S&P Raises Micron Technology (MU) to 'BB'; Notes Strong Execution, Favorable Demand

Standard & Poor's Ratings Services today said it raised the corporate credit rating on Boise, Idaho-based Micron Technology Inc. (Nasdaq: MU) to 'BB' from 'BB-'. The outlook is stable.

At the same time, we raised the issue rating on Micron's senior unsecured debt to 'BB' from 'BB-'. The recovery rating remains '3', indicating our expectation of meaningful (50% to 70%) recovery in a payment default.

"Our upgrade of Micron reflects the company's improved business execution and favorable industry demand since its July 31, 2013 acquisition of Elpida Memories Inc., resulting in leverage reduction to about 1x from 2x and an improved financial risk profile, which we regard as 'intermediate,' a revision from our previous assessment of 'significant,'" said Standard & Poor's credit analyst John Moore.

We expect that Micron's leverage will remain under 2x over the coming year, as the memory sector enjoys favorable market conditions, but could spike above 2x depending on market supply and demand volatility.

Our "weak" business risk profile of Micron reflects its narrow scope of business in the highly volatile semiconductor memory markets, and the substantial investment required to maintain technology and cost leadership. Micron is a leading producer of DRAM, NAND, and NOR memory solutions whose products are broadly used in consumer and enterprise electronics products including mobile phones, PCs, and storage devices. The company procures most of its products through internally owned fabrication facilities. We expect the company will continue to achieve EBITDA margins of over 30% of revenues and capital expenditures of about 20% of revenues over the coming year.

The stable outlook reflects our expectations for good liquidity, stable operating margins, and a limited leverage position over the next year, which will offset considerable potential volatility in the memory semiconductor sector.

We could lower the rating if a scenario of intensified competitive conditions were to cause earnings to decline and leverage to increase above 3x level on a sustained basis.

Although an upgrade is unlikely in the next 12 months, we could raise the rating if the company improves its business risk profile by means of continued execution in new technologies (including 3D NAND), increases revenue diversity (including enterprise SSD), and maintains its moderate financial policy with debt to EBITDA sustained at or below 3x.

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