Summary of MICRON TECHNOLOGY INC

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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 of restructure plans, the Company's DRAM development costs relative to Nanya, Inotera's transition to the Company's stack process technology, the supply of DRAM wafers from Inotera Memories, Inc. and manufacturing plans for CMOS image sensors; in "Net Sales" regarding production levels for the second quarter of 2009, future increases in NAND production and demand for Imaging products in the second quarter of 2009; in "Gross Margin" regarding the effects of temporary production slowdowns for the second quarter of 2009 and future charges for inventory write-downs; in "Restructure" regarding the remaining costs of restructure plans; in "Stock-based Compensation" regarding future stock-based compensation costs; in "Liquidity and Capital Resources" regarding capital spending in 2009, future distributions from IM Flash to Intel and capital contributions to TECH; 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 "PART II. OTHER INFORMATION
- Item 1A. Risk Factors." This discussion should be read in conjunction with the Consolidated Financial Statements and accompanying notes and with the Company's Annual Report on Form 10-K 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. The Company's fiscal 2009, which ends on September 3, 2009, contains 53 weeks. 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.

The Company has made significant 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 other parties. The Company is pursuing additional opportunities to recover its investment in intellectual property through partnering and other arrangements.

The semiconductor memory industry is experiencing a severe downturn due to a significant oversupply of products. The downturn has been exacerbated by global economic conditions which have adversely affected demand for semiconductor memory products. Average selling prices per gigabit for the Company's DRAM and NAND Flash products for the first quarter of 2009 decreased 34% and 24%, respectively, compared to the fourth quarter of 2008. Average selling prices per gigabit for the Company's DRAM and NAND Flash products in 2008 were down 51% and 67%, respectively, compared to 2007 and down 63% and 85%, respectively, compared to 2006. These declines significantly outpaced the long-term historical trend. 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 the first quarter of 2009, the Company reported a net loss $706 million after reporting a net loss of $1.6 billion for 2008. In response to these market conditions, on October 9, 2008 the Company announced a plan to restructure its Memory operations. In the first quarter of 2009, the Company discontinued production of NAND flash memory for IM Flash at its Boise facility reducing the Company'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. The Company has also undertaken additional cost savings measures to increase its competitiveness, including reductions in executive and employee salary and bonuses, a continued hiring freeze, and reduction of other discretionary costs such as outside services, travel and overtime. As of December 4, 2008, the Company expected to incur additional restructure costs of approximately $40 million through 2010.

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.

DRAM joint ventures with Nanya Technology Corporation ("Nanya"): The Company has a partnering arrangement with Nanya Technology Corporation ("Nanya") pursuant to which the Company and Nanya jointly develop process technology and designs to manufacture stack DRAM products. Each party generally bears its own development costs and the Company's development costs are expected to exceed Nanya's development costs by a significant amount. In addition, the Company has 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 is to receive an aggregate of $207 million from Nanya through 2010. Further, the Company will receive royalties from Nanya for stack DRAM products manufactured by or for Nanya.

The Company has partnered with Nanya in investments in two Taiwan DRAM memory manufacturers: Inotera Memories, Inc. ("Inotera") and MeiYa Technology Corporation ("MeiYa"). As of December 4, 2008, the Company owned 35.5% of Inotera and 50% of MeiYa and Nanya owned 35.6% of Inotera and 50% of MeiYa. The Company's investments in Inotera and MeiYa are accounted for under the equity method because of the Company's ability to exercise significant influence over the operating and financial policies of these entities. As of December 4, 2008 and August 28, 2008, the Company's aggregate carrying value of these equity method investments in the accompanying consolidated balance sheet was $432 million and $84 million, respectively. Inotera and MeiYa each have fiscal years that end on December 31. As these fiscal years differ from that of the Company's fiscal year, the Company recognizes its share of Inotera and MeiYa quarterly earnings or losses for the calendar quarter that ends within the Company's fiscal quarter. This results in the recognition of the Company's share of earnings or losses from these entities for a period that lags the Company's fiscal periods by approximately two months.

Inotera: In the first quarter of 2009, the Company acquired a 35.5% ownership interest (or approximately 1.2 billion shares) in Inotera, a publicly traded entity in Taiwan, from Qimonda AG ("Qimonda") for approximately $400 million. The interest in Inotera was acquired for cash, a portion of which was funded from loan proceeds of $200 million received by the Company from Nan Ya Plastics Corporation, an affiliate of Nanya, and $85 million received from Inotera. The loans were recorded at their fair values, which reflect an aggregate discount of $31 million from their face amounts. The aggregate discount was recorded as a reduction of the Company's basis in the investment in Inotera. The Company also capitalized $10 million of costs and other fees incurred in connection with the acquisition. As a result of the above transactions, as of December 4, 2008 the carrying value of the Company's equity investment in Inotera was $378 million. Because the Company did not acquire its interest in Inotera until October and November of 2008, the Company's results of operations for the first quarter of 2009 do not include any share of Inotera's results of operations for the quarterly period ended September 30, 2008.

The Company has rights and obligations to purchase 50% of the 120,000 per month 300mm DRAM wafer production of Inotera. Inotera's actual wafer production will vary from time to time based on market and other conditions. In connection with the acquisition of the shares in Inotera, the Company and Nanya entered into a Supply Agreement with Inotera (the "Supply Agreement") pursuant to which Inotera will sell to the Company and Nanya trench and stack DRAM products manufactured by Inotera. Inotera's current trench production capacity is expected to transition to the Company's stack process technology. Inotera will sell to the Company and Nanya all of the trench DRAM products manufactured by it other than trench DRAM products that are sold by Inotera to Qimonda pursuant to a separate supply agreement between Inotera and Qimonda (the "Qimonda Supply Agreement"). Under the Qimonda Supply Agreement, Qimonda is obligated to purchase trench DRAM products started for it by Inotera for approximately eight months following the Company's acquisition of the shares in Inotera in accordance with a ramp down schedule specified in the Qimonda Supply Agreement. Initially, (a) with respect to trench DRAM products, the Company will purchase the products resulting from 50% of Inotera's aggregate trench DRAM production less the trench DRAM products contemplated to be purchased by Qimonda pursuant to the Qimonda Supply Agreement and (b) with respect to stack DRAM products, the Company will purchase the products resulting from 50% of the aggregate stack DRAM production. The pricing formula that determines the amounts to be paid by the Company for DRAM products under the Supply Agreement includes manufacturing costs and margins associated with the products purchased.

MeiYa: In the fourth quarter of 2008, the Company and Nanya formed MeiYa to manufacture stack DRAM products and sell such products exclusively to the Company and Nanya. In connection with the purchase of the ownership interest in Inotera, the Company entered into a series of agreements with Nanya which contemplate the restructuring of MeiYa and pursuant to which both parties will cease future funding of, and resource commitments to, MeiYa.

(See "Item 1. Financial Statements - Notes to Consolidated Financial Statements
- Supplemental Balance Sheet Information - Equity Method Investments")

Aptina Imaging Business: The Company is exploring partnering arrangements with outside parties regarding the sale of Aptina in which the Company could retain a minority ownership interest. To that end, the Company began operating Aptina 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.

Inventory Write-Downs: The Company's results of operations for the first quarter of 2009 and the first, second and fourth quarters of 2008 included charges of $369 million, $62 million, $15 million and $205 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

                                                 First Quarter                                          Fourth Quarter
                        2009         % of net sales          2008         % of net sales           2008         % of net sales
Net sales:
Memory                $   1,222                   87   %   $   1,366                   89   %   $    1,271                   88   %
Imaging                     180                   13   %         169                   11   %          178                   12   %
                      $   1,402                  100   %   $   1,535                  100   %   $    1,449                  100   %

Gross margin:
Memory                $    (502 )                (41 ) %   $     (39 )                 (3 ) %   $     (115 )                 (9 ) %
Imaging                      53                   29   %          44                   26   %           50                   28   %
                      $    (449 )                (32 ) %   $       5                    0   %   $      (65 )                 (4 ) %

Selling, general
and administrative    $     102                    7   %   $     112                    7   %   $      107                    7   %
Research and

development 178 13 % 163 11 % 167 12 % Restructure (66 ) (5 ) % 13 1 % 4 -- Other operating
(income) expense,
net 9 1 % (23 ) (1 ) % (5 ) -- Net loss (706 ) (50 ) % (262 ) (17 ) % (344 ) (24 ) %

The Company's first quarter of 2009, which ended December 4, 2008, contained 14 weeks as compared to 13 weeks for the fourth and first quarters of 2008.

Net Sales

Total net sales for the first quarter of 2009 decreased 3% as compared to the fourth quarter of 2008 primarily due to a 4% decrease in Memory sales. Memory sales for the first quarter of 2009 reflect significant declines in per gigabit average selling prices as compared to the fourth quarter of 2008 partially offset by increases in gigabits sold. Memory sales were 87% of total net sales for the first quarter of 2009 as compared to 88% and 89% for the fourth and first quarters of 2008. Imaging sales for the first quarter of 2009 were stable as compared to the fourth quarter of 2008. Total net sales for the first quarter of 2009 decreased 9% as compared to the first quarter of 2008 primarily due to an 11% decrease in Memory sales partially offset by a 7% increase in Imaging sales.

In response to market conditions, the Company implemented temporary production slowdowns at some of its manufacturing facilities during the second quarter of 2009. The slowdowns and the shutdown of NAND production for IM Flash at the Company's Boise fabrication facility are expected to reduce production output for Memory and Imaging products in the second quarter of 2009.

The Company has formed partnering arrangements under which it has sold and/or licensed technology to other parties. The Company recognized royalty revenue of $36 million in the first quarter of 2009, $38 million in the fourth quarter of 2008 and $5 million in the first quarter of 2008.

Memory: Memory sales for the first quarter of 2009 decreased 4% from the fourth quarter of 2008 as sales of DRAM products decreased by 10% partially offset by a 6% increase in sales of NAND Flash products.

Sales of DRAM products for the first quarter of 2009 decreased from the fourth quarter of 2008 primarily due to a 34% decline in average selling prices mitigated by a 35% increase in gigabit sales as a result of production increases and inventory reductions. Gigabit production of DRAM products increased approximately 23% for the first quarter of 2009 as compared to the fourth quarter of 2008, primarily due to production efficiencies from improvements in product and process technologies as well as the additional week in the quarter. Sales of DDR2 and DDR3 DRAM products were 25% of the Company's total net sales in the first quarter of 2009 as compared to 28% for the fourth quarter of 2008 and 32% for the first quarter of 2008.

Sales of NAND Flash products for the first quarter of 2009 increased from the fourth quarter of 2008 primarily due to a 40% increase in gigabits sold as a result of production increases and inventory reductions partially offset by a 24% decline in average selling prices per gigabit. Gigabit production of NAND Flash products increased 17% for the first quarter of 2009 as compared to the fourth quarter of 2008, primarily due to transitions to higher density, advanced geometry devices as well as the additional week in the quarter. The Company expects that its gigabit production of NAND Flash products will increase at a slower rate in 2009 than in 2008 primarily due to the completion of production ramps at new 300mm manufacturing facilities in 2008 and the shutdown of 200mm wafer NAND Flash production at the Company's Boise fabrication facility in the first quarter of 2009. Sales of NAND Flash products represented 38% of the Company's total net sales for the first quarter of 2009 as compared to 35% for the fourth quarter of 2008 and 33% for the first quarter of 2008.

Memory sales for the first quarter of 2009 decreased 11% from the first quarter of 2008 primarily due to a 20% decrease in sales of DRAM products partially offset by a 6% increase in sales of NAND Flash products. The decrease in sales of DRAM products for the first quarter of 2009 from the first quarter of 2008 was primarily the result of a 47% decline in average selling prices mitigated by a 43% increase in gigabits sold. Gigabit production of DRAM products increased 56% for the first quarter of 2009 as compared to the first quarter of 2008, primarily due to production efficiencies from improvements in product and process technologies as well as the additional week in the quarter. Sales of NAND Flash products for the first quarter of 2009 increased 6% from the first quarter of 2008 primarily due to a 206% increase in gigabits sold partially offset by a 65% decline in average selling prices. The significant increase in gigabit sales of NAND Flash products was primarily due to a 152% increase in production primarily as a result of the continued ramp of NAND Flash products at the Company's 300mm fabrication facilities and transitions to higher density, advanced geometry devices.

Imaging: Imaging sales for the first quarter of 2009 were stable as compared to the fourth quarter of 2008 reflecting relatively stable average selling prices and unit sales. Imaging sales for the first quarter of 2009 increased by 7% from the first quarter of 2008 primarily due to increased units sales of products with 3-megapixel or higher resolution partially offset by declines in average selling prices. Imaging sales were approximately 13% of the Company's total net sales for the first quarter of 2009 as compared to 12% for the fourth quarter of 2008 and 11% for the first quarter of 2008. The Company expects that unit sales for Imaging will decrease in the second quarter of 2009 due to lower sales of cell phones and other devices incorporating the Company's Imaging products.

Gross Margin

The Company's overall gross margin percentage declined from negative 4% for the fourth quarter of 2008 to negative 32% for the first quarter of 2009 due to a decline in the gross margin percentages for Memory primarily as a result of significant decreases in average selling prices and inventory write-downs for Memory products. The Company's overall gross margin percentage declined from 0% for the first quarter of 2008 due to a decline in the gross margin percentages for Memory primarily as a result of significant decreases in average selling prices and inventory write-downs for Memory products. Temporary production slowdowns that the Company implemented at some of its manufacturing facilities during the second quarter of 2009 are expected to adversely affect per megabit and per unit costs of Memory and Imaging products.

Memory: The Company's gross margin percentage for Memory products declined from negative 9% for the fourth quarter of 2008 to negative 41% for the first quarter of 2009 primarily due to declines in the gross margin for both DRAM and NAND Flash products. Gross margins for DRAM and NAND Flash products for the first quarter of 2009 were adversely affected by declines in average selling prices and inventory write-downs, mitigated by reductions in manufacturing costs.

The Company's gross margins for Memory in 2009 and 2008 were impacted by charges 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 impact of inventory write-downs on gross margins for all periods reflects the period-end inventory write-down less the estimated net effect of prior period write-downs. The effects of inventory write-downs on gross margin for the first quarter of 2009 and fourth and first quarters of 2008 were as follows:

                                                      First Quarter       First Quarter       Fourth Quarter
                                                          2009                2008                 2008

Period-end inventory write-downs                     $          (369 )   $           (62 )   $           (205 )
Estimated net effect of previous write-downs                     157                  14                   13
Net effect of inventory write-downs                  $          (212 )   $           (48 )   $           (192 )

As charges to write down inventories are recorded in advance of when inventories are sold, gross margins in subsequent periods are higher than they would be absent the effect of the previous write-downs. In future periods, the Company will be required to 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 those products.

The Company's gross margin for DRAM products for the first quarter of 2009 declined from the fourth quarter of 2008, primarily due to the 34% decrease in average selling prices per gigabit and inventory write-downs mitigated by a reduction in production costs per gigabit. The Company achieved manufacturing cost reductions for DRAM products through transitions to higher-density, advanced-geometry devices. DRAM production cost reductions for the first quarter of 2009 were offset by the inventory write-downs. The Company reduced its DRAM manufacturing costs (which exclude inventory write-downs) per gigabit by 12% for the first quarter of 2009 as compared to the fourth quarter of 2008.

The Company's gross margin for NAND Flash products for the first quarter of 2009 declined from the fourth quarter of 2008 primarily due to the 24% decrease in average selling prices per gigabit and inventory write-downs. In addition, results for the fourth quarter of 2008 reflected reduced costs from the recovery of $70 million for pricing adjustments for NAND Flash products purchased from other suppliers in prior periods. The decline in gross margin was mitigated by a reduction in manufacturing costs per gigabit for NAND Flash products primarily achieved through increased production of higher-density, advanced-geometry devices. Costs of NAND Flash products were also reduced as a result of lower prices for products purchased for sale under the Company's Lexar brand. Excluding the inventory write-downs and the effect of pricing adjustments from other suppliers in the fourth quarter of 2008, the Company reduced its NAND Flash costs per gigabit by 14%. 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 $318 million for the first quarter of 2009, $293 million for the fourth quarter of 2008 and $223 million for the first quarter of 2008.

The Company's gross margin percentage for Memory products declined to negative 41% for the first quarter of 2009 from negative 3% for the first quarter of 2008 primarily due to lower gross margins on sales of DRAM and NAND Flash products. Declines in gross margins on sales of DRAM products for the first quarter of 2009 as compared to the first quarter of 2008 were primarily due to the 47% decline in average selling prices and inventory write-offs mitigated by per gigabit cost reductions. The Company reduced its DRAM production costs (which exclude inventory write-downs) per gigabit by 35% for the first quarter of 2009 as compared to the first quarter of 2008. Gross margins on NAND Flash products for the first quarter of 2009 declined from the first quarter of 2008 primarily due to the 65% decline in average selling prices and inventory write-offs mitigated by per gigabit cost reductions of 55% (excluding inventory write-offs).

In the first quarter of 2009, the Company's TECH Semiconductor Singapore Pte. Ltd. ("TECH") joint venture accounted for approximately 13% of the Company's total wafer production. TECH primarily produced DDR and DDR2 products in 2009 and 2008. 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 1. Financial Statements - Notes to Consolidated Financial Statements - Consolidated Joint Ventures - TECH Semiconductor Singapore Pte. Ltd.")

Imaging: The Company's gross margin percentage for Imaging for the first quarter of 2009 improved to 29% from 28% for the fourth quarter of 2008 primarily due to cost reductions. The Company's gross margin for Imaging products for the first quarter of 2009 improved to 29% from 26% for first quarter of 2008, primarily due to cost reductions partially offset by declines in average selling prices.

Selling, General and Administrative

Selling, general and administrative ("SG&A") expenses for the first quarter of 2009 decreased 5% from the fourth quarter of 2008 despite increased costs associated with the additional week in the quarter, primarily due to lower legal expenses and lower payroll expenses and other costs as a result of the Company's restructure initiatives. SG&A expenses for the first quarter of 2009 decreased . . .