 million for price adjustments for NAND Flash products purchased from other suppliers in prior periods. Cost reductions in 2008 for NAND Flash Products were partially offset by the inventory write-downs. Excluding the inventory write-downs and the effect of pricing adjustments from other suppliers, the Company reduced its NAND Flash costs per gigabit by approximately 65%. Sales of NAND Flash products include sales from IM Flash to Intel at long-term negotiated prices approximating cost. IM Flash sales to Intel were $1,037 million, $497 million and $114 million for 2008, 2007 and 2006, respectively.

The Company's gross margin percentage for Memory products of 17% for 2007 declined from 19% for 2006 primarily due to the shift in product mix from DRAM products to NAND Flash products, which had a significantly lower gross margin than DRAM products in 2007. This decline in gross margin percentage was mitigated by improvements in the gross margin for 2007 on sales of both DRAM and NAND Flash products as compared to 2006. The gross margin for DRAM products for 2007 improved from 2006, primarily due to a reduction in costs per gigabit of approximately 25%, partially offset by a decline in average selling prices of approximately 25%. The Company achieved cost reductions for DRAM products through transitions to production of devices utilizing the Company's 78nm process technologies. The Company's gross margin for NAND Flash products for 2007 improved slightly from 2006 primarily due to a reduction in costs per gigabit of approximately 55%, partially offset by a decline in average selling prices of approximately 55%. Cost reductions in 2007 reflect lower manufacturing costs, lower costs of NAND Flash products purchased for sale under the Company's Lexar brand and shifts in product mix. The Company achieved manufacturing cost reductions for NAND Flash products primarily through increased production of higher-density, advanced-geometry devices at the Company's 300mm fabrication facilities.

In 2008, the Company's TECH Semiconductor Singapore Pte. Ltd. ("TECH") joint venture accounted for approximately 12% of the Company's total wafer production. TECH primarily produced DDR and DDR2 products in 2008, 2007 and 2006. Since TECH utilizes the Company's product designs and process technology and has a similar manufacturing cost structure, the gross margin on sales of TECH products approximates gross margins on sales of similar products manufactured by the Company's wholly-owned operations. (See "Item 8. Financial Statements - Notes to Consolidated Financial Statements - Joint Ventures - TECH Semiconductor Singapore Pte. Ltd.")

Imaging: The Company's gross margin for Imaging declined to 28% for 2008 from 34% for 2007 primarily due to declines in average selling prices mitigated by cost reductions and a shift to higher resolution products, which realized better gross margins. The Company's gross margin for Imaging declined to 34% for 2007 from 43% for of 2006 primarily due to declines in average selling prices that were mitigated by cost reductions and shifts in product mix to higher resolution products.

Selling, General and Administrative

Selling, general and administrative ("SG&A") expenses for 2008 decreased 25% from 2007 primarily due to lower legal costs as well as lower payroll costs and other expenses driven by the Company's restructure initiatives. The reduction of payroll costs in 2008 was primarily the result of a decrease in headcount. In 2007, the Company recorded a $31 million charge to SG&A as a result of the settlement of certain antitrust class action (direct purchaser) lawsuits. SG&A expenses for 2007 increased 33% from 2006 primarily due to higher personnel costs and higher legal costs including the $31 million charge for settlement of the direct purchaser lawsuits. Personnel costs in 2007 increased from 2006 primarily due to increased headcount resulting from the acquisition of Lexar in the fourth quarter of 2006, the formation of IM Flash in the second quarter of 2006 and subsequent ramp of its operations, and the consolidation of TECH in the third quarter of 2006. Future SG&A expense is expected to vary, potentially significantly, depending on, among other things, the number of legal matters that are resolved relatively early in their life-cycle and the number of matters that progress to trial. For the Company's Memory segment, SG&A expenses as a percentage of sales were 7% in 2008, 11% in 2007 and 8% in 2006. For the Imaging segment, SG&A expenses as a percentage of sales were 11% in 2008, 11% in 2007 and 12% in 2006.

Research and Development

Research and development ("R&D") expenses vary primarily with the number of development 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 its products, the Company typically begins to process wafers before completion of performance and reliability testing. The Company deems development of a product complete once the product has been thoroughly reviewed and tested for performance and reliability. R&D expenses can vary significantly depending on the timing of product qualification as costs incurred in production prior to qualification are charged to R&D.

R&D expenses for 2008 decreased 16% from 2007 primarily due to decreases in development wafers processed and lower payroll costs driven by the Company's restructure initiatives. R&D expenses for 2007 increased 23% from 2006 primarily due to NAND pre-production wafer processing mitigated by reimbursements received from Intel under a NAND Flash R&D cost-sharing arrangement. R&D expenses were reduced by $148 million in 2008, $240 million in 2007 and $86 million in 2006 for amounts reimbursable from Intel under the NAND Flash R&D cost-sharing arrangement. For the Memory segment, R&D expenses as a percentage of sales were 10% for 2008, 13% for 2007 and 13% for 2006. For the Imaging segment, R&D expenses as a percentage of sales were 22% for 2008, 23% for 2007 and 11% for 2006.

The Company's process technology R&D efforts are focused primarily on development of successively smaller line-width process technologies which are designed to facilitate the Company's transition to next-generation memory products and CMOS image sensors. Additional process technology R&D efforts focus on advanced computing and mobile memory architectures and new manufacturing materials. Product design and development efforts are concentrated on the Company's 1 Gb and 2 Gb DDR2 and DDR3 products as well as high density and mobile NAND Flash memory (including MLC technology), specialty memory products, memory systems and CMOS image sensors.

Goodwill Impairment

In the second quarter of 2008, the Company performed an assessment of impairment for goodwill. In the first and second quarters of 2008, the Company experienced a sustained, significant decline in its stock price. As a result of the decline in stock price, the Company's market capitalization fell significantly below the recorded value of its consolidated net assets for most of the second quarter of 2008. The reduced market capitalization reflected, in part, the Memory segment's lower average selling prices and expected continued weakness in pricing for the Company's Memory products.

Based on the results of the Company's assessment of goodwill for impairment, it was determined that the carrying value of the Memory segment exceeded its estimated fair value. Therefore, the Company performed the second step of the impairment test to determine the implied fair value of goodwill. Specifically, the Company allocated the estimated fair value of the Memory segment as determined in the first step to recognized and unrecognized net assets, including allocations to intangible assets such as intellectual property, customer relationships and brand and trade names. The result of the analysis indicated that there would be no remaining implied value attributable to goodwill in the Memory segment and accordingly, the Company wrote off all $463 million of goodwill associated with its Memory segment as of February 28, 2008. The Company's assessment of goodwill for impairment in the second and fourth quarters of 2008 indicated that the fair value of the Imaging segment exceeded its carrying value and therefore goodwill in the segment was not impaired. (See "Item 8. Financial Statements - Notes to Consolidated Financial Statements - Supplemental Balance Sheet Information - Goodwill.")

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