Edgar Filing: MICRON TECHNOLOGY INC

mti10q3-07.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2007

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-10658

Micron Technology, Inc.

(Exact name of registrant as specified in its charter)

Delaware	75-1618004
(State or other jurisdiction of	(IRS Employer
incorporation or organization)	Identification No.)

8000 S. Federal Way, Boise, Idaho	83716-9632
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code	(208) 368-4000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer x

Accelerated Filer o

Non-Accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of outstanding shares of the registrant’s common stock as of July 3, 2007 was 756,870,527.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in millions except per share amounts)

(Unaudited)

	Quarter ended						Nine months ended
	May 31, 2007			June 1, 2006			May 31, 2007			June 1, 2006


Net sales	$	1,294		$	1,312		$	4,251		$	3,899
Cost of goods sold		1,188			983			3,346			3,023
Gross margin		106			329			905			876

Selling, general and administrative		134			113			467			316
Research and development		195			168			621			493
Other operating (income) expense, net		(28	)		1			(64	)		(230	)
Operating income (loss)		(195	)		47			(119	)		297

Interest income		29			31			105			62
Interest expense		(12	)		(4	)		(17	)		(22	)
Other non-operating income (expense), net		1			4			9			4
Income before taxes and noncontrolling interests		(177	)		78			(22	)		341

Income tax (provision)		(9	)		(7	)		(24	)		(14	)
Noncontrolling interests in net (income) loss		(39	)		17			(116	)		17
Net income (loss)	$	(225	)	$	88		$	(162	)	$	344

Earnings (loss) per share:
Basic	$	(0.29	)	$	0.12		$	(0.21	)	$	0.51
Diluted		(0.29	)		0.12			(0.21	)		0.49

Number of shares used in per share calculations:
Basic		769.9			708.6			768.5			673.4
Diluted		769.9			720.1			768.5			713.8

See accompanying notes to consolidated financial statements.

MICRON TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

(Amounts in millions except par value and share amounts)

(Unaudited)

As of	May 31, 2007			August 31, 2006

Assets
Cash and equivalents	$	2,667		$	1,431
Short-term investments		253			1,648
Receivables		839			956
Inventories		1,449			963
Prepaid expenses		61			77
Deferred income taxes		18			26
Total current assets		5,287			5,101
Intangible assets, net		412			388
Property, plant and equipment, net		7,866			5,888
Deferred income taxes		57			49
Goodwill		514			502
Other assets		281			293
Total assets	$	14,417		$	12,221

Liabilities and shareholders’ equity
Accounts payable and accrued expenses	$	1,245		$	1,319
Deferred income		75			53
Equipment purchase contracts		126			123
Current portion of long-term debt		411			166
Total current liabilities		1,857			1,661
Long-term debt		1,913			405
Deferred income taxes		25			28
Other liabilities		408			445
Total liabilities		4,203			2,539

Commitments and contingencies

Noncontrolling interests in subsidiaries		2,327			1,568

Common stock, $0.10 par value, authorized 3 billion shares, issued and outstanding 756.5 million and 749.4 million shares		76			75
Additional capital		6,491			6,555
Retained earnings		1,323			1,486
Accumulated other comprehensive (loss)		(3	)		(2	)
Total shareholders’ equity		7,887			8,114
Total liabilities and shareholders’ equity	$	14,417		$	12,221

See accompanying notes to consolidated financial statements.

MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)

(Unaudited)

Nine months ended	May 31, 2007			June 1, 2006

Cash flows from operating activities
Net income (loss)	$	(162	)	$	344
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		1,244			936
Stock-based compensation		30			18
Loss (gain) from write-down or disposition of equipment		(25	)		5
Change in operating assets and liabilities:
(Increase) decrease in receivables		158			(34	)
(Increase) decrease in inventories		(487	)		76
Increase (decrease) in accounts payable and accrued expenses		(56	)		80
Increase in customer prepayments		--			251
Deferred income taxes		(2	)		(17	)
Other		93			30
Net cash provided by operating activities		793			1,689

Cash flows from investing activities
Expenditures for property, plant and equipment		(2,851	)		(790	)
Purchases of available-for-sale securities		(1,227	)		(2,091	)
Acquisition of noncontrolling interest in TECH		(73	)		--
Proceeds from maturities of available-for-sale securities		2,088			1,477
Proceeds from sales of available-for-sale securities		531			31
Proceeds from sales of property, plant and equipment		49			32
Decrease in restricted cash		14			35
Consolidation of TECH		--			319
Other		(44	)		(26	)
Net cash used for investing activities		(1,513	)		(1,013	)

Cash flows from financing activities
Proceeds from issuance of debt		1,300			--
Capital contribution from noncontrolling interest in IMFT		966			500
Proceeds from equipment sale-leaseback transactions		358			--
Proceeds from issuance of common stock		55			83
Proceeds from sale of noncontrolling interest in MP Mask		--			48
Payments on equipment purchase contracts		(393	)		(151	)
Repayments of debt		(159	)		(384	)
Cash received (paid) for capped call transactions		(151	)		171
Debt issuance costs		(27	)		--
Other		7			1
Net cash provided by financing activities		1,956			268

Net increase in cash and equivalents		1,236			944
Cash and equivalents at beginning of period		1,431			524
Cash and equivalents at end of period	$	2,667		$	1,468

Supplemental disclosures
Income taxes paid, net	$	(33	)	$	(39	)
Interest paid, net of amounts capitalized		(13	)		(28	)
Noncash investing and financing activities:
Conversion of notes to stock, net of unamortized issuance costs		--			623
Equipment acquisitions on contracts payable and capital leases		802			225

See accompanying notes to consolidated financial statements.

MICRON TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All tabular dollar amounts in millions except per share amounts)

(Unaudited)

Significant Accounting Policies

Basis of presentation: Micron Technology, Inc. and its subsidiaries (hereinafter referred to collectively as the “Company”) manufacture and market DRAM, NAND Flash memory, CMOS image sensors and other semiconductor components. The Company has two segments, Memory and Imaging. The Memory segment’s primary products are DRAM and NAND Flash and the Imaging segment’s primary product is CMOS image sensors. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. and include the accounts of the Company and its consolidated subsidiaries. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated financial position of the Company and its consolidated results of operations and cash flows.

The Company’s fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31. The Company’s third quarter of fiscal 2007 and 2006 ended on May 31, 2007, and June 1, 2006, respectively. The Company’s fiscal 2006 ended on August 31, 2006. All period references are to the Company’s fiscal periods unless otherwise indicated. These interim financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended August 31, 2006.

Recently issued accounting standards: In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115.” Under SFAS No. 159, the Company may elect to measure many financial instruments and certain other items at fair value on an instrument by instrument basis subject to certain restrictions. The Company may adopt SFAS No. 159 at the beginning of 2008. The impact of the adoption of SFAS No. 159 will be dependent on the extent to which the Company elects to measure eligible items at fair value.

In September 2006, the SEC staff issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” The Company is required to adopt SAB No. 108 by the end of 2007 and does not expect the adoption to have a material impact on the Company’s financial position or results of operations.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R).” Under SFAS No. 158, the Company is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of 2007. The Company does not expect the adoption of SFAS No. 158 to have a material impact on its financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements. The Company is required to adopt SFAS No. 157 effective at the beginning of 2009.

In June 2006, the FASB issued Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109.” FIN 48 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS No. 109. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. The Company is required to adopt FIN 48 effective at the beginning of 2008. The Company is evaluating the impact this statement will have on its consolidated financial statements.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments.” SFAS No. 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. As of May 31, 2007, the Company did not have any hybrid financial instruments subject to the fair value election under SFAS No. 155. The Company is required to adopt SFAS No. 155 effective at the beginning of 2008.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” SFAS No. 154 changes the requirements for the accounting for and reporting of a change in accounting principle. The Company adopted SFAS No. 154 at the beginning of 2007. The adoption of SFAS No. 154 did not impact the Company’s results of operations and financial condition.

Supplemental Balance Sheet Information

Receivables	May 31, 2007			August 31, 2006

Trade receivables	$	610		$	811
Taxes other than income		35			18
Other		198			131
Allowance for doubtful accounts		(4	)		(4	)
	$	839		$	956

As of May 31, 2007, and August 31, 2006, other receivables included $87 million and $51 million, respectively, due from Intel Corporation primarily for amounts related to NAND Flash product design and process development activities. Other receivables as of May 31, 2007, and August 31, 2006, also included $82 million and $51 million, respectively, due from settlement of litigation. Long-term receivables due from settlement of litigation of $108 million and $181 million as of May 31, 2007, and August 31, 2006, respectively, are included in other noncurrent assets in the Company’s consolidated balance sheets.

Inventories	May 31, 2007			August 31, 2006

Finished goods	$	510		$	273
Work in process		740			530
Raw materials and supplies		267			195
Allowance for obsolescence		(68	)		(35	)
	$	1,449		$	963

Goodwill and Intangible Assets

	May 31, 2007					August 31, 2006
	Gross Amount		Accumulated Amortization			Gross Amount		Accumulated Amortization

Intangible assets:
Product and process technology	$	535	$	(257	)	$	460	$	(219	)
Customer relationships		127		(15	)		127		(4	)
Other		29		(7	)		27		(3	)
	$	691	$	(279	)	$	614	$	(226	)

During the first nine months of 2007 and 2006, the Company capitalized $76 million and $29 million, respectively, for product and process technology with weighted-average useful lives of 9 years and 10 years, respectively. During the first nine months of 2007, the Company capitalized $2 million of other intangible assets with a weighted-average useful life of 4 years.

Amortization expense for intangible assets was $19 million and $55 million for the third quarter and first nine months of 2007, respectively, and $11 million and $37 million for the third quarter and first nine months of 2006, respectively. Annual amortization expense for intangible assets held as of May 31, 2007, is estimated to be $75 million for 2007, $77 million for 2008, $66 million for 2009, $56 million for 2010 and $51 million for 2011.

As of May 31, 2007, the Company had goodwill of $464 million for its Memory segment and $50 million for its Imaging segment. As of August 31, 2006, the Company had goodwill of $490 million for its Memory segment and $12 million for its Imaging segment. The Company performs its annual test of impairment for goodwill in the fourth quarter of its fiscal year. (See “Acquisitions” Note.)

Property, Plant and Equipment	May 31, 2007			August 31, 2006

Land	$	107		$	107
Buildings		3,537			2,763
Equipment		11,757			9,528
Construction in progress		235			484
Software		263			251
		15,899			13,133
Accumulated depreciation		(8,033	)		(7,245	)
	$	7,866		$	5,888

Depreciation expense was $426 million and $1,208 million for the third quarter and first nine months of 2007, respectively, and $336 million and $914 million for the third quarter and first nine months of 2006, respectively.

Accounts Payable and Accrued Expenses	May 31, 2007		August 31, 2006

Accounts payable	$	789	$	854
Salaries, wages and benefits		213		220
Customer prepayments		89		6
Taxes other than income		18		23
Income taxes		11		20
Other		125		196
	$	1,245	$	1,319

Debt	May 31, 2007			August 31, 2006

Convertible senior notes payable, interest rate of 1.875%, due June 2014	$	1,300		$	--
Capital lease obligations payable in monthly installments through August 2021, weighted-average imputed interest rate of 6.5% and 6.6%		588			264
Notes payable in periodic installments through July 2015, weighted-average interest rate of 4.6% and 1.5%		366			237
Convertible subordinated notes payable, interest rate of 5.6%, due April 2010		70			70
		2,324			571
Less current portion		(411	)		(166	)
	$	1,913		$	405

As of May 31, 2007, notes payable and capital lease obligations above included $258 million, denominated in Singapore dollars, at a weighted average interest rate of 6.6% and $158 million, denominated in Japanese yen, at a weighted-average interest rate of 1.5%.

In May 2007, the Company issued $1.3 billion of 1.875% Convertible Senior Notes due June 1, 2014 (the “Senior Notes”). The issuance costs associated with the Senior Notes totaled $26 million and the net proceeds to the Company from the offering of the Senior Notes were $1,274 million. The initial conversion rate for the Senior Notes is 70.2679 shares of common stock per $1,000 principal amount of Senior Notes. This is equivalent to an initial conversion price of approximately $14.23 per share of common stock. Holders of the Senior Notes may convert the Senior Notes prior to the close of business on the business day immediately preceding the maturity date for the Senior Notes only under the following circumstances: (1) during any calendar quarter beginning after August 30, 2007 (and only during such calendar quarter), if the closing price of the Company's common stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is more than 130% of the then applicable conversion price per share of the Senior Notes; (2) if the Senior Notes have been called for redemption; (3) if specified distributions to holders of the Company's common stock are made, or specified corporate events occur, as specified in the indenture for the Senior Notes; (4) during the five business days after any five consecutive trading day period in which the trading price per $1,000 principal amount of Senior Notes for each day of that period was less than 98% of the product of the closing price of the Company's common stock and the then applicable conversion rate of the Senior Notes; or (5) at any time on or after March 1, 2014. Upon conversion, the Company will have the right to deliver, in lieu of shares of its common stock, cash or a combination of cash and shares of common stock. If a holder elects to convert its Senior Notes in connection with a make-whole change in control, as defined in the indenture, the Company will, in certain circumstances, pay a make-whole premium by increasing the conversion rate for the Senior Notes converted in connection with such make-whole change in control. The Company may not redeem the Senior Notes prior to June 6, 2011. On or after June 6, 2011, the Company may redeem for cash all or part of the Senior Notes if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading day period ending within five trading days prior to the date on which the Company provides notice of redemption. The redemption price will equal 100% of the principal amount of the Senior Notes to be redeemed, plus accrued and unpaid interest. Upon a change in control or a termination of trading, as defined in the indenture, the holders may require the Company to repurchase for cash all or a portion of their Senior Notes at a repurchase price equal to 100% of the principal amount of the Senior Notes, plus accrued and unpaid interest, if any.

For the first nine months of 2007, the Company received $358 million in proceeds from sales-leaseback transactions and in connection with these transactions recorded capital lease obligations aggregating $348 million with a weighed-average imputed interest rate of 6.6%, payable in periodic installments through June 2011.

As of May 31, 2007, notes payable included $214 million payable to the Singapore Economic Development Board (“EDB”) recorded in connection with the Company’s acquisition of EDB’s interest in the TECH Semiconductor Singapore Pte. Ltd. joint venture in the third quarter of 2007. These notes have a stated interest rate of 6.8%, and are payable to EDB through December 2007 and are collateralized by the acquired shares in the TECH joint venture. (See “Joint Ventures – TECH Semiconductor Singapore Pte. Ltd.” note.)

The Company’s TECH subsidiary has a credit facility that enables it to borrow up to $380 million at Singapore Interbank Offered Rate (“SIBOR”) plus 2.5% subject to customary covenants. Amounts borrowed under the facility would be due in quarterly installments through September 2009. As of May 31, 2007, TECH had not borrowed any amounts under the credit facility.

The Company’s $70 million 5.6% convertible subordinated notes (the “Subordinated Notes”) assumed in the acquisition of Lexar Media, Inc. are convertible into the Company’s common stock any time at the option of the holders of the Subordinated Notes at a price equal to approximately $11.28 per share and are subject to customary covenants. The Subordinated Notes are redeemable for cash at the Company’s option beginning on April 1, 2008, at a price equal to the principal amount plus accrued interest. The Company may only redeem the Subordinated Notes if its common stock has exceeded 175% of the conversion price for at least 20 trading days in the 30 consecutive trading days prior to delivery of a notice of redemption. Upon redemption, the Company will be required to make a payment equal to the net present value of the remaining scheduled interest payments through April 1, 2010.

Contingencies

As is typical in the semiconductor and other high technology industries, from time to time, others have asserted, and may in the future assert, that the Company’s products or manufacturing processes infringe their intellectual property rights. In this regard, the Company is engaged in litigation with Rambus, Inc. (“Rambus”) relating to certain of Rambus’ patents and certain of the Company’s claims and defenses. Lawsuits between Rambus and the Company are pending in the U.S. District Court for the District of Delaware, U.S. District Court for the Northern District of California, Germany, France, and

Italy. The Company also is engaged in patent litigation with the Massachusetts Institute of Technology (“MIT”) in the U.S. District Court for the District of Massachusetts and with Mosaid Technologies, Inc. (“Mosaid”) in both the U.S. District Court for the Northern District of California and the U.S. District Court for the Eastern District of Texas. Among other things, the above lawsuits pertain to certain of the Company’s SDRAM, DDR SDRAM, DDR2 SDRAM, RLDRAM, and image sensor products, which account for a significant portion of net sales.

The Company is unable to predict the outcome of assertions of infringement made against the Company. A court determination that the Company’s products or manufacturing processes infringe the intellectual property rights of others could result in significant liability and/or require the Company to make material changes to its products and/or manufacturing processes. Any of the foregoing could have a material adverse effect on the Company’s business, results of operations or financial condition.

On June 17, 2002, the Company received a grand jury subpoena from the U.S. District Court for the Northern District of California seeking information regarding an investigation by the Antitrust Division of the Department of Justice (the “DOJ”) into possible antitrust violations in the “Dynamic Random Access Memory” or “DRAM” industry. The Company is cooperating fully and actively with the DOJ in its investigation. The Company’s cooperation is pursuant to the terms of the DOJ’s Corporate Leniency Policy, which provides that in exchange for the Company’s full, continuing and complete cooperation in the pending investigation, the Company will not be subject to prosecution, fines or other penalties from the DOJ.

Subsequent to the commencement of the DOJ DRAM investigation, at least sixty-eight purported class action lawsuits have been filed against the Company and other DRAM suppliers in various federal and state courts in the United States and in Puerto Rico on behalf of indirect purchasers alleging price-fixing in violation of federal and state antitrust laws, violations of state unfair competition law, and/or unjust enrichment relating to the sale and pricing of DRAM products during the period from April 1999 through at least June 2002. The complaints seek treble damages sustained by purported class members, in addition to restitution, costs, and attorneys’ fees. On June 1, 2007, the Court granted in part and denied in part the Company’s motion to dismiss the consolidated complaint. Plaintiffs have subsequently sought leave from the Court to file an amended complaint.

Three purported class action lawsuits also have been filed in Canada, on behalf of direct and indirect purchasers, alleging violations of the Canadian Competition Act. The substantive allegations in these cases are similar to those asserted in the cases filed in the United States.

In addition, various states, through their Attorneys General, have filed suit against the Company and other DRAM manufacturers. On July 14, 2006, and on September 8, 2006 in an amended complaint, the following states filed suit in the U.S. District Court for the Northern District of California: Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida, Hawaii, Idaho, Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin and the Commonwealth of the Northern Mariana Islands. The amended complaint alleges, among other things, violations of the Sherman Act, Cartwright Act, and certain other states’ consumer protection and antitrust laws and seeks damages, and injunctive and other relief. Additionally, on July 13, 2006, the State of New York filed a similar suit in the U.S. District Court for the Southern District of New York. That case was subsequently transferred to the U.S. District Court for the Northern District of California for pre-trial purposes.

In February and March 2007, three cases were filed against the Company and other manufacturers of DRAM in the U.S. District Court for the Northern District of California by parties that opted-out of a direct purchaser class action suit that was settled. The complaints allege, among other things, violations of federal and state antitrust and competition laws in the DRAM industry, and seek damages, injunctive relief, and other remedies.

On October 11, 2006, the Company received a grand jury subpoena from the U.S. District Court for the Northern District of California seeking information regarding an investigation by the DOJ into possible antitrust violations in the “Static Random Access Memory” or “SRAM” industry. The Company believes that it is not a target of the investigation and is cooperating with the DOJ in its investigation of the SRAM industry.

Subsequent to the commencement of the DOJ SRAM investigation, at least eighty purported class action lawsuits have been filed against the Company and other SRAM suppliers in various federal courts on behalf of direct and indirect purchasers alleging price-fixing in violation of federal and state antitrust laws, violations of state unfair competition law, and/or unjust enrichment relating to the sale and pricing of SRAM products during the period from January 1998 through December 2005. The complaints seek treble monetary damages sustained by purported class members, in addition to restitution, costs, and attorneys’ fees.

In the first calendar half of 2007, at least twenty-two purported class action lawsuits were filed against the Company and other suppliers of flash memory products in various federal and state courts on behalf of direct and indirect purchasers alleging price-fixing in violation of federal and state antitrust laws, violations of state unfair competition law, and/or unjust enrichment relating to the sale and pricing of Flash memory products during the period from January 1, 1999 through the date the various cases were filed. The complaints seek treble monetary damages sustained by purported class members, in addition to restitution, costs, and attorneys’ fees.

On May 5, 2004, Rambus filed a complaint in the Superior Court of the State of California (San Francisco County) against the Company and other DRAM suppliers. The complaint alleges various causes of action under California state law including conspiracy to restrict output and fix prices on Rambus DRAM (“RDRAM”) and unfair competition. The complaint seeks treble damages, punitive damages, attorneys’ fees, costs, and a permanent injunction enjoining the defendants from the conduct alleged in the complaint.

The Company is unable to predict the outcome of these lawsuits and investigations. The final resolution of these alleged violations of antitrust laws could result in significant liability and could have a material adverse effect on the Company’s business, results of operations or financial condition.

On February 24, 2006, a putative class action complaint was filed against the Company and certain of its officers in the U.S. District Court for the District of Idaho alleging claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. Four substantially similar complaints subsequently were filed in the same Court. The cases purport to be brought on behalf of a class of purchasers of the Company’s stock during the period February 24, 2001 to February 13, 2003. The five lawsuits have been consolidated and a consolidated amended class action complaint was filed on July 24, 2006. The complaint generally alleges violations of federal securities laws based on, among other things, claimed misstatements or omissions regarding alleged illegal price-fixing conduct. The complaint seeks unspecified damages, interest, attorneys’ fees, costs, and expenses.

In addition, on March 23, 2006, a shareholder derivative action was filed in the Fourth District Court for the State of Idaho (Ada County), allegedly on behalf of and for the benefit of the Company, against certain of the Company’s current and former officers and directors. The Company also was named as a nominal defendant. An amended complaint was filed on August 23, 2006. The complaint is based on the same allegations of fact as in the securities class actions filed in the U.S. District Court for the District of Idaho and alleges breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, unjust enrichment, and insider trading. The complaint seeks unspecified damages, restitution, disgorgement of profits, equitable and injunctive relief, attorneys’ fees, costs, and expenses. The complaint is derivative in nature and does not seek monetary damages from the Company. However, the Company may be required, throughout the pendency of the action, to advance payment of legal fees and costs incurred by the defendants. On May 29, 2007, the Court granted the Company's motion to dismiss the complaint but provided plaintiffs leave to file an amended complaint. On June 29, 2007, plaintiffs filed an amended complaint.

The Company is unable to predict the outcome of these cases. A court determination in any of these actions against the Company could result in significant liability and could have a material adverse effect on the Company’s business, results of operations or financial condition.

In March 2006, following the Company’s announcement of a definitive agreement to acquire Lexar Media, Inc. (“Lexar”) in a stock-for-stock merger, four purported class action complaints were filed in the Superior Court for the State of California (Alameda County) on behalf of shareholders of Lexar against Lexar and its directors. Two of the complaints also name the Company as a defendant. The complaints allege that the defendants breached, or aided and abetted the breach of, fiduciary duties owed to Lexar shareholders by, among other things, engaging in self-dealing, failing to engage in efforts to obtain the highest price reasonably available, and failing to properly value Lexar in connection with a merger transaction between Lexar and the Company. The plaintiffs seek, among other things, injunctive relief preventing, or an order of rescission reversing, the merger, compensatory damages, interest, attorneys’ fees, and costs. On May 19, 2006, the plaintiffs filed a motion for preliminary injunction seeking to block the merger. On May 31, 2006, the Court denied the

motion. An amended consolidated complaint was filed on October 10, 2006. On June 14, 2007, the Court granted Lexar's and the Company's motions to dismiss the amended complaint but allowed plaintiffs leave to file a further amended complaint. The Company is unable to predict the outcome of these suits. A court determination against the Company could result in significant liability and could have a material adverse effect on the Company’s business, results of operations or financial condition. (See “Acquisitions – Lexar Media, Inc.” note.)

The Company has accrued a liability and charged operations for the estimated costs of adjudication or settlement of various asserted and unasserted claims existing as of the balance sheet date. The Company is currently a party to other legal actions arising out of the normal course of business, none of which is expected to have a material adverse effect on the Company’s business, results of operations or financial condition.

In the normal course of business, the Company is a party to a variety of agreements pursuant to which it may be obligated to indemnify the other party. It is not possible to predict the maximum potential amount of future payments under these types of agreements due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these types of agreements have not had a material effect on the Company’s business, results of operations or financial condition.

Capped Call Transactions

In connection with the offering of the Senior Notes in May 2007, the Company also entered into three capped call transactions (the “Capped Calls”). The Capped Calls each have an initial strike price of approximately $14.23 per share, subject to certain adjustments, which matches the initial conversion price of the Senior Notes. The Capped Calls are in three equal tranches; have cap prices of $17.25, $20.13 and $23.00 per share; and cover, subject to anti-dilution adjustments similar to those contained in the Senior Notes, an approximate combined total of 91.3 million shares of common stock. The Capped Calls are intended to reduce the potential dilution upon conversion of the Senior Notes. Settlement of the Capped Calls in cash on their respective expiration dates, would result in the Company receiving an amount ranging from zero if the market price per share of the Company’s common stock is at or below $14.23 to a maximum of $538 million. The Company paid approximately $151 million to purchase the Capped Calls. The Capped Calls expire on various dates between November 2011 and December 2012. The Capped Calls are considered capital transactions and the related cost was recorded as a charge to additional paid in capital.

Equity Plans

As of May 31, 2007, the Company had an aggregate of 185.1 million shares of its common stock reserved for issuance under its various equity plans, of which 130.3 million shares were subject to outstanding stock awards and 54.8 million shares were available for future grants. Awards are subject to terms and conditions as determined by the Company’s Board of Directors.

Stock Options: The Company granted 0.2 million and 8.0 million shares of stock options during the third quarter and first nine months of 2007, respectively. The weighted-average grant-date fair value per share was $4.20 and $4.88 for options granted during the third quarter and first nine months of 2007, respectively. The Company granted 0.2 million and 10.5 million shares of stock options during the third quarter and first nine months of 2006, respectively. The weighted-average grant-date fair value per share was $6.32 and $5.90 for options granted during the third quarter and first nine months of 2006, respectively.

The fair value of each option award is estimated as of the date of grant using the Black-Scholes model. Expected volatilities are based on implied volatilities from traded options on the Company’s stock and historical volatility. The expected life of options granted is based on historical experience and on the terms and conditions of the options. The risk-free rates are based on the U.S. Treasury yield in effect at the time of the grant. Assumptions used in the Black-Scholes model are presented below:

	Quarter ended						Nine months ended
	May 31, 2007			June 1, 2006			May 31, 2007			June 1, 2006

Average expected life in years		4.25			4.25			4.25			4.25
Expected volatility		34%-37	%		42%-44	%		34%-42	%		42%-48	%
Weighted-average volatility		36	%		43	%		39	%		47	%
Risk-free interest rate		4.6	%		4.9	%		4.7	%		4.4	%

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable and requires the input of subjective assumptions, including the expected stock price volatility and estimated option life. For purposes of this valuation model, no dividends have been assumed.

Restricted Stock and Restricted Stock Units: The Company awards restricted stock and restricted stock units (collectively, “Restricted Awards”) under its equity plans. During the first nine months of 2007, the Company granted 2.7 million shares of service-based Restricted Awards and 0.9 million shares of performance-based Restricted Awards. During the first nine months of 2006, the Company granted 1.5 million shares of service-based Restricted Awards and 0.6 million shares of performance-based Restricted Awards. The weighted-average grant-date fair value per share was $15.07 and $12.91 for Restricted Awards granted during the first nine months of 2007 and 2006, respectively.

Stock-Based Compensation Expense: Total compensation costs for the Company’s stock plans were as follows:

	Quarter ended				Nine months ended
	May 31, 2007		June 1, 2006		May 31, 2007		June 1, 2006

Stock-based compensation expense by caption:
Cost of goods sold	$	3	$	3	$	8	$	6
Selling, general and administrative		4		3		14		7
Research and development		3		2		8		5
	$	10	$	8	$	30	$	18

Stock-based compensation expense by type of award:
Stock options	$	7	$	6	$	18	$	12
Restricted stock		3		2		12		6
	$	10	$	8	$	30	$	18

Stock-based compensation expense of $2 million was capitalized and remained in inventory at May 31, 2007. As of May 31, 2007, $127 million of total unrecognized compensation costs related to non-vested awards was expected to be recognized through the third quarter of 2011, resulting in a weighted-average period of 1.5 years. Stock-based compensation expense in the above presentation does not reflect any significant income taxes, which is consistent with the Company’s treatment of income or loss from its U.S. operations. (See “Income Taxes” note.)

Other Operating (Income) Expense, Net

Other operating income for the third quarter of 2007 includes $15 million from gains on disposals of semiconductor equipment and $7 million in grants received in connection with the Company’s operations in China. Other operating income for the first nine months of 2007 includes $25 million from gains on disposals of semiconductor equipment, a gain of $30 million from the sale of certain intellectual property to Toshiba Corporation and $7 million in grants received in connection with the Company’s operations in China. Other operating income for the first nine months of 2006 includes $230 million of net proceeds from Intel Corporation for the sale of the Company’s existing NAND Flash memory designs and certain related technology and the Company’s acquisition of a perpetual, paid-up license to use and modify such designs.

Income Taxes

Income taxes for 2007 and 2006 primarily reflect taxes on the Company’s non-U.S. operations and U.S. alternative minimum tax. The Company has a valuation allowance for its net deferred tax asset associated with its U.S. operations. The provision for taxes on U.S. operations in 2007 and 2006 was substantially offset by a reduction in the valuation allowance. As of May 31, 2007, the Company had aggregate U.S. tax net operating loss carryforwards of $1.9 billion, the utilization of which is subject to certain limitations, and unused U.S. tax credit carryforwards of $199 million. The Company also had unused state tax net operating loss carryforwards of $1.5 billion and unused state tax credits of $170 million. Substantially all of the net operating loss carryforwards expire in 2022 to 2025 and substantially all of the tax credit carryforwards expire in 2013 to 2026.

Earnings Per Share

Basic earnings per share is computed based on the weighted-average number of common shares and stock rights outstanding. Diluted earnings per share is computed based on the weighted-average number of common shares outstanding plus the dilutive effects of stock options, warrants and convertible notes. Potential common shares that would increase earnings per share amounts or decrease loss per share amounts are antidilutive and are, therefore, excluded from earnings per share calculations. Antidilutive potential common shares that could dilute basic earnings per share in the future were 257.1 million for the third quarter and first nine months of 2007, and 95.8 million and 97.9 million for the third quarter and first nine months of 2006, respectively.

	Quarter ended					Nine months ended
	May 31, 2007			June 1, 2006		May 31, 2007			June 1, 2006

Net income (loss) available to common shareholders – Basic	$	(225	)	$	88	$	(162	)	$	344
Net effect of assumed conversion of debt		--			--		--			6
Net income (loss) available to common shareholders – Diluted	$	(225	)	$	88	$	(162	)	$	350

Weighted-average common shares outstanding − Basic		769.9			708.6		768.5			673.4
Net effect of dilutive stock options and assumed conversion of debt		--			11.5		--			40.4
Weighted-average common shares outstanding − Diluted		769.9			720.1		768.5			713.8

Earnings (loss) per share:
Basic	$	(0.29	)	$	0.12	$	(0.21	)	$	0.51
Diluted		(0.29	)		0.12		(0.21	)		0.49

Comprehensive Income (Loss)

Comprehensive income (loss) for 2007 and 2006 includes net income (loss) and de minimis amounts of unrealized gains and losses on investments. Comprehensive loss for the third quarter and first nine months of 2007 was $225 million and $163 million, respectively. Comprehensive income for the third quarter and first nine months of 2006 was $88 million and $344 million, respectively.

Acquisitions

Lexar Media, Inc. (“Lexar”): On June 21, 2006, the Company acquired Lexar, a designer, developer, manufacturer and marketer of flash memory products, in a stock for stock merger to broaden the Company’s NAND Flash product offering, enhance its retail presence and strengthen its portfolio of intellectual property. In connection therewith, the Company issued 50.7 million shares of common stock, issued 6.6 million stock options and incurred other acquisition costs resulting in an aggregate purchase price of $886 million, which was allocated to the assets and liabilities of Lexar based on preliminary estimates of fair values. In connection with the acquisition, the Company recorded total assets of $1,345 million, including cash and short-term investments of $101 million, receivables of $316 million, intangible assets of $183 million and goodwill of $459 million; and total liabilities of $459 million. The recorded amounts include adjustments in 2007 to the initial allocation of purchase price to reflect additional information about the fair value of assets and liabilities acquired. The adjustments in 2007 include a $16 million increase in receivables and other assets, a $11 million decrease in liabilities and a $27 million decrease in goodwill. The Company’s results of operations subsequent to the acquisition date include Lexar, as part of the Company’s Memory segment.

The following unaudited pro forma information presents the consolidated results of operations of the Company as if the acquisition of Lexar had taken place at the beginning of 2006. The pro forma information does not necessarily reflect the actual results that would have occurred nor is it necessarily indicative of future results of operations.

	Quarter ended June 1, 2006		Nine months ended June 1, 2006

Net sales	$	1,427	$	4,373
Net income		18		203

Earnings per share – diluted	$	0.02	$	0.27

Avago Technologies Limited Image Sensor Business: On December 11, 2006, the Company acquired the CMOS image sensor business of Avago Technologies Limited (“Avago”) for approximately $55 million in cash, plus additional contingent payments of up to $15 million if certain milestones are met. The purchase price was allocated to the acquired net assets based on preliminary estimates of fair values. In connection with the acquisition, the Company recorded total assets of $56 million, including intangible assets of $17 million and goodwill of $38 million; and total liabilities of $1 million. The Company’s results of operations subsequent to the acquisition date include the CMOS image sensor business acquired from Avago as part of the Company’s Imaging segment. Mercedes Johnson, a member of the Company’s Board of Directors, is the Senior Vice President, Finance and Chief Financial Officer, of Avago. Ms. Johnson recused herself from all deliberations of the Company’s Board of Directors concerning this transaction.

Joint Ventures

NAND Flash Joint Ventures with Intel Corporation (“IM Flash”): The Company has formed two joint ventures with Intel to manufacture NAND Flash memory products for the exclusive benefit of the partners: IM Flash Technologies, LLC and IM Flash Singapore LLP. As of May 31, 2007, the Company owned 51% and Intel owned 49% of IM Flash. The parties share output of IM Flash generally in proportion to their ownership in IM Flash.

The Company has determined that both of the IM Flash joint ventures are variable interest entities as defined in FIN 46(R), “Consolidation of Variable Interest Entities,” and that the Company is the primary beneficiary of both. Accordingly, IM Flash financial results are included in the accompanying consolidated financial statements of the Company. The creditors of IM Flash have recourse only to the assets of IM Flash and do not have recourse to any other assets of the Company.

TECH Semiconductor Singapore Pte. Ltd. (“TECH”): Since 1998, the Company has participated in TECH, a semiconductor memory manufacturing joint venture in Singapore among the Company, the Singapore Economic Development Board (“EDB”), Canon Inc. and Hewlett-Packard Company. As of May 31, 2007, the Company owned an approximate 73% interest in TECH. The shareholders’ agreement for the TECH joint venture expires in 2011.

On March 30, 2007, the Company exercised its option and acquired all of the shares of TECH common stock held by EDB for approximately $290 million, of which $214 million was outstanding as of May 31, 2007, payable through December 2007. As a result of the acquisition, the Company’s ownership interest in TECH increased from 43% to 73%. The Company applied purchase accounting to the acquisition of these shares. The accompanying consolidated financial statements reflect the impact of acquiring these shares as of March 30, 2007.

The Company has determined that TECH is a variable interest entity, and has concluded it is the primary beneficiary of TECH as defined by FIN 46(R) and therefore began consolidating TECH’s financial results as of the beginning of the Company’s third quarter of 2006. The creditors of TECH have recourse only to the assets of TECH and do not have recourse to any other assets of the Company.

TECH’s semiconductor manufacturing uses the Company’s product and process technology. Subject to specific terms and conditions, the Company has agreed to purchase all of the products manufactured by TECH. The Company generally purchases semiconductor memory products from TECH at prices determined quarterly, based on a discount from average selling prices realized by the Company for the preceding quarter. The Company performs assembly and test services on product manufactured by TECH. The Company also provides certain technology, engineering and training to support TECH. Through the second quarter of 2006, prior to the consolidation of TECH, all of these transactions with TECH were recognized as part of the net cost of products purchased from TECH. The net cost of products purchased from TECH amounted to $287 million for the first six months of 2006.

Segment Information

The Company’s segments are Memory and Imaging. The Memory segment’s primary products are DRAM and NAND Flash memory and the Imaging segment’s primary product is CMOS image sensors. Segment information reported below is consistent with how it is reviewed and evaluated by the Company’s chief operating decision maker and is based on the nature of the Company’s operations and products offered to customers. The Company does not identify or report depreciation and amortization, capital expenditures or assets by segment. The information below represents the Company’s reportable segments:

	Quarter ended					Nine months ended
	May 31, 2007			June 1, 2006		May 31, 2007			June 1, 2006

Net sales:
Memory	$	1,156		$	1,100	$	3,713		$	3,374
Imaging		138			212		538			525
Total consolidated net sales	$	1,294		$	1,312	$	4,251		$	3,899

Operating income:
Memory	$	(178	)	$	7	$	(142	)	$	189
Imaging		(17	)		40		23			108
Total consolidated operating income (loss)	$	(195	)	$	47	$	(119	)	$	297

Subsequent Event

On June 28, 2007, the Company announced that it is pursuing a number of initiatives to drive greater cost efficiencies and revenue growth across its operations. These initiatives include workforce reductions in certain areas of the Company as the Company’s business is realigned. Additional initiatives include establishing certain operations closer in location to the Company’s global customers, evaluating functions more efficiently performed through partnerships or other outside relationships and reducing the Company’s overhead costs to meet or exceed industry benchmarks.

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 NAND Flash production in future periods, future capital contributions to IM Flash and new initiatives; in “Net Sales” regarding NAND Flash production in future periods and expected revenue from sales of NAND Flash; in “Selling, General and Administrative” regarding SG&A expenses for the fourth quarter of 2007; in “Research and Development” regarding R&D costs for the fourth quarter of 2007; in “Stock-Based Compensation” regarding increases in future stock-based compensation costs; and in “Liquidity and Capital Resources” regarding capital spending in 2007 and 2008 and future capital contributions to IM Flash. 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 31, 2006. All period references are to the Company’s fiscal periods unless otherwise indicated. 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 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 recent periods, the Company had strategically diversified its business by expanding into semiconductor products such as specialty memory products (including SDRAM, PSRAM, mobile SDRAM and reduced latency DRAM), NAND Flash memory products and CMOS image sensors. These products are used in a wider range of applications than the computing applications that use the Company’s highest volume products, DDR and DDR2 DRAM. The Company leverages its expertise in semiconductor memory manufacturing and product and process technology to provide products that are differentiated from competitors’ products based on performance characteristics. In 2006 and the first nine months of 2007, approximately half of the Company’s revenue came from sales of specialty memory products, NAND Flash memory products and CMOS image sensors.

The Company has partnered with Intel to form two NAND Flash manufacturing joint ventures: IM Flash Technologies, LLC and IM Flash Singapore LLP (collectively “IM Flash”). IM Flash operations include two 300mm wafer fabrication facilities that are expected to greatly increase the Company’s production of NAND Flash in 2007. IM Flash Singapore LLP began construction of a new 300mm wafer fabrication facility in Singapore in 2007. The Company expects to contribute approximately $2 billion in cash to IM Flash over the next three years, with similar contributions to be made by Intel. As of May 31, 2007, the Company owned 51% and Intel owned 49% of IM Flash. The parties share output of IM Flash generally in proportion to their ownership in IM Flash.

The Company makes significant ongoing investments to implement its proprietary product and process technology in its facilities in the United States, Europe and Asia to manufacture semiconductor products with increasing functionality and performance at lower costs. 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 megapixel count. 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.

In order to maximize returns from investments in research and development (“R&D”), the Company develops process technology that effectively reduces production costs and leverages the Company’s capital expenditures. To leverage its R&D investments, the Company has formed strategic joint ventures under which the costs of developing NAND Flash memory product and process technologies are shared with its joint venture partner. In addition, from time to time, the Company has also sold and/or licensed technology to third parties. To be successfully incorporated in customers’ end products, the Company must offer qualified semiconductor solutions at a time when customers are developing their design specifications for their end products. This is especially true for specialty memory products and CMOS image sensors, which are required to demonstrate advanced functionality and performance well ahead of a planned ramp of production to commercial volumes. In addition, DRAM and NAND Flash products necessarily incorporate highly advanced design and process technologies. The Company must make significant investments in R&D to expand its product offering and develop its leading-edge product and process technologies.

New Initiatives: On June 28, 2007, the Company announced that it is pursuing a number of initiatives to drive greater cost efficiencies and revenue growth across its operations. These initiatives include workforce reductions in certain areas of the Company as the Company’s business is realigned. Additional initiatives include establishing certain operations closer in location to the Company’s global customers, evaluating functions more efficiently performed through partnerships or other outside relationships and reducing the Company’s overhead costs to meet or exceed industry benchmarks. The Company is also exploring opportunities to leverage the Company’s industry-leading technology and diversified product portfolio to accelerate revenue growth and increase shareholder value. It is anticipated that these initiatives will be implemented over several quarters.

Results of Operations

	Third Quarter												Second Quarter							Nine Months
	2007			% of net sales				2006		% of net sales			2007			% of net sales				2007			% of net sales				2006			% of net sales
(amounts in millions and as a percent of net sales)
Net sales:
Memory	$	1,156			89		%	$	1,100		84	%	$	1,271			89		%	$	3,713			87		%	$	3,374			87		%
Imaging		138			11		%		212		16	%		156			11		%		538			13		%		525			13		%
	$	1,294			100		%	$	1,312		100	%	$	1,427			100		%	$	4,251			100		%	$	3,899			100		%

Gross margin:
Memory	$	68			6		%	$	244		22	%	$	302			24		%	$	710			19		%	$	648			19		%
Imaging		38			28		%		85		40	%		55			35		%		195			36		%		228			43		%
	$	106			8		%	$	329		25	%	$	357			25		%	$	905			21		%	$	876			22		%

SG&A	$	134			10		%	$	113		9	%	$	153			11		%	$	467			11		%	$	316			8		%
R&D		195			15		%		168		13	%		243			17		%		621			15		%		493			13		%
Other operating (income) expense, net		(28	)		(2	)	%		1		0	%		(5	)		(0	)	%		(64	)		(2	)	%		(230	)		(6	)	%
Net income (loss)		(225	)		(17	)	%		88		7	%		(52	)		(4	)	%		(162	)		(4	)	%		344			9		%

Net Sales

Total net sales for the third quarter of 2007 decreased 9% as compared to the second quarter of 2007 primarily due to severe declines in average selling prices for the Company’s Memory products. Memory sales for the third quarter of 2007 decreased 9% from the second quarter of 2007 as a result of the declining average selling prices despite significant increases in megabit sales volumes for both DRAM and NAND Flash memory products. Imaging sales for the third quarter of 2007 decreased 12% from the second quarter of 2007 reflecting industry softness in mobile handset sales and pricing pressure. Total net sales for the third quarter of 2007 decreased slightly from the third quarter of 2006 as a 5% increase in Memory sales was offset by a 35% decrease in Imaging sales. Total net sales for the first nine months of 2007 increased 9% as compared to the first nine months of 2006 primarily due to a 10% increase in Memory sales.

Memory: Memory sales for the third quarter of 2007 decreased 9% from the second quarter of 2007 primarily as a result of an 18% decrease in sales of DRAM products, which was partially offset by a 23% increase in sales of NAND Flash products.

Sales of DRAM products for the third quarter of 2007 decreased 18% from the second quarter of 2007 primarily due to a 36% decline in average selling prices per megabit, which was partially mitigated by a 28% increase in megabits sold. Megabit production of DRAM products increased 28% for the third quarter of 2007, primarily due to transitions to higher density, advanced geometry devices. Sales of DDR and DDR2 DRAM products were 45% of the Company’s total net sales in the third quarter of 2007 as compared to 50% for second quarter of 2007 and 50% for the third quarter of 2006.

Sales of NAND Flash memory products in the third quarter of 2007 increased 23% compared to the second quarter of 2007 primarily due to an 75% increase in megabits sold, partially offset by a 30% decline in average selling prices. Megabit production of NAND Flash products increased 87% for the third quarter of 2007 as compared to the second quarter of 2007 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 NAND Flash products include sales from IM Flash to Intel at long-term negotiated prices approximating cost. Sales of NAND Flash products represented 26% of the Company’s total net sales for the third quarter of 2007 as compared to 19% for the second quarter of 2007 and 5% for the third quarter of 2006. The Company expects that sales of NAND Flash products will continue to increase in future periods as it ramps additional NAND Flash production capacity in Utah.

Memory sales for the third quarter of 2007 increased 5% compared to the third quarter of 2006 as a 362% increase in sales of NAND Flash products was partially offset by a 20% decrease in sales of DRAM products. Memory sales for the first nine months of 2007 increased 10% as compared to the first nine months of 2006, as a 304% increase in sales of NAND Flash products was partially offset by a 9% decrease in sales of DRAM products. The increases in sales of NAND Flash products for the third quarter and first nine months of 2007 as compared to the corresponding periods of 2006 was primarily due to significant increases in megabits manufactured and the Company’s acquisition of Lexar Media, Inc. (which occurred in the fourth quarter of 2006), partially offset by declines in average selling prices per megabit of 56% for both periods. Megabit production of NAND Flash increased for the third quarter and first nine months of 2007 as compared to the corresponding periods of 2006 by 679% and 544%, respectively, 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 the third quarter of 2007 decreased 20% as compared to the third quarter of 2006 primarily due to a 40% decline in average selling prices mitigated by a 34% increase in megabit sales volume. Sales of DRAM products for the first nine months of 2007 decreased 9% as compared to the first nine months of 2006 primarily due to a 10% decline in average selling prices.

Imaging: Imaging sales for the third quarter of 2007 decreased by 12% from the second quarter of 2007 primarily due to declines in average selling prices as a result of industry softness in mobile handset sales and pricing pressure. Imaging sales for the third quarter of 2007 decreased by 35% as compared to the third quarter of 2006 primarily due to declines in average selling prices. Imaging sales for the first nine months of 2007 increased by 2% as compared to the first nine months of 2006 primarily due to an 11% increases in unit sales, substantially offset by declines in average selling prices. Imaging sales were 11% of the Company’s total net sales in the third and second quarters of 2007 and 16% for the third quarter of 2006.

Gross Margin

The Company’s overall gross margin percentage for the third quarter of 2007 declined as compared to the second quarter of 2007 and third quarter of 2006 primarily due to decreases in prices for substantially all of the Company’s products.

Memory: The Company’s gross margin for Memory for the third quarter of 2007 declined to 6% from 24% for the second quarter of 2007 primarily due to declining margins for DRAM products. The gross margin for DRAM products in the third quarter of 2007 decreased from the second quarter of 2007 primarily due to a 36% decline in average selling prices mitigated by a 17% reduction in costs. The Company achieved cost reductions for DRAM products through transitions to production of devices utilizing the Company’s advanced 78nm process technologies.

The gross margin for NAND Flash products in the third quarter of 2007 was relatively unchanged from the second quarter of 2007 as a 30% decline in average selling prices was mitigated by a 31% reduction in per megabit costs. Cost reductions in the third quarter of 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.

The Company’s gross margin for Memory for the third quarter of 2007 declined to 6% as compared to 22% for the third quarter of 2006 primarily due to declining margins on sales of DRAM products partially offset by improvements to margins on sales of NAND Flash products. The Company’s gross margin for Memory for the first nine months of 2007 of 19% was unchanged from the first nine months of 2006 as average selling prices and per megabit costs both declined 56%. The gross margin for DRAM products in the third quarter of 2007 declined from the third quarter of 2006, primarily due to a 40% decline in average selling prices per megabit mitigated by reductions in production costs. The gross margin for DRAM products in the first nine months of 2007 improved from the first nine months of 2006, primarily due to reductions in production costs partially offset by a decline in average selling prices of 10%. The Company’s gross margin on NAND Flash products for the third quarter of 2007 improved from the third quarter of 2006 primarily due to significant cost reductions partially offset by a 56% decline in average selling prices. The Company’s gross margin on NAND Flash products for the first nine months of 2007 declined from the first nine months of 2006 primarily due to a 56% decline in average selling prices mitigated by significant reductions in costs.

In recent periods, the Company’s TECH Semiconductor Singapore Pte. Ltd. (“TECH”) joint venture supplied approximately 15% of the total megabits of memory produced by the Company (reflecting approximately 40% of total DRAM megabits). TECH primarily produced DDR and DDR2 products in 2007 and 2006. As of the beginning of the third quarter of 2006, TECH’s results are included in the Company’s consolidated results. Through the third quarter of 2006, the Company’s results reflected memory products purchased from TECH at prices generally based on a discount from average selling prices realized by the Company for the preceding quarter. In the first six months of 2006, the Company realized higher gross margin percentages on sales of TECH products than on sales of similar products manufactured by the Company’s wholly-owned operations. Subsequent to the second quarter of 2006, the Company’s purchases from TECH are eliminated in consolidation and, as a result, TECH’s actual manufacturing costs are included in the Company’s consolidated results of operations. 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 since the third quarter of 2006 approximated those on sales of similar products manufactured by the Company’s wholly-owned operations. (See “Item 1. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Joint Ventures – TECH Semiconductor Singapore Pte. Ltd.”)

Imaging: The Company’s gross margin for Imaging declined to 28% for the third quarter of 2007 from 35% for the second quarter of 2007 primarily due to declines in average selling prices. The Company’s gross margin for Imaging declined to 28% for the third quarter of 2007 from 40% for the third quarter of 2006 primarily due to declines in average selling prices which were mitigated by shifts in product mix to higher resolution products. The Company’s gross margin for Imaging declined to 36% for the first nine months of 2007 from 43% for the first nine months 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 the third quarter of 2007 decreased 12% from the second quarter of 2007 primarily due to lower personnel costs and reductions in technical and professional fees. SG&A expenses for the third quarter of 2007 increased 19% from the third quarter of 2006 primarily due to higher personnel costs. Personnel costs in the third quarter of 2007 increased from the third quarter of 2006 primarily due to increased headcount resulting from the acquisition of Lexar and the formation of IM Flash in the second quarter of 2006. SG&A expenses for the first nine months of 2007 increased 48% from the first nine months of 2006 primarily due to higher personnel costs and a $31 million net charge to SG&A in the first quarter of 2007 as a result of the settlement of certain antitrust class action (direct purchaser) lawsuits. The Company expects SG&A expenses to approximate $130 million to $140 million for the fourth quarter of 2007. For the Company’s Memory segment, SG&A expenses as a percentage of Memory sales were 10% in the third and second quarters of 2007 and 8% in the third quarter of 2006. For the Imaging segment, SG&A expenses as a percentage of Imaging sales were 10% in the third quarter of 2007, 15% in the second quarter of 2007 and 11% in the third quarter of 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 the third quarter of 2007 decreased 20% from the second quarter of 2007, principally due to a reduction in costs associated with NAND preproduction wafer processing as a result of the Company’s 8Gb NAND Flash device qualifying for production. Under a NAND Flash R&D cost-sharing arrangement, the Company charged Intel $43 million in the third quarter of 2007, $82 million in the second quarter of 2007 and $35 million in the third quarter of 2006. R&D expenses for the third quarter and first nine months of 2007 increased 16% and 26%, respectively, from the corresponding periods of 2006 principally due to NAND preproduction wafer processing mitigated by reimbursements received from Intel under the NAND Flash R&D cost-sharing arrangement. The Company expects that its net R&D costs will approximate $200 million to $220 million for the fourth quarter of 2007. For the Memory segment, R&D expenses as a percentage of Memory sales were 13% in the third quarter of 2007, 16% in the second quarter of 2007 and 13% in the third quarter of 2006. For the Imaging segment, R&D expenses as a percentage of Imaging sales were 31% in the third quarter of 2007, 27% in the second quarter of 2007 and 9% in the third quarter of 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 specialty memory products (including PSRAM, mobile SDRAM and reduced latency DRAM) and new manufacturing materials. Product design and development efforts are concentrated on the Company’s 1 Gb and 2 Gb DDR, DDR2 and DDR3 products as well as high density and mobile NAND Flash memory (including multi-level cell technology), CMOS image sensors and specialty memory products.

Other Operating (Income) Expense, Net

Income Taxes

Income taxes for 2007 and 2006 primarily reflect taxes on the Company’s non-U.S. operations and U.S. alternative minimum tax. The Company has a valuation allowance for its net deferred tax asset associated with its U.S. operations. The provision for taxes on U.S. operations in 2007 and 2006 was substantially offset by a reduction in the valuation allowance. As of May 31, 2007, the Company had aggregate U.S. tax net operating loss carryforwards of $1.9 billion and unused U.S. tax credit carryforwards of $199 million. The Company also had unused state tax net operating loss carryforwards of $1.5 billion and unused state tax credits of $170 million. Substantially all of the net operating loss carryforwards expire in 2022 to 2025 and substantially all of the tax credit carryforwards expire in 2013 to 2026.

Noncontrolling Interests in Net (Income) Loss

Noncontrolling interests for 2007 and 2006 primarily reflects the share of income or losses of the Company’s TECH joint venture attributable to the noncontrolling interests in TECH. On March 30, 2007, the Company acquired all of the shares of TECH common stock held by the Singapore Economic Development Board for approximately $290 million, reducing the noncontrolling interests in TECH as of that date from 57% to 27%.

Stock-Based Compensation

Total compensation cost for the Company’s equity plans was $10 million for the third quarter of 2007, $10 million for the second quarter of 2007 and $8 million for the third quarter of 2006. As of May 31, 2007, $2 million of stock compensation costs were capitalized and remained in inventory. As of May 31, 2007, there was $127 million of total unrecognized compensation cost related to equity plans, which is expected to be recognized through the third quarter of 2011. In 2005, the Company accelerated the vesting of substantially all of its unvested stock options then outstanding under the Company’s stock plans to reduce compensation costs recognized subsequent to the adoption in 2006 of Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment.” Because the Company’s stock-based compensation costs were reduced by the effect of the acceleration of vesting in 2005, the Company expects that stock-based compensation costs will continue to grow in future periods.

Liquidity and Capital Resources

The Company’s liquidity is highly dependent on average selling prices for its products and the timing of capital expenditures, both of which can vary significantly from period to period. As of May 31, 2007, the Company had cash and equivalents and short-term investments totaling $2.9 billion compared to $3.1 billion as of August 31, 2006. The balance as of May 31, 2007, included an aggregate of $367 million held at, and anticipated to be used in the near term by, IM Flash and TECH.

Operating Activities: For the first nine months of 2007, the Company generated $793 million of cash from operating activities, which principally reflects the Company’s $162 million of net loss adjusted by $1.2 billion for non-cash depreciation and amortization expense. Net cash provided by operating activities was net of the effects of an increase of $487 million in inventories primarily due to increases in production, growth in output that exceeded growth in demand for the Company’s Memory products and, with respect to Imaging, industry softness in the mobile handset market.

Investing Activities: For the first nine months of 2007, net cash used by investing activities was $1.5 billion, which included cash expenditures for property, plant and equipment of $2.9 billion partially offset by the net effect of purchases, sales and maturities of investment securities of $1.4 billion. A significant portion of the capital expenditures relate to the ramp of IM Flash facilities and 300mm conversion of manufacturing operations at TECH. The Company believes that to develop new product and process technologies, support future growth, achieve operating efficiencies and maintain product quality, it must continue to invest in manufacturing technologies, facilities and capital equipment, research and development, and product and process technologies. The Company expects capital spending for 2007 to approximate $4 billion. The Company currently anticipates 2008 capital spending to be between $2 billion and $3 billion, of which approximately $2 billion is targeted for 300mm fabrication facilities, including $1.5 billion at IM Flash facilities. As of May 31, 2007, the Company had commitments of approximately $1.0 billion for the acquisition of property, plant and equipment, nearly all of which are expected to be paid within one year.

On December 11, 2006, the Company acquired the CMOS image sensor business of Avago Technologies Limited for approximately $53 million in cash, plus additional contingent payments up to $17 million if certain milestones are met. The Company made payments of $55 million in the first nine months of 2007 in connection with this acquisition.

On March 30, 2007, the Company acquired all of the shares of TECH common stock held by the Singapore Economic Development Board for approximately $290 million payable over nine months, increasing its ownership interest in TECH from 43% to 73%. As of May 31, 2007, $214 million remained in notes payable.

Financing Activities: For the first nine months of 2007, net cash provided by financing activities was $2.0 billion. In May 2007, the Company issued $1.3 billion of 1.875% Convertible Senior Notes due June 1, 2014 (the “Senior Notes”). The issuance costs associated with the Senior Notes totaled $26 million. In connection with the offering of the Senior Notes, the Company also entered into capped call transactions (“Capped Calls”) with the intent to reduce the potential dilution upon conversion of the Senior Notes. Micron paid approximately $151 million from the net proceeds from the issuance and sale of the Senior Notes to purchase the Capped Calls. See “Item 1. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Supplemental Balance Sheet Information – Debt” and “Supplemental Balance Sheet Information – Capped Call Transactions.”

For the first nine months of 2007, the Company also received $974 million in capital contributions from joint venture partners and $358 million in proceeds from equipment financing arrangements, payable in periodic installments over 5 years. The Company made an aggregate of $552 million in scheduled debt payments and payments on equipment purchase contracts in the first nine months of 2007.

The Company’s TECH joint venture has a credit facility that enables it to borrow up to $380 million in future periods to fund its capital expenditures.

Access to capital markets has historically been important to the Company. Depending on market conditions, the Company may issue registered or unregistered securities to raise capital to fund a portion of its operations.

Joint Ventures: As of May 31, 2007, IM Flash had $172 million of cash and marketable investment securities. IM Flash’s cash and marketable investment securities are not anticipated to be made available to finance the Company’s other operations. Subject to certain conditions, the Company expects to make additional contributions to IM Flash of approximately $2 billion over the next three years, with similar contributions to be made by Intel. The Company anticipates additional investments as appropriate to support the growth of IM Flash’s operations.

As of May 31, 2007, TECH had $195 million of cash and marketable investment securities. TECH’s cash and marketable investment securities are not anticipated to be made available to finance the Company’s other operations.

See “Item 1. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Joint Ventures.”

Contractual Obligations: As of May 31, 2007, contractual obligations for notes payable, capital lease obligations and operating leases were as follows:

	Total		Remainder of 2007		2008		2009		2010		2011		2012 and thereafter
(amounts in millions)
Notes payable (including interest)	$	1,932	$	--	$	314	$	73	$	142	$	29	$	1,374
Capital lease obligations		697		48		157		150		90		171		81
Operating leases		148		11		44		29		13		11		40

Off-Balance Sheet Arrangements

In May 2007, in connection with the offering of the Senior Notes, the Company paid approximately $151 million for the Capped Calls. The Capped Calls cover approximately 91.3 million shares of common stock in total. The Capped Calls are in three equal tranches with cap prices of $17.25, $20.13 and $23.00 per share, respectively, each with an initial strike price of approximately $14.23 per share, subject to certain adjustments. The Capped Calls expire on various dates between November 2011 and December 2012.

See “Item 1. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Supplemental Balance Sheet Information – Capped Call Transactions.”

Recently Issued Accounting Standards

In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115.” Under SFAS No. 159, the Company may elect to measure many financial instruments and certain other items at fair value on an instrument by instrument basis subject to certain restrictions. The Company may adopt SFAS No. 159 at the beginning of 2008. The impact of the adoption of SFAS No. 159 will be dependent on the extent to which the Company elects to measure eligible items at fair value.

Critical Accounting Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Estimates and judgments are based on historical experience, forecasted future events and various other assumptions that the Company believes to be reasonable under the circumstances. Estimates and judgments may vary under different assumptions or conditions. The Company evaluates its estimates and judgments on an ongoing basis. Management believes the accounting policies below are critical in the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective or complex judgments.

Acquisitions and consolidations: Determination and the allocation thereof of the purchase price of acquired operations significantly influences the period in which costs are recognized. Accounting for acquisitions and consolidations requires the Company to estimate the fair value of the individual assets and liabilities acquired as well as various forms of consideration given. The Company typically obtains independent third party valuation studies to assist in determining fair values, including assistance in determining future cash flows, appropriate discount rates and comparable market values. The estimation of the fair values of consideration given and assets and liabilities acquired involves a number of judgments, assumptions and estimates that could materially affect the amount and timing of costs recognized.

Contingencies: The Company is subject to the possibility of losses from various contingencies. Considerable judgment is necessary to estimate the probability and amount of any loss from such contingencies. An accrual is made when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated. The Company accrues a liability and charges operations for the estimated costs of adjudication or settlement of asserted and unasserted claims existing as of the balance sheet date.

Goodwill and intangible assets: The Company tests goodwill for impairment annually and whenever events or circumstances make it more likely than not that an impairment may have occurred, such as a significant adverse change in the business climate or a decision to sell or dispose of a reporting unit. Determining whether impairment has occurred requires valuation of the respective reporting unit. If the analysis indicates goodwill is impaired, measuring the impairment requires a fair value estimate of each identified tangible and intangible asset. The Company tests other identified intangible assets with definite useful lives and subject to amortization when events and circumstances indicate the carrying value may not be recoverable by comparing the carrying amount to the sum of undiscounted cash flows expected to be generated by the asset. The Company tests intangible assets with indefinite lives annually for impairment using a fair value method such as discounted cash flows. Estimating fair values involves significant assumptions, especially regarding future sales prices, sales volumes, costs and discount rates.

Income taxes: The Company is required to estimate its provision for income taxes and amounts ultimately payable or recoverable in numerous tax jurisdictions around the world. Estimates involve interpretations of regulations and are inherently complex. Resolution of income tax treatments in individual jurisdictions may not be known for many years after completion of any fiscal year. The Company is also required to evaluate the realizability of its deferred tax assets on an ongoing basis in accordance with U.S. GAAP, which requires the assessment of the Company’s performance and other relevant factors when determining the need for a valuation allowance with respect to these deferred tax assets. Realization of deferred tax assets is dependent on the Company’s ability to generate future taxable income.

Inventories: Inventories are stated at the lower of average cost or market value. Cost includes labor, material and overhead costs, including product and process technology costs. Determining market value of inventories involves numerous judgments, including projecting average selling prices and sales volumes for future periods and costs to complete products in work in process inventories. To project average selling prices and sales volumes, the Company reviews recent sales volumes, existing customer orders, current contract prices, industry analysis of supply and demand, seasonal factors, general economic trends and other information. When these analyses reflect estimated market values below the Company’s manufacturing costs, the Company records a charge to cost of goods sold in advance of when the inventory is actually sold. Differences in forecasted average selling prices used in calculating lower of cost or market adjustments can result in significant changes in the estimated net realizable value of product inventories and accordingly the amount of write-down recorded. Due to the volatile nature of the semiconductor memory industry, actual selling prices and volumes often vary significantly from projected prices and volumes and, as a result, the timing of when product costs are charged to operations can vary significantly.

U.S. GAAP provides for products to be grouped into categories in order to compare costs to market values. The amount of any inventory write-down can vary significantly depending on the determination of inventory categories. The Company’s inventories have been categorized as Memory products or Imaging products. The major characteristics the Company considers in determining inventory categories are product type and markets.

Product and process technology: Costs incurred to acquire product and process technology or to patent technology developed by the Company are capitalized and amortized on a straight-line basis over periods currently ranging up to 10 years. The Company capitalizes a portion of costs incurred based on its analysis of historical and projected patents issued as a percent of patents filed. Capitalized product and process technology costs are amortized over the shorter of (i) the estimated useful life of the technology, (ii) the patent term or (iii) the term of the technology agreement.

Property, plant and equipment: The Company reviews the carrying value of property, plant and equipment for impairment when events and circumstances indicate that the carrying value of an asset or group of assets may not be recoverable from the estimated future cash flows expected to result from its use and/or disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to the amount by which the carrying value exceeds the estimated fair value of the assets. The estimation of future cash flows involves numerous assumptions which require judgment by the Company, including, but not limited to, future use of the assets for Company operations versus sale or disposal of the assets, future selling prices for the Company’s products and future production and sales volumes. In addition, judgment is required by the Company in determining the groups of assets for which impairment tests are separately performed.

Research and development: Costs related to the conceptual formulation and design of products and processes are expensed as research and development when incurred. Determining when product development is complete requires judgment by the Company. The Company deems development of a product complete once the product has been thoroughly reviewed and tested for performance and reliability.

Stock-based compensation: Under the provisions of SFAS No. 123(R), stock-based compensation cost is estimated at the grant date based on the fair-value of the award and is recognized as expense ratably over the requisite service period of the award. Determining the appropriate fair-value model and calculating the fair value of stock-based awards at the grant date requires considerable judgment, including estimating stock price volatility, expected option life and forfeiture rates. The Company develops its estimates based on historical data and market information which can change significantly over time. A small change in the estimates used can result in a relatively large change in the estimated valuation.

The Company uses the Black-Scholes option valuation model to value employee stock awards. The Company estimates stock price volatility based on an average of its historical volatility and the implied volatility derived from traded options on the Company’s stock. Estimated option life and forfeiture rate assumptions are derived from historical data. For stock based compensation awards with graded vesting that were granted after 2005, the Company recognizes compensation expense using the straight-line amortization method.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

As of May 31, 2007, $2,251 million of the Company’s $2,324 million in total debt was at fixed interest rates. As a result, the fair value of the debt fluctuates based on changes in market interest rates. The estimated fair market value of the Company’s debt was $2,388 million as of May 31, 2007. The difference between the estimated fair value of the Company’s debt and its recorded value is primarily attributable to the Company’s convertible debt.

Foreign Currency Exchange Rate Risk

The information in this section should be read in conjunction with the information related to changes in the exchange rates of foreign currency in “Item 1A. Risk Factors.” Changes in foreign currency exchange rates could materially adversely affect the Company’s results of operations or financial condition.

The functional currency for substantially all of the Company’s operations is the U.S. dollar. The Company held aggregate cash and other assets in foreign currencies valued at U.S. $422 million as of May 31, 2007, and U.S. $425 million as of August 31, 2006 (including cash and equivalents denominated in yen valued at U.S. $183 million as of May 31, 2007 and U.S. $222 million as of August 31, 2006; cash and equivalents denominated in Singapore dollars valued at U.S. $68 million as of May 31, 2007 and U.S. $42 million as of August 31, 2006; and deferred income tax assets denominated in yen valued at U.S. $64 million as of May 31, 2007, and U.S. $64 million as of August 31, 2006). The Company also held aggregate foreign currency liabilities valued at U.S. $842 million as of May 31, 2007, and U.S. $615 million as of August 31, 2006 (including debt denominated in Singapore dollars valued at U.S. $258 million as of May 31, 2007, and U.S. $38 million as of August 31, 2006; debt denominated in yen valued at U.S. $158 million as of May 31, 2007, and U.S. $228 million as of August 31, 2006; accounts payable and accrued expenses denominated in yen valued at U.S. $148 million as of May 31, 2007, and U.S. $124 million as of August 31, 2006; and accounts payable and accrued expenses denominated in euros valued at U.S. $96 million as of May 31, 2007, and U.S. $68 million as of August 31, 2006). Foreign currency receivables and payables as of May 31, 2007, were comprised primarily of yen, euros and Singapore dollars. The Company estimates that, based on its assets and liabilities denominated in currencies other than U.S. dollar as of May 31, 2007, a 1% change in the exchange rate versus the U.S. dollar would result in foreign currency gains or losses of approximately U.S. $2 million for the Singapore dollar and U.S. $1 million for the euro and the yen.

Item 4. Controls and Procedures

An evaluation was carried out under the supervision and with the participation of the Company’s management, including its principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the principal executive officer and principal financial officer concluded that those disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms and that such information is accumulated and communicated to the Company’s management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decision regarding disclosure.

During the quarterly period covered by this report, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On August 28, 2000, the Company filed a complaint against Rambus, Inc. (“Rambus”) in the U.S. District Court for the District of Delaware seeking monetary damages and declaratory and injunctive relief. Among other things, the Company’s complaint (as amended) alleges violation of federal antitrust laws, breach of contract, fraud, deceptive trade practices, and negligent misrepresentation. The complaint also seeks a declaratory judgment (a) that certain Rambus patents are not infringed by the Company, are invalid, and/or are unenforceable, (b) that the Company has an implied license to those patents, and (c) that Rambus is estopped from enforcing those patents against the Company. On February 15, 2001, Rambus filed an answer and counterclaim in Delaware denying that the Company is entitled to relief, alleging infringement of the eight Rambus patents named in the Company’s declaratory judgment claim, and seeking monetary damages and injunctive relief. A number of other suits are currently pending in Europe alleging that certain of the Company’s SDRAM and DDR SDRAM products infringe various of Rambus’ country counterparts to its European patent 525 068, including: on September 1, 2000, Rambus filed suit against Micron Semiconductor (Deutschland) GmbH in the District Court of Mannheim, Germany; on September 22, 2000, Rambus filed a complaint against the Company and Reptronic (a distributor of the Company’s products) in the Court of First Instance of Paris, France; on September 29, 2000, the Company filed suit against Rambus in the Civil Court of Milan, Italy, alleging invalidity and non-infringement. In addition, on December 29, 2000, the Company filed suit against Rambus in the Civil Court of Avezzano, Italy, alleging invalidity and non-infringement of the Italian counterpart to European patent 1 004 956. Additionally, other suits are pending alleging that certain of our DDR SDRAM products infringe Rambus’ country counterparts to its European patent 1 022 642, including: on August 10, 2001, Rambus filed suit against the Company and Assitec (an electronics retailer) in the Civil Court of Pavia, Italy; and on August 14, 2001, Rambus filed suit against Micron Semiconductor (Deutschland) GmbH in the District Court of Mannheim, Germany. In the European suits against the Company, Rambus is seeking monetary damages and injunctive relief. Subsequent to the filing of the various European suits, the European Patent Office declared Rambus’ 525 068 and 1 004 956 European patents invalid and revoked the patents. On January 13, 2006, Rambus filed a lawsuit against the Company in the U.S. District Court for the Northern District of California alleging infringement of eighteen Rambus patents.

On October 3, 2006, the Massachusetts Institute of Technology (“MIT”) filed suit against the Company in the U.S. District Court for the District of Massachusetts alleging infringement of a single MIT patent.

On July 24, 2006, the Company filed a declaratory judgment action against Mosaid Technologies, Inc. (“Mosaid”) in the U.S. District Court for the Northern District of California seeking, among other things, a court determination that fourteen Mosaid patents are invalid, not enforceable, and/or not infringed. On July 25, 2006, Mosaid filed a lawsuit against the Company and others in the U.S. District Court for the Eastern District of Texas alleging infringement of nine Mosaid patents. On August 31, 2006, Mosaid filed an amended complaint adding two additional Mosaid patents. On October 23, 2006, the California Court dismissed the Company’s declaratory judgment suit based on lack of jurisdiction. The Company is appealing that decision to the U.S. Court of Appeals for the Federal Circuit.

Among other things, the above lawsuits pertain to certain of the Company’s SDRAM, DDR SDRAM, DDR2 SDRAM, RLDRAM, and image sensor products, which account for a significant portion of the Company’s net sales.

The Company is unable to predict the outcome of these suits. A court determination that the Company’s products or manufacturing processes infringe the product or process intellectual property rights of others could result in significant liability and/or require the Company to make material changes to its products and/or manufacturing processes. Any of the foregoing results could have a material adverse effect on the Company’s business, results of operations or financial condition.

On June 17, 2002, the Company received a grand jury subpoena from the U.S. District Court for the Northern District of California seeking information regarding an investigation by the Antitrust Division of the Department of Justice (the “DOJ”) into possible antitrust violations in the “Dynamic Random Access Memory” or “DRAM” industry. The Company is cooperating fully and actively with the DOJ in its investigation. The Company’s cooperation is pursuant to the terms of the DOJ’s Corporate Leniency Policy, which provides that in exchange for our full, continuing and complete cooperation in the pending investigation, the Company will not be subject to prosecution, fines or other penalties from the DOJ.

Subsequent to the commencement of the DOJ investigation, a number of purported class action lawsuits have been filed against the Company and other DRAM suppliers. Four cases have been filed in the U.S. District Court for the Northern District of California asserting claims on behalf of a purported class of individuals and entities that indirectly purchased DRAM and/or products containing DRAM from various DRAM suppliers during the time period from April 1, 1999 through at least June 30, 2002. The complaints allege price fixing in violation of federal antitrust laws and various state antitrust and unfair competition laws and seek treble monetary damages, restitution, costs, interest and attorneys’ fees. In addition, at least sixty-four cases have been filed in various state courts asserting claims on behalf of a purported class of indirect purchasers of DRAM. Cases have been filed in the following states: Arkansas, Arizona, California, Florida, Hawaii, Iowa, Kansas, Massachusetts, Maine, Michigan, Minnesota, Mississippi, Montana, North Carolina, North Dakota, Nebraska, New Hampshire, New Jersey, New Mexico, Nevada, New York, Ohio, Pennsylvania, South Dakota, Tennessee, Utah, Vermont, Virginia, Wisconsin, and West Virginia, and also in the District of Columbia and Puerto Rico. The complaints purport to be on behalf of a class of individuals and entities that indirectly purchased DRAM and/or products containing DRAM in the respective jurisdictions during various time periods ranging from April 1999 through at least June 2002. The complaints allege violations of the various jurisdictions’ antitrust, consumer protection and/or unfair competition laws relating to the sale and pricing of DRAM products and seek treble monetary damages, restitution, costs, interest and attorneys’ fees. A number of these cases have been removed to federal court and transferred to the U.S. District Court for the Northern District of California (San Francisco) for consolidated proceedings. On June 1, 2007, the Court granted in part and denied in part the Company’s motion to dismiss the consolidated complaint. Plaintiffs have subsequently sought leave from the Court to file an amended complaint.

Additionally, three cases have been filed in the following Canadian courts: Superior Court, District of Montreal, Province of Quebec; Ontario Superior Court of Justice, Ontario; and Supreme Court of British Columbia, Vancouver Registry, British Columbia. The substantive allegations in these cases are similar to those asserted in the cases filed in the United States.

On February 28, 2007, February 28, 2007 and March 8, 2007, cases were filed against the Company and other manufacturers of DRAM in the U.S. District Court for the Northern District of California by All American Semiconductor, Inc., Jaco Electronics, Inc. and DRAM Claims Liquidation Trust, respectively, that opted-out of a direct purchaser class action suit that was settled. The complaints allege, among other things, violations of federal and state antitrust and competition laws in the DRAM industry, and seek damages, injunctive relief, and other remedies.

Subsequent to the issuance of subpoenas to the SRAM industry, a number of purported class action lawsuits have been filed against the Company and other SRAM suppliers. Six cases have been filed in the U.S. District Court for the Northern District of California asserting claims on behalf of a purported class of individuals and entities that purchased SRAM directly from various SRAM suppliers during the period from January 1, 1998 through December 31, 2005. Additionally, at least seventy-four cases have been filed in various U.S. District Courts asserting claims on behalf of a purported class of individuals and entities that indirectly purchased SRAM and/or products containing SRAM from various SRAM suppliers during the time period from January 1, 1998 through December 31, 2005. The complaints allege price fixing in violation of federal antitrust laws and state antitrust and unfair competition laws and seek treble monetary damages, restitution, costs, interest and attorneys’ fees.

In the first calendar half of 2007, at least twenty-two purported class action lawsuits were filed against the Company and other suppliers of flash memory products in the U.S. District Court for the Northern District of California and other federal district courts. These cases assert claims on behalf of a purported class of individuals and entities that purchased Flash memory directly or indirectly from various Flash memory suppliers during the period from January 1, 1999 through the date the various cases were filed. The complaints generally allege price fixing in violation of federal antitrust laws and various state antitrust and unfair competition laws and seek monetary damages, restitution, costs, interest, and attorneys’ fees.

On May 5, 2004, Rambus filed a complaint in the Superior Court of the State of California (San Francisco County) against the Company and other DRAM suppliers. The complaint alleges various causes of action under California state law including a conspiracy to restrict output and fix prices on Rambus DRAM (“RDRAM”) and unfair competition. The complaint seeks treble damages, punitive damages, attorneys’ fees, costs, and a permanent injunction enjoining the defendants from the conduct alleged in the complaints.

On February 24, 2006, a putative class action complaint was filed against the Company and certain of its officers in the U.S. District Court for the District of Idaho alleging claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. Four substantially similar complaints subsequently were filed in the same Court. The cases purport to be brought on behalf of a class of purchasers of the Company’s stock during the period February 24, 2001 to February 13, 2003. The five lawsuits have been consolidated and a consolidated amended class action complaint was filed on July 24, 2006. The complaint generally alleges violations of federal securities laws based on, among other things, claimed misstatements or omissions regarding alleged illegal price-fixing conduct or the Company’s operations and financial results. The complaint seeks unspecified damages, interest, attorneys’ fees, costs, and expenses.

In addition, on March 23, 2006 a shareholder derivative action was filed in the Fourth District Court for the State of Idaho (Ada County), allegedly on behalf of and for the benefit of the Company, against certain of the Company’s current and former officers and directors. The Company also was named as a nominal defendant. An amended complaint was filed on August 23, 2006. The complaint is based on the same allegations of fact as in the securities class actions filed in the U.S. District Court for the District of Idaho and alleges breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, unjust enrichment, and insider trading. The complaint seeks unspecified damages, restitution, disgorgement of profits, equitable and injunctive relief, attorneys’ fees, costs, and expenses. The complaint is derivative in nature and does not seek monetary damages from the Company. However, the Company may be required, throughout the pendency of the action, to advance payment of legal fees and costs incurred by the defendants. On May 29, 2007, the Court granted the Company's motion to dismiss the complaint but provided plaintiffs leave to file an amended complaint. On June 29, 2007, plaintiffs filed an amended complaint.

operations or financial condition. (See “PART I. FINANCIAL INFORMATION – Item 1. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Lexar Media, Inc.”)

(See “Item 1A. Risk Factors”)

Item 1A. Risk Factors

In addition to the factors discussed elsewhere in this Form 10-Q, the following are important factors which could cause actual results or events to differ materially from those contained in any forward-looking statements made by or on behalf of the Company.

We have experienced dramatic declines in average selling prices for our semiconductor memory products which have adversely affected our business.

In the third quarter of 2007, average selling prices for DRAM products and NAND Flash products decreased 36% and 30%, respectively, as compared to the second quarter of 2007. In recent years, we have also experienced annual decreases in per megabit average selling prices for our memory products including: 34% in 2006, 24% in 2005, 17% in 2003, 53% in 2002 and 60% in 2001. At times, average selling prices for our memory products have been below our costs. If average selling prices for our memory products decrease faster than we can decrease per megabit costs, as they recently have, our business, results of operations or financial condition could be materially adversely affected.

Increased worldwide semiconductor memory production or lack of demand for semiconductor memory could lead to further declines in average selling prices.

The transitions to smaller line-width process technologies and 300mm wafers in the industry have resulted in significant increases in the worldwide supply of semiconductor memory and will likely lead to future increases. Increases in worldwide supply of semiconductor memory also result from semiconductor memory fab capacity expansions, either by way of new facilities, increased capacity utilization or reallocation of other semiconductor production to semiconductor memory production. We and several of our competitors have announced plans to increase production through construction of new facilities or expansion of existing facilities. Increases in worldwide supply of semiconductor memory, if not accompanied with commensurate increases in demand, would lead to further declines in average selling prices for our products and would materially adversely affect our business, results of operations or financial condition.

We may be unable to reduce our per megabit manufacturing costs at the same rate as we have in the past.

Historically, our gross margin has benefited from decreases in per unit manufacturing costs achieved through improvements in our manufacturing processes, including reducing the die size of our existing products. In future periods, we may be unable to reduce our per unit manufacturing costs or reduce these costs at historical rates due to strategic product diversification decisions affecting product mix, the ever increasing complexity of manufacturing processes, changes in process technologies or products which inherently may require relatively larger die sizes. Per unit manufacturing costs may also be affected by the relatively smaller production quantities and shorter product lifecycles of Imaging and certain specialty memory products.

Our plans to significantly increase our NAND Flash memory production and sales have numerous risks.

We plan to significantly increase our NAND Flash production and sales in future periods. As part of this plan, we have formed several manufacturing joint ventures with Intel and made substantial investments in capital expenditures for equipment and new facilities as well as research and development. Our plans also require significant future investments in capital expenditures and research and development. We currently expect our capital spending for 2008 to be between $2 and $3 billion, with a majority of the expenditures being made to support our NAND operations. These investments involve numerous risks. In addition we are required to devote a significant portion of our existing semiconductor manufacturing capacity to the production of NAND Flash instead of the Company's other products. We are party to a contract with Apple Inc. to provide NAND Flash products for an extended period of time at contractually determined prices. We currently have a relatively small share of the world-wide market for NAND Flash.

Our NAND Flash strategy involves numerous risks, and may include the following:

·	increasing our exposure to changes in average selling prices for NAND Flash;

·	difficulties in establishing new production operations at multiple locations;

·	increasing capital expenditures to increase production capacity and modify existing processes to produce NAND Flash;

·	increasing debt to finance future investments;

·	diverting management’s attention from DRAM and CMOS image sensor operations;

·	managing larger operations and facilities and employees in separate geographic areas; and

·	hiring and retaining key employees.

Our NAND Flash strategy may not be successful and could materially adversely affect our business, results of operations or financial condition.

The future success of our Imaging business will be dependent on continued market acceptance of our products and the development, introduction and marketing of new Imaging products.

Our Imaging business represented 11% of our net sales in the third quarter of 2007. Despite growth in 2006, Imaging net sales and gross margins were down significantly in the third quarter of 2007 compared to the second quarter of 2007. There can be no assurance that we will be able to grow or maintain our market share or gross margins for Imaging products in the future. The success of our Imaging business will depend on a number of factors, including:

·	development of products that maintain a technological advantage over the products of our competitors;

·	accurate prediction of market requirements and evolving standards, including pixel resolution, output interface standards, power requirements, optical lens size, input standards and other requirements;

·	timely completion and introduction of new Imaging products that satisfy customer requirements;

·	timely achievement of design wins with prospective customers, as manufacturers may be reluctant to change their source of components due to the significant costs, time, effort and risk associated with qualifying a new supplier; and

·	efficient, cost-effective manufacturing as we transition to new products and higher volumes.

We may not be able to generate sufficient cash flows to fund our operations and make adequate capital investments.

Our cash flows from operations depend primarily on the volume of semiconductor memory and CMOS image sensors sold, average selling prices and per unit manufacturing costs. To develop new product and process technologies, support future growth, achieve operating efficiencies and maintain product quality, we must make significant capital investments in manufacturing technology, facilities and capital equipment, research and development, and product and process technology. We expect capital spending for 2007 to approximate $4 billion. We currently anticipate 2008 capital spending to be between $2 billion and $3 billion. Cash and investments of IM Flash and TECH are generally not available to finance our other operations. In addition to cash provided by operations, we have from time to time utilized external sources of financing. Access to capital markets has historically been very important to us. Depending on market conditions, we may issue registered or unregistered securities to raise capital to fund a portion of our operations. There can be no assurance that we will be able to generate sufficient cash flows to fund our operations, make adequate capital investments or access capital markets on acceptable terms, and an inability to do so could have a material adverse effect on our business and results of operations.

The semiconductor industry is highly competitive.

We face intense competition in the semiconductor memory market from a number of companies, including Elpida Memory, Inc.; Hynix Semiconductor Inc.; Qimonda AG ADS; Samsung Electronics Co., Ltd.; SanDisk Corporation; Toshiba Corporation and from emerging companies in Taiwan and China, who have announced plans to significantly expand the scale of their operations. Some of our competitors are large corporations or conglomerates that may have greater resources to withstand downturns in the semiconductor markets in which we compete, invest in technology and capitalize on growth opportunities. Our competitors seek to increase silicon capacity, improve yields, reduce die size and minimize mask levels in their product designs. These factors have significantly increased worldwide supply and put downward pressure on prices.

We face competition in the image sensor market from a number of suppliers of CMOS image sensors including MagnaChip Semiconductor Ltd.; OmniVision Technologies, Inc.; Samsung Electronics Co., Ltd; Sony Corporation; STMicroelectronics NV; Toshiba Corporation and from a number of suppliers of CCD image sensors including Matsushita Electric Industrial Co., Ltd.; Sharp Corporation and Sony Corporation. In recent periods, a number of new companies have entered the CMOS image sensor market. Competitors include many large domestic and international companies that have greater presence in key markets, better access to certain customer bases, greater name recognition and more established strategic and financial relationships than the Company.

We may not realize the expected benefits of new initiatives to drive greater cost efficiencies and revenue growth across our operations.

On June 28, 2007, we announced that we are pursuing a number of initiatives to drive greater cost efficiencies and revenue growth across our operations. These initiatives include developing production cost efficiencies closer in location to our global customers, evaluating functions more efficiently performed through partnerships or other outside relationships and reducing our overhead costs to meet or exceed industry benchmarks. We are also exploring opportunities to leverage our industry-leading technology and diversified product portfolio to accelerate revenue growth and increase shareholder value. We anticipate that these initiatives will be implemented over several quarters. We may not realize the expected benefits of these new initiatives. As a result of these initiatives, we expect to incur restructuring or other infrequent charges and we may experience disruptions in our operations, loss of key personnel and difficulties in delivering products timely.

We may have difficulty integrating the operations of Lexar.

If we are unable to successfully combine and integrate the Lexar operations, we may not be able to realize many of the anticipated benefits of the merger, which could harm our results of operations. In order to realize the benefits of the merger, we will need to timely integrate the technology, operations, and personnel of Lexar. Integrating the two companies will be a complex, time-consuming and expensive process that, even with proper planning and implementation, could significantly disrupt the businesses of Micron and Lexar. The challenges involved in this integration include: combining product and service offerings, optimizing inventory management over a broader distribution chain, and preserving customer, supplier and other important relationships of both Micron and Lexar. If we are not able to successfully integrate our operations with those of Lexar, our results of operations could be materially adversely affected.

Our internal control over financial reporting could be adversely affected by material weaknesses in Lexar's internal controls.

In Lexar's Annual Report on Form 10-K for the period ended December 31, 2005, and its Quarterly Report on Form 10-Q for the period ended March 31, 2006, Lexar reported material weaknesses with respect to its revenue recognition controls and inventory accounting controls. These control deficiencies resulted in audit adjustments to revenues, accounts receivable, cost of product revenues, deferred revenue, sales related accruals and inventory in Lexar's 2005 consolidated financial statements. As a result of these material weaknesses, Lexar concluded in its Annual Report and Quarterly Report that its internal control over financial reporting was not effective as of the end of the periods covered by the reports. While prior to the close of the merger Lexar continued to take steps to remediate these material weaknesses, there can be no assurance that we will be able to completely remediate these material weaknesses such that we will be able to conclude that our internal control over financial reporting is effective. We began consolidating the financial results of Lexar on June 22, 2006. However, due to the timing of the acquisition, the internal control over financial reporting relating to Lexar was exempt from testing and evaluation for 2006. To the extent we do not remediate the material weaknesses, the effectiveness of our internal control over financial reporting may be adversely affected.

Our net operating loss carryforwards may be limited as a result of the Lexar merger.

Micron and Lexar had net operating loss carryforwards for federal income tax purposes prior to the merger and both entities had provided significant valuation allowances against the tax benefit of such losses as well as certain tax credit carryforwards. Utilization of these net operating losses and credit carryforwards are dependent upon us achieving profitable results following the Lexar merger. As a consequence of the merger, as well as earlier issuances of common stock consummated by both companies and business combinations by the Company, utilization of the tax benefits of these carryforwards are subject to limitations imposed by Section 382 of the Internal Revenue Code. The determination of the limitations is complex and requires significant judgment and analysis of past transactions. Accordingly, some portion or all of these carryforwards may not be available to offset any future taxable income.

Our resellers receive price protections which may have an adverse affect on our gross margins.

NAND Flash sales are made through resellers which traditionally have been provided price protection. In an environment of slower demand and abundant supply of products, price declines and channel promotions expenses are more likely to occur. Further, in this environment, high channel inventory may result in substantial price protection charges. These price protection charges have the effect of reducing gross sales and gross margin. We expect to continue to incur price protection charges for the foreseeable future due to competitive pricing pressures and, as a result, our revenues and gross margins could be adversely affected.

Changes in foreign currency exchange rates could materially adversely affect our business, results of operations or financial condition.

Our financial statements are prepared in accordance with U.S. GAAP and are reported in U.S. dollars. Across our multi-national operations, there are transactions and balances denominated in other currencies, primarily the euro, yen and Singapore dollar. We estimate that, based on our assets and liabilities denominated in currencies other than U.S. dollar as of May 31, 2007, a 1% change in the exchange rate versus the U.S. dollar would result in foreign currency gains or losses of approximately U.S. $2 million for the Singapore dollar and U.S. $1 million for the euro and the yen. In the event that the U.S. dollar weakens significantly compared to the euro, yen or Singapore dollar, our results of operations or financial condition will be adversely affected.

New product development may be unsuccessful.

We are developing new products that complement our traditional memory products or leverage their underlying design or process technology. We have made significant investments in product and process technologies and anticipate expending significant resources for new semiconductor product development over the next several years. The process to develop NAND Flash, Imaging and certain specialty memory products requires us to demonstrate advanced functionality and performance, many times well in advance of a planned ramp of production, in order to secure design wins with our customers. There can be no assurance that our product development efforts will be successful, that we will be able to cost-effectively manufacture these new products, that we will be able to successfully market these products or that margins generated from sales of these products will recover costs of development efforts.

An adverse determination that our products or manufacturing processes infringe the intellectual property rights of others could materially adversely affect our business, results of operations or financial condition.

As is typical in the semiconductor and other high technology industries, from time to time, others have asserted, and may in the future assert, that our products or manufacturing processes infringe their intellectual property rights. In this regard, we are engaged in litigation with Rambus, Inc. ("Rambus") relating to certain of Rambus' patents and certain of our claims and defenses. On August 28, 2000, we filed a complaint (subsequently amended) against Rambus in the U.S. District Court for the District of Delaware seeking monetary damages and declaratory and injunctive relief. Among other things, our amended complaint alleges violation of federal antitrust laws, breach of contract, fraud, deceptive trade practices, and negligent misrepresentation. The complaint also seeks a declaratory judgment (a) that certain Rambus patents are not infringed by us, are invalid, and/or are unenforceable, (b) that we have an implied license to those patents, and (c) that Rambus is estopped from enforcing those patents against us. On February 15, 2001, Rambus filed an answer and counterclaim in Delaware denying that we are entitled to relief, alleging infringement of the eight Rambus patents named in our declaratory judgment claim, and seeking monetary damages and injunctive relief. A number of other suits are pending in Europe alleging that certain of our SDRAM and DDR SDRAM products infringe various of Rambus' country counterparts to its European patent 525 068, including: on September 1, 2000, Rambus filed suit against Micron

Semiconductor (Deutschland) GmbH in the District Court of Mannheim, Germany; on September 22, 2000, Rambus filed a complaint against us and Reptronic (a distributor of our products) in the Court of First Instance of Paris, France; and on September 29, 2000, we filed suit against Rambus in the Civil Court of Milan, Italy, alleging invalidity and non-infringement. In addition, on December 29, 2000, we filed suit against Rambus in the Civil Court of Avezzano, Italy, alleging invalidity and non-infringement of the Italian counterpart to European patent 1 004 956. Additionally, other suits are pending alleging that certain of our DDR SDRAM products infringe Rambus' country counterparts to its European patent 1 022 642, including: on August 10, 2001, Rambus filed suit against us and Assitec (an electronics retailer) in the Civil Court of Pavia, Italy; and on August 14, 2001, Rambus filed suit against Micron Semiconductor (Deutschland) GmbH in the District Court of Mannheim, Germany. In the European suits against us, Rambus is seeking monetary damages and injunctive relief. Subsequent to the filing of the various European suits, the European Patent Office declared Rambus' 525 068 and 1 004 956 European patents invalid and revoked the patents. On January 13, 2006, Rambus filed a lawsuit against us in the U.S. District Court for the Northern District of California alleging infringement of eighteen Rambus patents. We are also engaged in litigation with the Massachusetts Institute of Technology (“MIT”). On October 3, 2006, the Massachusetts Institute of Technology (“MIT”) filed suit against us in the U.S. District Court for the District of Massachusetts alleging infringement of a single MIT patent. We are also engaged in litigation with Mosaid Technologies, Inc. ("Mosaid"). On July 24, 2006, we filed a declaratory judgment action against Mosaid in the U.S. District Court for the Northern District of California seeking, among other things, a court determination that fourteen Mosaid patents are invalid, not enforceable, and/or not infringed. On July 25, 2006, Mosaid filed a lawsuit against us and others in the U.S. District Court for the Eastern District of Texas alleging infringement of nine Mosaid patents. On August 31, 2006, Mosaid filed an amended complaint adding two additional Mosaid patents. On October 23, 2006, the California Court dismissed our declaratory judgment suit based on lack of jurisdiction. We are appealing that decision to the U.S. Court of Appeals for the Federal Circuit.

Among other things, the above lawsuits pertain to certain of our SDRAM, DDR SDRAM, DDR2 SDRAM, RLDRAM, and image sensor products, which account for a significant portion of our net sales.

A court determination that our products or manufacturing processes infringe the intellectual property rights of others could result in significant liability and/or require us to make material changes to our products and/or manufacturing processes. We are unable to predict the outcome of assertions of infringement made against us. Any of the foregoing could have a material adverse effect on our business, results of operations or financial condition.

We have a number of patent and intellectual property license agreements. Some of these license agreements require us to make one time or periodic payments. We may need to obtain additional patent licenses or renew existing license agreements in the future. We are unable to predict whether these license agreements can be obtained or renewed on acceptable terms.

Allegations of anticompetitive conduct.

On June 17, 2002, we received a grand jury subpoena from the U.S. District Court for the Northern District of California seeking information regarding an investigation by the Antitrust Division of the Department of Justice (the "DOJ") into possible antitrust violations in the "Dynamic Random Access Memory" or "DRAM" industry. We are cooperating fully and actively with the DOJ in its investigation of the DRAM industry. Our cooperation is pursuant to the terms of the DOJ's Corporate Leniency Policy, which provides that in exchange for our full, continuing and complete cooperation in the pending investigation, we will not be subject to prosecution, fines or other penalties from the DOJ.

Subsequent to the commencement of the DOJ investigation, a number of purported class action lawsuits have been filed against us and other DRAM suppliers. Four cases have been filed in the U.S. District Court for the Northern District of California asserting claims on behalf of a purported class of individuals and entities that indirectly purchased DRAM and/or products containing DRAM from various DRAM suppliers during the time period from April 1, 1999 through at least June 30, 2002. The complaints allege price fixing in violation of federal antitrust laws and various state antitrust and unfair competition laws and seek treble monetary damages, restitution, costs, interest and attorneys' fees. In addition, at least sixty-four cases have been filed in various state and federal courts (five of which have been dismissed) asserting claims on behalf of a purported class of indirect purchasers of DRAM. Cases have been filed in the following states: Arkansas, Arizona, California, Florida, Hawaii, Iowa, Kansas, Massachusetts, Maine, Michigan, Minnesota, Mississippi, Montana, North Carolina, North Dakota, Nebraska, New Hampshire, New Jersey, New Mexico, Nevada, New York, Ohio, Pennsylvania, South Dakota, Tennessee, Utah, Vermont, Virginia, Wisconsin, and West Virginia, and also in the District of Columbia and Puerto Rico. The complaints purport to be on behalf of individuals and entities that indirectly purchased DRAM and/or products containing DRAM in the respective jurisdictions during various time periods ranging from April

1999 through at least June 2002. The complaints allege violations of various jurisdictions' antitrust, consumer protection and/or unfair competition laws relating to the sale and pricing of DRAM products and seek treble monetary damages, restitution, costs, interest and attorneys' fees. A number of these cases have been removed to federal court and transferred to the U.S. District Court for the Northern District of California (San Francisco) for consolidated proceedings. On June 1, 2007, the Court granted in part and denied in part our motion to dismiss the consolidated complaint. Plaintiffs have subsequently sought leave from the Court to file an amended complaint.

In addition, various states, through their Attorneys General, have filed suit against us and other DRAM manufacturers. On July 14, 2006, and on September 8, 2006 in an amended complaint, the following states filed suit in the U.S. District Court for the Northern District of California: Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida, Hawaii, Idaho, Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin and the Commonwealth of the Northern Mariana Islands. The amended complaint alleges, among other things, violations of the Sherman Act, Cartwright Act, and certain other states' consumer protection and antitrust laws and seeks damages, and injunctive and other relief. Additionally, on July 13, 2006, the State of New York filed a similar suit in the U.S. District Court for the Southern District of New York. That case was subsequently transferred to the U.S. District Court for the Northern District of California for pre-trial purposes.

On October 11, 2006, we received a grand jury subpoena from the U.S. District Court for the Northern District of California seeking information regarding an investigation by the DOJ into possible antitrust violations in the "Static Random Access Memory" or "SRAM" industry. We believe that we are not a target of the investigation and we are cooperating with the DOJ in its investigation of the SRAM industry.

Subsequent to the issuance of subpoenas to the SRAM industry, a number of purported class action lawsuits have been filed against us and other SRAM suppliers. Six cases have been filed in the U.S. District Court for the Northern District of California asserting claims on behalf of a purported class of individuals and entities that purchased SRAM directly from various SRAM suppliers during the period from January 1, 1998 through December 31, 2005. Additionally, at least seventy-four cases have been filed in various U.S. District Courts asserting claims on behalf of a purported class of individuals and entities that indirectly purchased SRAM and/or products containing SRAM from various SRAM suppliers during the time period from January 1, 1998 through December 31, 2005. The complaints allege price fixing in violation of federal antitrust laws and state antitrust and unfair competition laws and seek treble monetary damages, restitution, costs, interest and attorneys' fees.

On May 5, 2004, Rambus filed a complaint in the Superior Court of the State of California (San Francisco County) against us and other DRAM suppliers. The complaint alleges various causes of action under California state law including conspiracy to restrict output and fix prices on Rambus DRAM ("RDRAM"), and unfair competition. The complaint seeks treble damages, punitive damages, attorneys' fees, costs, and a permanent injunction enjoining the defendants from the conduct alleged in the complaints.

We are unable to predict the outcome of these lawsuits and investigations. The final resolution of these alleged violations of antitrust laws could result in significant liability and could have a material adverse effect on our business, results of operations or financial condition.

Allegations of violations of securities laws.

On February 24, 2006, a putative class action complaint was filed against us and certain of our officers in the U.S. District Court for the District of Idaho alleging claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. Four substantially similar complaints subsequently were filed in the same Court. The cases purport to be brought on behalf of a class of purchasers of our stock during the period February 24, 2001 to February 13, 2003. The five lawsuits have been consolidated and a consolidated amended class action complaint was filed on July 24, 2006. The complaint generally alleges violations of federal securities laws based on, among other things, claimed misstatements or omissions regarding alleged illegal price-fixing conduct. The complaint seeks unspecified damages, interest, attorneys' fees, costs, and expenses.

In addition, on March 23, 2006 a shareholder derivative action was filed in the Fourth District Court for the State of Idaho (Ada County), allegedly on behalf of and for our benefit, against certain of our current and former officers and directors. We were also named as a nominal defendant. An amended complaint was filed on August 23, 2006. The complaint is based on the same allegations of fact as in the securities class actions filed in the U.S. District Court for the District of Idaho and alleges breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, unjust enrichment, and insider trading. The complaint seeks unspecified damages, restitution, disgorgement of profits, equitable and injunctive relief, attorneys' fees, costs, and expenses. The complaint is derivative in nature and does not seek monetary damages from us. However, we may be required, throughout the pendency of the action, to advance payment of legal fees and costs incurred by the defendants. On May 29, 2007, the Court granted the our motion to dismiss the complaint but provided plaintiffs leave to file an amended complaint. On June 29, 2007, plaintiffs filed an amended complaint.

In March 2006, following our announcement of a definitive agreement to acquire Lexar Media, Inc. ("Lexar") in a stock-for-stock merger, four purported class action complaints were filed in the Superior Court for the State of California (Alameda County) on behalf of shareholders of Lexar against Lexar and its directors. Two of the complaints also name us as a defendant. The complaints allege that the defendants breached, or aided and abetted the breach of, fiduciary duties owed to Lexar shareholders by, among other things, engaging in self-dealing, failing to engage in efforts to obtain the highest price reasonably available, and failing to properly value Lexar in connection with a merger transaction between Lexar and us. The plaintiffs seek, among other things, injunctive relief preventing, or an order of rescission reversing, the merger, compensatory damages, interest, attorneys' fees, and costs. On May 19, 2006, the plaintiffs filed a motion for preliminary injunction seeking to block the merger. On May 31, 2006, the Court denied the motion. An amended consolidated complaint was filed on October 10, 2006. On June 14, 2007, the Court granted Lexar's and our motions to dismiss the amended complaint but allowed plaintiffs leave to file a further amended complaint.

We are unable to predict the outcome of these cases. A court determination in any of the class actions against us could result in significant liability and could have a material adverse effect on our business, results of operations or financial condition.

Economic and political conditions may harm our business.

Global economic conditions and the effects of military or terrorist actions may cause significant disruptions to worldwide commerce. If these disruptions result in delays or cancellations of customer orders, a decrease in corporate spending on information technology or our inability to effectively market, manufacture or ship our products. Global economic conditions may also affect consumer demand for devices that incorporate our products such as mobile phones, personal computers, flash memory cards and USB devices. As a result, our business, results of operations or financial condition could be materially adversely affected.

We face risks associated with our international sales and operations that could materially adversely affect our business, results of operations or financial condition.

Sales to customers outside the United States approximated 70% of our consolidated net sales for the third quarter of 2007. In addition, we have manufacturing operations in Italy, Japan, Puerto Rico and Singapore. Our international sales and operations are subject to a variety of risks, including:

·	currency exchange rate fluctuations,

·	export and import duties, changes to import and export regulations, and restrictions on the transfer of funds,

·	political and economic instability,

·	problems with the transportation or delivery of our products,

·	issues arising from cultural or language differences and labor unrest,

·	longer payment cycles and greater difficulty in collecting accounts receivable, and

·	compliance with trade and other laws in a variety of jurisdictions.

These factors may materially adversely affect our business, results of operations or financial condition.

If our manufacturing process is disrupted, our business, results of operations or financial condition could be materially adversely affected.

We manufacture products using highly complex processes that require technologically advanced equipment and continuous modification to improve yields and performance. Difficulties in the manufacturing process or the effects from a shift in product mix can reduce yields or disrupt production and may increase our per megabit manufacturing costs. Additionally, our control over operations at our IM Flash, TECH and MP Mask joint ventures may be limited by our agreements with our partners. From time to time, we have experienced minor disruptions in our manufacturing process as a result of power outages or equipment failures. If production at a fabrication facility is disrupted for any reason, manufacturing yields may be adversely affected or we may be unable to meet our customers' requirements and they may purchase products from other suppliers. This could result in a significant increase in manufacturing costs or loss of revenues or damage to customer relationships, which could materially adversely affect our business, results of operations or financial condition.

Disruptions in our supply of raw materials could materially adversely affect our business, results of operations or financial condition.

Our operations require raw materials that meet exacting standards. We generally have multiple sources of supply for our raw materials. However, only a limited number of suppliers are capable of delivering certain raw materials that meet our standards. Various factors could reduce the availability of raw materials such as silicon wafers, photomasks, chemicals, gases, lead frames and molding compound.

Shortages may occur from time to time in the future. In addition, disruptions in transportation lines could delay our receipt of raw materials. Lead times for the supply of raw materials have been extended in the past. If our supply of raw materials is disrupted or our lead times extended, our business, results of operations or financial condition could be materially adversely affected.

Products that do not meet specifications or that contain, or are perceived by our customers to contain, defects or that are otherwise incompatible with end uses could impose significant costs on us or otherwise materially adversely affect our business, results of operations or financial condition.

Because the design and production process for semiconductor memory is highly complex, it is possible that we may produce products that do not comply with customer specifications, contain defects or are otherwise incompatible with end uses. If, despite design review, quality control and product qualification procedures, problems with nonconforming, defective or incompatible products occur after we have shipped such products, we could be adversely affected in several ways, including the following:

·	we may replace product or otherwise compensate customers for costs incurred or damages caused by defective or incompatible product, and

·	we may encounter adverse publicity, which could cause a decrease in sales of our products.

We expect to make future acquisitions where advisable, which involve numerous risks.

We expect to make future acquisitions where we believe it is advisable to enhance shareholder value. Acquisitions involve numerous risks, including:

·	difficulties in integrating the operations, technologies and products of the acquired companies,

·	increasing capital expenditures to upgrade and maintain facilities,

·	increasing debt to finance any acquisition,

·	diverting management’s attention from normal daily operations,

·	managing larger operations and facilities and employees in separate geographic areas, and

·	hiring and retaining key employees.

Mergers and acquisitions of high-technology companies are inherently risky, and future acquisitions may not be successful and may materially adversely affect our business, results of operations or financial condition.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the third quarter of 2007, the Company did not acquire any shares of its common stock.

Item 6. Exhibits

	Exhibit
	Number		Description of Exhibit

	1.1		Underwriting Agreement, dated as of May 17, 2007, by and between Micron Technology, Inc. and Morgan Stanley & Co. Incorporated, as representative of the underwriters (1)
	3.1		Articles of Incorporation of Registrant, Restated (2)
	3.7		Bylaws of the Registrant, As Amended (3)
	4.17		Indenture, dated as of May 23, 2007, by and between Micron Technology, Inc. and Wells Fargo Bank, National Association, as trustee (1)
	10.170		Capped Call Confirmation (Reference No. CEODL6), by and between Micron Technology, Inc. and Morgan Stanley & Co. Incorporated, as representative of the underwriters (1)
	10.171		Capped Call Confirmation (Reference No. 53228800), by and between Micron Technology, Inc. and Credit Suisse International (1)
	10.172		Capped Call Confirmation (Reference No. 53228855), by and between Micron Technology, Inc. and Credit Suisse International (1)
	31.1		Rule 13a-14(a) Certification of Chief Executive Officer
	31.2		Rule 13a-14(a) Certification of Chief Financial Officer
	32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350
	32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350

____________

(1)	Incorporated by reference to Current Report on Form 8-K dated May 17, 2007
(2)	Incorporated by reference to Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2001
(3)	Incorporated by reference to Current Report on Form 8-K dated December 5, 2006

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Micron Technology, Inc.
	(Registrant)


Date: July 10, 2007	/s/ W. G. Stover, Jr.
	W. G. Stover, Jr., Vice President of Finance and Chief Financial Officer (Principal Financial and Accounting Officer)