Micron Technology (NASDAQ: MU) was upgraded to 'BBB-' at S&P, signifying an investment grade rating.

• U.S. memory semiconductor producer Micron Technology Inc. has maintained a substantial net cash cushion and good liquidity while undergoing the memory industry downturn.
• While S&P Global Ratings believe high memory market volatility remains and a cyclical trough is near, in our view Micron's strong balance sheet can withstand such cyclicality.
• We have raised the issuer credit rating on Micron to 'BBB-' from 'BB+'.
• In connection with the upgrade, all unsecured debt instruments are now rated 'BBB-' and we withdrew the retired secured debt ratings and all recovery ratings.
• The stable outlook reflects our expectation that Micron will maintain a net cash position and solid liquidity as it emerges from the memory downturn next year.

S&P Global Ratings today took the rating actions listed above. The upgrade is based on Micron's balance sheet improvement and a conservative financial policy that will allow the company to endure industry downturns. The memory industry entered a period of oversupply in late 2018 and memory prices dropped precipitously through 2019. Despite a 23% revenue decline and substantially lower profitability in the fiscal year ended Aug. 29, 2019, Micron maintained its net cash position and generated free cash flow of about $3.3 billion. In 2020, we expect memory industry to bottom as supply chain inventory is substantially reduced; however, variable end market demand will likely continue to pressure prices and keep industry profitability below historical levels. We expect Micron's revenue and profitability to weaken further and free cash flow to turn modestly negative in fiscal 2020. Nonetheless, we believe Micron's strong balance sheet and a commitment by management to adhere to its stated financial policy will enable it to maintain its substantial net cash position and ample liquidity cushion.

The stable outlook reflects our expectation Micron will maintain a substantial net cash cushion and a sizable liquidity position as it emerges from the memory downturn. We expect the company to generate modestly negative free cash flow in fiscal 2020, improving to about $200 million and $300 million in fiscal 2021.

Although unlikely over the coming year, we could raise the rating if Micron improves its capacity share and cost competitiveness and continues to diversify its memory end-market exposure, such that overall profitability and cash flow generation improve compared to previous cycles. An upgrade would also require maintaining a substantial net cash position and strong liquidity through an industry cycle.

We could lower the rating if Micron is challenged by a prolonged memory industry downturn, delays in technology transitions, or a weakening competitive position, such that we expect its profitability and free cash flow to experience multiple periods of sharp declines without prospects of improving. In that scenario, we would expect Micron to return to a net debt position. We could also lower the rating if Micron deviates from its stated financial policy, causing its total liquidity position to weaken and leverage to turn positive.